Govt considering proposal to limit public-private JVs in mining sector

Written by Subhash Narayan | New Delhi | Updated: Jul 9 2013, 09:46am hrs
In a move that would impact Adani Mining, Moser Baer, Vedanta, Monnet Ispat and the Jaypee Group among others, the government is set to consider a proposal to put restrictions on public-private joint ventures (JVs) for developing mineral blocks, particularly coal mines, allocated to state-run corporations and PSUs under a special dispensation. The idea is to limit all future public-private arrangements in the sector to private firms acting as a mine developer & operator (MDO) on behalf of state-run corporations, without any ownership rights.

Sources said the proposal to bar public-private JVs would be included in the new MMDR Bill. The mines ministry is in the process of finalising a Cabinet note on the new Bill before it is re-introduced in Parliament. If the proposal is implemented, it would amount to a reversal of the policy direction towards increasing the participation of the private sector in coal mining.

The Parliamentary Standing Committee on Coal and Steel, which has given its report on the Mines and Mineral Development and Regulation (MMDR) Bill, 2011 has taken the view that JVs between private and public companies for mines allocated under the reserved category (for PSUs) would amount to backdoor entry of the private sector into commercial mining of minerals such as coal that are reserved for the government. We would address the issue through changes in the legislation, said an official source privy to the development.

Once introduced, the changes could mean that firms such as Adani Mining, Moser Baer, Monnet Ispat would have to restructure their joint ventures (for coal mining) with state mineral corporations by either reducing their stake in such ventures to below 50% level to start with and consider complete withdrawal from the equity participation at a later date and converting the JV operations into a mine developer and operator (MDO) model.

Companies such as Moser Baer Projects Private Limited (MBPPL) has formed a joint venture with Chhattisgarh Mineral Development Corporation Limited (CMDCL) as partner for development of the Sondhia coal block in the state.

The state government holds 51% of the stake and 49% of economic interest of this coal block is held by MBPPL. Similarly, Adani has a coal mining venture with Rajasthan state power generation utility RRVUNL's block in Chhattisgarh. In addition to existing ventures, companies such as Monnet is seeking JV arrangement with MP State Mining Corporation for development of Morga III mines. India Bulls is also pursuing an arrangement with state utilities.

We will see how the regulations shape up. Already the MDO model is gaining popularity and if need be, some existing joint venture operations would be restructured, said a top official of private sector power company involved in coal mining for the state-owned entity.

The changes would prevent coal and other mineral blocks granted to PSUs and state mineral corporations under a special dispensation from becoming commercial operations for private sector companies. While private sector equity participation in such ventures would be desisted, state entities would be free to forge joint ventures with other government entities or appoint private sector for mine development only under MDO model, said the official.

The changes are also being considered in wake of the adverse remarks made by the Comptroller and Auditor General (CAG), which in a recent report pulled up the Centre for allegedly bringing windfall gains of R1.86 lakh crore to a clutch of private companies through discretionary allocation of 57 coal blocks. In fact, after this report, the ministry of coal de-allocated Shankarpur (Bhatagaon II) and extension coal blocks allotted to CMDC that had entered into a joint venture with the Nagpur-based firm SMAS infrastructure, owned by BJP leader Ajay Sancheti, who is close to BJP chief Gadkari. The opposition Congress had questioned the joint venture agreement, alleging that it was heavily loaded in favour of private firm.

It is likely that the new Bill will have provisions on PSU reservation for minerals. If these companies feel the need to forge alliances, they would be permitted to do so with other state or central government companies or corporations. The steel ministry is of the view that even in the case of coal, JVs with private companies should not be allowed.

Obviously, this has not gone down well with the private sector companies. Why should there be any preference to PSUs when we (private players) have put in more investment than the government-owned companies asked a private steel company official, who did not wish to be identified.

Under the revised terms and conditions for allocation of coal blocks to government companies (auction route), such entities will be offered the mine on payment of a reserve price decided by the coal ministry and after submitting a bank guarantee.

The allocatee company will be allowed to use the services of the private sector entity as MDO, but its selection would also have to be through competitive bidding process. They will also be free to forge alliances with other state or government firms.