Opinion

Bolstering the ongoing mining reforms

Rajesh Chadha/Ganesh Sivamani | Updated on March 04, 2021

Economically unviable: Many blocks have been won with irrationally high bids   -  GN Rao

Transparency apart, the auctions must provide enough revenues for the exchequer and incentives to industry

On August 24, 2020, the Ministry of Mines issued a notice on proposed reforms in the mining sector under nine sections and received comments and suggestions till September 3. The Union Cabinet has given a green signal to these reforms and plans to present the amendments to Parliament during the ongoing Budget Session.

One of the major reforms deals with revamping the exploration policy, ensuring a seamless transition from mineral exploration to production, thus incentivising new investments and increased production and employment. While the National Mineral Exploration Trust (NMET) funds may encourage exploration, much more investments are required to come from mining companies and junior explorers, including foreign investments.

The government may refrain from using taxpayers’ money for highly risky exploration ventures. The government could adopt the Open Acreage Licensing Policy (OALP) used in the hydrocarbons sector to allocate non-fuel mineral exploration rights sometime soon. The Geological Survey of India (GSI), Mineral Exploration Corporation Ltd (MECL), and state Departments of Mines and Geology (DMGs) should keep engaged with reconnaissance and mapping of deep-seated minerals.

The mining reforms also seek to resolve the long-pending issue with Sections 10A(2)(b) and 10A(2)(c) of the Mines and Minerals (Development and Regulation) Amendment Act, 2015 (MMDR-2015). There were many cases of pending reconnaissance permits (RPs), prospective licences (PLs), and mining leases (MLs) which were eligible to be granted under the earlier first-come first-served (FCFS) regime.

MMDR-2015 provided two years for pending mining leases and five years for pending reconnaissance or prospecting licences to be executed. The mining reforms suggest auctioning these pending licences. The expenses incurred by eligible cases would be reimbursed from the NMET funds. This issue has been subject to debate on why appropriate actions were missing to grant licences within the allocated period.

While in some cases, the project proponents did not take the necessary course of action for retaining their mineral grants, in others, the applications remain pending with various regulatory authorities. The logic of reimbursing the exploration expenditure incurred is somewhat fragile, given that it might lead to lengthy legal battles with regard to the amount which respective companies had spent. Even if such estimates can be agreed to, there would not be reimbursement of the lost prospective future income. There is a need to revisit the treatment of these legacy cases.

The third reform aims to remove the distinction between captive and non-captive mines by removing the provision in auctions to restrict end-use by captive miners, which is a welcome step. A level-playing field will allow merchant miners to become more competitive and innovative, resulting in cheaper downstream products and a boost to exports. However, it is not clear why the existing captive miners can sell only 50 per cent of the total mineral excavated in the previous year.

In the fourth reform, the government aims at developing a market-determined transparent National Mineral Index (NMI). The royalty, District Mineral Foundation (DMF) fund and NMET charges would be computed based on NMI and not on the average sale price (ASP), as per the existing practice. Transparency in estimating the mineral index of non-fuel minerals, such as the National Coal Index (NCI) for coal, would lead to an efficient allocation of resources with adequate returns to the exchequer. The prices have to be determined in the open market and computed as rigorously as the recently implemented NCI.

In the right direction

The next two reform proposals are in the right direction, viz. clarifying the meaning of illegal mining and rationalising stamp duty across States. The seventh reform measure addresses amendments to DMF rules for building tangible assets in the mining-affected areas, such as medical-care facilities, education centres, and transport links. These are useful for long-term socio-economic development of the mining-affected communities. For short-term gains, the focus should also be given to skill development, to ensure income security for the affected districts. Covid-19 has provided yet another opportunity to help the affected local communities.

The mining reforms also aim to bring unused mineral blocks back into production to generate employment. Mineral blocks allocated to public sector units and private companies that have not been utilised within 2-3 years would be de-reserved and auctioned — this is an important step to ensure that mineral assets are used optimally. A review of NMET’s functioning is also in the offing.

A 2018 amendment, which diluted the trust’s autonomy, will be reversed with this reform. The renewed autonomy will help reduce bureaucratic hurdles and make it easier for the trust to make decisions on exploration investments. While this is a good step forward, it should be emphasised that the funds accrued with NMET are minuscule compared to India’s mineral exploration requirements.

To generate a vibrant and globally competitive mining sector, India must implement the National Mineral Policy (2019). The policy offers suggestions on incentivising exploration and attracting private investment through a seamless transition from reconnaissance to extraction, or other means as per good international practices.

Exploration efforts should focus on minerals where India has the geological potential but low resource and reserve base. These include “energy-critical minerals, fertiliser minerals, precious metals and stones, strategic minerals and other deep-seated minerals”. The policy also suggests offering pre-embedded statutory clearances with auctioned mineral blocks to reduce the time spent on receiving clearances.

Finally, the government must consider the issues that have emerged from the auction allocation system. Many blocks have been won with irrationally high bids, sometimes above 100 per cent of the value of minerals to be mined, which does not seem to be economically justified in the backdrop of such mines’ efficient and sustainable operations. It would be pertinent to review and reform the existing auction process or switch to an alternative method of allotment, such that mineral block allocation remains objective, fair, and transparent, and provides adequate revenues for the exchequer and incentives for the mining industry.

Chadha is Program Director and Sivamani is Research Assistant, Natural Resources, Centre for Social and Economic Progress. Views are personal

Published on March 04, 2021

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