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FIMI debunks mine auction process; blames it for raw material shortage

Suresh P Iyengar Mumbai | Updated on January 18, 2021

Revenue earned by state governments much less than forex spent on imports, says FIMI

The Federation of Indian Mineral Industries has debunked the government projection of open auction of mines as the panacea for all ills plaguing the mining industry, and generating huge revenues for State governments through resource development.

Following an analysis of the auction system of mines in the last 10 years, FIMI said the system has resulted in scare setting in among various industries about the availability of raw materials, which led to high and unsustainable bids, and costly raw materials, rendering the industries unviable, leading to their imports and foreign exchange outgo.

Also read: Steel cos, iron ore miners spar over exports to China

While the state government has generated additional revenue of ₹2,026 crore in 2018-19, the lower coal production during the period resulted in imports worth ₹5,320 crore, leading to net expenditure of 2.63 times more than the revenue generated, said RK Sharma, Secretary General, FIMI.

Moreover, not a single greenfield mining project of coal or non-coal has come into operation while the country continues to import more coal and various metals, he said.

The auction has even halted work in previously operational mines having valid environment and forest clearances.

There were 37 coal mines in operation before the auction, but the auction process has reduced it to 20, bringing coal production from these mines down from 42.88 million tonnes in 2014-15 to 30 mt in 2018-19.

Of the 19 coal blocks auctioned last June, 17 were fully explored and two partially explored; these were expected to produce about 51 million tonnes per annum at their peak rated capacity.

Also read: Iron ore mine owners, govt at loggerheads over exports

Auctions have created artificial scarcity to the extent that companies are placing unsustainably high bids of beyond 100 per cent of the sale value of resources. Any mine at a premium in excess of 100 per cent would inevitably operate at a loss, FIMI said.

As per FIMI analysis, in case of 103 auctioned non-coal blocks, 103 per cent of the estimated value of resources auctioned will go to the government as revenue, indicating that the investor in the auction gets negative return on investment.

While 3,248 mining leases for non-coal minerals were executed in 2006-14, post introduction of the auction regime only 28 brownfield mining leases have been executed with pre-existing environment and forest clearances.

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Published on January 18, 2021
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