Policy Impetus: Recent changes and developments

Recent changes and developments

Following the government’s recent focus on enhancing mineral production and reducing import dependence, the mining industry has seen significant developments on the policy front. One of the most recent among these has been the proposed legislative amendments to the Mines and Minerals Development Regulation (MMDR) Act, 1957, with a view to raising mineral production and accelerating the industry’s growth. The structural reforms aim to expand private sector investment in mineral discovery, redefine the norms of exploration for the auction of mineral blocks, and realise the true potential of the mining sector.

This article discusses some of the key amendments made to the act, and their likely implications for the sector…

Resolution of legacy issues

The reforms seek to resolve legacy issues by amending sections 10A(2)(b) and 10A(2)(c) of the MMDR Act. Section 10A(2)(b) covers blocks for which mining leases (MLs) have not been issued, while 10A(2)(c) covers blocks for which the grant of MLs is pending. The amendments would make a large number of mines available for auctions, contributing to the Ministry of Mines’ target of auctioning over 500 mineral mines in the next four to five years.

Further, the ministry has proposed to redistribute non-producing blocks belonging to public sector undertakings (PSUs) in order to expand the number of productive mines while also enhancing the efficacy of the PSUs.

Under Section 8A of the MMDR Act, the mining ministry has introduced a provision for an additional royalty payment to the state in lieu of an ML extension. This provision was prompted by the expiry of the National Mineral Development Corporation’s lease on the Donamalai mine in Karnataka, which resulted in a long disruption in iron ore mining. This provision will help prevent such disruptions in the future. Cessation of MLs has also been proposed as a penalty for not maintaining the specified production levels for three consecutive years.

Removal of distinction between captive and merchant mines

The retirement of the distinction between captive and merchant mines will authorise captive mine owners to commercially sell in the market. As a result of this move, captive mines will be allowed to sell up to 50 per cent of the total minerals excavated during a year. The ministry has also proposed a 50 per cent rebate in the quoted revenue share for the volume of mineral generated and despatched before the scheduled production date.

Establishment of a national mineral index

The establishment of a national mineral index for the purpose of statutory and auction payments has also been proposed. At present, the average selling price (ASP) is used to assess a variety of statutory payments, but this is vulnerable to distortion due to the non-availability of sale price data for certain minerals, price variations across states, etc.

Regulations related to double taxation and rationalisation of stamp duty

Currently, royalty is included in the ASP of minerals, but then it is also calculated on an ad valorem basis, resulting in double taxation. As part of the reforms, a panel will be constituted to scrutinise the problem of double taxation.

Amendment to the Indian Stamp Act, 1899, has also been proposed to bring uniformity across states in the calculation of stamp duty.

In order to pursue global exploration standards, the Minerals (Evidence of Mineral Contents) Rules, 2015, will also be amended.

Second round of coal auctions

The first phase of coal auctions under the commercial coal mining policy witnessed aggressive bidding by investors. The highest premium quoted was 66.8 per cent, whereas the average was 29 per cent. Aditya Birla’s Essel Mining and Industries Limited, Jindal Steel and Power, Adani, and Nalco were among the prominent bidders.

The Ministry of Coal has now identified 11 new coal blocks, located in Odisha, Chhattisgarh, Jharkhand, Madhya Pradesh and Maharashtra, which will be offered for auction through a revenue sharing model based on market forces instead of the erstwhile tonne regime. A total of 75 mines, with 38,000 mt of fuel reserves, will be provided for commercial mining.

Other key policy developments in 2020

The government’s monopoly on coal mining has been terminated with the introduction of commercial mining in India. As part of the central government’s May 2020 stimulus package, 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 finance minister has identified 50 coal blocks that will be offered immediately through a revenue sharing mechanism instead of the previously fixed rupee per tonne model. The eligibility requirement of “carrying on coal mining operations in India” has been done away with, enabling any private player to participate in competitive bidding for mining concessions, subject to their meeting the bidding criteria specified therein. This is contrary to the previous scenario, where only captive mine owners could participate in coal auctions. Further, the centre has reinforced the ordinance introduced in January 2020 with the Mineral Laws (Amendment) Ordinance, 2020, introduced in March 2020, which amends the MMDR Act and the Coal Mines (Special Provisions) Act, 2015 (CMSP Act). 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 monopoly, reduce coal imports, and help India gain access to high-end technology used by miners across the globe for underground mining. The ordinance will prompt global players to explore investment opportunities in India’s mining industry.

In the May 2020 Atmanirbhar Bharat relief package, the government recognised “power, petroleum, coal, and other minerals” as one of the focus areas of the government’s policy of strategic disinvestment, whereby a minimum of central public sector enterprises will be retained, with the rest being privatised.

A seamless composite exploration-cum-mining-cum-production regime will also be implemented to boost private investment in the mineral sector. A joint auction of bauxite and coal mineral blocks will be launched to improve the aluminium industry’s competitiveness.

Future outlook

The mining industry is essential to India’s $5 trillion economic growth target. In addition to employment generation, reducing reliance on imported minerals, and stimulating economic growth, the opening up of the mining industry to private players will bring in a significant amount of capital to the country, which will pave the way for the adoption of modern exploration technologies. The government’s approval of 100 per cent foreign direct investment in the mining sector and in the exploration of metal and non-metal ores will further benefit the sector.