High-Level India Panel Likely To Favor Bidding For Mining Licenses

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MetalMiner is pleased to welcome guest columnist TC Malhotra. Based in New Delhi, Malhotra has been published in Minesite, Pipes and Pipelines Magazine and International Freighting Weekly (U.K), and will be reporting on the Indian metal and manufacturing industry for MetalMiner.

A high-level panel set up by the Indian federal government to recommend rules for pricing of all natural resources is likely to suggest auctioning of mines, despite reservations from the Indian mines ministry. The panel, chaired by former Indian finance secretary Ashok Chawla, is likely to oppose the existing concept of profit sharing in its draft report. Facing lack of transparency from state governments in the mining sector, the Indian federal government had set up the panel on Feb. 8, 2011, to recommend procedures for allocating natural resources in the country. The Chawla committee includes senior government officials and people from chambers of business, and is expected to release its report by the end of June.

It is reported that the Chawla committee is of the view that auctioning should begin right at the exploration stage with respect to allocation of mineral rights; however, the mines ministry does not agree. The ministry feels that only fully prospected deposits need to be auctioned. The mines ministry thinks that any move to put the initial mining permit ” reconnaissance permit (RP) ” under auctions could dampen investor enthusiasm.

The bidding process is not quite a new thing in the mining industry, and is quite common in many countries in oil, gas and coal exploration. The going rationale is that bidding may bring more transparency in acquiring mining rights, and if the survey reports are available, the process may also bring healthy competition from investors.

The Indian government has already successfully launched the eighth round of bidding in oil and gas under The New Exploration Licensing Policy (NELP), and the ninth round is underway. The Chawla committee also wants a similar style in metal mining, but the metal industry and industry experts chafe at the proposal because they believe that oil, gas and coal exploration is different than metal mining.

A report published in an Indian business daily states that the panel, in its report, is likely to oppose the concept of profit sharing with project-affected persons, on the argument that profit can be manipulated. Instead, it wants enhancement of royalty rates, of which a portion is transferred to a non-lapsable fund in mining districts. The Business Standard newspaper has also reported that the domestic industry, too, feels auctioning should be limited to cases where detailed exploration has been done.

The newspaper report quoted the Federation of Indian Chambers of Commerce and Industry (Ficci) as saying to the committee that in cases of unknown mineralization, the Committee may consider an Open Sky policy. An auction system may not be appropriate in cases where adequate information about the extent of minerals is not available. It may lead to speculative bidding, with a high risk of over-paying by the investor.

But, according to the report, the Chawla panel does not agree with the Ficci views. The panel feels private companies would apply for a mining lease for well-defined deposits, using the principle of security of tenure, while the mining ministry feels a competitive bid process would have a negative impact on exploration due to the risk involved.

Under the present policy, for concessions for minerals other than minor ones, the principle of Ëœfirst-come-first-served’ is followed. However, a person who has undertaken reconnaissance operations has the preferential right for obtaining a prospecting license (PL), which is the second-stage license. Similarly, a person who has prospected for the mineral under a PL has the preferential right for obtaining a mining lease. In the new Mines and Minerals Development and Regulation (MMDR) Bill, mandatory bidding will only be for recognized mineral zones, which means bids can be invited only at PL and mining lease (ML) stages and not the reconnaissance permit (RP) stage. The unrecognized mineral zones will follow the first-come-first-served policy.

The mining industry is the backbone of India’s industries, being the main source of raw material for most other industries. India produces as many as 84 minerals comprising 4 fuels, 11 metallic, 49 non-metallic, and 20 minor minerals.

–TC Malhotra

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