Mining ordinance may hike costs, block existing ventures

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Mumbai | Published: January 7, 2015 1:00:35 AM

If the ordinance drafted by the government to amend the 57-year-old Mines and Minerals...

If the ordinance drafted by the government to amend the 57-year-old Mines and Minerals (Development & Regulation) Act is approved by the President, the auction of hundreds of mining leases for major minerals like iron ore, copper, bauxite and limestone could be fast-tracked. While the auction would ensure transparency and boost government revenue, the industry feels the ordinance could jack up costs and interrupt many existing ventures.

The Federation of Indian Mineral Industries (FIMI) contends the auction route might not be desirable in all cases, as it could jack up costs, adding that both (existing) captive and non-captive mines should be given a 15-year transition period (the draft ordinance allows 15-year reprieve from re-auction for captive mines, while extant non-captive mines would be put to auction after five years). Private miners are also opposed to the proposal to give a special dispensation, circumventing auction, to PSUs when it comes to grant of mining rights.

The other changes proposed in the ordinance, cleared by the Cabinet on Monday, are investor-friendly, though. For instance, it proposes transfer of mining leases and other rights (like prospecting and reconnaissance licences) between firms. Also, procedures for granting concessions are proposed to be expedited. The key incentive for investors of course is longer (50 years) and secure tenures being proposed.

RK Sharma, secretary general, FIMI, told FE: “The mining ordinance discriminates between public and private miners and between captive and non-captive ones, and goes against fundamental rights and is hence illegal. Unless governance improves, the auction system is liable to be misused.”

Analysts, however, point out that auction is the best route to allocate natural resources and that the government’s proposal complements a process initiated recently to auction captive coal blocks cancelled by the Supreme Court.

The idea is that, as far as possible, allocate minerals, especially when reserves are confirmed and can be extracted without too much risk, only through auction.

The transfer (tradeability) of reconnaissance and prospecting licences and associated data would also allow firms to develop business models around this activity. Transfer of mining leases will, however, be subject to conditions. The ordinance seeks to ensure community participation and stakeholder consultation in mine closure planning. Also, revenue from mining will be ploughed back into the local area for infrastructure development and to compensate those affected — district mineral funds would be created for this purpose.

The MMDR Bill introduced by the UPA government in Parliament in 2011 proposed security of tenure and transferability of rights and also aimed at incentivising the exploration for minerals in which India is deficient, for the simple reason that the deposits are deeper and difficult to take out.

While auction was proposed then for minerals whose deposits are fully-prospected, the idea was to have a direct-allocation system for base metals like lead, noble metals like gold and the 17 rare earth elements.

The ability to access high technology and risk capital was meant to be the deciding criterion for allocation of these minerals, whose deposits are deeper/concealed.

While amendments to MMDR Act have been pending since 2011 when the UPA government had brought a Bill, the Modi government intended to table the Bill in the winter session but could not.

Management of mineral resources vests with both the Centre and state governments as per the Seventh Schedule of the Constitution. As per the extant law, regulation and development of minerals is the states’ job, except to the extent that Parliament, by law, says otherwise.
Ownership of minerals (except offshore minerals) is vested with the states and so, in all cases, licensing and leasing powers are also with the states.

The UPA government had proposed there will be no need for states to continue with the concept of prior approval of the Centre, except in the case of coal and atomic minerals.

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