A MINE OF REFORMS

I found this article quite interesting and reproducing here as it is. The author (S.Vijay Kumar) is special secretary in the Ministry of Mines, Government of India and he can be contacted at vijay@nic.in.

A mine of reforms

While the draft MMDR Act seeks to address mining-related concerns of most stakeholders, its success will depend on an increase in investor confidence.

Media reports regarding iron ore mining in Bellary, Karnataka and manganese mining in Keonjhar, Orissa, have spotlighted some of the worst features of mining in India. Some of these reports have been bringing out a picture of lax regulation, unscientific mining practices, poor concession management, inadequate attention to environmental concerns and non-addressing of the needs of the local population in mining areas. It is not surprising then that the cry for mining reform is gaining strength, and many suggestions are being made as to what should constitute this reform.

Let’s understand the context first. One, minerals (other than petroleum), in most cases, belong to state governments which grant concessions and collect revenues in the form of royalty and other taxes. Two, the Constitution allocates the subject of mineral development and regulation to state governments (entry no. 23, List II), subject to law of Parliament (entry no. 54, List I), and the Centre’s role is limited to the boundaries set out in such law, in this case the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act).

Three, the MMDR Act makes a distinction between major minerals (minerals of economic and industrial importance) and minor minerals (those that are used locally), leaving the latter almost exclusively within the state domain for regulation and development.

Owing to imperatives of economic growth, environmental concerns and societal considerations, it is clear that the entire framework of the law will need to be revisited to provide for a forward-looking legislation that squarely addresses the following:

Making the system of granting concessions more transparent, enabling quicker and simpler decision making.

Creating systems where science and technology inputs for efficient mining, mineral beneficiation and value addition are encouraged.

Incentivising exploration particularly for hitherto neglected metals such as base metals, precious metals and strategic minerals using advanced technology to locate deep-seated mineralisation in a high-risk, high-return environment.

Ensuring that royalties are commensurate with the value of minerals, and that adequate proportions of these revenues are used for both local area development and creation and maintenance of mining-related infrastructure like roads.

Facilitating stakeholder communities to ensure that mining-related activities take place within a socially and environmentally sustainable development framework, thus providing the “social licence” to mine.

Providing for regulatory, deterrent and punitive measures to check illegal practices and deviations from procedures laid down under the law.

Recent discussions in public fora have focused on these issues but in varying contexts, as a result of which the fact that all these concerns are connected and need to be jointly addressed has perhaps not been adequately articulated. It is, however, evident that at long last these concerns are being sought to be addressed within the government, as is clear from the latest version of the draft MMDR Act put up on the Ministry of Mines website on March 31:

The concession grant system is sought to be streamlined by removing excessive discretion at state level; prescribing time limits and constituting an independent tribunal to check appropriateness of decisions and delays. Since delays and unclear decision-making processes are the root causes of the present corruption in the system, clearly this part of the reform is long overdue.

Value addition, beneficiation, long-term ore-linkage for local industry, etc. are incentivised through weightages at the time of bidding for prospects and mines. All these will help in conservation of resources and effective utilisation of minerals.

High-technology exploration is being attracted (for locating deep-seated mineralisation) by providing for (specialised) exploration agencies to transfer data and concession rights to mining companies, in line with the best international practice, while at the same time protecting the right of a prospector to (seamlessly) get a mining lease if he so desires. Transferability and seamlessness are key to ensuring venture capital flows for high-risk, high-return exploration activities, and these are missing in India today.

Royalty estimation mechanisms are being made more dynamic by providing for a royalty commission to study and recommend royalty system improvements from time to time. While royalties for most major minerals have been made ad valorem in 2009, the draft clearly creates space to move towards a profit-sharing-based royalty as is prevalent in some countries. Such systems are more equitable, and can incentivise capital expenditure on value addition at ore stage.

A portion of the royalty is being sequestered as a cess to be kept in a mineral fund and used for local area development and development of mining-related infrastructure. The fact that this fund is non-lapsable and earmarked will address the long-standing need for ensuring that part of the royalties are ploughed back into mining areas.

Ensuring that mining-related activities take place within a socially and environmentally sustainable development framework is clearly the most difficult objective. The draft Act seeks to achieve this by a combination of regulatory and enabling measures:

One, statutory mining plans and mine closure plans will need to be formulated and enforced by technical regulators, with the closure plan also being publicly disclosed.

Two, not only will notification of land for prospecting and mining require prior consultation with local communities, but the mining concessionaire will also have to share 26 per cent of his profits with those whose lands are involved in mining operations.

Regulatory, deterrent and punitive mechanisms under the Act are being given more teeth:

One, the Indian Bureau of Mines at the national level will be adequately equipped and empowered as a technical regulator to enforce compliance with mining plans and mine closure plans in particular and the sustainable development framework in general.

Two, a provision for special courts is being made to fast-track trial of cases of illegal mining etc.; punishments too are being made stringent.

At a time when iron ore is perceived as the main driver of the mining regime in the country, this clean break with the past through a new Act is as welcome as it is overdue. Initial indications are that while the draft MMDR Act addresses the needs of most stakeholders and includes many progressive features, the key indicator of success will be the increase in investor confidence, manifested through fresh investments and higher levels of exploration for minerals and metals, and in areas hitherto neglected.