How delayed mining approvals dampening investor spirit

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Published: May 19, 2020 12:40:50 AM

Sitharaman last week announced a plan to auction off as many as 500 mineral blocks over an unspecified period, but given the pace at which even the auctioned blocks turn operational, the investment landscape in the sector doesn't look improving all too soon.

Apart from the sticky regulatory issues and the tedious delays associated with grant of environmental and forest clearances, the enormity of taxes and levies also continue to be an irritantApart from the sticky regulatory issues and the tedious delays associated with grant of environmental and forest clearances, the enormity of taxes and levies also continue to be an irritant

Finance minister Nirmala Sitharaman last week announced a plan to auction off as many as 500 mineral blocks over an unspecified period, but given the pace at which even the auctioned blocks turn operational, the investment landscape in the sector doesn’t look improving all too soon.

Mining of non-coal minerals has been made more attractive to investors in recent years with several steps like certainty of licence tenures and single-licence across the mining value chain (from prospecting to production), but an investor still needs to secure as many as 30 approvals to start mining. Worse, the most important environmental and forest clearances take 270 days and 570 days respectively, on an average. No wonder since the amendment to the Mines and Minerals Development and Regulation (MMDR) Act in 2015 to ease investment procedures, just 12 new mining blocks of non-coal minerals such as iron ore, limestone, bauxite have got operationalised. The low number of new operational leases is despite the fact that 95 such assets have been auctioned since the 2015 changes, which were intended to impart more transparency and efficiency to the process of regulation and award of leases.

The Mineral Laws (Amendment) Act, 2020, passed on March 12, allowed the new owners of the merchant mines, where lease period expired in March 2020 (auctioning was allowed even before the expiry of the lease period), to carry on mining activity for a period of two years from the date of grant of new lease, without acquiring fresh environment and forest clearances. The lease holders could also apply for fresh licence beyond the period of two years. The purpose of this leniency was obviously to fast-track investments and boost production.

Of the 95 blocks auctioned off since the 2015 amendment to MMDR Act, 19 belonged to this category; sources said after making required payments, these mines would start production immediately.

Apart from the sticky regulatory issues and the tedious delays associated with grant of environmental and forest clearances, the enormity of taxes and levies also continue to be an irritant for investors in non-coal mining, where India’s performance is far below potential, making it vulnerable to huge import bills. Indian levies, on average, are around 40-45% (without including the corporate tax) compared to 5-14% globally.

“It practically takes two-three years to get all the approvals. We would have been happier had the government allowed de-facto approvals of these clearances and allowed us to start mining immediately after granting leases to us,” said a Karnataka-based miner, on condition of anonymity.

Investors in the mining sector have also been thwarted by the end-use restrictions. The condition for at least three bidders also hampers the leasing out process, even in cases where investor interest exists. In January this year, the Centre issued an Ordinance to make available dozens of captive coal mines, without any end-use restrictions. So domestic and foreign steel companies, aluminium or copper producers and also local power companies can now take part in the auctions to be held to reallocate the captive blocks cancelled by the Supreme Court in 2014. So far, only 90 of the 204 blocks cancelled by the apex court have been reallocated — including 60 assigned to PSUs on a nomination basis and 29 auctioned off — and just 29 of them are operational.

In the past, Vedanta chief Anil Agarwal has pointed out that just 10% of India’s area with mining potential has been explored as compared to 95% in the case of Australia. Agarwal, in fact, is of the view that a sensible mining policy can cut minerals imports by half and create 20 million jobs in the bargain.

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