Eight years since grant of mining leases for non-coal and non-fuel minerals was brought under mandatory-auction regime, the sector has seen a big shift away from the so-called merchant miners to larger integrated players.
Another impact of the policy change carried out with the 2015 amendments to the Mines and Minerals Development and Regulation (MMDR) Act, 1957 is a boost to government coffers, in the form of revenues from assorted levies.
A negative fall-out is seen to be job losses or low growth in new employment, as the merchant mining sector used to have a relatively high employment elasticity.
Though overall production of the sector has remained steady, exports, excluding precious stones, have declined to the lowest in four years to Rs 15,424 crore in FY23, implying that fresh investments are yet to show results on the ground.
Of the 324 mining blocks successfully auctioned in the last eight and a half years, only a few have gone into the hands of the private-sector merchant miners. The rest are bagged by the likes of JSW Group, Vedanta and others. Relatively bigger merchant miners are trying to remain relevant by setting up end-use facilities.
“The situation is such that, by the end of this year, hardly 5-6 large merchant miners will operate in Karnataka compared to 105 before 2015. Similar is the situation across the country. Auction is killing merchant miners. No merchant miners are getting leases through auction. Only those nerchant miners whose leases have been extended are operating now,” said H Noor Ahmed, former president of Federation of Indian Mineral Industries (FIMI). A Karnataka-based merchant miner, Ahmed has recently forayed into the steel business.
On the positive side, auctioning has enriched the coffers of the resource-bearing states. As per the Mines and Minerals (Development and Regulation) (MMDR) Act, 1957, the state governments are empowered to grant mineral concessions for the minerals within their jurisdiction. The revenue generated from mining activities, viz.
royalty, contribution to District Mineral Foundation (DMF), auction premium, etc., accrues to the respective state governments.
However, the contribution to the National Mineral Exploration Trust (NMET) accrues to the Central government.
Under the Act, new leases granted through the auction route after January 12 2015, are required to pay 10% of the royalty, while for leases granted before 2015, the holder must pay 30% of the royalty towards DMF.
Till July this year, a whopping Rs 81,283 crore has been collected on DMF alone. This amounts to a transfer from merchant mining industry to the larger players and the government.
Before the MMDR Act amendment in 2015, non-coal mines were allocated through the “first come, first serve” method.
Also, the MMDR (Amendment) Act did away with the lease renewal system. This led to the surrendering of leases by many merchant miners. As a result, the number of granted mining leases fell to 3,314 in 2020-21 from around 11,000 in 2014-15.
All new mining leases have been awarded for 50 years now.
While captive and non-captive distinctions for leases put up for allocation in the auction regime’s initial days hurt the merchant miners’ interests, the government subsequently eliminated the differentiation to encourage more participation in the auction process.
This, however, did not alter the fate of the merchant miners. This is because to secure a lease, they must match premium-paying commitments, which often exceed 100%, made by integrated players. High premiums are quoted by such firms as they seek to ensure raw material security.
A premium commitment of 101% means for every Rs 100 a bidder earns from the sale of minerals, he has to pay Rs 101 premium to the government. In one case, the premium commitment of the winning bidder was as high as 154%.
In addition to auction premiums, the new lessees must make other payments such as royalty, DMF and NMET of about 16.8%, which defies any economic rationale for the merchant miners to be in the business.
The revenue share percentage further increases when other statutory payments (corporate tax, GST, 2% CSR, etc.), cost of mining, salary and other operating expenses are added up.
While entities having end-use facilities the pay extra amounts as taxes to secure their raw material linkages for the future, merchant miners can’t bear such costs.
As a result, the number of reporting mines has been constantly on the wane, from 1,385 in 2019-20 to 1,375 in 1920-21 and further to 1,319 in 2021-22, according to the mines ministry data.
There were 3,314 mining leases granted till March 2021. The share of the merchant miners is set to go down further as they hardly participate in the auction process nowadays, accoridng to industry players.
Former NMDC Chairman and the immediate past President of the Federation of Indian Mineral Industries (FIMI) said though the auction regime has brought in a lot of transparency, it has created a situation where merchant miners are not in a position to quote the premiums like those having end-use facilities. “Though the mining operation is on, the category of merchant miners is shrinking,” he said.
While there is wide array of non-coal minerals, the most mined include bauxite, limestone, iron ore, chrome ore, manganese ore, and graphite. Deep-seated minerals like copper, zinc, lead, nickel, cobalt, gold, silver, platinum group of minerals and diamonds are also under the new regime.