What The New Mining Law Allows And Leaves Out
The new mineral code allows captive miners to sell in the open market and transfer of regulatory permissions in case of a sale, paving the way for an easier regime for the sector.
It, however, left some of the key issues unaddressed such as the first right to refusal and higher royalty.
The Mines and Minerals (Development and Regulation) Amendment Bill 2021 was approved by the lower house of the Parliament on March 19 and by the upper house on March 22. It amends the Mines and Minerals (Development and Regulation) Act, 1957 to aid faster economic growth.
Here’s what the bill allows and leaves out...
Sale By Captive Mines
The bill allows captive miners to sell up to 50% of their annual production in the open market after meeting their own requirement. The central government, however, can increase the threshold through a notification, with the lessee paying additional charges for minerals sold in the open market.
“This development is expected to be positive for companies like Jindal Steel & Power Ltd. and Vedanta Ltd., which have recently won iron ore mines, as this gives them an immediate avenue of cash flows in case they have produced more than their requirement,” said Amit Dixit, assistant vice president-research at Edelweiss Securities. This provision, according to him, gives the miners flexibility to do their cost-benefit analysis and use their produce accordingly.
Transfer Of Statutory Clearances
All approvals, regulatory clearances including environmental granted to a lessee shall continue to be valid till exhaustion of mineable reserves and on expiry or termination of the lease, will be transferred to the new lessee.
In the earlier provision, statutory clearances issued to the previous lessee were transferred to the new lessee for a period of two years. The new lessee was required to obtain fresh clearances within these two years.
This amendment addresses the pain point of the industry, Sajjan Jindal, chairman and managing director at JSW Group, said on Twitter. The old amendments required the new owner of an existing operational mine to take all statutory clearances again for the same lease, which was not only time consuming but a futile exercise, he said.
Jayanta Roy, senior vice president at ICRA Ltd., agreed. This irons out some operational challenges and gives more certainty to a lessee in terms of production after securing a fresh lease with existing regulatory clearance, given that securing one is a relatively time-consuming process in India, Roy told BloombergQuint over the phone.
Auction By Central Government
The bill allows the central government, in consultation with states, to specify a time period for completion of the auction. It also provides for auctions to be completed by the central government if states are unable to complete the process within this period.
This amendment, according to Edelweiss’ Dixit, pretty much takes care of time lapses that could be witnessed by a state government in auctioning specific mines, and ensures continuity of production, avoiding any supply disruptions.
According to HSBC Global Research, this can fast-track planned e-auctions for the cement industry. Over FY15-21, the report suggested that there were only a handful of auctions for limestone reserves. But while new auctions would help cement makers to improve adequacy of limestone reserves, that may also lead to an increase in competition, it said.
Waiver Of Transfer Fees
According to the new bill, no transfer charges are required to be paid by the transferee of a mining lease. But no refund shall be made of the charges already paid.
The waiver of the transfer fees, which previously comprised 80% of the royalty cost, should help some manufacturers such as UltraTech Cement Ltd. with reduction in their royalty cost on recently acquired cement assets; pave the way for simplification of organisational structure for some and awaited merger for companies such as ACC and Ambuja, and improve the attractiveness of target acquisitions, according to HSBC Global Research.
Citi in its report said transfer of limestone leases without an additional transfer fee should help streamline the merger and acquisition process. Currently, UltraTech pays a transfer fee (Rs 64 a tonne) on the limestone produced from mines acquired from Jai Prakash Associates and Century. The new ruling may lead to merging assets acquired from Binani Cement. The change is also positive for ACC/Ambuja’s potential merger, it said.
End-Use Of Minerals
The bill did away with the end-user sector restriction for allotment of mines such as coal. The Bill provides that no mine will be reserved for particular end-use.
Concession Holders’ Rights
The bill ends the right to obtain a prospecting license or a mining lease on the date of commencement of the 2021 amendment act. It suggests that such entities shall be reimbursed for any expenditure incurred towards reconnaissance—preliminary exploration of minerals through surveys—or prospecting operations.
According to the 2015 act, existing concession holders and applicants were provided with certain rights, including
- Right to obtain prospecting license or mining lease for a holder of reconnaissance permit.
- Right to grant of mining lease where the central government had given its approval or letter of intent was issued by the state government before the commencement of the 2015 amendment act.
This could be incrementally negative as removal of the provision under rights of existing concession holders might result in companies that have spent time doing prospecting surveys losing rights to mining license, said Rakesh Arora, managing partner of Go India Advisors. Currently, he said there are 179 prospecting licenses.
Extension Of Leases To Government Companies
The bill provides that the period of mining leases granted to government companies will be prescribed by the central government.
According to Arora, the amended act would allow for an automatic extension of mines held by PSUs by paying extra royalty. It removes uncertainty for firms such as NMDC Ltd. and Steel Authority of India Ltd.
Citi, however, said the introduction of additional royalty for grant or renewal of leases for government-owned miners is negative for these companies. But this would level the playing field versus private miners, which need to bid for mines, it said.
Allocation Of Mines With Expired Leases
The amended act will allow for mines (other than coal, lignite, and atomic minerals), whose lease has expired, to be allocated to a government company in certain cases. This will be applicable if the auction process for granting a new lease has not been completed, or the new lease has been terminated within a year of the auction. The state government may grant a lease for such a mine to a government company for a period of up to 10 years or until the selection of a new lessee, whichever is earlier.
Conditions For Lapse Of Mining Lease
- The bill provides that a mining lease will lapse if the lessee:
- Is not able to start mining operations within two years of the grant of a lease.
- Has discontinued mining operations for a period of two years
What The Bill Misses Out
The amended act will provide for a non-exclusive reconnaissance permit (for minerals other than coal, lignite, and atomic minerals). The bill fails to give any exclusive rights to a miner who does any preliminary prospecting.
The first right of refusal on mining is key, Aruna Sharma, former steel secretary told BloombergQuint. Although these entities shall be reimbursed for any expenditure incurred towards reconnaissance or prospecting operations, but clarity needs to evolve in terms of quantum of payment, conditions of such reimbursement and period when such payments will be cleared, she said.
Sharma said that these miners should be allowed to monetise the mine, in case they do not want to mine themselves after the discovery of the mine
It was expected that the Indian government will grant the reconnaissance permit holders a ‘first right of refusal’ in cases where a mineral block is put up for auction, wherein the permit holder has established evidence of minerals, Sharma said. The move was supposedly aimed at boosting sentiment among prospective investors, as such permit holders would object to competitors bagging mineral blocks that they have established deposits on. But, this amendment fails to offer any exclusivity to such miners who go for reconnaissance.
Sharma said the government also needs to lower duties as the effective tax rate on mining in India is 64% against the global average of 34-38%. Six duties are applicable for mining in India, leading to not only a higher tax rate but also a complicated structure, discouraging giants like Rio Tinto Ltd. from entering India.