Govt Needs to Speed Up Auctions Juggernaut


During its first term, the government ruffled many feathers with its decision to award mineral blocks via auctions. The new allotment meant the cessation of awarding mineral assets on discretion. The Union government, then, tasked itself with the monumental amendment to the Mines and Minerals – Development & Regulation (MMDR) Act of 1957. What ensued was a new Act, the MMDR Act of 2015 and which was topped with the Mineral Auctions, 2015. The experiment of auctions took off, making India only the fourth major resource-rich nation after China, Russia and Indonesia to allocate mineral blocks through competitive bids. China, interestingly, practises the dual procedures of auctions and first-come-first-serve-basis allotments. While explored mineral assets are put up for auctions, discretionary allotment still rules for unexplored blocks.
But as four years have elapsed since the start of the auction regime in India, the success rate of mineral bidding has not matched the euphoria it generated at the beginning. Each year, the Union mines ministry enlists 80-100 mineral blocks for online auctions but only 15-20% of them actually get bid out. Since the announcement of the Auction Rules, only 64 blocks have been hitherto offered for bids (as on May 23, 2019), data on the Union mines ministry’s portal revealed. In the last fiscal, only 19 blocks were auctioned. This fiscal, the pace of auctions looks to gain speed with 10 blocks already successfully bid. The tempo of auctions needs to be accelerated given that myriad merchant mines are lapsing by March 31, 2020. In the second term, the government can ill afford to create a raw material crisis and deepen hostility of industries that are already in the throes of tepid manufacturing growth.

Why Mineral Auctions Have Stumbled?
One of the key reasons why auctions have struck a speed bump is the mandatory exploration requirement up to G2 level for any virgin or extracted block. The mineral industries, through the Federation of Indian Mineral Industries (Fimi) and Pellet Manufacturers Association of India (PMAI), have been exhorting the Union government to relax this provision in the Mineral Auction Rules, 2015. Compared to other resource-rich nations, India is among the underexplored ones. “Only 1% of India’s Obvious Geological Potential has been converted into mineable assets. This is due to a poor scale of exploration, hamstrung by inadequate funds. The country has not emerged as a favoured destination for global explorers with just around 0.6% of the global exploration budget as compared to 14% for Canada and 12% for Australia,” said a source at Fimi.
India’s expenditure on mineral exploration is only USD 17 per square km and the figure pales when compared with Australia’s USD 124 and Canada’s USD 118. Even the New Mineral Exploration & Licensing Policy (NMELP), 2016 has failed to cut ice with the foreign investors. The policy is still wanting in tax incentives for explorers and does not offer an investor the grant of prospecting license or a composite license (PL-cum-mining lease). The common grouse by foreign exploration companies is the lack of comprehensive, detailed data on mineral deposits in India.

The new National Mineral Policy (NMP), 2019 seeks to overcome this handicap with a national inventory buttressed by comprehensive and up-to-date review of exploration data maintained in a digitised version. That should give a fillip to exploration and help pace up auctions. The other impediment to mineral auctions is the inordinate time consumed in obtaining statutory clearances – environmental clearance (EC) and forestry clearance (FC). To quicken auctions and production from the blocks, miners are batting for grant of in-principle EC and FC before a resource is listed for bidding. For leases already extracted and due to lapse, they have suggested extending the tenure of clearances for the successful bidder.

“The key reason why auctions have failed to gain momentum is the inordinate delay confronted in getting environment clearance (EC) and forest clearance (FC). Going by the current procedures, it takes three to five years, running through various stages, to obtain EC and FC for grant of mineral concessions. An in-principle approval for statutory clearances like EC and FC and land acquisition should be in place before offering the blocks for grant,” said a mining industry source.

The Case For Quickening Auctions Of Lapsing leases
Data from the Union mines ministry’s central empowered-cum-coordination committee (CCEC) shows a total of 329 mines heading for expiry by March 31, 2020. Of this, only 48 mines are operative, the balance are in a non-working state. However, 101 mines are auctionable. Working mines in Odisha, the largest iron ore producer, and Jharkhand put together, cater to 45% of the iron ore and manganese requirement of steel mills concentrated in the country’s eastern sector.

With scores of merchant or non-captive mines going off operations, fears of a supply crunch in key raw materials like iron ore and manganese ore have gripped the markets. Iron ore, for instance, has an approved capacity of around 85 MnT from the mines whose validity ceases on March 31, 2020. About 70% of India’s steel makers are dependent on open market supplies for feeding their plants. The scenario is the antithesis of China’s where 70% of the iron ore resources are controlled by their steel companies.
To avert any possible crunch emanating from the lapsing of merchant leases, they need to be prepared in advance for auctions. The first binding requirement is upgrading all blocks to the G2 level of exploration. In Odisha, all 16 merchant mining blocks whose tenure lapses by March 31, 2020 have been prepared for bidding.

The other requirement is inserting an amendment in the Mineral Concession Rules, 1960 to enable the auctions of lapsable blocks before they are auctioned. Even after their lease validity ceases, the merchant miners are permitted to move raw material from the site for six months.
Concerns over repercussions of lapsing merchant miners after March 2020 have evoked mixed reactions. Fimi has been lobbying for extending their tenure by 10 years till 2030, co-terminus with that of captive miners, citing that a lot many mines going offline would precipitate an acute raw materials crunch.
Other industry bodies like the Associated Chambers of Commerce & Industry (Assocham), the Indian Chamber of Commerce (ICC) and the Karnataka Iron & Steel Manufacturers Association have contested Fimi’s demand.
Assocham estimates that the government could face INR 79500-crore loss if the lease validity of non-captive mines in Odisha alone is extended for 10 years till 2030. The notional loss figure could mount if mines in other ore-rich states like Jharkhand, Chhattisgarh and Karnataka are counted.
“In order to provide a level playing field between captive and merchant miners, it is crucial that fresh auctions of the iron ore mines are conducted and both be given a fair and equal chance to participate in the auctions, considering that of all the iron ore mines allowed till date, the majority belong to merchant miners,” Assocham said in a submission to Niti Aayog.