Lapsing mining leases should be auctioned: Committee of secretaries

BHUBANESWAR: A high-level committee of secretaries has ruled out extension for mining leases lapsing in March 2020, and said they should be auctioned as per the provisions of the Mines and Minerals (Development and Regulation) Act.

Acknowledging that “the auction regime had not achieved the desired success”, the committee, chaired by the vice chairman of government think tank Niti Aayog, said “the focus must shift from revenue maximisation to production maximisation”. It also recommended that production rate be given high weightage for auction of mineral concessions. ET has seen a copy of the recommendations.

The committee’s recommendations, if implemented, will disappoint several incumbent miners who were waiting for an extension of their leases.

The lapsing of these merchant mines, 334 in total and 46 working ones in particular, could cause a significant disruption to domestic supply of iron ore, manganese and chromite. To avoid this, the committee has suggested that the leases be auctioned by January 31, 2020—two months before they lapse. The ministry of environment, forest and climate change is being asked to make suitable notifications for a two-year temporary transfer of forest and environmental clearances to the new lessees.

Mining rights were earlier allotted in the order in which they were applied for (first-come, first-served basis), value addition and other criteria. The auction regime, granting the state a share of revenue in addition to royalty, kicked in when the Narendra Modi government amended the MMDR Act in 2015. Merchant leases more than 50 years old were allowed to operate till March 31, 2020 and captive ones till 2030. Four years later, India continues to import four times the quantity of minerals it produces.

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The committee—comprising the cabinet secretary and secretaries of mines, coal, finance, environment and the revenue ministries—was tasked with looking at legislative, statutory, regulatory changes to boost the mining sector whose contribution to GDP has remained below 2% and been declining—from 1.93% in FY3 to 1.53% FY18.

After extensive deliberation on whether the period of these lapsing mines should be extended, the committee concluded that “the legislature had already given a time of five years to ward off any situation causing disruption of supply to local industry. Therefore, extension of time for continued operation of these mines is not desirable”.

The auction regime had not achieved the desired success, it noted, particularly in the case of prospecting-cum-mining leases. “The existing auction regime has also led to distortion in the shape of higher bidding prices. If we consider the case of iron ore lease auctioned, the success bids vary from 36.7% in Karnataka to 275% in Madhya Pradesh. This aggravated due to the ascending forward online auction comprising of two rounds,” said its report.

It wants a single round of bidding. It believes the focus of auctions has to shift from revenue maximisation – which mineral rich states have been chasing aggressively – to production maximisation.

A 30% weightage towards revenue-share and a 70% weightage for how fast a bidder says he would reach a committed peak production amount has been recommended. This target has to be reached in three years, failing which the lessee will have to pay an additional 0.25 percentage points (as revenue-share to the state) per month of delay. The lessee will similarly be incentivised if he reaches this target early.

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A shortfall in production will also entail a penalty, if the report is accepted. “This is only going to encourage what the Supreme Court described as rapacious mining. These recommendations are skewed in favour of bigger players who may have more than one grade of ore. If I can’t sell my ore, why should I be forced to mine to avoid being penalised? It is not sustainable,” said an Odisha-based miner who asked not to be named.

India has remained one of the least explored countries and has very low spending on exploration compared with other countries. The insistence of the amended MMDR on auctions has led to a total collapse of greenfield exploration which is normally undertaken by companies with an appetite for risk and which are eyeing mining rights as a reward.

The committee has recognised the need to speed up exploration, including making non-exclusive reconnaissance permits exclusive to the specific concessionaires and allowing for seamless transition from reconnaissance to prospecting to mining. However, the recommendations are for continuance of the auction regime, even though it has not worked so far.

Of the 64 non-coal blocks auctioned in the last four years, 42 were greenfield areas. None of them has come into operation, primarily on account of delays in environmental clearances, said the report.

The committee is recommending considerable easing of green clearances. It wants clearances granted in four months through the MoEFCC’s new PARIVESH portal with public consultation and gram sabha hearings carried out concurrently. It is also suggesting exempting forest clearance and a net present value charge at the exploration stage.

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