Govt unlikely to lower upfront payment rate

Performance rate and payment interest rate might also remain unchanged

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The government is unlikely to bring down the rate for upfront payment or performance security that companies would be paying after winning a mining licence (ML) or a composite licence (prospecting licence-cum-mining licence, or PL-cum-ML) according to the new mineral auction rules.

Moreover, the government might not change the interest rate of 24 per cent per annum - proposed in the rules - which the company will have to pay in case it delays payment of any government dues for more than 60 days.

"We do not think any of these three rates are too high, which can't be paid by these companies. However, things will get clear for everybody as the final draft of rules is coming soon," said a senior official on condition of anonymity.

According to the proposed rules - made according to the Mines and Minerals (Development and Regulation) Act, or MMDRA Act - the company winning the auction will need to pay half a percentage of "value of resources" as an "upfront payment" to the respective state government.

Similarly, the company will need to pay 0.5 per cent or 0.25 percent of the "value of resources" as performance security to the state government when it wins an ML or composite licence, respectively.

According to the rules, the "value of resources" would be calculated by multiplying the estimated quantity of mineral resources (in tonnes) present in the area with the average price of such mineral (average grade) as published by the Indian Bureau of Mines for the relevant state. This average price would be calculated for a period of 12 months immediately preceding the month of computation of "value of resources".

All these three rates need to significantly decrease in order to give a boost to the mining and steel sectors, both the sectors are facing massive downturn. "Steel companies - most of them already in the red -do not have such amount to give for upfront payment," said a top steel company executive on condition of anonymity.

According to the proposed rules, if the state government has "inadequate evidence of mineral contents" after the first stage of reconnaissance, it can directly initiate the auction process for the composite licence. There was no such provision of composite licence in the earlier mining law.

On the other hand, if the state government has "adequate evidence of mineral contents" for the mine area concerned, it can directly go for an ML auction.

A reconnaissance permit (RP) is granted for preliminary prospecting through regional, aerial, geophysical or geochemical surveys and geological mapping. A PL is required for exploring, locating and proving mineral deposits. An ML is required finally to extract minerals.