Draft Bill clears decks for ultra mega mine projects

Written by Subhash Narayan | Rajat Guha | Rajat Guha | New Delhi | Updated: Jul 12 2011, 09:59am hrs
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The new mining Bill cleared by a group of ministers last week envisaging direct benefit to people from the minerals underneath the land they own, also has a provision for setting up a clutch of ultra mega mining plants (UMMPs) in the country.

As per the proposal, state governments will identify locations for large mines with respect to specific minerals such as iron ore, bauxite, chrome ore, copper, diamond and manganese. They will set up special purpose vehicles that will acquire land and obtain necessary clearances for the mine whose size would be above a specified threshold. The whole facility would then be put up for bidding. The successful bidder would be the one willing to make the maximum upfront payment and promise royalty higher than others.

According to official sources, the idea is to encourage global mining giants like Rio Tinto, BHP Billiton and Vale to invest in India by removing the hassles of land acquisition and sundry clearances including those related to environment. Firms such as Posco, ArcelorMittal, SAIL, Tata Steel, Hindalco, Vedanta, Essar, JSW and JSPL which are setting up large metal plants in the country would also benefit from the ultra mega mines as they would be more compatible for them to achieve economies of scale. These companies could themselves bid for UMMPs. At present, these companies face serious problems in securing captive mineral resources. Often the size of mine allocated is not commensurate with the scale of the downstream project.

The mining sector has attracted FDI below potential, thanks largely to policy uncertainties, delays in obtaining clearances and the bar on transferability of licences. The Mines and Mineral (Development and Regulation) Bill, which would go to the Cabinet soon, proposes to correct these policies.

Mining is a sector where a foreign investor is always wary of investing as it is fraught with many land-related and bureaucratic issues. A move to assemble a bouquet of clearances from both the Centre as well as the state will provide a good bedrock for foreign investors, said Saroj Jha, partner with Delhi-based law firm SRGR.

The UMMP scheme would broadly be on the lines of the ultra mega power projects scheme. The details of the scheme would be spelt out as part of the rules and regulations to be laid down after the MMDR Bill is enacted by the Parliament.

The mining project associated with Poscos proposed 12-million-tonne steel project in Orissa is stuck in litigation and has faced stiff opposition from locals. Other large projects of companies like ArcelorMittal have failed to take off due to lack of clarity over captive iron ore resources. The new mining Bill has proposed bidding of all major mineral blocks to ensure transparency and better valuation.

It also has included a proviso which provides that where the state government seeks to notify an area for grant of mining lease, it shall obtain all forest clearances and other necessary permissions from the owners of the land and those having occupation rights, before such notification.

The clearances process under the aegis of public ownership will presumably be more immune to issues of impropriety, said a government official.

While the size of mining blocks to be classified UMMP is yet to be worked out, one source said that for iron ore, it could be blocks with minimum reserve of 400-450 million tonne. This could support the requirement of a 10 million tonne steel plant for a period of 30 years.

It is expected that once enough projects are identified under the proposed scheme, the UMMPs will be administered through a dedicated agency having representation from the Centre and the states.