Exclusive: A Karnataka public interest litigation (PIL) is trying to prevent mining companies Arcelor Mittal and Posco from allegedly profiting unfairly from state concessions, which the PIL alleges would result in a loss of $50bn to the state or the equivalent of Rs 2.4 lakhs per family.

Qualified lawyer, former banker and seasoned PIL activist Arun Kumar Agrawal has filed the writ in the Bangalore High Court of Karnataka earlier this week, claiming that certain mining concessions were made at an undervalue by the state to private companies.

The writ was based on a memorandum of understanding (MOU) proposed to be entered into in which Karnataka is to give permission in principle to steel producers Arcelor Mittal, Posco and eight other companies to mine 6m tonnes of steel per annum.

"The State is in the process of gifting natural resources worth billions of dollars under the old and discredited excuse of attracting foreign capital and not making any effort to obtain reasonable and market related value for the iron ore," stated the writ.

"This is a national malaise… it is mindboggling," Agrawal told Legally India, claiming that iron ore producers in Karnataka can operate at profit margins close to 80 per cent. The investment by the companies in the projects will only be around $12bn spread over a 9 year period, he said, while profits will be around $100bn over the 30-year term of the proposed contract.

"This can be the richest state in the country based on the iron ore that it has," Agrawal said. "Per family, if you calculate the population, from just these two of these projects every family in Karnataka would get Rs 2.5 lakhs."

"The amount of investment brought in by these so called investors is a fraction of the value of the mines and minerals being handed to them at a token royalty of 10%," stated the writ. "The investment that they are making to exploit the mineral wealth is for their personal profits. The earlier economics of allotting captive iron ore mines to private steel producers is no more valid as the price of iron ore has shot up from Rs 300 tonne to over Rs 5000 per tonne in the last seven years."

"The State is duty bound to negotiate terms that maximizes the benefit of the natural mineral resources for the benefit of the people of the State," it continued. "The Petitioner clarifies at the very outset that the petition is not against private investment, foreign or Indian, for exploitation of natural resources of the State but for ensuring that the people of the State get a fair deal for their natural resources and the same is used for the benefit of the people of the State in a manner envisages under Article39(b) of the Constitution.

"The amount involved is over 50 billion dollars at current prices for the two projects alone and is likely to be much more as the global economy recovers, resource gets scarcer and the ore becomes more expensive. It is an amount that the poor people of the State cannot afford to forgo and is in violation of their rights under Article 14 and 21 of the Constitution."

Agrawal also argues that domestic steel prices are completely unregulated and are linked to the international price, unlike coal which is converted to energy at prices arrived at in the open domestic market.

Therefore none of the large profits made by private companies in the international steel market after cheap access to India's iron ore are ever passed onto the domestic steel consumer. The taxpayer and state loses out, according to Agrawal.

Agrawal explained that the judge has given the respondents, the Union and Karnataka State Governments, two weeks to file their replies.

The writ is seeking a stay on the current MOUs or agreements in respect of private concessions to steel mines in the state.

It also suggests for the state to explore alternative state-owned or public sector undertakings to exploit the natural iron ore resources or to enter into a competitive tendering process to arrive at a fair valuation of concessions.

Agrawal said that he has started a number of successful PILs in the past, such as derailing the award of the Karnataka 1000 MW Cogentrix Power Project that occurred without a tendering process, preventing the transfer of the Alamatti Power Project in Karnataka to the private sector, uncovering the telecast scam in relation to the 1999 Cricket World Cup and other challenges of the financial dealings of companies.

Agrawal is a qualified advocate although he has never practiced except on his own behalf. He had also worked for 10 years in the financial sector at the State Bank of India.

"I have taken a degree in law but I don't relish going to court," the self-styled "finance activist" told Legally India, adding: "Not that I don't understand it and can't argue - but I prefer to keep away and only go for public interest matters, which I argue myself."

Download the full petition here.