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Centre gives partial relief on mining leases

A state govt may in its discretion identify a specific end use as a prerequisite for auction of ML

Deepak Patel  |  New Delhi 

With the Centre proposing to give state governments the powers to reserve end-use of any mine put up for mining lease (ML) auction, steelmakers have reason to cheer as merchant miners with deep pockets can be kept away, if state governments so desire.

However, much to the disappointment of steelmakers, no such proposition of reserving the end-use has been made in the case of a composite licence auction.

According to the recently-introduced mineral auction rules under the Mines and Minerals (Development and Regulation) Amendment (MMDRA) Act, 2015, “the state government may in its discretion identify a specific end use” as a prerequisite for auction of ML.

As most iron ore mines have “inadequate evidence of mineral contents”, under the Act, such mines would be auctioned for a composite licence only where the end-use provision has not been made. “The government should introduce this provision of reserving the mine end-use for composite licences, too. If the government can do it in coal auction, why not apply the same formula for mines auction?” said a prominent steel company owner from Odisha.

The concept of a composite licence, prospecting licence (PL)-cum-ML, for an area where there is inadequate evidence of mineral contents has been introduced for the first time in the recently passed MMDRA Act. PL is granted for exploring, locating and proving mineral deposits. ML is required finally to extract minerals.

Before the enactment of MMDRA Act, the state governments had the discretionary powers to hand over these licences. During that period, states had signed various memoranda of understanding (MoUs) with steel companies, asking them to build steel plants and assuring an iron ore mine or proper supply.

“There are about 20 steel companies in Odisha still waiting for their mines after building their plants according to these MoUs,” said a mid-size steelmaker from Odisha, now planning to bid for iron ore mines.

The MMDRA Act removed those discretionary powers with the state governments, asking them to auction either an ML or a composite licence. Discretionary power has been given to states only in cases of granting a non-exclusive reconnaissance permit, granted for preliminary prospecting through regional, aerial, geophysical or geochemical surveys and geological mapping.

With this discretionary power being taken away, state governments would not be able to grant an ML or composite licence according to the MoUs. Union Mines Minister Narendra Singh Tomar had said South Korean steel major Posco would have to bid for an ML as its MoU with the Odisha government — where it was promised an iron ore mine on a preferential basis — became redundant.

“The mineral auction should render these MoUs with governments meaningless, and, instead, the market will now reward a bidders’ optimal end-use plant design, efficiency mining practices, and strong project management capabilities. This should bring down the prices of metal products, too, if well managed,” said Kameswara Rao, leader (energy, utilities and mining) at PricewaterhouseCoopers.

However, some of these steel companies that had signed these MoUs are worried that merchant miners would bid aggressively and not allow them to own an iron ore mine. “We are already facing a slowdown in our sector; we can’t bid as aggressively as merchant miners,” said a steelmaker from Karnataka.

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First Published: Wed, April 22 2015. 00:49 IST