Mining: Turn closed mines into assets

May 24, 2021 7:00 AM

Clear guidelines and their sound implementation will help minimise environmental hazards and unlock the economic potential of closed mines

Mining: Turn closed mines into assetsCurrently, a final mine closure plan is required only two years before the final mine closure. (File image)

By Satnam Singh

India needs clearer regulatory prescriptions, with better technical and financial systems, to minimise the environmental and safety hazards emanating from abandoned or exhausted mines, and unlock the economic potential of these land parcels.

The mining sector has been one of the prime movers of the economy, contributing ~2.5% to the GDP as of FY20. However, while its benefits are clear, the sector’s environmental impact (land degradation, water and air pollution) and socio-economic costs (health hazards, alteration of social structure, etc) have not been addressed adequately.

There have been some reforms, of course. For instance, miners are required to submit progressive mine closure plans for five-year periods from the beginning and a final mine closure plan near the end of the project. A requirement of financial assurances has also been provisioned for both coal and non-coal minerals, as a safeguard against the liabilities. Also, following a Supreme Court directive, the government has made re-grassing of mined-out areas a mandatory condition while giving green clearances to mining projects.

Limitations of current norms
Currently, a final mine closure plan is required only two years before the final mine closure. This limits the regulators’ ability to assess whether the applicant has identified its obligations and is capable of addressing these. The closure requirements have also not been spelt out explicitly, leaving scope for liberal interpretation by the miners. Further, the unit rates are flat and low. The 2019 guidelines provide an inflation-indexed unit rate for coal projects, which stood at Rs 9 lakh per hectare in 2020. For minerals other than coal, the rate is Rs 1.5 lakh/hectare. In comparison, the unit rate in Western Australia varies in the range of Rs 1-28 lakh per hectare and Rs 1-26 lakh per hectare in South Africa, based on the category of land disturbance/associated work.

Also, currently, the assurance amount is deposited in a tripartite escrow account (for coal) annualised over the mine’s life. Given the long mine life of mineral deposits, the regulator is exposed to significant liabilities in case of mine abandonment in early stages. Based on the unit rates for coal mines, the assurance required for an area of 2,550 km2 is of Rs 22,950 crore, while the amount held by the coal controller until 2019 was just 42% of this, at Rs 9,765 crore. For other minerals, for 3,250 km2, the requisite amount of guarantees is Rs 4,875 crore, while the amount in the government’s hands is Rs 2,000 crore. Further, the system of refunds is inappropriate, under which up to 50% of the escrow deposit can be refunded based on expenditure on closure activities.

Six steps that can help
First, there should be a detailed guiding document for mine closure plans, highlighting the obligations and the content/information to be furnished. Second, the mine closure plan should be sought at the time of licence approval – on a conceptual basis, and reviewed periodically – so that the risks and liabilities are accounted for from the beginning. Third, the unit rates being used for calculation of financial assurance should be reviewed and aligned to true closure costs based on a sample of mines. Fourth, the current system with liabilities extending until the end of the mine’s life, should be re-examined. Fifth, the refund system, which is expense-based currently, should be made performance-based and linked to milestones. Also, there should be a self-sustaining funding mechanism to tackle orphaned mines.

To reiterate, with clear guidelines, planning and implementation, and responsible closure, we can minimise environmental damage and unlock the economic potential of closed mines through reclamation and rehabilitation.

The writer is Director, CRISIL Infrastructure Advisory. Divanshu, Consultant, CRISIL Infrastructure Advisory, also contributed to the article

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