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  1. Mining rights transfer to attract charges at 80% of royalty

Mining rights transfer to attract charges at 80% of royalty

Companies that get to receive non-coal mining leases under the new dispensation that allows transfer of leases not obtained through auction, will have to fork out 80% of the royalty additionally as transfer charges over the lease period.

By: | New Delhi | Published: June 2, 2016 7:37 AM
Companies that get to receive non-coal mining leases under the new dispensation that allows transfer of leases not obtained through auction, will have to fork out 80% of the royalty additionally as transfer charges over the lease period. (Reuters) Companies that get to receive non-coal mining leases under the new dispensation that allows transfer of leases not obtained through auction, will have to fork out 80% of the royalty additionally as transfer charges over the lease period. (Reuters)

Companies that get to receive non-coal mining leases under the new dispensation that allows transfer of leases not obtained through auction, will have to fork out 80% of the royalty additionally as transfer charges over the lease period.

Among the firms that would be impacted immediately by the government’s decision notified on Wednesday are Birla Corp, which is concluding purchase of two cement units of LafargeHolcim in Chhattisgarh and Jharkhand and UltraTech Cement about to acquire Jaypee group’s cement plants in Madhya Pradesh. These deals were stuck due to the ambiguity over whether the mining leases with the target units could be transferred to the acquirers.

Recently, the government amended the Mines and Minerals (Development and Regulation) (Amendment) Act, to allow transfer of mining leases by firms, which had got them prior to the auction process for the new 50-year mining leases. While amounts additional to the royalty the bidders are willing to pay — expressed as % of royalty that could go anywhere between 100-150%— is the bidding criterion for auction, the transfer charges for older leases could help level the playing field, analysts said.

Besides, the ministry of mines said in the latest notification that the lessee will have to use the entire quantity of mineral extracted from the mining leases for its own manufacturing unit. Approvals and permits, obtained by the transferor, would be transferred to the transferee.

Royalty rates are different from one mineral to the other. While it is `90 per tonne for limestone, for iron ore, it is 15% of the average sales price on ad valorem basis. The government had last revised rates in 2014. “On and from the date of transfer of the mining lease, the transferee shall be liable to the central government and the state government with respect to any and all liabilities to the mining lease,” as per the notification.

The acquirer, however, would not be able to sell or export even the rejects or tailings or dumps extracted from the mines transferred. Entire quantity would have to be used exclusively for captive purpose.

Mines secretary Balvinder Kumar said the transfer of mining lease was allowed keeping in view the government’s commitment of enhancing the ease of doing business, particularly for the cement sector. This would not only boost the morale of the industry but will also give a spurt to activity in the mining sector. The move will also help in checking the stressed and non-performing assets of banks by allowing them to liquidate assets where a firm or its captive mining lease is mortgaged.

As per the rules, the holder of a captive mining lease would have to apply to the state government for transferring the mining lease and within three months the government would have to reply. If rejected, the state will have to justify with reasons. If not communicated within the 90-day period, it would be deemed to have approved.

Within 15 days of the approval, the state would demand the transferee to make an upfront payment of 0.5% of the total value of the estimated reserves. The transferee would have to pay the sum within 30 days of the receipt of the demand and within 15 days of making payment, it would have to sign the mine development and production agreement with the state.

The MMDR (Amendment) Act, 2015, which came into effect in March following a January ordinance last year replacing the 57-year old Act, did not have the provisions for transfer of captive mining leases got through the earlier dispensation route.

Subsequently, the ministry felt the need to bring an amendment to the rules to clear hitherto stuck and fresh mergers and acquisitions, especially in the field of cement, and enable banks and financial institutions to liquidate stressed assets where a company or its captive mining lease is mortgaged. This would also help mergers and transfers of firms having captive mines. Industry sources said since more than half of the major mineral mines in the country are below 10 hectares, the legislative framework must not only facilitate but also incentivise amalgamation and transfers.

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