States can call bids at mineral prospecting stage

Granting mining leases will not be the only area where auctioning would be employed as a method of screening corporates, as per a proposed legislation.

The new mining Bill, which the Union Cabinet approved recently, empowers the states to call for financial bids even at the pre-mining stage of prospecting the mineral. States will also have the freedom to ask for either upfront payment from miners or seek a share of revenue from production.

The option would ensure that states, the owners of the country’s vast and rich mineral wealth, get maximum possible value for the mineral in cases where the value of mineralisation is better known even if exact quantification of its value has not been done.

A higher financial bid is one of the seven criteria on which weightage would be assigned to a company for grant of prospecting licence (PL) under the new bidding regime in mining.

The state government, according to the new Mines and Minerals Development and Regulation (MMDR) Bill 2011, “may specify that any application received shall be considered with reference to such criteria including a financial bid quoted either as a lump sum recoverable in instalments at the time of mining or a percentage of royalty or a profit sharing of mineral production as per the weightage assigned.”

While the mines ministry was originally in favour of restricting competitive bidding only for grant of mining leases (ML), the Ashok Chawla Committee on Natural Resources recommended extending the auctioning provision to all the stages of mining from reconnaissance to prospecting to actual mining.

States, in turn, asked for bringing prospecting too under the ambit of auctioning fearing loss of revenue from deposits with known mineralisation of high value.

A case in point is the Kolar Gold Fields in Karnataka, where already established and highly-valued mineralisation has been in existence for many decades. A senior official from the mines ministry said the states argued it would not give them a better deal if corporates for prospecting in such deposits were invited on a first-come-first-served basis.

“Therefore, the states using the provision of bidding at prospecting stage would depend from one ML to another,” he told Business Standard.

The amount quoted by a mining entity in its financial bid to be shared with the state government at the time of seeking PL would, however, have to be paid only at the time of actual mining.

Apart from financial bids, other criteria for assigning weightages to offers for prospecting as per the new MMDR Bill include value addition of ore, ore linkages through long term agreements with end-use industry, constructing infrastructure facilities and employing advanced technologies for mining.