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Companies oppose auction for mineral resources

Dilip Kumar Jha  |  Mumbai 

The Federation of Indian Mineral Industries (Fimi), the apex trade body for the mineral sector in India, has urged the government’s high-powered Committee on Allocation of Natural Resources (CANR) to withdraw its recommendation on allocation of mineral resources only though bids.

Headed by former Union finance secretary Ashok Chawla, CANR’s has submitted a draft proposal, that all natural resources, including minerals, should be allocated through auctions. The advantages being higher revenue for the government and transparency in the system. The Federation of Indian Chambers of Commerce and Industry (Ficci) has supported CANR’s view. Currently, a first-come, first-served system is followed for allocation of most minerals. Ficci said for fully explored blocks of minerals, a transparent auction system can be adopted as is done in the case of the New Exploration Licensing Policy for oil and gas blocks. The essential feature of the Nelp process is that in order to attract the largest possible investments in exploitation of natural resources, where multiple parties stake claim for the resources, allocation is done through a transparent auction and competitive bidding process only.

“The bidding process adopted for the oil and gas sector cannot be replicated for the minerals sector due to differences in the nature of these two resources. For oil and gas, bidders are aware of approximate output, while for minerals, the output is totally guesswork. Minerals like copper concentrate, coal and others are available deep down, even one km below the surface. In contrast, availability of oil and gas is almost known,” said R K Sharma, secretary general of Fimi.

Sharma cautioned that investment in minerals would decline dramatically in case the bidding system is adopted. In case investors evince interest in drilling, the prices of minerals would rise, pushing the cost of finished products.

In a letter to CANR, Sharma said a mechanism was already in place under the existing royalty system for capturing the economic rent attributable to the state. These are presently set at an internationally competitive level. Applying additional financial impost, either up-front or as a revenue share during production, would strongly discourage risk capital for mineral exploration, particularly at an international level.

“An Auction/bidding process for mineral resources is itself a bad concept not followed anywhere in the world, except Russia and Kyrgyzstan for some minerals like coal. To make it applicable universally for a reconnaissance permit, large area prospecting licence or prospecting licence, when nothing definite is known about the size, nature or occurrence of mineral deposit, is to play with mineral resources of the nation,” Sharma said.

Auction of any resource, howsoever scarce, leads to ultimate destruction of the deposit, goes another objection, as the effort of an entrepreneur who buys the deposit in auction will be to maximise profit at the cost of proper and scientific development of the resources and its proper utilisation.

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First Published: Wed, May 04 2011. 00:09 IST