Contrarian clause

Reform of mineral concession sales imperative

The amendment to the Mines and Minerals (Development and Regulation) Act passed in March 2015 was rightly praised for introducing the relatively transparent auction system for natural mineral resources, building on the trend set by the e-auctions of coal and telecom spectrum. As with most legislation introduced in recent times, however, some problems have emerged in practice. For example, a particular clause, 12A(6), has hurt the dynamism of the sector. It reads: “The transfer of mineral concessions shall be allowed only for concessions which are granted through auction.” This unequivocal statement was designed, no doubt, to provide a level playing field for those companies that paid large sums in competitively bid auctions vis-à-vis those that acquired their mines relatively cheaply through the old system of allocations with all its implications of opacity and corruption.

A level playing field is a creditable objective, and should indeed be the purpose of government policy. But enabling an exit option only for one set of rights-holders, while denying it for another, is not the way to do it. It locks into policy-induced legacies those companies with mines and mineral concessions that pre-date the amendment. The wider obstructive implications of this are already manifest in the number of merger and acquisition deals that are stuck as a result, such as the Aditya Birla Group-owned UltraTech Cement’s plan to acquire the entire cement capacity owned by Jaiprakash Associates, Anil Dhirubhai Ambani Group’s plan to sell the cement business of Reliance Infrastructure and Holcim’s plans to sell its assets in India following a global merger with French cement giant Lafarge. All these cement businesses have captive mines of limestone, a mineral critical to cement manufacture that comes under the ambit of the amended MMDR Act.

The irony of this restrictive clause is that it has become an impediment to other significant developments impacting the Indian business landscape. The sales of Jaypee and Reliance Infrastructure’s cement businesses, for instance, are part of a plan to reduce huge debt burdens. This, in turn, would have gone a long way towards taking some pressure off the stressed assets crisis that is afflicting the Indian banking system, especially government-owned banks. As diversified companies, both can go ahead with the sales but only after an extremely complex and time-consuming corporate restructuring to get round the provisions of the Act. In Holcim’s case, the inability to offload its India assets precludes it from conforming to a Competition Commission of India (CCI) stricture following the merger with Lafarge, an example of one Indian law at odds with another. Indeed, Lafarge’s efforts to sell its eastern assets to Birla Corporation to conform to similar CCI orders foundered for the same reason.

The government has indicated that it is amenable to amending the Act to accommodate these legacy issues. To maintain the level playing field, however, it should subject the legacy mines to the same set of conditions – set out in Section 12 – that apply to mines acquired through auctions with perhaps a premium, payable to the government and linked to the duration of the ownership of assets that were acquired virtually free in the heydays of the discretionary allocations regime.