D R S Chaudhry: The new mining law is not enough

Delays in lease extensions and demands for penalty by certain states are causing confusion within the mining industry

Finance Minister Arun Jaitley stated recently that the steel industry needs to be strengthened to withstand global challenges, but emphasised that "any Band-Aid solution to offset the impact of external factors would not work".

He also said India's iron ore mining capacity should be expanded to curb rising domestic raw material prices and that it is a key way to make its steel industry competitive. It is very encouraging to see the government acknowledge the industry's concerns and seek to work together in resolving them.

Earlier this year, Parliament passed the reformist Mines and Minerals (Development and Regulation) Amendment Act (MMDR), 2015. This was a step in the right direction. Mining reforms are crucial for supporting the government's vision of making India a manufacturing hub. They are also a crucial part of the ease of doing business parameters, because mining is the first link in the chain of manufacturing.

While there is clarity from the central government on the law and the subsequent MMDR Rules, there is a mismatch in the interpretations by the state governments. Mining companies are facing a challenge when there are different interpretations to the same Rules between mineral-rich states like Jharkhand and Odisha. The primary issue is in the manner the Rules are being interpreted for renewal of existing leases. Confusion in such matters will only lead to closure of mines, stalled projects or underutilised capacity and an interruption in our vision of nation building.

Delay in lease extension or discrimination?
The Amendment Act brought about changes in the Mineral Concession System in India by laying down the ground rules for a transition to auction and bidding as the preferred method of allocation in place of the First Come, First Served basis. To ease migration to the new regime and with the larger economic interest in mind, the government of India had provided for a one-time extension for a period of five years for merchant mining and 15 years in cases of captive mining to the existing lessees awaiting renewal of mining leases. Unfortunately, this futuristic and facilitating provision is not being implemented in true spirit due to varied interpretations by the states, especially Jharkhand.

Section 8A (5) and (6) of the MMDR Amendment Act states the guidelines for extension of the leases. The government of Jharkhand, one of the two most resource-rich states in India, has decided to extend the lease from the date of execution and not the date of expiry of the last renewal.

Despite the fact that the new provision clearly indicates that extension has to be granted from the date of expiry of the lease period, the state government is insisting that though the extension is admissible, the operations carried out in the interim period are 'illegal'. With this interpretation, the Jharkhand government has issued demand notices to mining companies and has made the payment of penalty a condition for grant of extension and execution of a supplementary lease deed. This is discriminatory; it seeks to apply the provisions of the law in a selective manner.

Incidentally, most of the other major mining states, like Odisha, Rajasthan, Chhattisgarh and Madhya Pradesh have already extended the mining leases.

Impact of misinterpretation
Ensuring raw material is essential to safeguard the large financial investments made by the steel and cement industries. Closure of mines due to delays in lease extensions has a considerable impact on these industries, which are critical for infrastructure and becoming a manufacturing hub. We should also bear in mind that the mining industry is providing employment to a large number of people, both directly and indirectly.

In lieu of the resources that could be extracted from the now-shut or under-utilised mines, companies have had to resort to imports to meet raw material requirements. For example, a September 2014 Goldman Sachs report said that the incremental cost of importing ore for Tata Steel in 2014-15 would be Rs 1,365 crore, likely to impact its profit after tax by 18 per cent. Similarly, SAIL will face an impact of Rs 3,885 crore in 2014-15.

Until three years ago, India was a net-exporter of iron ore. However, it now imports both iron ore and finished steel from other countries. As per data released by the Joint Plant Committee (ministry of steel), India has imported 9.32 million tonnes of finished steel, which is 71.1 per cent higher than in the last fiscal year. Today, the Indian steel industry is reeling under pressure from several fronts domestically - from high cost of procuring raw material and low utilisation of steel plants, to softening of global prices, high debts and increased costs of financing.

The way forward
Indian manufacturers are putting their best foot forward in the face of low utilisation of steel plants to meet the growing demand. For this, the reforms in the mining sector need to be monitored. The finance minister is probably right when he says that 'Band-Aid' solutions will not work for pulling the industry out of its current state. But market economics is not the only factor that governs such industries. Periodic policy interventions are also needed. In order to give a boost to the mining industry, thereby directly impacting the steel and cement industries, it is essential that the Centre and state governments align their stance on key policy issues.

The writer was Union steel secretary