Industry divided on mineral auctioning; mines' development still a concern

As the Union government looks for suggestions from the domestic mining industry for enhancement of private investment in the sector, industry stakeholders remain divided on the auctioning of minerals under the Amendment in the MMDR Act 1957.

Finance Minister Nirmala Sitharaman had in May asked for more private investment in the mining sector under the Atmanirbhar Bharat scheme and industry stakeholders are to submit their suggestions to the government by September 3.

While a section of the industry continues to lobby for mineral auctioning, industry bodies such as Federation of Indian Mineral Industries (FIMI) want more private involvement in exploration, which remains subdued because of tipid government efforts.

After the amendment in the MMDR Act in 2015, 97 mineral blocks have been auctioned so far at 80 per cent-130 per cent bid premium.

“We are advocating mine auctioning primarily because it will bring down the cost of production for a steel producer and make steel more competitive in the market. The product after it leaves the plant today lands up paying upto 14 per cent more making it less competitive. Captive ores will ensure lower cost of production,” Bhaskar Chatterjee, secretary general at Indian Steel Association (ISA), told Business Standard.

The state exchequer is estimated to earn a total revenue of Rs 8 trillion from the auctioned mineral blocks over the lease period, including an estimated contribution of Rs 6 trillion through auction premium.

Moreover, around Rs 1.3 trillion will come to the state by way of statutory payments i.e. royalty, miners contribute to District Mineral Foundation (DMF) and contribution to National Mineral Exploration Trust (NMET).

“Mines that have been auctioned at premium are brownfield mines. Till day, not a single greenfield mine of the 52 (mines) that were auctioned has come into production. They are stuck for want of clearances so auctioning is not helping in developing resources,” said B K Bhatia, joint secretary general at FIMI.  

Before the amendment of MMDR Act, 1957, about 123 mines were granted reconnaissance permit, which is a very preliminary exploratory phase, and 688 mines were granted prospecting licence during 2006-2014. After the amendment in 2015 for auctioning, however, not a single mine has been granted a reconnaissance permit, while only one mine received prospecting licence, said FIMI.

Going forward, to further streamline the auction process, the government is planning to repeal the existing mineral concession under the section 10A2(b) and 10 A2(c) of the MMDR Act, 1957, which are being blocked by the merchant miners, said industry officials.

The government is planning to delete this clause so that around 700 odd mineral blocks will come into auctions and generate huge revenue for the exchequer.

“When these concessions were granted to the miners, there was no sunset clause. Deletion of the clause sends a wrong message within the country and across the globe that there is no consistency in the laws of this country. This can impact the investment climate in the sector going ahead,” said Bhatia.

The miners of these blocks are not just merchant miners, it includes captive owners as well, added Bhatia.

Before the amendment of the MMDR Act 1957, mining in India was carried out largely by merchant miners. These miners could also control production of the mineral resource in tune with the demand, in turn governing the supply-demand equation.

“It is time India’s mining sector has private investment in the exploration of minerals instead of leaving it entirely to the government entities which have limited funds and cannot use huge amounts of public funds for the same,” explained Bhatia.

Mineral Exploration Corporation Ltd (MECL) and Geological Survey of India (GSI) are some of the dedicated government entities engaged in carrying out exploration activities in the country.

“A private investor (domestic or global) in exploration and prospecting should be then allowed to even sell the rights to a party on a first come first basis with of course certain checks and balances. This will ensure adequate investment (which is huge) mainly needed in deep-seated minerals such as gold and diamond that India largely imports today,” said Bhatia.

Globally, mining countries such as Canada, Australia and Brazil have high private participation in exploration activities in minerals making them some of the largest mining countries in the world.