draft fpi report third party evaluation by T48xuB

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									Draft as on 26.09.2012




                               Government of Karnataka




                                 Fiscal Policy Institute




             Third party evaluation of process innovation “Mineral Movement
           Administration through innovative use of ICT” of Forest Department
                                                                                             Page 1 of 26

Sl. No.                                 TABLE OF CONTENTS                                Page Nos.
          Acronyms                                                                          3
  A                                                   Report
  1       Executive Summary                                                                  4
  2       Introduction and Background                                                       5
          2.1 Background                                                                    5
                     2.1.1 Current project                                                  5
          2.2 Introduction                                                                  5
                     2.2.1 The Legal Process of extraction                                  5
                     2.2.2 Use of ICT                                                       6
  3       Evaluation Objectives                                                             6
          3.1 Evaluation Methodology                                                        7
                     3.1.1 Report after site visit for a Reality check                      7
                     3.1.2 Process innovation applied through ICT                           7
          3.2. Actual process observed                                                      7
                     3.2.1 Location - Source                                                7
                     3.2.2 Location - Check Post                                            8
                     3.2.3 Online – FTPS-web page login                                     8
  4       Evaluation findings                                                               9
          4.1 Mapping ‘Objectives of the proposed ICT system’ recommended by Lokayukta      9
          4.2 Mapping of I.T. Based “To be” Process recommended by Lokayukta                9
          4.3 General Objectives                                                            11
                       4.3.1 Objective 1                                                    11
                       4.3.2 Objective 2                                                    11
                       4.3.3 Objective 3                                                    11
                       4.3.4 Objective 4                                                    12
                       4.3.5 Objective 5                                                    12
  5       Strategic Impact of the Project                                                   12
          5.1 The intended objectives                                                       13
                     5.1.2 Forest Development Tax (FDT)                                     14
          5.2 The Strategic environmental consequence                                       15
          5.3 Some observations of FPI – to be confirmed from Forest Department             15
  6       Conclusion                                                                        16
  7       References                                                                        17
                                                                                          Page 2 of 26




B                                      List of Tables                                   Page Nos.
1     Summarized Expenses for Training and deployment                                      13
2     Each Check Post Computerization Cost                                                 13
3     Revenue and Tax Collection comparison                                                14
4     Comparison of average price fluctuation grade-wise - India and Karnataka             15
C                                             Annexures
 I    Relevant Extractions from Lokayukta Report on iron ore mining                        18
II    List of Forest Department websites explored                                          23
III   Comparison of the Manual and the Forest Produce Tracking System                      24
IV    Graph comparing Monthly iron-ore prices for the period April 2010 to March 2012      26
                                                      Page 3 of 26


                    Acronyms

Sl. No.   Acronym                Expansion
   1      DCF       Deputy Conservator of Forest
   2      DFO       Divisional forest officer
   3      DMG       Director of Mines and Geology
   4      DSC       Digital Security Certificate
   5      FDT       Forest Development Tax
   6      FIFO      First In First Out
   7      FPTS      Forest Produce Tracking System
   8      FTP       File Transfer Protocol
   9      KFA       Karnataka Forest Act-1963
  10      KFD       Karnataka forest Department
  11      KFR       Karnataka Forest Rules-1969
  12      MDP       Mineral Dispatch Permit
  13      RFO       Range forest officer
  14      RO        Release Order
  15      TP        Transit Pass
  16      TPAD      Transit pass abstract date wise
  17      TPARO     Transit pass abstract RO wise
                                                                                            Page 4 of 26


1. Executive Summary


The functions executed by forest officers at the point of release of forest materials are
inspections of the load and issue of Transit Passes, which are verified at forest check posts en-
route. The buyer of the material preserves such Transit Passes as identity of the forest produce
until its consumption. In the case of mineral ore being transported, the starting point for iron ore
transportation is either a lease or a registered stockyard of iron ore and no permit to transport
iron ore can be issued from any other location.

At the loading point, the FPTS system provides online submission of application for the Transit
Passes. The payment and approval of release order are online. The system also provides for a
simplified SMS based verification and thereby creating Virtual Check Posts.

The FTPS has brought a shift in approach to transit management, from regime of paper transit
pass to e-transit pass thereby eliminating any possibility of fraudulently counterfeiting paper
pass. Also the discretion of inspecting officers at the loading is removed as passes are generated
from a machine integrated weigh-bridge.

The department of Forests in Karnataka is the pioneer in using this technology innovatively.
Specific to mineral resources, the network integrates data-base of Directorate of Mines &
Geology (DMG) making online cross-validation of information a reality. But this integration of
the data-base may be extended across to all the concerned departments and the check-post may
be advanced to a single window concept.


To ensure that the end user is aware of the source and genuineness of the goods reaching him, it
may be envisaged to create an Integrated Central Database (ICD) updated in real time. This ICD
may be made available online to all controlling departments like Forest, Customs, Police,
Revenue, Ports, etc.
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2. Introduction and Background
2.1 Background
The Primary functions of the Karnataka Forest Department (KFD) include:
            1. Management of natural resources like minerals, timber, fire wood and other
               forest produce.
            2. Regulating extraction of such forest produces in accordance with the
               provisions of the Karnataka Forest Act and rules,
            3. Monitoring the release of all such forest produce and
            4. Facilitating transportation of all such forest produce throughout the route up to
               its point of consumption or storage.

These functions are executed by competent forest officers at the point of release, through
material inspections of the load and issue the Transit Passes which are checked at forest check
posts en route. The buyer of the material preserves such Transit Passes as identity of the forest
produce until its consumption.

2.1.1 Current project
It is this process that Karnataka Forest Department has innovated using ICT with the objective of
bringing in efficiency and transparency in the process for effective monitoring and prevention of
misuse of the Transit Passes and also to minimize the hardships of the stakeholders in
transporting the extracted forest resource.

2.2 Introduction
Iron ore, one of the forest produces, is mined by various lease holders in forests of Karnataka
specially Bellary and Chitradurga district. The mined material is released and transported under
the above process. Certain drawbacks of the manual Transit Pass issuing process were exploited
by unscrupulous miners resulting in magnitude of thousands of crores of rupees in the infamous
Bellary Mining Scam that was later investigated by the Lokayuta.

2.2.1 The Legal Process of extraction
Supplies of iron ore for exports and for domestic consumption can be sourced only from leases
granted by the Government. All operations within a lease area need to adhere to the lease
conditions agreed by the lessee in the Lease Deed Agreement. These leases are either in forest
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area, revenue lands or in patta lands (private lands). Extraction of ore from a lease is as per
approved mining plan. Transport of iron ore from one place to another requires an authorized
transit permit. The quantity of ore transported without transit permits (trip sheets, Form 31, Form
27) means nonpayment of royalty and also theft of State property, hence has to be treated as
illegal. These permits are issued by the Department of Mines and Geology (DMG), bulk dispatch
permits with a time limit of one month for completion of transportation and also if a lease area
falls within a notified forest, Forest Transit Permits are issued by Forest Department on the basis
of Mineral Dispatch Permit (MDP) issued by the DMG. The individual trip sheets should
accompany the vehicles which are permitted to carry 16 Metric Tons (MT) consignment of ore,
in case of other heavy vehicles, there is higher permissible load. The starting point in all cases of
iron ore transportation is either a lease or a registered stockyard of iron ore and no permits to
transport iron ore can be issued from any other location.

2.2.2 Use of ICT
A web based solution “Forest Produce Tracking System” (FPTS) was developed at ICT Center,
Karnataka Forest Department under Technical guidance of National Informatics Center,
Bangalore, for deployment of above process innovation. In this system the buyer from the
comfort of his office applies for the release of iron ore and the approval of his application and
transmission of such approval to him is done through an online process.

3. Evaluation Objectives
The new ICT system was studied to ascertain if it meets stated recommendations of; Lokayukta
Report on iron ore mining in Karnataka, (No. COMPT/ LOK/ BCD/ 89/2007, dated: 27th July,
2011) and the Karnataka Expenditure Reforms Commission (ERC).
Further the project was evaluated to study if the following general objectives are met-
            1. The project implemented is innovative
            2. It brings perceptible systemic changes and builds up institutions
            3. Makes the public delivery systems efficient and corruption free
            4. Is innovative and adapts in meeting stakeholders’ requirements
            5. Sets high standards of services and continued improvement, showing high
               leadership qualities and improves employee motivation, etc.
                                                                                            Page 7 of 26


3.1 Evaluation Methodology
The proposal of the Forest department was studied and the innovativeness stated to have
achieved through applications of ICT was verified from the website as well as through a site visit
for a reality check of ease and adaptability of the process in the e-platform.

3.1.1 Report after site visit for a Reality check
A team of two officers from FPI visited the actual site of application of the process, to do a
reality check of the implementation of the ICT initiatives described in the nomination. The
findings of this visit are elicited here.


3.1.2 Process innovation applied through ICT
As the situation in the actual site of application with the manual procedure, prior to the ICT
initiatives, was not available for comparing the change in scenario, the instances mentioned in
the Lokayukta report are taken for comparison.

The investigations of the Lokayutka found that there were lapses in the manual procedure of
issuing transit passes. Some of them as mentioned in the report included, irregularities in mining
beyond the leased area, illegalities in transport of the minerals, illegalities in granting transport
permit and permitting transportation of the illegally mined ore from the forest areas. On the
strength of such forest passes/ transport permits, it is reported that the State has been deprived of
its revenues. The findings and recommendation relevant to the Forest department from the
Report are examined in detail in Section 3 and an extract of the report is included in Annexure I.


3.2. Actual process observed:
3.2.1 Location - Source:
At the loading point in the mineral pit, first the weight of the empty truck before loading the ore
was recorded. Then the load of the ore loaded in a truck was weighed electronically and got
registered in the system against the registered buyer. First it was verified if this ore net weight
was within the permissible limit for the truck’s make vis-à-vis permitted capacity. Then the
system cross validates the load with the DMG’s bulk dispatch permits limit and generates an
online Transit Pass only if this is within that limit for the specified grade of the ore to the buyer.
The TP was generated with a unique transaction number and QR code, against an online payment
                                                                                              Page 8 of 26


deducted from a prepayment made by the buyer. The details regarding destination point and
route are provided by the registered buyer earlier and are already entered in the system. Though
for the TP thus generated online approval of the release orders, by the DCF from any location are
issued and does not require a manual signature and approval from a RFO certifying manual
inspection of the load, it is being signed by forest personnel deployed on the site until the legal
amendment of the procedure. The whole process of issuing TPs was on an FIFO basis. The
facilitation support required; computer systems, internet connectivity and data entry operators,
were provided by the mine lease owner to the buyers.


3.2.2 Location - Check Post:
The check post was being shared by the DMG and Forest personnel, and both of them in
independently validate the mineral ore loaded in the truck that passes the check post. The forest
personnel was equipped with a laptop computer and a handheld scanning device. The truck that
comes to the check post is directly mounted on the weighbridge and its load weight was
displayed electronically. The forest personnel cross validates the mineral ore’s weight, truck
details, source, route and destination, either by scanning the QR code on the TP presented by the
truck driver or by simply entering the vehicle number in the system. The system also provides
for a simplified SMS based verification empowering all the concerned officers and thereby
creating Virtual Check Posts


3.2.3 Online – FTPS-web page login:
The link to access the web-based FTPS, is at www.aranya.gov.in, on clicking on the hyperlink
displayed as Forest Produce Tracking System 1.3, we are taken to another page with URL-
http://forestproduce.wordpress.com/, which displays the links to login under 4 user options; KFD
LOGIN, BUYER LOGIN, WEIGH BRIDGE LOGIN, CHECK POST LOGIN. Since FPI was
provided with login credentials for the first user option, with user-id: apccffrm and password:
apccf@12345, this was logged in and examined. This login provided a view of the Dashboard,
and it supported generation of MIS reports either query based; List of all FTP printed out by
lessee, List of all authorizations to print release orders, List of all unused FTP, List of
surrendered TP, for a specified period, mineral type, district or mine-head or other periodic
abstract reports. The information displayed in the reports included TP-wise; date of issue of TP,
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source, destination, mineral weight, grade, value, route, distance, vehicle number, buyer, bulk
permit details, etc. the real time information available in a transparent manner.


4. Evaluation findings
4.1 Mapping ‘Objectives of the proposed ICT system’ recommended by Lokayukta

Sl. No.                                         Objective
The following 6 objectives are being implemented through the web-based FTPS and
verified on site visit
    1.    To ensure effective tracking of each iron ore consignment from source i.e.,
          lease/stockyard to destination which can either be ports, stockyards or domestic
          consumers like steel and sponge iron plants, etc.
    2.    To monitor delivery of each consignment of iron ore at the destination through a
          mechanism of acknowledgement through electronic handshake between source
          and destination.
    3.    To prevent overloading of vehicles by streamlining process of issue of permits
          and trip sheets and ensuring that trip sheets reflect the actual quantity transported
          through the vehicle.
    4.    To prevent use of forged/fake permits by migrating from paper based permits to
          secure database based permit system which is totally transparent and available in
          public domain. Placing the permits in public domain would ensure that the
          permit issuing process is fair and transparent.
    5.    To track sale or purchase transactions in iron ore, starting from the source to the
          destination. This would help in bringing about transparency in trade carried out
          by various traders/ middlemen with regard to iron ore.
    6.    To reduce dependence on day to day manual monitoring and implement an
          integrated system that shall centrally monitor the day to day round the clock
          movements and shall be scalable to cater to large scale operations.
The below objective to be confirmed if achieved and being implemented by the Forest
department
    7.    To ensure that the end user is aware of the source of iron ore and genuineness of
          the permits by creation of a central database that is updated in real time, is online
          and available to other controlling departments like Forest, Customs, Police,
          Revenue, Ports, etc and other domestic users.


4.2 Mapping of I.T. Based “To be” Process recommended by Lokayukta

Sl. No.                                 Lokayukta Recommendation
          The following 10 recommendations are implemented and verified on site visit
   1.     Mapping each consignment from lease to final user through various traders using a unique
          I.D generated at the time of weighing at the pit head.
   2.     The lessee shall update the sale particulars in the system viz., quantity, grade, name of
          buyer (the party), TIN number of the buyer, sale invoice copy, etc. The buyer shall
                                                                                        Page 10 of 26


Sl. No.                                 Lokayukta Recommendation
         acknowledge the same.
   3.    The processing of the application shall be strictly on the basis of First in First out (FIFO).
   4.    Each of the lessees shall install a weigh bridge at the mine exit point. The weigh bridge
         shall be integrated with the central application and have real time connectivity to the
         central server. Each vehicle existing in a mine with a load of iron ore shall be weighed at
         the weigh bridge at exit point and the weight of the load shall be recorded in the central
         server and adjusted against the MDPs quantity. There shall be no scope of by passing this
         process by the vehicle.
   5. At the time of weighing, the vehicle particulars like vehicle registration number,
         transporter’s name, etc shall be captured into the system. The weight of material, date and
         time of weighing shall be automatically captured.
   6. A trip sheet with a unique ID number shall be generated for each vehicle for destinations
         fed in the central database. In case the Lease area is located within a Forest, the Forest
         Transit permit shall be generated along with Trip sheet. The generated Forest Transit
         Permit shall be available to the Forest Department from the central database for cross
         check and verification. The Forest Way Permits shall also be available to the Deputy
         Director of Mines and Geology from the Central Server. The lessee shall take a print out
         of the trip sheet, which would be carried by the vehicle. The system would ensure that no
         trip sheet is issued for materials in excess of the MDP quantity.
   7. The Unique I.D number generated at the time of printing of permit shall be used to track
         the movement of the iron ore load being carried in the vehicle.
   8.     Integrated Check post shall be established at strategic locations to track the movement of
         the iron ore vehicles. The check posts shall be networked with the central database. This
         would help in easy verification of permits/trip sheets with the online database.
   9. Regulatory authorities shall also be able to verify the genuineness of the permits/trip
         sheets by querying the central database through mobile devices/phones, etc.
   10. The integrated check post shall be equipped with weigh bridges for intensive verification
         of selected vehicles in order to ensure loaded quantity is in accordance with the quantity
         mentioned in trip sheets and others.
The following 6 recommendations to be confirmed if achieved and being implemented by the
Forest department
   1. The Deputy Director of Mines and Geology shall acknowledge the receipt of the
         application and assign the application to the concerned geologist for field inspection.
   2. The geologist shall conduct a field inspection and submit his report electronically will full
         details of stacks.
   3. On receipt of the report of the geologist and subject to the fulfilment of legal compliances
         and payment of royalty, etc., the Deputy Director of Mines and Geology shall generate a
         digitally signed Mineral Dispatch Permit (MDP) or Bulk permit document in an
         electronic form. MDPs are issued for a fixed quantity for a particular party and
         destination. The quantity mentioned in the MDP has to be transported within prescribed
         time from the date of the MDP. The MDP shall also mention mode of transport and
         designation wise permitted trip time. This would be utilized to set the cut-off date for
         issue of trip sheets.
   4. Information of issued permits shall be available to all the mining related departments/
                                                                                        Page 11 of 26


Sl. No.                                  Lokayukta Recommendation
          offices from the central data base.
    5.    Each of the concerned department shall have a login in the central database through which
          they would be able to view the MDPs and generate reports. Cumbersome processes
          should be simplified, if needed, through amendments in the existing Rules.
    6.    Checking of the permits at check posts could be automated by equipping trucks with
          RFID devises or using video cameras for capturing vehicle registration numbers and use
          the inputs from these devices to query the central database in real time. With these query
          inputs the entire permits details along with source information shall be available to the
          concerned.

4.3 General Objectives:
4.3.1 Objective 1: to ascertain ‘The project implemented is innovative’
To find if the process of ICT initiatives applied to the FPTS transactions by Forest department is
innovative, a number of websites (listed in Annexure II) of other states’ Forest departments
were explored. It was found that this web-based ICT process developed by the Forest
Department in Karnataka is the first of its kind in the country. With the introduction of this
online process there is paradigm shift in responsibility by the stakeholders from government
enforced regulation to self-regulation and compliance to the legal procedure.

4.3.2 Objective 2: to ascertain ‘It brings perceptible systemic changes and builds up
institutions’
In the manual system, the TPs were issued only at the DFO or RFO’s office. The buyer had to
make several visits to such offices to obtain a TP and the procedure involved several steps of
manual processing. Now this is an online process and payment is self regulated by the buyer,
which has certainly brought a perceptible change in managing an otherwise time consuming
activity, in a systematic time bound manner and enhanced the image of the department in setting
new service standards.

4.3.3 Objective 3: to ascertain ‘Makes the public delivery systems efficient and corruption free’
As elicited in the Lokayukta Report there were several lapses in the manual system of issuing
TP, as it allowed discretionary decisions of concerned DFO or RFO or the ACF. There was
multiple inspection of the loaded material transported from source to sink and subjectivity in the
booking of cases may not be ruled out. The FPTS has now taken care of all these lapses and has
brought in transparency. Multiple inspection scenario is now changed to loading only on pre-
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inspection, loading weight discretion to automated capturing of laden weight at weighbridge – a
system with no human interface, approval or rejection by the DFO for the RO is also online,
where for any rejection, the reason is to be clearly stated. Also the buyers had to obtain the
manual books to be carried from Forest Office to Mines, maintain its safe custody and once the
manual book of forest passes got exhausted, wait for a long time to get the new book printed, all
this is done away with in the FPTS.

4.3.4 Objective 4: to ascertain ‘Is innovative and adapts in meeting stakeholders’ requirements’
In the manual process, the time required for the buyer to obtain a TP could take a maximum of
25 days. Now in the online system the maximum waiting time is 5 hours, depending on the
number of loaded vehicles on the particular day, which are issued passes on FIFO basis. It is
totally efficient and all entries details of the load like quantity, type (ore grade), vehicle number,
government royalty and taxes are all available online and databases of DMG department are
integrated, making real time cross validation possible. The undue harassment that the
stakeholders had to put up with earlier is done away with and some of the users have expressed
that the online system has made shifting the material transparent, comfortable and reduced lot of
work and time at the mines compared to the manual system.

4.3.5 Objective 5: to ascertain the process ‘Sets high standards of services and continued
improvement, showing high leadership qualities and improves employee motivation, etc. ’
The FPTS has had a cascading effect on other web-based innovations developed by the ICT
center like the ‘Forest Offence Booking System’, which has envisaged developing all core
processes for the department. It has moved from the role of a single process based to that of an
‘Enterprise for managing change’. A change from the system of ‘no information’ to an online
system, that enables capturing all forest resources movement into a system where the movement
of even a twig can be traced online.

5. Strategic Impact of the Project
The project has two dimensions: (a) costs to achieve the intended objectives / purpose – that is
the stated goals / benefits; and (b) the Strategic environmental consequence.

Forest department being one of the primary government agencies responsible for management of
natural resources, the project needs to be assessed for bringing in transparency, the intended
                                                                                          Page 13 of 26


objective and the strategic environmental or policy planning related consequence. Its purpose is
to identify, examine, asses, and evaluate the likely and probable impacts of a proposed project on
environment.

Strategies to meet the threats to natural environment through pollution, destruction and over-use
can be: (a) preventive or (b) regulatory. It is in this context the present proposal is evaluated if
steps taken are significant in achieving sustainable development in harmony with environment.

5.1 Cost to achieve the intended objectives of this project – for bringing in transparency in
Forest resource management, some of the upgrading and capacity building costs are as follows:

                Table 1: Summarized Expenses for Training and deployment*

   Sl. No.                     Item                       Quantity      Rate ( ₹) Amount ( ₹)
      1      Workshops for 80 -100                           5              15000     75000
      2      Travel Cost once vehicle hired                  1              12000     12000
             Department vehicles used
      3      Team Viewer software                             1              57000            57000
      4      Support Centre (1 year)                          3               1000            36000
             Installed for general grievance used
      5      Cell phone Charges (1 year)                      5              3000/           180000
             Cell phone and data connection                                  month
             charges
                                      TOTAL                                                  360000


                       Table 2: Each Check Post Computerization Cost*

Sl. No.                         Item                                   Cost ( ₹)
   1     One Computer                                                                 40000
   2     One Scanner                                                                   7000
   3     One UPS                                                                      10000
   4     Device and installation for consistent Internet  Information to be confirmed by the
         Connectivity                                     Forest department
   5     Destination CP                                                             No Cost
                        TOTAL                                                         57000
(excluding internet connectivity equipment, etc. charges)

                            Number of Check Post computerized: 48
                                                                                                     Page 14 of 26


                          Table 3: Revenue and tax collection comparison*

    Sl. No.         Parameter                          Manual                                   FPTS
   1           Permit Fees @ ₹ 15/-          For the past Five years :            For last one year:
               per pass                      Chitradurga : ₹ 24688485/-           Chitradurga: ₹ 2276835/-**
   2           FDT                           Data not available for               Cumulative upto end of June
                                             corresponding period                 2012: ₹ 547.837 Crores
   3           Revenue Losses                Lokayukta Report                     No pilferage of Revenue
               Plugged
* Source for Table1, 2 & 3 - information provided by ICT Centre, Forest Department
** Revenue from TP fee when there is no mining activity, only lifting pre extracted ore for domestic consumption.

Detailed comparison of the Manual and the Forest Produce Tracking System is in Annexure III.

5.1.2 Forest Development Tax (FDT)
Forest Development Tax is levied on the forest produce sold by the Forest Department and
Forest Corporations. The rate of FDT is at 12% when the forest produce is sold to industries and
8% in other cases. As per a notification dated 16/08/2008, provision has been made for levy of
FDT on iron ore extracted from leases within forest area. The Lokayukta has recommended
resolving the anomaly of taking different sale values for assessment of royalty and FDT for the
same iron ore without further delay, as royalty is presently being based on the monthly sale value
fixed by the Indian Bureau of Mines (IBM), and the FDT is being collected based on invoices as
well as rates of DMG/MML/NMDC.

The Expenditure Reform Commission (ERC) Report (2011), has revealed that revenue receipts
of the department have increased from ₹ 142.11 crore during the year 2007-08 to ₹ 467.73 crore
in 2009-10. The significant rise is mainly due to the increase in the collection of FDT from ₹
11.40 crore in the year 2007-08 to ₹ 271.47 crore in the year 2009-10. As Karnataka is one of the
States with rich mineral resources, particularly iron ore with considerable sections of the mines
falling in the forest area, the ERC has recommended that an effective coordinated enforcement
mechanism for monitoring of activities in forest areas should be put in place by the government.

Considering the economic importance and the demand in the international commodities market,
a comparison of the monthly iron-ore prices over a period of two years (April 2010 to March
2012) was made. The source of these price statistics is the information available on the IBM
website, www.ibm.nic.in/valueminerals.htm. A huge fluctuation in the prices over the months of
                                                                                       Page 15 of 26


ore both at the national average and the state average is observed. The data reveals that the
fluctuations range as shown in the table below:

    Table 4: Comparison of average price fluctuation grade-wise - India and Karnataka

                                 Minimum Price ( ₹/MT)          Maximum Price ( ₹/MT)
     Iron-ore Grade
                              Karnataka           India       Karnataka          India
 62% to 65% Fe Lumps        1276 (Apr-2012) 2049 (Aug-2010) 5518 (Jan-2012) 5496 (Mar-2012)
 62% to 65% Fe Fines        1367 (Aug-2010) 1504 (Aug-2010) 2929 (Jan-2012) 3345 (Oct-2011)

A graphical representation of the monthly price fluctuations for the said period across these two
grades of iron-ore is in the Annexure IV.

In order to minimize the revenue losses to the government from the levy of FDT which is based
on such highly fluctuating prices (over grade and time) and to have a systematic mechanism that
is efficient for collection of the same, as recommended by the Lokayukta and the ERC, the FPTS
has been an appropriate system in place if implemented to its full potential and expanded to other
forest produces as well.

5.2 The Strategic environmental consequence – this may be understood from the long term
impact of this project. The data-base created by taking the implementation of FPTS to a web
based e-platform is to be perceived not only as information base for bringing in transparency in
forest resource management, but in the long run it should be able to create a path for making
informed data-driven, objective and strategic decisions for sustainable conservation of natural
resources.

Strategies adopted by Forest Department for bringing about the transformation and positive
impact, include; getting the organization ready for change, minimizing legal backing for change,
step by step deployment, managing attitudinal change and filling the infrastructure gap.

5.3 Some observations of FPI – to be confirmed from Forest Department:
   1. The web-based system that is available today is FTPS version 1.3, which has evolved
       over the year continuously being re-engineered and upgraded to the needs and suitable of
       applications. The Forest department needs to ensure that the ‘Software Requirement
       Specifications (SRS)’ and ‘Change Requirement’ for upgrading the software version
                                                                                        Page 16 of 26


       (version FPTS 1.3 now in use) were approved from time to time.

   2. The security concerns of data that is being captured through web-based FPTS system
       need to be ensured, as the link to Forest Produce Tracking System 1.3 on
       www.aranya.gov.in take to a private/nonsecure web-page on wordpress.com,
       http://forestproduce.files.wordpress.com/2011/10/fpts-web3-e1324389941385.jpg
   3. To confirm if there has been a technical security audit of the IT-architecture to check if
       the web-based system developed is fool-proof and meets the internet security standards.
   4. To confirm as to what is the full-time internet support policy adopted for the field
       offices.
   5. To confirm how the system can verify and validate quality (grade) of the ore at the
       check-posts.
   6. To confirm the RFID technology now being adopted will enhance the efficiency of the
       system.
   7. To confirm the scalability of the developed system to extent it to other forest produce
       resources, though there is mention of extending this system to timber.


6. Conclusion
Therefore the use of ICT for management of natural resources is the only cost-effective
alternative for planned and sustainable use of resources. The department of Forests in Karnataka,
being the pioneers in using this technology has been even more innovative, specific to mineral
resources, as they have networked linkages to other data-bases, Directorate of Mines & Geology
(DMG), making online cross-validation of information a reality. But this integration of the data-
base should be across all the concerned departments and the check-post may be advanced, to
ensure that the end user is aware of the source of the resource and genuineness of the permits by
creation of an integrated central database updated in real time, is online and available to other
controlling departments like Forest, Customs, Police, Revenue, Ports, etc.


Also the scalability of this system may be envisioned to an integrated goods and vehicle tracking
management system for all the goods transported within, into and out of the state and to device
its application to strengthen the delivery in the existing Public Distribution System (PDS).
                                                                                   Page 17 of 26


7. References
   1. Government of Karnataka Expenditure Reforms Commission (ERC) Report 2011 -
      http://www.finance.kar.nic.in/ERC-Web/erc.htm
   2. Lokayukta Report on iron ore mining in Karnataka - No. COMPT/ LOK/ BCD/ 89/2007,
      dated: 27th July, 2011
   3. Online Reporting System of Mineral Transaction –
      http://pib.nic.in/newsite/efeatures.aspx?relid=85333
   4. State wise average value of minerals by grades for which royalty is chargeable on ad-
      valorem basis not linked to any international benchmark price -
      http://ibm.nic.in/valueminerals.htm
   5. Orizin Technologies: Vehicle Tracking Solution using RFID
      http://www.orizin.net/images/pdf/690b26471e97bc1039822babe9106e8b.pdf
                                                                                       Page 18 of 26


                                                                                       Annexure I

Relevant Extractions from Lokayukta Report on iron ore mining in Karnataka, (No.
COMPT/ LOK/ BCD/ 89/2007, dated: 27th July, 2011)

Some of the irregularities brought out in the report with particular relevance to Forest
Department:

     1.   Irregularities in mining beyond the leased area, including by trespassing into the
          forest area; the range of the various aspects of illegal mining included
          encroachments, mining without necessary permits and clearances, mining outside the
          permitted areas, mining beyond permitted quantities, illegal transportation of
          minerals etc.

     2.   Illegalities in transport of the minerals and consequent damage to roads and
          environment; the irregularities reported in transportation of minerals such as
          overloading, the issue of informal "token systems", transportation without permits
          etc; Further any quantity extracted and dispatched without paying royalty.

     3.   Illegalities in granting transport permit to transport and permitting transport of
          illegally mined ore either from regular leased mines or from patta lands.

     4.   It has been alleged that in the name of issuing temporary transportation permits to lift
          and transport iron ore in patta lands [which by itself is nor permissible in law], large
          scale illegal mining activity was allowed to be carried out for certain period, even in
          the forest areas, having no link to the survey numbers of patta lands and for
          transportation of the illegally mined ore from the forest areas on the strength of such
          forest passes/ transport permits.

     5.   It has been reported that the State has been deprived of its revenues. There have been
          many complaints from transporters associations regarding overloading of Transport
          vehicles, that illegal gratification was sought for allowing overloading of iron etc.,
          and the repeated complaints and representations by transporters associations, it has
          been alleged to have not been seriously considered by the Government. It is also
          alleged that most of the ore not accounted for and transported illegally in excess was
          the outcome of illegal mining activities


Examples of irregularities quantified in the Report due to lapses in the Manual system:

1.    After the bulk permits are issued by Deputy Director, Mines, the Deputy Conservator of
      Forests, issues the Form no. 27 as transit permit after collecting permissible Forest
      Development Tax (FDT). Lokayukta reported that the Deputy Conservator of Forests,
      Bellary has issued orders to issue Form no. 27 on various dates for the quantity of
      6,28,032 MT without collecting Forest Development Tax (FDT) many times and finally a
                                                                                       Page 19 of 26


       balance of ₹ 1,91,91,600.00 is due against the lessee and in violation of the Karnataka
       Forest Act. Form No. 27 (transit permit) can be given only after FDT is collected.

  2.   An approximate quantity of 14400 MT at the rate of 16 MT/truck must have been
       transported provided no overloading. But here the overloading is noticed.

  3.   An instance of 900 Form no. 27 issued after the expiry of lease period on 23/03/2010 was
       found.

  4.   Since 2006-07 to 2010 (Till Dec), the total exports of iron ore of Karnataka origin is
       about 12.579 Crores MT from the ports of Belekeri, Chennai, Ennore, Kakinada,
       Karwar, Krishnapatnam, New Mangalore and Visakhapatnam ports. The difference
       between permit issued and export made for the said period comes approximately to
       2,98,60,647 MT. This is the illicit iron ore exported during 2006-07 to 2010 (till
       December) from these ports.

  5.   The approximate loss to the state government due to illegal exports comes to
       approximately ₹ 1,22,28,14,22,854 (₹ 12,228.14 crores) for the above said period. The
       loss is calculated by taking the yearly average export rates / MT from all the ports.

                               Table 4: Lokayukta Report Abstract

                               Export of illicit Mining of Iron Ore
                  Years         Material in Metric Tonnes Material value (Cr. ₹)
                 2006-07                31,84,152                    814.56
                 2007-08                37,14,720                   1,724.32
                 2008-09                53,55,660                   2,317.13
                 2009-10               1,27,99,396                  4,635.86
                  2010                  48,06,719                   2,736.25
           ( till Dec’ 2010)
                TOTAL                   298,60,647                     12,228.12


   Recommendations of the report with particular relevance to Forest Department:

1. Forest Development Tax (FDT)

  1.   It is to be noted, while collection of royalty is presently being based on the monthly sale
       value fixed by the IBM, the FDT is being collected based on invoices as well as rates of
       DMG/MML/NMDC. This anomaly of taking different sale values for assessment of
       royalty and FDT for the same iron ore needs to be resolved without further delay.

  2.   The invoices submitted for assessment of the “consideration” in case of EXORTS can be
       easily manipulated by using undervalued invoice to a “front company”. Therefore the
       FDT should be collected provisionally based on the provisional invoices. The final
                                                                                      Page 20 of 26


       settlement of FDT collection should be based on the final invoices, Bank realizations and
       FOB values as recorded in shipping bills.

  3.   With regard to the iron ore traded for the LOCAL USE, it is observed that the
       DMG/MML/NMDC do not have monthly rates for all the categories and grades of iron
       ore. For the purpose of uniformity, it is suggested that IBM monthly sale rates for various
       categories and grades of iron ore may be adopted. However before that, IBM sale rates
       itself would need to be rationalized as well.

  4.   The “consideration” needs to be decided based not only on the Pits’ mouth value (PMV)
       as declared by the IBM, but also on the figures of (Free on Board) FOB with deductions
       like cost of transportation, permit cost etc. also taken into account. This methodology has
       been adopted by several large domestic iron and steel units for determining their
       procurement prices of iron ore.


2. Objectives of the proposed ICT system

  1.   To ensure effective tracking of each iron ore consignment from source i.e.,
       lease/stockyard to destination which can either be ports, stockyards or domestic
       consumers like steel and sponge iron plants, etc.

  2.   To monitor delivery of each consignment of iron ore at the destination through a
       mechanism of acknowledgement through electronic handshake between source and
       destination.

  3.   To prevent overloading of vehicles by streamlining process of issue of permits and trip
       sheets and ensuring that trip sheets reflect the actual quantity transported through the
       vehicle.

  4.   To prevent use of forged/fake permits by migrating from paper based permits to secure
       database based permit system which is totally transparent and available in public domain.
       Placing the permits in public domain would ensure that the permit issuing process is fair
       and transparent.

  5.   To ensure that the end user is aware of the source of iron ore and genuineness of the
       permits by creation of a central database that is updated in real time, is online and
       available to other controlling departments like Forest, Customs, Police, Revenue, Ports,
       etc and other domestic users.

  6.   To track sale or purchase transactions in iron ore, starting from the source to the
       destination. This would help in bringing about transparency in trade carried out by
       various traders/ middlemen with regard to iron ore.
                                                                                         Page 21 of 26


  7.   To reduce dependence on day to day manual monitoring and implement an integrated
       system that shall centrally monitor the day to day round the clock movements and shall
       be scalable to cater to large scale operations.

3. I.T. Based “To be” Process

The I.T based “To be” process is outlined for implementation which would help in –
  1. Mapping each consignment from lease to final user through various traders using a
       unique I.D generated at the time of weighing at the pit head.

  2.   The lessee shall update the sale particulars in the system viz., quantity, grade, name of
       buyer (the party), TIN number of the buyer, sale invoice copy, etc. The buyer shall
       acknowledge the same.

  3.   The processing of the application shall be strictly on the basis of First in First out (FIFO).

  4.   The Deputy Director of Mines and Geology shall acknowledge the receipt of the
       application and assign the application to the concerned geologist for field inspection.

  5.   The geologist shall conduct a field inspection and submit his report electronically will full
       details of stacks.

  6.   On receipt of the report of the geologist and subject to the fulfillment of legal
       compliances and payment of royalty, etc., the Deputy Director of Mines and Geology
       shall generate a digitally signed Mineral Dispatch Permit (MDP) or Bulk permit
       document in an electronic form. MDPs are issued for a fixed quantity for a particular
       party and destination. The quantity mentioned in the MDP has to be transported within
       prescribed time from the date of the MDP. The MDP shall also mention mode of
       transport and designation wise permitted trip time. This would be utilized to set the cutoff
       date for issue of trip sheets.

  7.   Information of issued permits shall be available to all the mining related departments/
       offices from the central data base.

  8.   Each of the concerned department shall have a login in the central database through
       which they would be able to view the MDPs and generate reports. Cumbersome
       processes should be simplified, if needed, through amendments in the existing Rules.

  9.   Each of the lessees shall install a weigh bridge at the mine exit point. The weigh bridge
       shall be integrated with the central application and have real time connectivity to the
       central server. Each vehicle existing in a mine with a load of iron ore shall be weighed at
       the weigh bridge at exit point and the weight of the load shall be recorded in the central
       server and adjusted against the MDPs quantity. There shall be no scope of by passing this
       process by the vehicle.
                                                                                      Page 22 of 26


  10. At the time of weighing, the vehicle particulars like vehicle registration number,
      transporter’s name, etc shall be captured into the system. The weight of material, date and
      time of weighing shall be automatically captured.

  11. A trip sheet with a unique ID number shall be generated for each vehicle for destinations
      fed in the central database. In case the Lease area is located within a Forest, the Forest
      Transit permit shall be generated along with Trip sheet. The generated Forest Transit
      Permit shall be available to the Forest Department from the central database for cross
      check and verification. The Forest Way Permits shall also be available to the Deputy
      Director of Mines and Geology from the Central Server. The lessee shall take a print out
      of the trip sheet, which would be carried by the vehicle. The system would ensure that no
      trip sheet is issued for materials in excess of the MDP quantity.

  12. The Unique I.D number generated at the time of printing of permit shall be used to track
      the movement of the iron ore load being carried in the vehicle.

  13. Integrated Check post shall be established at strategic locations to track the movement of
      the iron ore vehicles. The check posts shall be networked with the central database. This
      would help in easy verification of permits/trip sheets with the online database.

  14. Regulatory authorities shall also be able to verify the genuineness of the permits/trip
      sheets by querying the central database through mobile devices/phones, etc.

  15. The integrated check post shall be equipped with weigh bridges for intensive verification
      of selected vehicles in order to ensure loaded quantity is in accordance with the quantity
      mentioned in trip sheets and others.

  16. Checking of the permits at check posts could be automated by equipping trucks with
      RFID devises or using video cameras for capturing vehicle registration numbers and use
      the inputs from these devices to query the central database in real time. With these query
      inputs the entire permits details along with source information shall be available to the
      concerned.

 The above recommendations are made under Sec. 12(3) of the Karnataka Lokayukta Act, 1984.
The action taken or proposed to be taken on these recommendations be intimated to this
authority, as required under Sec. 12(4) of the Karnataka Lokayukta Act, 1984.
                                                                         Page 23 of 26


                                                                        Annexure II

              List of Forest Department websites explored

State                  Website
1. Andhra Pradesh      http://forest.ap.nic.in/
2. Arunachal Pradesh   http://arunachalforests.gov.in/
3. Assam               http://assamforest.in/
4. Bihar               http://forest.bih.nic.in/
5. Chhattisgarh        http://www.cgforest.com/English/
6. Goa                 http://www.goa.gov.in/departments/forests.html
7. Gujarat             http://envforguj.in/
8. Haryana             http://haryanaforest.gov.in/
9. Himachal Pradesh    http://hpforest.nic.in/
10.Jharkhand           http://jharkhand.gov.in/New_Depts/fores/fores_fr.html
11. Kerala             http://www.keralaforest.gov.in/
12. Madhya Pradesh     http://www.mpforest.org/
13. Maharashtra        http://www.mahaforest.nic.in/
14. Manipur            http://manipurforest.gov.in/welcome.htm
15. Meghalaya          http://megforest.gov.in/
16. Mizoram            http://forest.mizoram.gov.in/forest/
17. Nagaland           http://nagaforest.nic.in/
18. Orissa             http://www.odisha.gov.in/forest&environment/
19. Punjab             http://www.pbforests.gov.in/
20. Rajasthan          http://www.rajforest.nic.in/
21. Sikkim             http://www.sikenvis.nic.in/forest.htm
22. Tamil Nadu         http://www.forests.tn.nic.in/
23. Tripura            http://tripuraforest.nic.in/welcome.html
24. Uttar Pradesh      http://forest.up.nic.in/
25. Uttarakhand        http://www.uttarakhandforest.org/english/
26. West Bengal        http://www.westbengalforest.gov.in/
                                                                                           Page 24 of 26


                                                                              Annexure III
                Comparison of the Manual and the Forest Produce Tracking System

    Sl. No.       Parameter                       Manual                           FPTS
       1              2                               3                               4
                                       Obtaining Release Order (RO)
1             No. of visits to      At least 8 visits                JUST ONCE TO DCF OFFICE-
              DCF/RFO Offices       (to submit RO application at DCF To pay the DFD ( Which shall
                                    Office, Collect DD Note for FDT, also go online from September
                                    to pay FDT, to get Inspection    2012)
                                    Report from RFO and ACF, to
                                    Collect Release order Copies
                                    from DCF office and from RFO
                                    office and to collect OM for
                                    payment of Transit pass fee)
2             Time taken in         25 days at the earliest          Average of 3 days only
              Days
3             Number of RO to       Two                                  One
              obtained              (one each from DCF and RFO)
4             Number of             Minimum of 2, and more               pre inspected material loaded
              inspections           depending on the discretion of the
                                    DCF and RFO
5             Number of             At least 5 (IT certificate, DMG      None
              documents             bulk permit, Bank statement,
              submitted             NOC from DMG, Previous
                                    permit book balance and
                                    accounts, etc.)
6             Discretion of the     YES, to a large extent controlled    Reduced
              inspecting officer/   the process
              Issuing Officer
7             Grievance          Physically submit written               Centralized and online, a team of
              redressal          complaint and get the issue             3 officers at the state HQ- ICT
                                 addressed by the concerned RFO          centre attending to grievances.
                                 and DCF Offices.
                                    II Issue of Transit Pass (TP)
1             Number of officers Atleast 8 (DCF, CF, APCCF,              The Transit pass is generated by
              involved           PCCF, DRFO, RFO, in the                 the buyer himself when he is
                                 process of sending a demand for         ready for transportation, without
                                 printed blank TPs books and             any delay due to logistics of TPs
                                 obtaining the TPs right from the        involved.
                                 Government Printing Press at
                                 Shimoga to the DCF office)
2             Cost of Each       Approximately ₹ 5 ( Including           No cost, printed by buyer
              Permit             paper cost, printing and logistics      himself
                                 cost)
                                                                                         Page 25 of 26


    Sl. No.        Parameter                  Manual                                 FPTS
       1               2                          3                                     4
3             Days taken for the    Minimum of 3 months                Permit printed at will of the
              permit to reach the                                      buyer after obtaining RO and
              field                                                    paying the requisite Permit fee.
4             Managing Permit       Laborious process and Chances of Available ONLINE and on real
              usage Account         mismatch of account while          time, by click of a button
                                    consolidating from different
                                    offices was high
5             Managing              Manually been managed,             Available ONLINE and on real
              payments              consolidation at the various       time, by click of a button
                                    hierarchal offices was a tedious
                                    process
6             Accounting of         Was a big process and as per       Details available ONLINE and
              transported           Lokayukta report, the material     on real time (transported
              mineral ore           transported by illegal means was   quantity, date wise, office wise,
                                    as high as 44% of the transported mineral wise, by just running an
                                    material.                          appropriate query)
                                      III Monitoring and Regulation
1             Check posts           Manual Check posts were not        There are two composite check
                                    equipped for any cross             posts, (Virtual and Destination;
                                    verification system for            where in Virtual check posts a
                                    authenticity, validity of the pass single SMS of TP number will
                                    or the weight of the material      get in response a confirmation
                                                                       SMS and Destination Check
                                                                       posts enable tracking of the
                                                                       material from Source to the
                                                                       Destination linked to the relevant
                                                                       database on scanning the e-TP.
2             Compilation of        Only random checks facilitated     All vehicles passing through the
              Data at Check post                                       Checkpost are captured in the
                                                                       CP register.
                                                                       Total quantity passing through
                                                                       the CP is also captured.
3             Source to             No check to track material         Tracked from Source to
              Destination           movement from Source to            destination and even various legs
                                    destination                        of journey.
                                                                                                                Annexure IV
Graph comparing Monthly iron-ore prices for the period April 2010 to March 2012, from the price statistics information
available on the IBM website, www.ibm.nic.in/valueminerals.htm

								
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