Chawla panel wants bidding for mining licences

With state governments lacking transparency in allocation of mineral resources, the high-level committee to recommend a policy on distribution of scarce natural resources is likely to suggest auctioning of mines, despite reservations from the Union mines ministry.

The committee, chaired by former Union finance secretary Ashok Chawla and comprising key government secretaries and people from chambers of business, was tasked by the Union cabinet in February with recommending a policy both efficient and transparent. It is to give its report to the group of ministers on addressing corruption.

The panel is also likely to oppose the concept of profit sharing with project affected persons, on the argument that profit can be manipulated. Instead, it wants enhancement of royalty rates, of which a portion is transferred to a non-lapsable fund in mining districts.
 

CONCESSIONS PROPOSED IN MMDR BILL

• Reconnaissance Licence: Identifying areas of high mineral potential through geological studies. Given for large areas and for not more than three years.
  
• Prospecting Licence: Searching for a mineral deposit by narrowing on an identified area of high mineral potential. Given for smaller areas and for the same period as RL. Extendable by two years.
  
• Large Area Prospecting Licence: Given for deep-seated mineral deposits and combines the features of RL and PL. Given for large areas and longer periods of time, not more than six years.
  
• Mining Lease: Granted for beginning mining operations. Given for well-defined smaller areas and longer periods of time, between 20 and 30 years.

While recommending changes in the draft Mines and Mineral Development and Regulation Act, the committee has rejected the mines ministry’s suggestion on security of tenure for moving from the prospecting stage to actual mining without going through the bidding process.

The draft MMDR Act proposes inviting competitive bids for any mineral, except coal, for grant of a prospecting licence where the initial survey has been conducted and evidence of enhanced mineralisation is known.

Pros & cons
“The first-come, first-serve principle should remain in areas where value of mineralisation or resources is not known and, therefore, it is a risk for the entrepreneur, as the value cannot be estimated,” said a senior mines ministry official.

The domestic industry, too, feels auctioning be limited to cases where detailed exploration has been done. “In cases of unknown mineralisation, the Committee may consider an Open Sky policy. An auction system may not be appropriate in cases where adequate information about the extent of minerals is not there. It may lead to speculative bidding, with a high risk of over-paying by the investor,” said the Federation of Indian chambers of Commerce and Industry (Ficci) to the committee.

But the Chawla panel does not agree. It feels private companies would apply for a mining lease for well-defined deposits, using the principle of security of tenure. While the mining ministry feels a competitive bid process would have a negative impact on exploration, due to the risk involved.

The committee feels this fear is unfounded, since auctioning under the New Exploration and Licensing Policy (Nelp) for oil and gas has worked well, despite the exploration risks being more than those in the mining sector.

Panel
The committee wants that a prospecting licence be given out in a competitive manner, by making the MMDR Act less restrictive through removal of Sections 13(2) and (3) of the draft, that specify weightage for selection of the bidder.

For minerals found in surface deposits and where prospecting costs are likely to be low, mining licences can straightaway be bid out after acquiring more information on mineralisation through the Geological Survey of India or through private agencies.

Though the committee believes structuring of mining licences should be based on the production-sharing contracts under Nelp, mineral-specific and level-specific bid frameworks could be evolved.