Tepid use of funds accruing to NMET slows down mineral exploration

Though Rs 10.48 billion has been collected under NMET as on July end, fund utilisation remains slow, with only 62 projects having been sanctioned

Insufficient utilisation of funds accruing to the National Mineral Exploration Trust (NMET) has slowed the pace of mineral blocks exploration in the country.

Though Rs 10.48 billion (as on July end) has been collected under NMET, the fund utilisation remains slow. Only 62 projects have been sanctioned. NMET is a non-profit body set up by the Government of India to finance exploration projects. As per statute, every mine lease holder has to contribute to the NMET an amount equalling two per cent of the royalty.

What has vexed some mineral bearing states like Telangana and Chhattisgarh is the release of funds from the NMET after the exploration activity is completed. This has hindered the scale of exploration with the states demanding the release of funds from NMET as advance.

When compared with global exploration standards, Indian exploration scenario offers a grim picture. The quality of geological database and its ease of accessibility do not stand up well as against other resource rich nations. More, the country’s exploration spends pales into insignificance when compared with the leading mine rich nations. Our exploration expenditure is estimated at $17 per square km, a puny amount compared with $124 in Australia and $118 of Canada, the countries with the highest mineral exploration budgets.

Besides, India has only eight agencies tasked with exploration work compared with over 400 in Australia and Canada. Despite the government opening up mining for 100 per cent FDI (foreign direct investment), the sector accounts for measly 0.8 share of the total FDI attracted by the country.

To deepen the scale of mineral exploration, the government has promulgated the National Mineral Exploration Policy (NMEP) 2016. The policy aims at bringing private parties on board for exploration over and above the state owned agencies such as Geological Survey of India (GSI) and Mineral Exploration Corporation Ltd (MECL).

Stakeholders, however, feel the policy needs an overhaul on various provisions to make it tempting for private exploration.

“For a successful explorer, returns in the form of revenue sharing for the entire mine life cycle may not be the most attractive proposition. Besides, a global miner will not be keen to risk his investments in exploration to bid again for the discovered mineral deposits. What will spur an explorer is the provision for mining rights or at least the Right of First Refusal over a block when it comes for online auctions either for PL (prospecting license) or composite license (PL cum mining lease)’’, said an industry source.

The NMEP also has a lacuna. After a successful exploration of a mineral block, its auctions may be put off if the government feels that the block cannot be monetised adequately due to market slump. “Such issues need to be clarified in advance to overcome ambiguities and potential risks in the value chain”, the source added.

Mineral exploration is a high risk business and entails significant capital outlays. But, there is little by way of tax sops to incentivise this activity. Some of the countries dangle attractive incentives to draw the best of the exploration companies. Under the Exploration Incentive Scheme, Western Australia refunds up to 50 per cent of the drilling costs for greenfield projects and provides funding for additional geophysical and geochemical surveys in the region. The Uganda government has abolished taxes on mineral exploration to spur investments. Taxes in the African country are only levied on mineral production. The same regulatory practice prevails in Cameroon.