MINERAL SECTOR REFORMS
By Dr. A.K. Kundra
Secretary (Mines), Govt. of India
In the federal structure, the Central
Government lays down the basic statutory framework for development and
regulation of mines and minerals while the State governments grant mineral
concessions within the four corners of the law laid down by the Central
Government. Since early nineties, the Central Government has undertaken
reforms in the mining and mineral sector in order to attract state-of-the
art technology and investment in exploration and mining. For these reforms
to take effect at the ground level, however the responsibility rests with
the State governments. As the owners of minerals, the State governments
have to implement these reforms in right spirit. With increased focus on
private sector initiative for exploration and mining activities, the State
governments need to ensure that legitimate aspirations of the communities
around the mining areas are also met.
Survey and exploration for minerals
have been undertaken by the government departments, both Central and State,
notably by the Geological Survey of India and the State Directorates of
Mining and Geology. Prior to Independence, mining was all in the private
sector, and done according to the terms and conditions of the mining lease(s)
granted by the proprietors of the estates on tenure.
Until 1991, mining in India has
been carried out mainly in the Public Sector. Central Public Sector Undertakings
like Coal India Limited, National Mineral Development Corporation, Bharat
Aluminium Corporation, National Aluminium Company Limited, Hindustan Zinc
Limited, Bharat Gold Mines Limited, Kudremukh Iron Ore Company Limited,
Hindustan Copper Limited, Uranium Corporation of India and Rare Earths
Limited were entrusted with mining of important and strategic minerals
as well as in most cases, with downstream metallurgical operations. The
policy encouraged and facilitated mining and downstream activities in the
Public Sector, both Central and State.
With competing demands on State
Exchequer, it was no longer possible to depend entirely on the Public Sector
Undertakings and the Government Departments to undertake exploration for
minerals and exploit minerals gainfully. India embarked on first generation
economic reforms in early nineties, and soon, the mining sector joined
the mainstream of reforms. In 1993 National Mineral Policy for non-fuel
and non-atomic minerals was announced. Under the Policy, 13 minerals including
iron ore, manganese ore, chrome ore, sulphur, gold, diamond, copper, lead,
zinc, molybdenum, tungsten, nickel and platinum group of minerals, which
were reserved exclusively for public sector exploitation since 1956, were
thrown open for exploitation by private sector.
In 1997, induction of foreign
investment up to 50 percent on an
automatic basis was allowed, that
is, the investor could now bring in
foreign investment upto 50% informing
the Reserve Bank of India,
while for higher equity,permission
of the Gopvernment wouldbe taken.
Since February 2000, all proposals
for foreign direct investment in the
mining sector are eligible for automatic
approval.
The National Mineral Policy spoke of
induction of foreign technology and foreign participation in exploration
and mining for high value and scarce minerals and encouragement to foreign
equity investment in joint ventures in mining promoted by Indian Companies.
Though foreign investment in equity would normally be limited to 50 per
cent this limitation would not apply to captive mines of any mineral processing
industry, with provision for enhanced foreign equity holding on a ‘case
to case’ basis.
In 1997, induction of foreign investment
up to 50 per cent on an automatic basis was allowed, that is, the investor
could now bring in foreign investment up to 50 per cent informing the Reserve
Bank of India, while for higher equity, permission of the Government would
be taken. Since February 2000, all proposals for foreign direct investment
in the mining sector are eligible for automatic approval. Except for precious
stones and diamonds, automatic approval of foreign direct investment up
to 100 per cent is permissible for exploration and exploitation of all
non-fuel and non-atomic minerals, including for gold and silver. For precious
stones and diamonds, automatic approval for foreign direct investment is
permissible up to 74 per cent.
The basic mining law was amended
in 1994, removing restriction on foreign equity holding in mining sector
companies registered in India, delegating powers to the State governments
in the matter of granting mineral concessions for more minerals without
necessity of consulting the Central Government, and providing greater stability
of tenure of mineral concessions. In October 1996 the Department of Mines
issued guidelines to facilitate large area aerial prospecting, in response
to which, the entrepreneurs have taken 65 large area prospecting licenses,
covering an area of over 90 thousand square kilometers.
In December 1999, the mining law
was amended once again. To encourage use of state-of-the-art technology
for mineral exploration, a concept of reconnaissance operations distinct
from, and prior to actual prospecting was introduced. The amendments delegated
more powers to the State governments, not only for grant of mineral concessions,
but also for renewal, transfer and amalgamation of mining leases for non
fuel and non-atomic minerals. The States were empowered to make rules for
curbing illegal mining. The maximum area that could be granted under mineral
concessions was made operative State-wise, which gave greater opportunity
to the investors with interest in more than one State. The States were
thereafter, delegated powers to approve mining plans for identified industrial
minerals, time limits were prescribed for approval of mining plans and
disposal of applications for mineral concessions.
While the national level mining
law and the foreign investment policy for the mining sector now are on
par with best international practices, the impact of reforms, however,
has not been evenly felt across States. While a few State governments have
framed their mineral policies within the broad framework of the National
Mineral Policy, many other mineral rich States have not. Also the large
area prospecting licenses/ reconnaissance permits taken for the States
show a wide variation. While as many as 34 large area prospecting licenses
and 19 reconnaissance permits have been taken for Rajasthan, 32 each reconnaissance
permits have been taken for Andhra Pradesh and Karnataka, no reconnaissance
permit has been taken for a mineral rich State like Bihar and Gujarat.
In the federal structure, where mineral resources belong to the States,
desired investment in the mineral sector with commensurate returns can
take place only with active participation of the State governments. Thus
while some States have been carrying forward the agenda of liberalization
and reforms, with progressive State Mineral policies and procedures, there
are other mineral bearing States who still have to catch up both in mind-set
and implementation of investor friendly policies and procedures.
Both the Central government and
the State governments have to act in harmony in paving way for smooth transition
of management control of the mining sector to private initiative. Second
generation reforms have started at the national level in the mining sector,
with the Central Government divesting equity and management control in
major mining companies, both in loss making as well as profit making Public
Sector Undertakings. The private sector mining companies will carry forward
the cause of the sector with better infusion of technology, funds and managerial
inputs. It is a matter of concern that despite general resource crunch
in the State Public Sector Undertakings in the mining sector, some State
governments, by and large have not followed suit. These State governments
continue to recommend reservation of mineral bearing areas in favour of,
and granting of mineral concessions only to the State Public Sector Undertaking(s)
in mining and mineral industries. In many such cases, since the State Public
Sector Undertaking generally lack the resources and state-of-the-art technology,
the mineral concessions later are transferred to a joint venture formed
with a private sector company on the basis of a memorandum of understanding,
with the equity of the State Public Sector Undertaking in such a venture
being nominal or being ‘in kind’. In some cases there have been instances
of the State expecting free equity in such ventures. Unfortunately such
steps vindicate the perceived image that the Government is actually reluctant
to withdraw from non-strategic and non-core sectors.
The procedure of grant of mineral
concessions prescribed in the Indian mining law is that other things being
equal, the principle of first come first serve should be adopted, with
first right to a person who has prospected the area for the mineral. The
grant is further subject to objective assessment of the relative competence
of the applicant(s) in terms of parameters prescribed in law itself.
Many mineral-rich States insist
that industries based on minerals found in the State should be set up in
the State itself. Such an approach is typical of local concerns overshadowing
national concern. If the mineral found in one State can be used with greater
value addition in another State of India, it contributes to national development,
but very few States willingly buy the argument. Very typically, regional
aspirations in case of grant of mineral concessions may not be in line
with economic viability of the project, or overall national interest. The
potential investors shy away from such ventures if setting up of downstream
unit in the mineral rich State is not viable. As a result, the mineral
wealth may remain unexplored and unexploited.
A vibrant mining sector contributes
to employment generation and reduction in poverty. The most sensitive elements
in maintaining social sustainability of modern mining are the communities
that exist at a potential mining site, the communities which come to live
around the mining site during its active phase of the mine and finally
the state of the community after closure of the mining operations. In India,
surface rights belong to the State, individual or communities. While the
communities get compensated under law for handling over such rights to
provide access to the mineral underneath, normally they do not have any
stakes or sense of participation in the eventual mining venture. In mineral
rich aboriginal/tribal areas in particular, the economically marginalized
communities who have the surface rights generally do not have the bargaining
power to get mining Companies to invest in development of social infrastructure
like schools, hospitals and sanitation in the mining area. In this background,
the States could consider earmarking a portion of the mining dues received
in the State Exchequer for local area development in mining areas.
Therefore, in a scenario where mining
legislation has been made increasingly State-centric in the federal structure,
which has reduced the dual levels of decision making in the mineral sector,
the ball is now in the court of the States to fully reap the benefits of
the liberalization.
The author is
Secretary (Mines)
Govt. in India
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