Policy Initiatives: Steps in the right direction

Steps in the right direction

In the past two-three years, the mining sector has witnessed a number of regulatory changes and policy amendments across segments pertaining to coal auctions, exploration activities and sand mining. A notable development has been the the approval of the National Mineral Policy, 2019, aimed at furthering exploration activities and curbing illegal mining. Meanwhile, the move permitting the sale of 25 per cent coal from captive mines in the open market will address the issue of lack of response from bidders during the earlier rounds of auction and allotments.

National Mineral Policy, 2019

In a big push to the mining sector, the Union Cabinet recently approved the National Mineral Policy (NMP), 2019, replacing the extant National Mineral Policy, 2008. Some of the features of the policy include the introduction of the right of first refusal for the reconnaissance permit and prospecting licence holders (encouraging the private sector to take up exploration and auctioning of virgin areas on a revenue-sharing basis), encouragement of merger and acquisition of mining entities, transfer of mining leases, and creation of dedicated mineral corridors to boost private sector mining areas.

The policy proposes to grant industry status to mining activities to boost financing and acquisition of mineral assets in other countries by the private sector. It aims to rationalise and auction reserved areas given to public sector undertakings that have not been used, to incentivise private participation. The policy further aims to harmonise taxes, levies and royalty with world benchmarks.

Regarding the role of the state in mineral development, an online public portal with a provision for generating triggers in the event of delay of clearances has been put in place. The new policy focuses on using coastal waterways and inland shipping for evacuation and transportation of minerals and encourages dedicated mineral corridors to facilitate the same. The NMP, 2019, proposes a long-term export-import policy for the mining sector to provide stability and incentives for investing in large-scale commercial mining activity.

Private commercial mining in coal

The government has decided to open up the coal sector to private entities for commercial mining and has removed the end-use restriction on output from the auctioned mines. The game-changing move aims to put an end to state-backed Coal India Limited’s (CIL) monopoly (CIL has been the lone commercial miner in the country for over four decades), allow use of the best possible technology in the sector, reduce coal imports and help stressed power plants attempt a turnaround through better fuel management. The reform is expected to lead to industry consolidation and the rise of large vertically integrated energy companies with interests in coal mining, and power generation, transmission and distribution. However, the government must auction larger blocks in sufficient numbers in order to attract new investment in high capacity equipment fleets and encourage competition.

The Cabinet Committee on Economic Affairs (CCEA) approved the methodology for auction of coal mines/blocks for sale of coal to the private sector and in March 2017, the Ministry of Coal released a discussion paper on “Auction of Coal Mines for Commercial Mining”. However, after the cancellation of the fourth and fifth tranches of coal mine auctions in 2017 (due to poor response from bidders), the government has come up with a new set of amendments to make the auction process simpler, to ensure adequate transparency and competition in order to attract more bidders. The CCEA, in February 2019, approved the sale of 25 per cent of coal production from captive mines in the open market with a premium of 15 per cent on such sales. In the case of an auction, the successful bidder will have to pay an additional premium of 15 per cent on its final bid price on a per tonne basis, for the actual quantity of coal sold in the open market. In the case of allotments, the successful allottee will have to pay an additional amount of 15 per cent of the reserve price. The move is aimed at increasing competitiveness and making the future auctions/allotments attractive and commercially viable, thereby leading to higher revenues for the government.

Draft National Mineral Exploration Trust Amendment Rules, 2018 The Ministry of Mines has prepared the draft National Mineral Exploration Trust Amendment Rules, 2018, seeking to amend the National Mineral Exploration Trust Rules, 2015. Some of the proposed amendments are:

  • States will have to deposit the funds collected under the National Mineral Exploration Trust (NMET) to the Consolidated Fund of India (CFI) instead of the trust’s own bank account. However, the CFI will still be administered by the Ministry of Mines as earlier.
  • The bank account of the trust will be closed as soon as possible and the entire proceeds will be booked under a head in the public account of a state and be transferred to the CFI.
  •  The NMET fund will be non-lapsable under the non-interest-bearing section of the public account.
  • The Indian Bureau of Mines will maintain an updated record of the amount transferred to the CFI along with a database of royalty payments, and provide such information to the trust on a periodic basis.

Amendments in the Mineral Conservation and Development Rules, 2017

In a bid to speed up the auction process of leases expiring in 2020, the Ministry of Mines amended the Mineral Conservation and Development Rules, 2017, in March 2018. G2-level exploration of mineral deposits is mandated to be carried out under in the mining leases expiring in 2020 by April 1, 2019. The new rules also lay down the timelines for implementation of the exploration plan with the approval of the Indian Bureau of Mines. About 288 mining leases will expire in 2020, of which 59 are working leases that yield substantial output of key minerals – iron ore, manganese and chromite ore. The auction process for these mining leases needs to be initiated well in advance.

Sand Mining Framework

To help states deal with issues related to sand mining, such as demand-supply deficit and illegal extraction, the government, in March 2018, released the Sand Mining Framework prepared after intensive consultations with all stakeholders. The framework will help states frame their policies, taking into consideration their objectives, endowments and deployment of resources. It addresses the issues of state objectives, demand-supply assessment, allocation model, and transportation and monitoring mechanisms. Besides, the framework also includes suggestions for faster clearances/ approvals. It also lays emphasis on the pos-sible use of sand substitutes.

National Mineral Exploration Policy, 2016

One of the biggest policy initiatives for the mining sector has been introduction of the National Mineral Exploration Policy (NMEP) in 2016. The policy encourages private sector participation through a revenue sharing model. It also lays emphasis on generation and dissemination of baseline geoscientific data. The resulting database will be deemed a public good. Industry stakeholders have welcomed the introduction of the NMEP. The general consensus within the industry is that the policy will promote sector growth as India currently lags behind many comparable economies with respect to exploration, and baseline geophysical and geochemical data creation.

Levy of goods and services tax

The introduction of the goods and services tax (GST) in India, a unified tax rate replacing eight central taxes and subsuming nine state taxes, is expected to have an impact on all sectors, and the mining sector is no exception. While it may be too soon to assess the actual impact of GST on the mining sector, broadly speaking, the sector is expected to benefit from the unified tax regime as it previously attracted a number of indirect taxes and local levies. GST will be applicable on mining activities such as exploration, mineral production, handling, transportation and supply. Manufacturing and sale of all grades of iron and steel products (such as iron rods, bars and scrap) will be charged 18 per cent GST.

In sum

Growth in the mining sector still lags behind the country’s overall economic growth, primarily due to infrastructure bottlenecks, land acquisition and environment challenges, governance issues and mining bans that are in force, financial distress, and difficulty in accessing capital. However, with the government’s consistent efforts in the promotion and development of the mining sector as well as the untapped potential that the industry offers, the mining sector is poised to make significant strides in the years to come.