MMDR rules to retain 2 stage auction model

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Published: May 5, 2015 12:50:20 AM

The government is unlikely to accede to the industry's demand for doing away with the two-stage auction model proposed for iron ore, bauxite, limestone and manganese ore.

The government is unlikely to accede to the industry’s demand for doing away with the two-stage auction model proposed for iron ore, bauxite, limestone and manganese ore. Official sources told FE the draft rules under the recently amended Mines & Minerals Development and Regulation (MMDR) Act would be “broadly unchanged” and the proposed separation of technical bids from financial bids would be retained.

According to the draft rules released in the first week of April, only the first few among the technically qualified bidders will be allowed to place financial bids. Steel and mines minister Narendra Singh Tomar said the final rules would be notified within a week or two.

The auction route for allocation of mines for the four notified minerals marks a major policy departure from the present system of allocation on a nomination basis. Raw material-rich states like Odisha, Jharkhand and Karnataka would benefit from the new system as they will get auction revenue apart from royalty income (rates of royalty were hiked in August; in case of iron ore, by a huge 50%). Additionally, miners who get fresh leases under the auction mechanism will now have to contribute 33% of royalty to the proposed district mineral foundations.

Miners’ body FIMI has objected to the two-round auction, contending that it could create uncertainties for bidders. One-stage bidding will be enough to ensure transparency, the miners said, adding that also left space for more players to participate.

As per the draft rules, in the first phase, prospective bidders are to submit a technical bid along with an initial offer price. The highest offer price would be the floor price for the final round in which only a few qualified bidders would be allowed to take part and the one which submits the highest price would be chosen as preferred bidder.

To ensure the ongoing impasse comes to an end and mining activity becomes robust, the government had in January promulgated an ordinance to replace the MMDR Act, 1957, that used to govern the sector. Subsequently, Parliament passed the relevant Bill and it was signed into law by the President.

The mining sector has been plagued by issues including ban on production and exports leading to a situation where domestic steel firms had to resort to import iron ore though India has one of the largest reserves. With the onset of the auction system, all mining leases would be allocated through the electronic route only. The Centre’s role in the system ends with formulation of rules. Auctions would be conducted by states and the fund generated would go to state coffers only. Sources said it might take three months for states to start the auction process.

‘Broadly unchanged’

Draft rules under the recently amended MMDR Act would be ‘broadly unchanged’ and the proposed separation of technical bids from financial bids would be retained.

Only the first few among the technically qualified bidders will be allowed to place financial bids.

Miners’ body FIMI has objected to the two-round auction, contending that it could create uncertainties for bidders.

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