As part of the plan for and to be Aatmanirbhar announced by the finance minister in May 2020, the government of India had stated its intent to reform the mining sector and enhance private investments in the sector. As a follow up to the same, government has put in public domain draft of the proposed reforms on August 24, 2020 to receive comments.
The key changes proposed in the Mines and Minerals (Development and Regulation) Act, 1957 are:
Operationalising the legacy mines:
Many prospecting leases which have not been granted mining lease for long period of time for any reason are proposed to be brought in the ambit of auctioning. These potential leases are blocked in the legacy cases which cannot be granted on account of legal impasse. A large number of potential mineral bearing areas are blocked and are not contributing towards mineral production and employment generation. The proposed reforms aims at appointing an authority to decide the amount of expenditure incurred on exploration by the current would be leaseholder and post the evaluation, the rights would be terminated. This would enable the availability of new mines to be auctioned and be operational within time limits.
No distinction between captive and non-captive mines:
Currently plants with captive mines have resources which meets only the specific quantity and grade of mineral for that specific plant. This results in sub-optimal mining. A plant with substantial amount of resources remains untapped for years and years. The excess reserves can be mined and utilized to meet the plants which are deficit on the raw materials. The proposal under current reforms seeks to remove distinction between captive and merchant mines by ensuring that in future all mines will be auctioned without end use restrictions. Further, the existing captive mine leaseholders shall be allowed to mine additional 50% of the mineral extracted in the previous year for captive usage, to be traded in the current year.
Developing a national mineral index:
Currently, the royalty on mineral including other levies (DMF, NMET) paid to government is calculated based on the Average Sale Price (ASP) on minerals as published by IBM. ASP is calculated based on the returns filed by the merchant mines. The revenues to the exchequer now is highly dependent on the ASP. To avoid any mischief in arriving at the ASP; the reforms seeks to develop a mineral index, which will determine the value of the mineral that will form the basis for calculation of royalty and other levies.
Treatment of illegal mining:
Currently the definition of illegal mining includes (i) mining done outside the leasehold land area and (ii) mining in violation of various clearances and approvals inside a mining lease area. The reforms seeks to treat the two offences differently. Mining carried out inside legally granted mining leasehold area in contravention of any regulations or law will be treated as per the extant regulation or law. The illegal mining done outside the leasehold area shall be treated separately and distinctly from the unauthorised mining within the leasehold area.
Rationalise Stamp duty:
Stamp duty now is calculated based on the value of the mineral which again is dependent upon grade of the mineral and the period of lease. Grade of mineral, mine life etc leads to too many differences in calculations which leads to litigations. The proposed reforms seeks to levy stamp duty on the extent of the leasehold area and not the value of mineral. The proposal is to standardize the norms of computation of the stamp duty on mining lease based on the value of land under mining lease without any reference to the value of mineral.
Bringing unused mineral blocks into production:
Large number of mining blocks with high quality mineral are not brought into production for many years resulting in sub-optimal utilization of mineral resources. The amendment seeks to modify the provisions for vesting back of such non-operational mines to state government for auctions if these mines are not made operational within three years. Similarly, the mines allocated to PSUs which have remained non-operational shall also be vested back to the government for auction.
Other proposed amendment to the policy includes allocation of the exploration work to private companies to expedite the commercialization of the prospective mineral bearing mines of the country.
Though the government has made a serious attempt to revive the action and activity in the mineral sector; it needs to be seen how the government implements the proposed amendments. Currently the Government has sought comments on the proposed reforms which may possibly find objection to by established corporate houses on various changes, particularly the one pertaining to cancellation of mining block under process for mining lease and those pertaining to non-operational mines.
While the intent of the government is to generate revenue and create employment; the task in implementing the same shall not be easy. The expectation was that government would completely do away with captive requirement, but a 50% restriction still poses a big question such a producer will support its competitor in local area with the mineral.