Ficci for auction system for allocating natural resources

Industry body Ficci today suggested an auction-based system for allocation of natural resources including iron ore, coal and telecom spectrum for the consideration of Ashok Chawla Committee.

At present, the system of first-come-first-served basis is followed for allocation of most of the minerals.

Ficci said that a transparent, auction-based system similar to NELP (National Exploration Licensing Policy) can be adopted while granting licence for fully explored blocks of minerals.

In order to attract large investments in exploitation of natural resources wherein multiple parties can stake claim, NELP process allows allocation of licences through a transparent auction and competitive bidding process only, it said.

In case of unknown mineralisation, it said that the Committee may consider Open Sky policy.

"In order to incentivise large investments for exploration of unknown minerals, preference may be given in allocation of mines to those who have participated in the exploration of unknown minerals," it said.
    
However, Ficci said that auction-based system may not be appropriate in those cases where adequate information about the extent/size/grade of minerals is not there.
    
"In such cases, it may lead to a speculative bidding with a high risk of over paying by investor, which may force him to abandon the project midway with associated environmental, social and technical consequences," it added.
    
It is, therefore, suggested that auctioning should be limited to fully explored blocks and other areas should be granted on First-Come-First-Served basis subject to competitive criteria of technical expertise, financial resources and investment proposed.
    
The chamber suggested to the committee that a time-bound mechanism should be in place to ensure development of mineral resources, it said, adding strict penalty clauses should be put in place in case of non-adherence to development plan.
    
"This would ensure that only serious players are given mines and they are developed in a timely manner," it said.
    
For mining leases, the government may consider flexibility in payment mechanism instead of adopting one mechanism for all minerals.
    
"Government may consider drafting mineral specific terms for mining leases, which may include modalities like production sharing, signing bonus with royalty," Ficci said.
    
Further, it said that value addition should get due weight while allocating the mineral resources through open competitive bidding.

The Union cabinet secretariat had on February 8 set up a high-powered committee headed by former finance secretary Ashok Chawla to suggest a roadmap for efficient and transparent distribution of scarce natural resources such as telecom spectrum.
    
For spectrum, Ficci has suggested auction-based system for allocation.
    
Except for 3G, India had been following the principle of "First come first served" for spectrum, it said, adding that this policy was appropriate when there were limited number of operators.
    
"However, in the current scenario of a competitive telecom broadband industry, auctioning of spectrum may be the best method going forward," it said.
    
It also recommended that the government should releases more spectrum that is currently being held by PSUs and utilised inefficiently.
    
On coal, Ficci said that mining of coal may be opened to companies having strong technical and financial capability as long as they have entered into a long term tie-up for supply with specific end users.
    
The chamber also recommended to the committee that the proposed payment of 26% of the profit from mining or 100% of royalty whichever is higher in the (Mines and Minerals Development & Regulation) draft Act will adversely impact all stakeholders and may not serve the desired objectives as envisaged.
    
It said mining companies could be required to pay 25% of royalty in a year and this amount could go into the District Mineral Foundation.
    
Further, it said that there was a need to bring parity between private and PSU players in allocation of mineral resources.
    
At present, state Governments provide exclusive reservations to PSUs in allocation of certain mineral reserves.
    
"The Government needs to release substantial mineral reserves for exploration and exploitation by the private sector to attract the required investments in the sector," it said.