It was the year 2000. B Prabhakaran was in deep trouble.A project for which the young equipment contractor's trucks and earthmovers were employed had been denied an extension. Another project – a dam on Arunachal Pradesh's Subansiri river – where he could have redeployed his machines and employees had been bagged by a rival company.Desperate to find work for his 500 employees and 100 earthmoving machines, he had bid for an iron ore mining project in Odisha. The state government’s mining firm, Odisha Mining Corporation, was looking for a contractor to dig out the mineral from a mine in Keonjhar.Prabhakaran, who was about 30 years old at that time, won the contract. But when he moved to Keonjhar with his equipment, he found he could not start work – the mine did not have a forest clearance.



Prabhakaran

Source: thriveni.com

“The Odisha Mining Corporation kept saying it will come, it will come," he said. "But I had moved my equipment here. I had moved my family. We did not have surplus to sit on. How to navigate this through? How to survive?”Fifteen years later, Prabhakaran recounted the story to Scroll.in, seated in the plush coffee shop of the Oberoi hotel in Bhubaneswar. A towering man, six feet tall, the soft-spoken Tamilian from Salem district is now the alpha male of mining in Odisha. His company, Thriveni Earthmovers, is the largest raising contractor in the state. Its turnover, around Rs 90 crore in 2000, now stands at Rs 1,300 crore – a rise of over 1344% in a decade and half.Thriveni’s subsidiary controls a coal mine in Indonesia. Prabhakaran is also said to have large land-holdings in Tamil Nadu. Said an iron ore transporter in Barbil, one of the mining hotspots in Keonjhar: “Dus saal pehle kuch bhi nahin tha uske paas. Aur abhi, 2,000 kya, 10,000 crore hain." He had nothing 10 years ago. Now, forget Rs 2,000 crore, he has Rs 10,000 crore.Prabhakaran’s meteoric rise has taken place against the backdrop of an iron ore boom in Odisha. Fuelled by the demand from China’s construction industry, the state led India's exports of the mineral. Between 2004 and 2012, the volume of iron ore mined in the state stood at 524 million tonnes – and this was just the amount that was declared to the authorities.As the Justice MB Shah-led commission on illegal mining found, a large quantity of ore was mined and sold but never declared. This meant the state was deprived of the revenue that would have come by way of taxes and royalties.In both the Shah Commission’s report on illegal mining, as well as in the report of the Supreme Court’s Centrally Empowered Committee, Thriveni Earthmovers finds many mentions.The Shah Commission concluded that Prabhakaran’s company was not simply a mining contractor, digging out minerals on behalf of the holder of the mining lease – Thriveni controlled most of those mines by proxy, and by default appropriated a large chunk of the earnings from both legal and illegal mining.A former finance minister of Odisha, Prafulla Ghadei, went one step further to allege in an interview that Prabhakaran was one of the four people who controlled the state government. After he gave the interview, Ghadei was expelled from the ruling Biju Janata Dal.Prabhakaran flatly denies these charges. “All Thriveni does is mining,” he said. “All other aspects of the trade, like marketing and dispatch, are done by the lease-owners.”So what explains his astonishing rise? And what does it tell us about Odisha, a state where as a senior member of the Shah Commission said, most people have “no flesh on their bodies”?“In Odisha, you have the very rich and the very poor,” he said. "There is no in-between."According to him, no more than 75-80 families benefited from the iron ore boom in Odisha. Among the beneficiaries, the story of Prabhakaran, the small-time contractor from Tamil Nadu, is arguably the most striking.When Prabhakaran moved to Keonjhar, Thriveni Earthmovers was seven years old.Attracted to the earthmoving equipment boom in his hometown of Salem in Tamil Nadu, he had entered the business after a degree in computer science from Coimbatore. Borrowing money from family, he had bought one excavator, intending to rent it to the state public works department.Then 23 years old, Prabhakaran seems to have prepared assiduously for life in the heavy equipment rental business. In those days, he said, excavators took 6-7 months for delivery. And so, he joined a six month training programme for operators and mechanics. He travelled to worksites where these machines were working.Once the company started in 1994, it learnt – and grew – fast. Quickly realising that businesses renting out machines are at the mercy of whoever is overseeing the project, it began handling entire mining assignments. A big break came in 1995 when it joined Larsen and Toubro as a contractor and began working on large engineering projects like breakwaters.As its projects expanded, it added to its fleet. Most of what it bought was used mining equipment – large dumpers and shovels – that it maintained well. If a brand new truck costs Rs 50 lakh, a used one can be had for just Rs 10 lakh. Prabhakaran claims this gave Thriveni one of the best asset turnover ratios in the industry – the money spent on a machine versus the revenues it generated.By 1999, Thriveni was close to Rs 100 crore in turnover.And then, the crisis hit. L&T lost its project. Prabhakaran, around 30 years of age, in reasonable command over the economics and operations of mining, moved to Keonjhar but found himself marooned there.Keonjhar, circa 2000, was still a sleepy place. The iron ore boom was just beginning.It had, however, a fairly well-developed mining ecosystem. In this landscape, Prabhakaran got his first break from RP Sao, a local businessman who owned a local mining lease producing 0.7 million tonnes of iron lumps.Narratives on how Prabhakaran met Sao vary. According to a veteran employee of a mining company in Barbil, the town where Prabhakaran has his base in Keonjhar, he obtained a list of people with mining leases but without the permissions and environmental clearances required to mine. “He told them he would get them the clearances and do the mining,” said the employee. “Most of these people had obtained their leases a long time ago and did not have the connections required to get these clearances.”This narrative imputes links between Prabhakaran and the Dravida Munnetra Kazagham, the party from Tamil Nadu that was an ally of the United Progressive Alliance government at the Centre. DMK leader TR Baalu was at the helm of the Environment Ministry at the time.According to the head of a steel-making company with its own mines, shortly after reaching Keonjhar, Prabhakaran worked with the son of DMK leader TR Baalu in a mining contract given by the Odisha government.This brought him in touch with both Baalu, and then A Raja, who succeeded him at the Environment Ministry.In his conversation with Scroll, Prabhakaran denied having any link with the DMK leaders.According to him, environmental clearances were obtained by consultants appointed by the miners – not Thriveni. The meeting with Sao was the outcome of another process, he claimed. “At that time, there were many private contractors and miners in the area. We went and knocked on every door saying we have equipment, we can deploy. They all said no, we have largely small-scale mining, we cannot accommodate.”And then, he found Sao, who had a large mine. Prabhakaran offered to expand production in the mine to 4 million tonnes of ore – only Tata Steel was mining as much from one mine at that time. Prabhakaran also offered to operate a mill to crush the ore before shipping it out.The two signed an agreement that is distinctly unorthodox. Mining contractors are usually paid a fixed rate as mining charges. However, Sao agreed to pay Thriveni 40% of the sale price of the ore. This agreement subsequently became the template for all future deals between Prabhakaran and other mine owners in Keonjhar.When the Shah Commission visited Odisha, it was appalled by this model. The contract, said its report, resulted in Thriveni earning “much above the industry bench mark or normal ore raising charges”.As a senior official in the Shah Commission said, “The miners have to pay a royalty of 10%, income tax of 30%, VAT of 5%. If they have to pay Prabhakaran 37%, what is left for them?”Around 2008, as the Shah Commission report states, at 37% of the sale price of iron ore, Thriveni was making around Rs 674.50 for every tonne of iron ore mined. A senior official in one of the biggest raising contractors in Barbil said companies like his were charging nearly half that amount – a flat rate of about Rs 350 per tonne.Defending the contract, Prabhakaran said the idea for the profit-sharing arrangement came from Sao. Unsure how ore prices would move, Sao did not want to pay Thriveni Rs 450 per tonne. The price of ore at this time, said Prabhakaran, was around Rs 1,000 per tonne. According to him, “Sao said: 'What if the price of this ore comes down to Rs 600?'”At one level, the agreement with Sao is easy to explain.Prabhakaran had reached Keonjhar just as the boom was starting. The old-timers had lived through days when a tonne of ore fetched not more than Rs 95 and, hence, were wary of making large investments. But young and brash Prabhakaran had never seen a bear phase in the market. A profit-sharing model was a better way of splitting risk and reward.However, the subsequent agreements are harder to understand. Unlike Sao who, according to Prabhakaran, was unsure about the incipient boom in ore prices, other miners signed up with Thriveni after the boom had picked up and ore prices were touching Rs 7,000 per tonne.Why did they agree to give away 35% to 42% of the eventual sale price to Prabhakaran?This is one of the most puzzling aspects of the Prabhakaran story.Take the government-owned National Mineral Development Corporation's financials in 2009-'10. Ore prices were so high that the company's costs for mining, transport, salaries and depreciation accounted for just 16% of its turnover – the rest was profit.In contrast, the mining lease-holders were paying Prabhakaran 35% to 42% of the ore’s eventual price just for mining.Astonishingly, despite taking such a hefty share of profits, Prabhakaran’s portfolio of mines grew: KJS Ahluwalia signed up in 2005-'06, followed by Indrani Patnaik in 2007-'08 and Serajuddin & Co.As these mines began producing, Thriveni Earthmovers’ turnover nearly doubled in two years – from Rs 760 crore in 2012 to Rs 1,336 crore in 2014.There are competing narratives for Thriveni’s supernormal profits.The first traces his rise to high-level political connections. That mining lease-owners without the political capital or administrative knowhow for getting clearances outsource mining to Prabhakaran who manages their mines for them – starting from the paperwork to the eventual dispatch of ore – in return for supernormal returns.Speaking on the condition of anonymity, a former minister in Chief Minister Naveen Patnaik's cabinet said: “To mine, you need a lot of clearances – from the Indian Bureau of Mines, Environment Ministry, [state] mining department... In this [Odisha] government, there is no one else who can get a mining lease done.”According to the raising contractor based in Barbil, 17 clearances are needed to start a mine. “In Odisha, if you don't have any political background, your file won't move," he said. "Look at any big business owners in Odisha – they are either politicians [MPs or MLAs] or outsiders with some connections. You will need to bend down. Who can do this! And so, you try and find an answer. And that is where people like Prabhakaran can help.”Contractors and politicians also point to Prabhakaran’s control of local politics through his proximity with the local MLA, Sanatan Mahakud.Mahakud started out as a union leader who, according to local businessmen and state politicians, used to extort money by forcing industries to shut down through gheraos (protests) by unemployed villagers.In the last decade, Mahakud has grown rapidly, getting elected as the MLA as an independent candidate.In some ways, his rise mirrors that of Prabhakaran.The subsequent story in this series will look at Mahakud in more detail. For now, what's pertinent are the allegations linking Prabhakaran and Mahakud.In 2011, two Congress MLAs, Nihar Ranjan Mahananda and Jogesh Kumar Singh, wrote a letter to Odisha Chief Minister Naveen Patnaik alleging a “mining mafia led by Sanatana Mahakud... has taken control of more than 10 mines in Joda mining circle in collusion with raising contractor Triveni (sic) Earth Movers”.In their letter, the MLAs claimed the mafia had disrupted the public hearings of more than ten mining projects over the previous two years in a bid to take over their mines.A local transport contractor who spoke to Scroll on the condition of anonymity repeated the same charge. “If Sanatan Mahakud tells people to go sit at a mine, and make sure no work gets done, 5,000 people will go and sit there,” he said.This clout, he said, was being tapped by Prabhakaran to make the mine owners outsource their mines to him. “Prabhakaran creates problems through Sanatan Mahakud so that the mine owners will give him their mines. This is his main policy. By putting Sanatan in front, Prabhakaran is reaping the benefits,”That morning in the coffee shop, Prabhakaran rejected these assertions.Mine owners, said Prabhakaran, outsource mining to Thriveni because the company has “a fleet of equipment it doesn't make sense for them [the mine owners] to buy”.He traces the company's rise back to two factors: a proficiency in mining and the ability to get what he calls a “social licence” from the local community, essentially, winning them over through jobs and contracts.Denying that Thriveni operated the mines by proxy, he said, “If we had taken over the mine, the mine owner would have become a pauper."DR Patnaik, the husband of Indrani Patnaik, who owns the lease for the iron ore mines at Unchabali, echoed what Prabhakaran said. “Mining is his main job. It is all as per the contract,” Patnaik said. “We gave him the production targets. The clearances too were obtained by consultants hired by us.”As for the public hearings, Prabhakaran said: “In the last five years, I have never taken on any new work where Sanatan Mahakud operates.”But none of this explains why the lease owners did not subcontract to other raising contractors in Keonjhar. Nor does it explain why, if Prabhakaran is only doing what other raising contractors do, he gets such a large premium?In his interview with Scroll, Prabhakaran sought to underplay the issue. “We feel this is a different way of making payments. It is not on fixed terms, it is on revenue sharing terms. We may have taken Rs 700/800 from Tata Steel. But that Rs 700 is again 35% or 40% of the eventual value of the sale price.”But that answer holds true only if the ore price is around Rs 2,100 or so. When it spikes to Rs 5,000 and beyond, Thriveni makes supernormal profits.According to the rival raising contractor, Prabhakaran enjoys far better economies of scale. “We use 25-30 tonners of Indian make," this man said. "They use 40 tonners made by companies like Caterpillar and Komatsu. This makes a difference. They get economies of scale.” While his company's cost is between Rs 60-Rs 70 per tonne, Thriveni’s will be around Rs 47 a tonne, he said, which gives it a margin of 20%.It is likely that better equipment results in better mining. But economies of scale should result in Prabhakaran out-competing his rivals by undercutting them. Instead what you see here is a company that has scale, but charges far more, but still somehow manages to get clients.As the head of a steel fabrication plant in Rourkela said, “He [Prabhakaran] cannot charge such a premium if he is not offering other services.”An answer to this persistent dilemma lies in the Shah Commission report.It flags a transaction which suggests another reason why miners are appointing Thriveni even though it charges more than other raising contractors.A part of the money charged by Thriveni seems to have flowed back to the miners. The report said: “It appears that considerable payment has been made by it [Thriveni Earthmovers] to other mining contractors including to the associated group companies of Serajuddin & Co [one of the mine owners in Odisha].”In 2010-'11, for instance, payments to Serajuddin's subsidiaries ranging from Rs 98 lakh to Rs 575 lakh flowed back to multiple subsidiaries of the lease owner. According to the Shah Commission official, this suggests income tax evasion. Serajuddin was “inflating expenditure in order to save income tax”, he said.Other findings in the report challenge the claim that the mines were not managed by Prabhakaran. “It is pertinent to note that Indrani Patnaik is one of the purchasers for export of a quantity of 2,82,354.740 MT in the year 2010–11 and that of 1,40,902.9630 MT for the next year. The sale of ore, in favour of Smt. Indrani Patnaik who herself is a lessee, can only be done in the circumstance that the lease is being operated and administered financially by other than the lessee,” it said.In another instance, the report alludes to three FIRs filed by the deputy director of mines in Joda. The official found that companies that were not lease owners were transporting iron ore. One of them was Thriveni.Scroll emailed a questionnaire to Prabhakaran after the meeting in Bhubaneshwar, asking for clarifications to these questions. The email went unanswered.According to its critics, the company’s supernormal returns have distorted the iron ore mining sector in the state. The Shah Commission’s report concludes that companies like Thriveni have deepened corruption among government employees, ranging from those granting clearances for mining to environmental management to transport.But the strictures of the Shah Commission have had little impact on the company and Prabhakaran’s clout shows no sign of diminishing.Jitu Patnaik, a former MLA from Champua constituency in Keonjhar, has no love lost for Prabhakaran. Some years ago, the two fell out over what Prabhakaran says was a dispute over railway sidings or the yards where ore is loaded to trains. And yet, Patnaik is planning to get Thriveni to operate his mines. When asked why, he said: “Government kis ko chahta hain? Hum lafda mein nahin padhna chahta. Right now, the government is in his favour. And I do not want to get into complications.”Asked to elaborate, he chose not to, simply saying, "Please ask Prabhakaran."This is the first of a three-part series on Odisha's mining sector.