Mines law hurdle for big cement buyout

The MMDR Act prevents transfer of mines unless granted through auction; firms appeal to govt for amendment

The big ticket acquisitions in the cement sector, announced recently by UltraTech, Reliance Cement and the imminent sale by Lafarge, will depend on a crucial amendment to the law on transfer of mines.

At present, the Mines & Minerals (Development and Regulation) Act, 2015, or the MMDR Act, does not allow the transfer of limestone mines to new owners of cement companies — unless the mines were granted through auctions.

The companies have appealed to the government to allow the transfer of mines, and are expecting an amendment to the Act in the ongoing Budget session of Parliament.

In case the amendment is not passed, the companies would have to seek alternative routes.

Aditya Birla Group’s UltraTech Cement is in the process of acquiring the entire 22.4 million tonne cement capacity of Noida-based Jaiprakash Associates, or Jaypee. According to sources, UltraTech Cement will pay Rs 17,000 crore for the deal.

An UltraTech official said, if the amendment is not made, Jaypee will carve out a separate entity that will own the group’s other businesses, such as hotels, construction and real estate. The residual company left behind will own the assets that UltraTech is acquiring.

When UltraTech completes the acquisition, it will also get the mining rights, under the current Act.

Earlier, the company did not acquire Jaypee’s cement units in Madhya Pradesh, as the Rs 5,500-crore deal would be considered a partial sale — and prevent the transfer of mining rights.

CONCRETE TROUBLE
Some big buyouts in the cement sector hinge on an amendment of the Mines & Minerals (Development and Regulation) Act, 1957:

• UltraTech Cement is acquiring the entire 22.4-million-tonne cement capacity of Noida-based Jaiprakash Associates
• To meet the Competition Commission of India guidelines after the global merger between Lafarge and Holcim, the former is now planning to sell all its assets in India. The Piramal group, the JSW group and KKR are in the race to buy the assets

HURDLE:

• The MMDR Act does not allow transfer of mines other than those acquired through auction. The companies have appealed to the government to change the law

Seeking comments from the people on the proposed amendments of the MMDR Act in January, the government said the transfer of captive mining leases, not granted through auction, would help banks and financial institutions to liquidate stressed assets when a company or its captive mining lease is mortgaged.

The transfer provisions will also allow mergers and acquisitions of companies and facilitate the ease of doing business. It will also help improve profitability and decrease costs of those firms that are dependent on the supply of mineral ore from captive leases.

The Jaypee group and the Anil Dhirubhai Ambani group-owned Reliance Infrastructure were selling their cement units to retire their debts.

Earlier, Lafarge did not sell its 5.15 mtpa assets in east India to Birla Corporation, citing the same provisions in the MMDR Act.

To meet the Competition Commission of India guidelines after the global merger between Lafarge and Holcim, the former is now planning to sell all its assets in India.

The Piramal group, the JSW group and the KKR are in the race to buy the assets.

One of the reasons that prompted the Prime Minister Narendra Modi-led government to amend  the MMDR Act last year was transparent auction of natural resources.