The past year has been quite an important one for the Indian mining industry. The Ministry of Mines and the Ministry of Coal (MoC) have announced a few key policy measures to address the long-pending demands and unresolved issues of the industry related to auctions, securing approvals, foreign direct investment (FDI), etc. These measures are a welcome step towards liberalising the mining sector, attracting competition, and increasing the much-needed foreign investment.
Some of the key policy reforms are discussed below:
Mineral Laws (Amendment) Ordinance, 2020: The Mineral Laws (Amendment) Ordinance, 2020 was promulgated on January 10, 2020. The ordinance amends the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) and the Coal Mines (Special Provisions) Act, 2015 (CMSP Act). The key changes brought about by the ordinance are the following:
- Eligibility to participate in coal auctions: The Coal Mines Act and the MMDR Act specified that reconnaissance permits, prospecting licences/mining leases (collectively, mining concessions) with respect to coal mining can be granted to companies that carry on coal mining operations in India. This eligibility requirement of “carrying on coal mining operations in India” has been done away with, enabling other players to participate in competitive bidding for mining concessions, subject to their meeting the bidding criteria specified therein.
- Removal of end-use restrictions on minerals: The Coal Mines Act identified certain mines as Schedule II and Schedule III coal mines, with respect to which only companies engaged in a “specified end-use” were considered eligible to bid in mining concession auctions. This eligibility restriction has now been removed. However, the central government, under the Coal Mines Act, still retains the right to prescribe end-use restrictions for coal mines.
- Use of coal in holding/subsidiary company: The Coal Mines Act permitted the use of coal in the allottee’s plants engaged in the common specified end use. This has been expanded to include the use of coal in the plants of the subsidiary/holding company of the allottees as well.
- Removal of approval redundancies: The MMDR Act required state governments to obtain central government approvals to grant mining concessions for coal and lignite mines even if the allocation or reservation of land for such mining concessions was made by the central government. This redundancy has been done away with.
- Reallocation of coal mines: The Coal Mines Act was silent on the matter of reallocation of coal mines in case of termination of allocation under the act. This has been clarified with the erstwhile allottees entitled to receive compensation for the land and mine infrastructure.
- Transfer of approvals: With respect to minerals other than those specified in Part A and Part B of the First Schedule of the MMDR Act (that is, other than coal, lignite and atomic minerals), a successful bidder is now deemed to acquire all rights, approvals, clearances and licences vested with the previous lessee for a period of two years within which the allottee is required to obtain the same itself.
- Right accorded to holder of an NERP: The MMDR Act did not permit the holder of a non-exclusive reconnaissance permit (NERP) to make a claim to be granted a mining lease (ML) or a prospecting licence-cum-mining lease (PLML). This has been diluted for “deep-seated minerals” or other specified minerals whereby the holder of an NERP may make an application for grant of an ML/PLML through the auction process (as per procedure to be prescribed), after undertaking specified levels of exploration. Overall, the Mineral Laws (Amendment) Ordinance, 2020 has been welcomed by the industry. This ordinance will open up the mining sector to players outside the steel and power sectors, remove end-use restrictions, put an end to Coal India Limited’s (CIL) monopoly, reduce coal imports, and help India gain access to high-end technology for underground mining used by miners across the globe. The ordinance is also expected to prompt global players to explore investment opportunities in India’s mining industry, which, in turn, will allow the country to leverage their technical capabilities for effective utilisation of natural resources. However, to reap maximum benefits, the corresponding rules and bidding guidelines must be looked at to ensure that the changes introduced in the ordinance are enacted fully.
- New guidelines and simplified approval process for coal projects: The MoC has re-engineered the mining plan preparation and approval process. The re-engineering process includes simplification of guidelines and formats for preparation of the mining plan, amendments to relevant provisions of the Mineral Concession Rules, 1960, and the approval process. This is likely to reduce the period for getting approvals substantially, from the existing 90 days to around 30 days. The proposed simplified guidelines and format will not only reduce the mining plan formulation time but also make the document easier to comprehend. In the next phase, to further ease the system, it is proposed that the entire mining plan process – for application, processing and approval – be made online.
- Methodology for conducting coal auctions for thermal power plants (TPPs) without power purchase agreements (PPAs): In December 2019, the Ministry of Power (MoP) notified a methodology for conducting coal auctions for TPPs without PPAs. The move is part of the Scheme for Harnessing and Allocating Koyala (Coal) Transparently in India and will help in addressing the issues of stressed TPPs. The initiative will allow the TPPs to apply for coal linkages, provided the electricity produced from the coal secured under the mechanism is sold through spot power exchanges or through the DEEP portal. CIL and Singareni Collieries Company Limited (SCCL) will have to earmark mines for coal supply to such power plants and auctions will be conducted every quarter.
- 100 per cent FDI under the automatic route in coal mining and associated infrastructure: In a key policy enabler aimed at raising domestic production and reducing the country’s dependence on coal imports, the government, in August 2019, announced 100 per cent FDI in coal mining and manufacturing through the automatic route. Until now, 100 per cent FDI via the automatic route had been allowed in coal and lignite mining for captive consumption by power, steel and cement units. With the August 28, 2019 policy decision, 100 per cent FDI has been allowed in the commercial coal mining sector. This decision follows the government’s 2018 decision allowing the auction of coal-bearing blocks to private parties for commercial mining. At present, over 90 per cent of the mining is being undertaken by government-owned entities CIL and SCCL. Thus, the latest FDI decision is an important step in advancing competitiveness in the mining sector and is also an opportunity for global miners to enter this space, specifically in the area of technology transfer. With the change in FDI norms, domestic and global mining firms will be permitted to mine and sell coal. Further, it will offer an additional source of coal for power producers, some of whom are facing low stocks at their plants. For various coal consuming industries, the move will mean lower energy costs.
- PRAKASH (Power Rail Koyla Availability through Supply Harmony) portal: In October 2019, the central government launched PRAKASH, a web portal to track the movement of coal from mines to power plants. The portal is designed to help in mapping and monitoring the entire coal supply chain for power plants – coal stock at the supply end (mines), coal quantities/rakes planned, coal quantity in transit and coal availability at power generating stations
In sum
India’s mining industry has been fraught with a number of challenges. However, the recent policy reforms should lead to greater private participation and encourage investments in mining that would lead to the induction of modern technologies. The actual implementation of the policy measures on the ground will be key to enabling a change in the state of the sector.