The Ashok Chawla committee?s view that auctioning should begin right at the exploration stage with respect to allocation of mineral rights has driven a wedge between the committee and the mines ministry. The government had set up the committee on February 8 this year to recommend procedures for allocating natural resources.
The ministry feels that only fully prospected deposits need to be auctioned. As for deep and concealed deposits of base metals where India is witnessing an investment famine, auction might not be a viable option. Auctioning could dissuade potential investors from the high-risk business of exploration of base metals, it reckons. The report of Ashok Chawla committee is expected to be released by June-end.
The Chawla committee feels auctioning should start at the early stage of mining, in order to bring more concerted efforts from companies to explore mineral reserves. Senior mines ministry sources told FE that any move to put the initial mining permit ? reconnaissance permit (RP) ? under auctions could dampen investor enthusiasm. The view has already been conveyed to the Chawla committee, the sources added. Potential investors in the mining sector would be reluctant to take the risk and bid for RPs without proper data on potential reserves in a mining area.
The government is working towards finalising the new Mines and Minerals (Development and Regulation) legislation in the last two years but has failed to build a consensus around the proposals to make the mining policies more investor-friendly.
The legislation is now being examined by a group of ministers, which too has seen divergent views from ministries. The latest development is expected to further delay the introduction of the new legislation in Parliament.
Under the present policy, for concessions for minerals other than minor ones, the principle of ?first-come-first-served? is followed. However, a person who has undertaken reconnaissance operations has the preferential right for obtaining a prospecting licence (PL), which is the second stage licence. Similarly, a person who has prospected for the mineral under a PL has the preferential right for obtaining a mining lease. In the new MMDR Bill, mandatory bidding will only be for recognised mineral zones, which means bids can be invited only at PL and mining lease (ML) stages and not the RP stage. The unrecognised mineral zones will follow the first-come-first-served policy.
The Chawla committee feels that auctioning mining concessions from the very beginning will ensure optimum value realisation of the natural resource. The mines ministry differs and has informed the committee about the need to incentivise exploration activity and attract large corporations with modern technology rather than build an iron wall around them. Demand for base metals like lead, noble metals like gold and the 17 rare earth elements has developed into a race to access resources globally. The ability to access high technology and risk capital is key to the new strategy.
The new mining Bill aims to make the concession regime more investor-friendly, by simplifying and speeding up the procedures for granting concessions. It would also incentivise the exploration for minerals in which India is deficient. The opposition to the probable recommendations of Chawla commitee has come at a time when government is divided over the issue, including mandatory sharing of 26% profit by mining companies for providing lifetime financial support of people displaced by any mining project.
Sources in the mines ministry told FE that the committee’s recommendations will not only discourage exploration but also reduce the profit meant to be shared with the local population under the profit-sharing mechanism, as the profits of the companies involved in reconnaissance activity will be affected. The ministry feels deeper and concealed deposits should not be auctioned and the concession grant system should be clear, simple and quick so as to incentivise flow of venture capital for their exploration.
Also, the incentives proposed in the new Bill like selling data from exploration activity to the mining company will not be possible. The proposal to auction will make it difficult for the exploration company to sell any additional mineral explored which is not of its utility to another company. The committee was appointed on February 8 this year under the chairmanship of former finance secretary Ashok Chawla and secretaries of key ministries as members. The panel will outline broad principles based on which natural resources, including land, water, gas, coal, mines and spectrum would be allocated.
The committee will make recommendations on the overall mechanism of allocating resources and take a sectoral view. One of its terms of reference is to find models that do not compromise on public welfare for profit maximisation. The committee is working closely with the Centre for Policy Research in the matter.