TOPIC : MINERAL LAWS (AMENDMENT) ORDINANCE 2020: LIBERALISATION OF COAL SECTOR

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THE CONTEXT: on January 10^th 2020, the Mineral Laws (Amendment) Ordinance, 2020 was promulgated. This ordinance could re­sult in a paradigm shift in the coal mining sector.

• The Ordinance amends the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) and the Coal Mines (Special Provisions) Act, 2015 (CMSP Act).
• The Mines and Minerals (Development and Regulation) Act, 1957regulates the mining sector in India and specifies the requirement for obtaining and granting mining leases for mining operations.
• The Coal Mines (Special Provisions) Act, 2015provides for the auction and allocation of mines whose allocation was cancelled by the Supreme Court in 2014.  Schedule I of the Act provides a list of all such mines; Schedule II and III are sub-classes of the mines listed in the Schedule I.  Schedule II mines are those where production had already started then, and Schedule III mines are ones that had been earmarked for a specified end-use.

OBJECTIVES OF THE AMENDMENTS

1. Enhancing the ease of doing business.
2. Democratization of coal mining sector by opening it up to anyone willing to invest.
3. Offering of unexplored and partially explored coal blocks for mining through prospecting license-cum-mining Lease (PL- cum-ML).
4. Promoting Foreign Direct Investment in the coal mining sector by removing the restriction and eligibility criteria for participation.
5. Allowing of successful bidder/allottee to utilise mined coal in any of the plant of its subsidiary or holding company
6. Attracting large investment in coal mining sector as restrictions of end use has been dropped.

UNDERSTANDING AMENDMENTS IN DETAIL

REMOVAL OF RESTRICTION ON END-USE OF COAL

• Currently, companies acquiring Schedule II and Schedule III coal mines through auctions can use the coal produced only for specified end-uses such as power generation and steel production.
• The Ordinance removes this restriction on the use of coal mined by such companies.
• Companies will be allowed to carry on coal mining operation for own consumption, sale or for any other purposes, as may be specified by the central government.  They may also utilise such coal in their subsidiaries’ plants.

ELIGIBILITY FOR AUCTION OF COAL AND LIGNITE BLOCKS

• The Ordinance clarifies that the companies need not possess any prior coal mining experience in India in order to participate in the auction of coal and lignite blocks.
• Further, the competitive bidding process for auction of coal and lignite blocks will not apply to mines considered for allotment to:

(i) A government company or its joint venture for own consumption, sale or any other specified purpose; and

(ii) A company that has been awarded a power project on the basis of a competitive bid for tariff.

COMPOSITE LICENSE FOR PROSPECTING AND MINING

• Currently, separate licenses are provided for prospecting and mining of coal and lignite, called prospecting license, and mining lease, respectively.  Prospecting includes exploring, locating, or finding mineral deposit.
• The Ordinance adds a new type of license, called prospecting license-cum-mining lease.  This will be a composite license providing for both prospecting and mining activities.

NON-EXCLUSIVE RECONNAISSANCE PERMIT HOLDERS TO GET OTHER LICENSES

• Currently, the holders of non-exclusive reconnaissance permit for exploration of certain specified minerals are not entitled to obtain a prospecting license or mining lease. Reconnaissance operations mean preliminary prospecting of a mineral through certain surveys.
• The Ordinance provides that the holders of such permits may apply for a prospecting license-cum-mining lease or mining lease.  This provision will apply to certain licensees as prescribed in the Ordinance.

TRANSFER OF STATUTORY CLEARANCES TO NEW BIDDERS

• Currently, mining leases for specified minerals (minerals other than coal, lignite, and atomic minerals) can be transferred to new persons through auction upon expiry.  Such new persons are required to obtain statutory clearances before starting mining operations.
• The Ordinance provides that the various approvals, licenses, and clearances given to the previous lessee will be extended to the successful bidder for a period of two years.  During this period, the new lessee will be allowed to continue mining operations.  However, the new lessee must obtain all the required clearances within this two-year period.

REALLOCATION AFTER TERMINATION OF THE ALLOCATIONS

• The CMSP Act provides for termination of allotment orders of coal mines in certain cases.  The Ordinance adds that such mines may be reallocated through auction or allotment as may be determined by the central government.
• The central government will appoint a designated custodian to manage these mines until they are reallocated.

PRIOR APPROVAL FROM THE CENTRAL GOVERNMENT

• Under the MMDR Act, state governments require prior approval of the central government for granting reconnaissance permit, prospecting license, or mining lease for coal and lignite.
• The Ordinance provides that prior approval of the central government will not be required in granting these licenses for coal and lignite, in certain cases.  These include cases where:

(i) the allocation has been done by the central government, and

(ii) the mining block has been reserved by the central or state governments to conserve a mineral.

ADVANCE ACTION FOR AUCTION

• Under the MMDR Act, mining leases for specified minerals (minerals other than coal, lignite, and atomic minerals) are auctioned on the expiry of the lease period.
• The Ordinance provides that state governments can take advance action for auction of a mining lease before its expiry.

IMPLICATIONS OF THE AMENDMENTS

• India is the second largest importer of coal in the world. The amendments will help to increase domestic production of India. It will also help India achieve its targets set. The GoI plans to increase coal production to 1 billion tonnes by 2024. For the financial year 2019-20, the target set is 660 million tonnes.
• It will also encourage private players to participate in the auctions that are to be held to reallocate the captive coal blocks that were cancelled by the Supreme Court in 2014.So far, only 29 of the 204 blocks that were cancelled have been auctioned.
• The country may also benefit from the infusion of sophisticated mining technology, especially for underground mines, if multinationals decide to invest.
• Large investment in mining will create jobs and set off demand in critical sectors such as mining equipment and heavy commercial vehicles.
• The relaxation in regulations, along with previous initiatives such as allowing 100% foreign direct investment through the automatic route in commercial coal production, can aid in boosting coal production in the country and help reduce imports.

OTHER GOVERNMENT INTERVENTIONS TO BOOST MINING

• Na­tional Min­eral Pol­icy (NMP) was ap­proved in 2019, to ensure trans­parency in the al­lot­ment of min­ing blocks. NMP 2019 emphasizes on themes such as sus­tain­able min­ing, boost­ing ex­plo­ration, en­cour­ag­ing the use of state-of-the-art tech­nol­ogy and skill de­vel­op­ment.
• In Septem­ber 2019, 100% FDI un­der the au­to­matic ap­proval route was allowed for the sale of coal and coal min­ing ac­tiv­i­ties in­clud­ing as­so­ci­ated pro­cess­ing in­fra­struc­ture.

CHALLENGES

• There is no clarity on pricing.Without a remunerative price, few would be willing to invest billions of dollars in the latest mining techniques.
• Miners have to currently pay huge amounts upfront to get a mine after winning an auction. Due to this, often there are no bidders for the auction.
• The other problem is that coal has a‘dirty fuel’ tag and few global lenders are willing to put their money into the sector.

WAY FORWARD

• Over the last few years, ex­plo­ration by pri­vate play­ers has come to a near stand­still. In­ter­ven­tions such as in­tro­duc­ing a seam­less tran­si­tion from ex­plo­ration to min­ing license, per­mit­ting the sale of license at any stage, and al­low­ing pri­vate com­pa­nies to proac­tively ap­proach government of India for ex­plo­ration ar­eas will help over­turn this trend.
• Stream­lin­ing the auc­tion process will also lead to greater ef­fi­ciency and more ef­fec­tive out­comes.
• Min­ing com­pa­nies in In­dia are sub­ject to much higher fi­nan­cial levies than other countries, (due to high roy­alty rates, mul­ti­plic­ity of levies and dou­ble tax­a­tion). Therefore, roy­alty rates should be re­duced in line with in­ter­na­tional bench­marks.
• The government must en­sure that all pol­icy in­ter­ven­tions take cognizance of emerging global trends in min­ing, such as smart mines, deep-sea min­ing and the chang­ing com­po­si­tion of the mining work­force.

CONCLUSION: The amendments are a welcome step towards liberalization of the mining sector and attracting the much needed foreign investment. The liberalized policy will allow global players to look for investment opportunities which in turn will allow the country to leverage their technical capabilities for effective utilisation of natural resources for the benefit of people at large.