The history of mineral exploration &development is contemporary to the history of human civilization. India is amongthe oldest countries which has been utilizing mineralsin multiple facets of daily life & for various industrial requirements, as is evident from a plethora of examples from the times of Harappancivilisation and in ancient Sanskrit texts. In recent times, in the initial plan period in India in 1956, impetus was given on development of key minerals resources for various industries. Among all the mineral resources, Coal and Iron ore mining have received maximum attention, being the key raw materials for any industry. Over the last decade, Coal and Iron ore mining & exploration has gained prominence in India with rising steel consumption and higher energy requirements.

Rising demand of the minerals and increased exploitation has generated several controversies in the mining sector including encroachment of forests, illegal and irregular mining, under payment of Royalties, under-development to thetribals and conflicts regarding land rights, etc. This has gained attention of hitherto unimagined extent with the involvement of some of the most prominent business groups and political families throughout India.

Mining in India has always been a tricky subject plagued with connivance of mafia and influential people exploiting the natural wealth for personal gains. While in its early days, mining was insignificant, the importance gradually increased with bids of manufacturing companies to secure raw material sources for future and competitive pressure for vertical integration of the processes.

Extant Policy Framework

Coal mines in India were nationalized following the legislation of Coal Mines (Nationalization) Act, 1973. Subsequently, between 1976 to 2007, with the gradual increase in domestic coal demand, the Government progressively allowed coal block mining for captive end use by private companies through Captive Dispensation (Specific end use), Government Dispensation (No end use but for only Central & State PSUs) and UMPPs (Based on ministry recommendation). Between 1993 &2011, 218 captive blocks with cumulative reserves of 50.5 billion tonnes were allotted.

The Hon’bleSupreme Court, in September 2014 has termed all captive coal blocks as illegal on account on non-transparent, inconsistent and adhoc processes followed for allocating Coal blocks under the various routes.

Iron Ore leases in India date back to 1950s when the mine owners were given the area to develop and extract the minerals under the key legislation, the Mines and Minerals (Development and Regulation) Act of 1957 known as MMDR and Mineral Concession Rules of 1960.

As per the Act, mining lease was originally granted for a period of 20 years with an option to renew the same thereafter. Under the provisions of the legislations, State governments were given the power to consider and dispose off the applications to renew the mining leases. If a lessee makes an application and the same is not disposed off, the lease shall be consideredto be renewed under provisions of deemed renewal. State machineries failed to take action on the disposal of the applications enabling the mine owners to continue mining without paying any heed to the larger environmental & social impact of such activities

Mining Scams

A sleuth of scams in mining of various minerals has rocked the country in the recent half decade. While the Coal allocation scam reportedly costed a mammoth ~ ₹1.86 trillion to the exchequer, Iron Ore mining scam is reported to have a magnitude of ~ ₹0.8 trillionspread over few states. The scam not only tarnished the image of India Inc. before the whole world but it also derailed the process of economic growth, with  the intervention of Judiciary and a complete logjam was created in terms of supplies of the essential minerals for industrial growth

In the iron ore mining sector, Honorable Supreme Court came down hard on iron ore mining activities in Goa, Karnataka and Odisha, with complete shutdown of errant mine owners. In the coal mining sector, it suspended all the 218 Coal blocks allotted to various companies in September 2014. This made a huge impact on the core sectors in India, forcing an over-reliance on costly imports which made the domestic products non-competitive in the International markets and also drained critical foreign exchange of the country. Various producers were compelled to take a compulsory shutdown instead of running in losses causing a loss of ~ ₹100,000 Cr to the economy in addition to loss of ~80,000 jobs.

A new dawn

With the advent of a new central leadership, the thrust is now on “MAKE IN INDIA” which would transformthe manufacturing sector and would mark the beginning of a new dawn. The central leadership has taken a few prompt but important decisions to resolve the current stalemate and ease out the supplies of the key resources.

The Government took the ordinance route by promulgating the two key legislatures – The Coal Ordinance, paving the way for auctioning of the Coal Blocks through transparent process of biddingof mineral resources based on the various parameters in consultation with the stakeholders and another ordinance seeking amendments in mining rules, giving the much required breather to both captive as well as merchant iron ore mines.

Coal Auctions

For coal mines, the central government sprung into action with commitment to hand over the developed mines to end users within the cut-off date of March 31, 2015. The blocks are broadly divided into 4 categories as under:

24 blocks which are operational and needs to handed over by March 31, 2015 – The first lot of mines to go under hammer and it is expected that the bidding process shall be completed by March 23, 2015 with signing of the agreement with the successful bidder (Schedule I mines)

37 blocks which are ready to operate – The second lot of mines expected to be streamlined by April 2015; Out of the same, 17 blocks will be allotted directly to the PSUs (Schedule II mines) and balance being auctioned (Schedule III mines)

Remaining mines (Schedule IV mines) will undergo the hammer subsequently

 

For the Merchant power end use, the process of bidding shall be the Reverse Bidding process, ensuring minimum impact on the Cost pass-through to the committed power sales under Power Purchase Agreements (PPAs). Rest all other blocks will be under Forward Bidding process. In Forward Bidding process, bidder is expected to bid higher to the last available bid in multiple of Rs 2 / tn of Coal and highest bidder wins the block. Whereas in Reverse Bidding, companies are required to bid under a cap price in terms of cost they intend to pass-through to the final consumer. The lower pass through wins the bid. However, in the process, if bid reached the “Zero” level, then the process is converted into Forward bidding to determine the winner.

By the time this article went online, Government has successfully completed the bidding process for Schedule I & III mines raking up more than Rs 1.90 lac crores over 30 years as under:

Name of Coal
Mine/Block

Reserves (MT)

State

Previous Allottee

End use of coal

Winner

Bid Rate(Rs / tn)

Annual Compensation (Rs Mn)

Ardhagram

121.00

West Bengal

SovaIspat Limited

Iron & Steel, Cement & CPP

OCL Iron

2,302

921

Belgaon

15.30

Maharashtra

Sunflag Iron & Steel

Sunflag Iron

1,785

482

Bicharpur

36.00

MP

MP State Min Corp

Ultra Tech

3,003

2,252

Chotia

34.50

Chhattisgarh

Prakash Industries

BALCO

3,025

3,025

Gare-Palma IV/1

124.00

Chhattisgarh

Jindal Steel & Power

BALCO

1,585

9,510

Gare-Palma IV/4

125.00

Chhattisgarh

JayaswalNeco

HindalcoInd

3,001

3,001

Gare-Palma IV/5

126.00

Chhattisgarh

Monet Ispat

HindalcoInd

3,502

3,502

Gare-Palma IV/7

156.00

Chhattisgarh

Sarda Energy (JSPL)

Monnet

2,619

3,143

Gotitoria East&West

10.00

MP

BLA Industries Ltd.

Small

Withdraw after court intervention

Kathautia

29.80

Jharkhand

Usha Martin Ltd.

Iron & Steel, Cement & CPP

Hindalco

2,860

2,288

Mandla North

195.00

MP

J. P. Associates

JP Associates

2,505

3,758

MarkiMangli - I

34.30

Maharashtra

B. S. Ispat Ltd.

BS Ispat

918

275

MarkiMangli - III

6.00

Maharashtra

Veerangana Steel

Withdrawn due to inadequate bids

Parbatpur-Central

231.00

Jharkhand

Electrosteel

SialGhoghri

30.40

MP

Prism Cement Limited

Reliance Cem

1,402

421

Amelia (North)

101.00

MP

MP State Min  Corp

Power

J P Power

712

1,994

Gare-Palma IV/2 & 3

246.00

Chhattisgarh

Jindal Steel & Power

Jindal Steel

108

745

Sarisatolli

140.50

West Bengal

CESC Ltd.

CESC

470

1,645

Talabira - I

22.60

Orissa

Hindalco

GMR Energy

478

1,434

Tokisud North

92.30

Jharkhand

GVK Power Ltd.

Essar Power

1,110

2,575

Trans Damodar

103.00

West Bengal

WBMDTC

Durgapur Proj

940

940

Durgapur II

188.65

Chhattisgarh

BALCO.; DB Power

Withdrawn due to inadequate bids

Utkal-B1 & Utkal-B2

342.47

Orissa

Jindal Steel.; Monnet

To be announced later

Mandakini

322.79

Orissa

Mandakini Coal Co

MandakiniExp

650

4,875

Utkal-C

123.86

Orissa

Utkal Coal Ltd.

Monnet Power

770

2,595

Jitpur

81.09

Jharkhand

Jindal Steel & Power

Adani Power

302

755

Ganeshpur

137.88

Jharkhand

Tata Steel; Adhunik

GMR

702

2,808

Tara

166.92

Chhattisgarh

Chhatisgarh MinDev

Jindal Power

126

756

Moitra

215.78

Jharkhand

JayaswalNeco Ltd.

Iron & Steel, Cement & CPP

JSW Steel

1,512

1,512

Rohne

241.73

Jharkhand

Rohne Coal Co. Ltd.

To be announced later

Gare-Palma IV/8

95.78

Chhattisgarh

JayaswalNeco Ltd.

AmbujaCem

2,291

2,749

Mandla-South

37.33

MP

MP State MinCorp

JP Cement

1,852

556

Dongeri Tal-II

43.27

MP

MP State MinCorp

Withdrawn due to inadequate bids

KosarDongergaon

22.63

Maharashtra

ChamanMetaliks Ltd.

Withdrawn due to inadequate bids

Nerad Malegaon

20.36

Maharashtra

Gupta Metalliks

Indrajit Power

660

238

MarkiMangli-IV

3.04

Maharashtra

Shree Virangana Steels

Withdrawn due to inadequate bids

Jamkhani

178.38

Orissa

Bhusan Steel Ltd

Withdraw after court intervention

Brinda&Sasai

34.71

Jharkhand

Abhijeet Infrastructures Ltd.

Usha Martin

1804

1,227

Meral

17.04

Jharkhand

TirumalaInd

727

320

Dumri

56.95

Jharkhand

NilachalIspat

HindalcoInd

2127

2,127

Lohari

10.59

Jharkhand

UshaMaartin Ltd.

AraanyaMines

2438

488


While the auction process is evidently transparent, it is burdened with a few thorny issues, like determination of the end use, arbitrary assessment of the amount to be refunded to the prior allottees, etc. The Coal auction process also does not address the key problem of Coal bed Methane Gas, which will potentially degrade the environment and will also cost the exchequer additionally to the tune of ₹2.8billion per annum. The blocks which are either being developed or are not developed, are expected to be auctioned following the process similar to the auction process being undertaken. The state revenue from the process is as under:

State

Annual Revenue (Rs Million)

Total Compensation (Rs Million)

Chhattisgarh

                             23,406

              702,186

Jharkhand

                            12,780

              383,388

Madhya Pradesh

                              8,980

              269,387

Maharashtra

                                995

                29,849

Odisha

                               8,904

              267,117

West Bengal

                              3,506

              105,174

Total

                            58,570

            1,757,100

 

Breather to Iron Ore Mining

With the promulgation of the ordinance, seeking amendment to MMDR Act, the government has ensured that the immediate supply crunch is released with re-opening of all the mines hitherto closed vide Supreme Court’s order on the grounds of second and subsequent renewal. This is expected to improve the availability of Iron Ore by ~25 million tonnes per year with immediate effect. The ordinance seeks an automatic extension of merchant mines upto March 31, 2020 and that for captive mines upto March 31, 2030. However, due to differences between State and Centre Government, mines are yet to be opened.

The central ministry has already started discussions with the state administrations to implement the Ordinance and also to discuss the process of auctioning the mines after the expiry of the afore-mentioned period. Central Government has constituted a Standing Committee with participation from multiple political parties to arrive at a majority decision and thus smooth implementation of the rules.

Summary

Mineral and mining sector in India was long plagued due to lack of transparency in the allotment process resulting into widespread protest both locally and nationally. With the clearly laid down framework and a transparent distribution process, the government is willing to provide raw material security to the end use plants while not compromising on the revenue of the relevant state, which may then be used for local development. This is a positive step to address a decade long issue and providing clarity to the stakeholders for utilization of the resource through inclusive development of the producing region.

 

Prakash Beria

Prakash Beria is Assistant Vice President looking after Business Development for IL&FS Financial Services (IFIN) based out of Kolkata with more than a decade of experience of working closely with clients in metal, mining and mineral industry.



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