In Parliament

Examining the Mines and Minerals Development and Regulations Bill, 2011

The CAG report on coal block allocations has again brought the issue of utilising natural resources into the limelight.  The government has introduced the Mines and Minerals Development and Regulations Bill, 2011, which is currently being examined by the standing committee on coal and steel.

Allocation of mining leases is intrinsically different from that for some other resources such as telecom. In the latter case, there is a fair amount of certainty on the actual availability and amount of resource. The price of the resource could be determined by auction mechanisms. However, in the case of minerals that are underground, there is only a probabilistic estimate on the amount of resources. To add to the complexity, there is also need to discover these resources before they can be mined.  Any policy on mining, therefore, needs to have two broad objectives:  incentivising exploration and discovery of mineral resources, and creating a mechanism for maximising the gains to the exchequer from any mining activity. There are further issues such as safeguarding the environment and creating safety nets for those displaced by the mining activity.

There are three stages to mining minerals: reconnaissance, prospecting and exploration, and mining. Reconnaissance is the process of identifying areas of enhanced mineral potential based on geological, geophysical and geochemical studies through remote sensing, aerial and ground sampling and preliminary field inspection. If the reconnaissance study indicates mineral potential, prospecting is carried out. Prospecting involves trenching, drilling, sampling etc, which would facilitate exploration. The exploration process is used to delineate identified deposits using sampling, trenching, drilling etc. so that the size, structure and grade of the deposit are identified with high degree of accuracy. Finally, mining is the extraction of the mineral. The Bill has provisions for four types of licences:  reconnaissance licence, high technology reconnaissance cum exploration, prospecting licence (which allows prospecting and exploration), and mining lease.

The MMDR Bill has a two-pronged process for awarding mineral leases. If the government has data on enhanced mineralisation, or of minerals, it awards the prospecting licence or mining lease through competitive bidding. In other cases, any person who has carried out a process (such as reconnaissance or prospecting) and produced positive results will get the first preference for the next stage.

Reconnaissance licence is given on a non-exclusive basis for areas up to 10,000 sq km for a period of one to three years. The area should be progressively relinquished, and the data gathered should be reported to the Geological Survey of India and the State Government.

The High Technology licence is given for three to six years (extendable by two years) for an area upto 5,000 sq km in a state.  The prospecting licence is given for three years (extendable by two years) for a maximum area of 500 sq km in a state.  Both licences require the area to be progressively relinquished to cover a maximum of 100 sq km. These licences are given on an exclusive basis in the following manner. If any person has completed reconnaissance and applies for a prospecting licence, then he has priority.  Second, if the government has knowledge of enhanced mineralisation, it can call for competitive bidding for obtaining a prospecting licence. (However, it cannot do so if some one has already applied for a High Technology licence). Third, in any other case, the first person to apply for a high technology licence or a prospecting licence will be awarded the licence.  However, in the third case, if the application is for a prospecting licence, the government may call for competitive bidding within one month, with the original applicant having the right to match the best bid.

A mining lease may be given to a person for a maximum of 100 sq km in a state. The lease will be given for twenty to thirty years, and may be extended by twenty years at a time.  There are two ways of obtaining the mining lease. If a person holding a prospecting licence or a High Technology licence completes the prospecting and exploration activities, and applies for a mining lease within six months, he will be awarded the lease. In other cases (including if the person is ineligible, for instance due to holding licences above the area limit or due to conviction for illegal mining etc.), the state government may award leases based on competitive bidding. The lease may be transferred to another eligible person with prior approval of the government.

The Bill provides for royalty to be paid to the government on minerals consumed or removed.  It also provides for a minimum amount of royalty (called dead rent). The Bill also provides for certain compensation to families affected by mining activities. The mining lease holder will pay an amount equal to royalty (except for coal and lignite, where it is 26 percent of net profits) to the district mineral foundation which will be used for the benefit of the affected persons. Each affected person will be given one non-transferable share of the company. These provisions are in addition to other laws (such as the proposed Land Acquisition, Rehabilitation and Resettlement Act). These provisions lead to an important issue. Currently royalty rates are set in such a manner as to maximise the revenue to the state while keeping the operations sufficiently profitable to encourage private investment (according to the Hoda Committee recommendations). Adding a further cost equal to royalty would tilt the balance against investors. Indeed, several mining companies have expressed their concern on this issue.

The Bill also sets up a few new authorities and funds.  Every district with mining operations will have a district mining fund, which will be used to make monthly or quarterly payments to affected families. Funds will also be established at the state and national levels. A national mining regulatory authority will oversee technical issues and review rates of royalty and dead rent. It will also investigate or institute prosecution against persons contravening the provisions of the Bill. States may also set up regulatory authorities. The Bill also establishes a national mining tribunal to adjudicate on issues related to grant of licences, implementation of mining plans, applications from affected families etc. States may also establish tribunals.

Photo: Public Domain Photos

Does this Bill imply that coal licences will be determined by competitive bidding?  No. Coal mining is reserved for government, its agencies and government companies, except for certain specific end uses (such as power generation, production of iron and steel, and cement). The MMDR Act, 1957 was amended in 2010 to permit competitive bidding for such captive use.  Unless the Coal Mines Nationalisation Act is amended or repealed, the mining of coal for commercial sale by private sector entities will not be permissible.