Traditionally, the mining business has been regulated to ensure the safety of the workforce and machinery, bring transparency to business, reinforce environmental protection, and in recent times, drive community development.
The government has – on several occasions – reiterated its stand of ‘maximum governance and minimum government’. In 1999, the Government of India decided to rename the Act from ‘The Mines and Minerals (Regulation and Development) Act‘ to ‘The Mines and Minerals (Development and Regulation) Act’. The change conveyed to the mining companies that the government prioritises development over regulation.
Twenty years later, National Mineral Policy 2019, under the heading of Regulation of Minerals from 2.1 to 2.4, talks about four critical points:
- Responsibility of the State as well Centre in the management of resources.
- Transparent allocation of resources.
- Strengthening the Indian Bureau of Mines (IBM) and State Directorate for mining plan.
- Implementation of e-governance and measures to prevent illegal mining.
The focus is on ensuring coordination between State and Centre and mining under an approved plan with technology intervention for the Ease of Doing Business.
Recent reforms in mining, including allowing the sale of ore from captive mines, are also in the direction of ending the differentiation between captive and non-captive mines. The reform measures, among others, provided an option to the lessee to decide to sell ore in the market, and it is not mandatory. The move aims to project mining as a self-sufficient sector.
The Mines and Mineral (Development and Regulation) Act, amended in 2020 and 2021, created special provisions to enable seamless transition of the mining leases expiring on March 31, 2020. While the new lessees were facilitated by ensuring continuity of the previous clearances, Rule 12A was inserted vide the Mineral (Other than Atomic and Hydrocarbon Energy Minerals) Concession (Amendment) Rules 2020 to maintain such levels of production to ensure a minimum dispatch of eighty per cent of the average of the annual production of two immediate preceding years on a pro-rata basis, failing which appropriate actions, in accordance with the Mine Development and Production Agreement, would be initiated.
The amendments further mandated that the new lessees would have to ensure that the annual production beyond two years from the date of execution of the new lessee is equal to or more than the annual production by the previous lessee.
This provision was probably created to plug the gap which could have arisen in 2020 if the new lessees, post auction, failed to start the production and the resultant impact of starving those plants which are not linked to captive raw material. Primarily, iron ore was the reason for mandating such a provision. While it is understandable that these stricter provisions were created mainly in anticipation of the disruption in the supply of iron ore to the steel plants, the blanket application of the mandate has created a roadblock in the sustainable development target(s) of other minerals like chromite ore.
A short-term regulatory measure to affect the economics by making lessees mandatorily produce should be reviewed with respect to the purpose it was created. This should also be reviewed considering the liquidity crunch faced by some of the players in the ecosystem for surplus ore with high bid premium. It should also be reviewed in view of the actions to be taken to bring more mines under auction for demand and supply to play its natural balances. The larger question is, should the mineral sector embrace its economics on market forces of demand-supply, or should it be decided by regulation?
Even if we assume that the most important aspect at that point in time was to ensure no disruption to steel production and prioritise downstream , different approach to different minerals could have been thought of and applied. Mining industry in India has been blamed for limiting itself to four minerals – iron ore, coal, bauxite, and limestone. There are minerals other than these four where the dynamics are different. There is a surplus of chromite ore in the market as suppliers have to produce at the rate of 80% of dispatch but buyers are not there. Export duty of 30% makes it further difficult to explore avenues outside India. Power restrictions have further imposed production cut in downstream activities.
It is not that government had one rule for all minerals in the past. For example, two regimes are followed for charging royalties mineral wise:
- Tonnage-based royalty rates are applied on six major minerals of various grades. They are chrysotile, graphite (all grades), limestone (all grades), lime shell, monazite, and tungsten.
- Ad valorem-based royalties are applied for all other minerals, ranging from 2% (Brown Ilmenite, Ilmenite, Rutile, and Zircon) to 25% (bauxite – non-metallurgical grade).
While in 2006, Hoda Committee recommended that the rates of royalty should be based on an ad valorem basis to ensure that the market forces themselves take care of the increase and decrease of royalty accruals, a tonnage-based royalty for some minerals, as mentioned above, is followed to accommodate mineral specific economic needs.
Apart from royalty, Govt. of India also has different yardsticks for setting the maximum area limit of minerals. The proviso of 6(1)(B) of the MMDR Act says: (reproduced below)
“Provided that if the Central Government is of the opinion that in the interest of the development of any mineral or industry, it is necessary so to do, it may, for reasons to be recorded in writing, increase the aforesaid area limits in respect of prospecting license or mining lease, in so far as it pertains to any particular mineral, or to any specified category of deposits of such mineral, or to any particular mineral located in any particular area.“
Thus, the government understands that setting a blanket area limit of 10 sq. km for all the minerals is not the right approach due to the minerals’ different economic and extractive requirements. Hence, the provision of seeking exemption mineral wise has been incorporated in the Act.
It is evident that different treatments for different minerals are there in the statute, and the government has acted proactively to address the issues. The 2020 expiry of leases and Covid-19 could have been the reasons for stipulating a certain volume of production, i.e. 80% of the previous year’s production, irrespective of the market. However, it is high time to review the “one-size-fits-all” approach. In some sectors, minerals are in ample supply in the market. It would be prudent to let market forces determine demand & supply instead of a prescriptive stringent supply mandate, not commensurate with demand.
Disclaimer: The views expressed in this paper are of the author and not necessarily those of the Company he is associated with.
The author is Co-Chair, FICCI Mining Committee and Managing Director, TATA Steel Mining Ltd.