One of the problems with the previous government’s mining policy—and that is why former Prime Minister Manmohan Singh’s name was dragged in the coal mining case—was that there was no provision for any transparent process for awarding mines. So, whether a company liked it or not, the only way to get a mine was to petition the bureaucrats and politicians for it. This is what the current government tried to fix by putting in place a method of transparent auctions, for coal as well as other minerals. It is true that the reverse bidding method for coal, with no scope for hiking electricity tariffs, will put a big burden on those that successfully bid for mines—a Crisil report talks of a R4,500 crore per year burden on bidders—but there can be no doubt the process is a transparent one, and one that can be improved upon. Similarly, in the case of other minerals, auctions have been recognised as the way forward, though, in this case too, the very high royalty burden and the addition to this by way of the District Mineral Foundation (DMF) cess could make mining unviable in India—for existing miners, Indian royalty rates will be 15% for the states plus a similar amount for the DMF as compared to a total royalty of around 6.5-7.5% in Australia.
Apart from this facet which needs a relook, the government also needs to consider a few other aspects of the mining Bill including draft rules that were put up for public consultation last week. The aspect of the mining Bill that allows states to reserve mines for the public sector is problematic since, while the mines will be auctioned, the bidding will necessarily be limited. Apart from the loss that it will cause the exchequer, there is the issue of a level-playing field for the private sector. This problem is compounded in the rules which allow the state government to, after the original 50-year lease expires, renew it for another 50 years for PSUs. If the same is not done for private sector mines, why do it for PSUs? Indeed, the Bill allows for an auction and a right of first refusal once the original 50-year lease expires for captive miners, not for commercial ones. Once again, this is creating artificial distinctions between various categories of miners when the attempt should be to clean up things.
While the special dispensation for PSU miners will be justified on grounds that PSUs are special and, unlike the private sector, have no profit motive, it is important to keep in mind the results of such dispensation in the past. Air India, BSNL and MTNL are all companies that have got special favours by way of bailouts and out-of-turn licences, and they make losses that run into thousands of crore a year while steadily losing market share. When finance minister Arun Jaitley was asked why he had not stopped levying of R40,000 crore of MAT on FIIs, he said he could change the face of India’s irrigation with that kind of money. Think of the unirrigated land due to preferential treatment to PSUs.