New Mining Act: well intentioned, but loopholes exist

The Act slips on certain key provisions that could foster the very practices it was designed to do away with

The September 2014 Supreme Court order, cancelling as many as 40 mining leases, 26 of which were  in Odisha alone, was probably one of the key triggers to the promulgation of the Mines and Minerals (Development and Regulation) Amendment Ordinance, 2015 in January. The mines were operating without renewal of the underlying licences which had expired, lending credence to the view that mining activity in the country lacked transparency and was fraught with rampant arbirtrariness in the allocation of excavation rights.

However, the order of the apex court, though justifiable, adversely impacted the mining sector, forcing the manufacturing units to rely on import of minerals. The impact of this was also felt on the economy.

It is an irony that some of the poorest districts in India are simultaneously its wealthiest. If that sounds contradictory, let us take the case of the mineral-rich western region of Odisha, in which almost 90 per cent of the population in three districts --- that's as many as 1.2 million families -- is steeped in poverty. Little, if at all any, of the exploited mineral wealth contained in the region trickles down to these people.

To unlock the potential of the mining sector and to achieve other objectives such as attracting private investment in exploration, leveraging the latest technology and improving environmental performance within the mining sector, that the Mines and Minerals (Development And Regulation) Amendment Act, 2015 (“MMDRAA”) was passed in March this year. At the same time, the legislation seeks to safeguard the Government's fair share of value of mineral resources and comes down heavily on illegal prospecting and excavation.

Salient features

The upside of the MMDRAA is the introduction of a system of auctions to allocate mining licenses, thereby fostering transparency and doing away with favouritism and arbitrariness. A fixed percentage of the revenue from a mine, specified by the State Government, is to be set aside for development of its vicinity. This corpus will be administered by a District Mineral Foundation (“DMF”), and will be in addition to royalty.

MMDRAA also provides for a National Mineral Exploration Trust (“NMET”), for regional and detailed  exploration. The NMET  will be funded by a sum equivalent to 2 per cent of royalty from mining lease or prospecting license cum mining lease holders. The Central Government will lay down the composition and functions of the NMET.

Leases will be valid for 50 years -- compared to 30 years earlier -- after which the leases will not be renewed, but will be re-auctioned. A new type of license i.e. a prospecting license-cum-mining lease, which replaces a two-stage process, applies to all minerals except those that are notified, such as iron ore, limestone, manganese and bauxite, which only require a mining licence. A mining lease or prospecting license-cum-mining lease is transferable with the approval of the State Government. If the State Government does not convey its approval within 90 days of receiving the notice, it will be construed that the has approved the transfer.  Mineral concessions granted through auction only will be allowed for transfer.

MMDRAA makes illegal mining, trespassing and violation of provisions of the principal Act, cognisable offence punishable with imprisonment for a term up to five years and fine of up to Rs 5 lakh per hectare of the area. The State Government is authorised to set up special courts for  trial of offences.

Despite the best intentions, however, there are certain drawbacks in the MMDRAA that the Central government might want to address.

Auction: While the mechanism addresses the issues of transparency and fair play, in its current form:

•    It is devoid of socio-ecological safeguards and has no mechanism to deter mining in eco-sensitive zones.

•    Both government revenues and the corpus set aside under the DMF for the local population are likely to be adversely affected, due to inability to determine/assess correct valuation of mineral wealth in respect of prospecting license-cum-mining leases.

Transfer of excavation rights: MMDRAA permits transfer of mining lease or prospecting licence-cum-mining lease granted through auction, but does not dwell upon mining leases not acquired through auctions. This will adversely impact/stall mergers and acquisitions in mining sector.

Transfer also has the potential of allowing the initial leaseholder to  completely strip an asset of its wealth before selling excavating rights to another party.

Extension of lease area: The powers vested with the Centre to inter alia increase the area of a mine again works to the detriment of the local communities, as greater area under mining means displacement of a larger number of people. In any case, past experience has shown that displaced communities have neither been adequately compensated nor rehabilitated.

The bottom line is while the MMDRAA is well intentioned, it slips on certain key provisions that will invariably give a fillip to the very practices that this piece of legislation was designed to do away with.

The author is a partner at Shardul Amarchand Mangaldas. Views expressed are personal. (ashoo.gupta@amsshardul.com)