Existing RPs and PLs likely to get converted to mining leases
The Mines and Minerals (Development and Regulation) Amendment Bill, 2015, passed recently by Parliament and about to be signed into law by the President virtually saves a clutch of leading metal companies the task of traversing the auction route to convert their existing concessions into the new 50-year mining leases.
With the states to be left with even less discretion than now under the new law, companies like Vedanta Energy, Essar Steel, Sesa Goa, Tata Steel, Jindal Steel and Power and Sesa Goa stand more than a fair chance of their current reconnaissance permits (RPs) and prospecting licences (PLs) for different minerals getting upgraded to the all-important 50-year production leases.
While these firms are spared by the government’s bounty the uncertainty inherent in the auction process and any consequent outgo, according to official sources their contributions to the proposed district mineral foundations (DMFs) will be the same as in case of firms that win the blocks in auction, at a third of the royalty to states. This is even as the new law says existing holders of mining leases may have to pay up to 100% of the royalty paid to states as DMF contribution.
According to the data on the ministry of mines website, 217 RPs and and 387 PLs are currently in force in six states for different minerals including the four notified ones ( iron ore, manganese, bauxite and limestone), fields of which will be put up for auction first. As per the MMDR Bill, these mining concessions will remain valid in the new regime. The companies holding them can also convert them to mining licences , which will now be for a uniform 50- year period, against the current licences that last for shorter periods although renewals, if needed, are almost automatic.
In a way, the exemption from the auction regime only increases the chances of the extant RPs and PLs leading to mining licences, given that competition is undermined.
What improves the chances of the current RPs and PLs seamlessly becoming mining licences is that the new law would restrict states’ powers to cancel these concessions or refuse their upgrade.
Most leading metal companies have either of the two permits (RP or PL) in more than one location. Earlier, as per rules, a company that undertook reconnaissance operations under RP enjoyed a preferential right for grant of prospecting licence but the state still had choice from among other applicants to select the most appropriate candidate. However, as per new Bill, all other applications will stand cancelled, thus depriving the state of any choice for grant of different stages of permit, making the company that already holds an RP or PL a default choice for the eventual mining licence.
Of course, the holders of RPs and PLs have invested crores of rupees but the gains from a mining licence over its long tenure would hugely offset these, being potentially in tens of thousands of crores. The exemption from auction in many cases is as good as a bonanza for the respective companies.
“Take the case of Tata Steel in Bailadila, Chhattisgarh. In 2007, the company was granted a prospecting licence for exploring 2,500 hectares of land which holds an estimated 150 million tonnes of iron ore. The company, with a PL, has made an investment of Rs 113 crore in the mine for land acquisition. Essar Steel operating in the same region with a PL has failed to even acquire land. But with the advent of the new Act, these companies will most likely be granted mining leases as there are no other applicants for these mines anymore,” Sudiep Srivastava, a lawyer contesting the grants of concessions to the two companies in the Chhattisgarh High Court, told FE.
“Any one of the three mining concessions (reconnaissance, prospecting or mining licence) is a legally binding agreement between the licensee and the state. The new law cannot undermine the agreement entered into by two parties. However, applications for a mining concession which stands cancelled due to the new law doesn’t enjoy that legal sanctity,” Anjani Agarwal, leader, metal and mining, EY, said.
While the states have hitherto decided the eligibility of licence upgrades for a company based on factors like special knowledge in prospecting operations, financial resources, nature and quality of technical staff employed, proposed investment in the mine and the end-use plant, under the new law they cannot rely on these parameters to take a call. The states’ powers to cancel RPs and PLs or refuse their graduation into mining licences are narrower in the new law, with the only grounds for which these can be practically revoked being the rarely used one of non-execution of permits, which, theoretically, can be be used for cancelling even mining leases.
Some members of the parliamentary committee that vetted the MMDR Bill had raised queries on the “undue restrictions” placed by the new law on states that own the minerals. The government countered this saying the situation has not been altered materially. “States like Madhya Pradesh and Chhattisgarh had opposed several provisions of the new law including the exemption to RP and PL holders as it takes away the states’ rights to decide on the best candidate,” a source told FE on condition of anonymity.