The new National Mineral Policy was introduced in the ensuing monsoon session of the Parliament and it will provide a single window clearance to foreign investors for mining projects in India. On 14th March, 2008 to boost to investment in the Indian mining sector — including foreign direct investment — the amendments to the Indian Mineral Policy were proposed. An amendment to make the required changes in the existing Mining Act will be introduced in the ongoing session of Parliament.
Hallmarks of a good policy document should hinge on four factors that it should espouse: efficiency, attractiveness, vision and responsibility. This mineral policy should also be discussed in the same light. In the following we will discuss some salient points of the policy with the critiques they deserve:
Trading Mineral Licenses
The government of India has allowed companies to trade mineral licenses freely. New policy would mean that companies interested only in prospecting need not undertake mining but sell the license to a company interested only in mining. The proposal has been included in the new mineral policy that was cleared by Cabinet on Thursday. The new policy has proposed a major change by way of decoupling mineral lease licenses. This would bring more focus as companies with expertise in prospecting need not undertake mining. They can sell their license to another company. The ministerial cabinet expects the change would allow flow of investments from South Africa, Canada and Australia where companies have shown interest in bringing their technical expertise required for identifying the potential of a mining block. Transfer of prospecting license is permitted by several countries. The international practice is being adopted here with the intent of bringing over $2 billion investment in the sector in the next few years. The move is expected to also result in better yields from mining blocks by use of better technologies. It will also encourage competition.
critique
A very welcome step considering the flexibility of investment that it deserves. For instance, out of a total 17,000 sq km of coal bearing area in the country, only 5,400 sq km is fully explored (8 holes per sq km) and another 12,000 sq km is regionally explored (1-2 holes per sq km). Every year, the total drilling requirement will be 1 million meter along with commensurate coring, sampling analysis and report preparation which involves an investment of Rs 400 crore. While the task is daunting, a policy should not encourage turncoats and inside traders. Suppose, a mineral prospecting company selectively releases either real or fudged prospecting and exploration data to a company to selectively bid in the auction process. A good safeguard for transferring the rights would be to check the records of the transferee companies. Further, the government must ensure sound disclosure norms. Miners should not forget Bre-X scandal to their own peril.
A good policy should have five objectives:
1. It should encourage efficiency.
2. It should encourage attractiveness and competition.
3. It should help progress towards the development of an industrial framework.
4. It should encourage sound business practices where banks and financial institutions can participate.
5. It must promote responsibility
Value Addition
The much-delayed policy has tried to balance the aspirations of mineral-rich states who were opposed to certain provisions in the policy by retaining their rights to give preference to value addition (within the state) and PSUs while granting mineral leases. While using this system of preference, the state would be bound to offer mineral lease to applicants not belonging to state if there are no applicants for value addition within the state.
critique
It will discourage small time operators in the mining sector- a much awaited step. It will help organized mining. It will encourage the government of India’s participation in the mining sector. Local level favoritism will be discouraged.
But value addition in itself does not mean much; it needs to be quantified. For example, suppose granite blocks of more than 250 mm size has a market price of Rs. 140 per tonne. Now a developer breaks it into less than 50mm chips to cost it at Rs. 170 per tonne. Is this enough value addition, considering in many cases, a small crusher or few laborers can do it? Surely not, since it will not encourage better investment nor will encourage better use of technology. The government should earmark minimum value addition, for example, a minimum of 40% of the start value in every steps of value addition, to encourage better and substantial investment. Similarly, whenever the minimum value addition is to be taken up, the quantity should also be considered. There should be a graded system; this was not mandated in the policy. This is a great weakness of the policy, even with the promise to provide so many opportunities, and should be modified immediately.
Independent committee of experts for renewal of license
For renewal of a mining license, the Centre may constitute an independent committee of experts, may be from Geological Survey of India (GSI) or IBM. The committee would assess the performance of the original allottee before recommending renewal of the license. The state could not deny the renewal by seeking value addition within the state.
Critique
The word “performance” should be clarified with the aspects of appropriate wage, mineral conservation, health and safety, environmental control, retraining of the workers and closure plans. The performance should include the benchmarks of corporate social responsibility standards. Dilution should not be encouraged at all because all governments should care for long term citizen welfare and natural resource conservation.
The ambit and coverage of the committee should include prominent academics and researchers in the mineral sector. This is important considering the technical challenges the policies often face and shall promote more democratic decision making.
Auctioning mining blocks
In another reform initiative, the new policy has permitted auctioning of a mining block that has been prospected (potential of mining block identified) by state agencies like GSI. For these blocks, the present system of a government committee assessing the applications and granting license would be dispensed with.
States would, however, be free to offer exploratory license for new mining blocks.
critique
This policy may not work given that many of the blocks were inadequately explored. Enforceable transparency to all the involved parties will be key to the success. Government must reduce the risks of inaccuracy in exploration to make this policy successful for mining investment. The government must also have means to realize the costs of bringing in more relative accuracy and less risk in the investment.
States should not be allowed to offer exploratory license on re-exploration of blocks that can have ill motives and can offer cans full of worms. Exploratory licenses for a block that was explored less than 20 years back should not be given to any party without checking the antecedents.
Local Area Development
The policy has also put responsibility on the mining companies for undertaking local area development and other infrastructure projects in the mineral bearing areas. At least 10% of the profits would be used for the purpose.
critique
Similar such initiatives were not very successful in the past. As a supplementary to the policy, tax breaks can be announced for new projects. Encourage business development in the process of infrastructure development.
Dispute Resolution
The government today approved the new National Mineral Policy, which, among other things, proposes the setting up of an independent dispute resolution mechanism — the Mining Administrative Appellate Tribunal. The Tribunal will become fully operational in six months, a release issued after a Cabinet meeting said.
critique
This is a very good and timely step. It will auger well for all involved with the industry. It will speed up the dispute resolution process.The tribunal ,its formation and function, should follow the Rules of Arbitration of the International Chamber of Commerce (“ICC Rules”) and the United Nations Commission on International Trade Arbitration Rules (“ UNCITRAL Rules”).It will encourage collaboration and alliance.
The Missed Points
A good national policy should not only look for the benchmarks from other countries. The policy should also cover few things that it should have created to help frame a better face of mining. Some of the missed points are:
1. The mineral policy should have kept the provisions of abandoned mined land fund , similar to AML Fund of the USA, in the policy statement. This can be a very costly oversight, considering sustainable development of mineral resources. The fund could be generated from the cess or additional royalty provisions. The fund can be used on public –private partnership basis for re-vegetation and re-generation of mined out areas. The impacts of underground mining should not also be overlooked.
2. Mines should have environmental and effluent discharge standards in keeping with the best of the world and the ministry should not only look in to Indian Bureau of Mines (IBM) only for expertise. Other agencies like NEERI , IITs and ISM should be taken in framing the rule.
3. One glaring deficiency of the policy is to have not looked into the matters of mineral conservation. No mining is much better than little or nibble mining considering the effects that it leaves on the nature and ecosystem .It is also bad economics. Many underground coal mines work on 20% recovery of resource. Such practices should not be allowed at any cost even if otherwise the mining looks profitable and viable. It should be proposed that no mine developer should be allowed to do mining till he promises to do at least mining of the 80 % of the proven reserve.
4. Mining is considered worldwide as an economic activity that helps rural and tribal community, more than many other sectors. But since most of the mining activities are away from the prying eyes of the media and urban population, it breeds corruption at the local level. Workers of mining are thoroughly exploited in terms of wage, poor working and living condition, poor sanitation etc. It is time that the mineral policy has a look on this community side of mining.
5. The policy does not look into making the technology and method of mining to be developed as an institution. For example, like any civil constructions that require registered civil engineers to pass a plan , mining should have registered planners and engineers those who would certify, prepare the accepted plans in accordance of the rule.
The above points should be considered before the suitable amendments in the mines act following the endorsement of the mineral policy in both houses of the parliament.
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