India wants more mines

India wants more mines

April 12, 2021 | By Aditya Rebbapragada in Singapore

India took steps in late March to encourage more private investment in mines.

A new "Mines and Minerals (Development and Regulation) Amendment Act, 2021" took effect March 28 that amends the existing regulatory framework for mining in India to make the sector more attractive to investors.

Mining in India currently contributes only about 2.2% to 2.5% of the national gross domestic product. The country imports natural resources such as coal and gold in large quantities, although assessments by the Geological Survey of India indicate substantial domestic reserves are untapped.

Mining law reform in India is a critical component of the Modi government's target of making India a US$5 trillion economy by the 2024-25 budget year.

The NewsWire reviewed the amended legislation and also spoke with Anjan Dasgupta, senior partner in the Mumbai office of DSK Legal, on the implications of the amendments on mining projects in India.

Concessions and licenses

The amendments simplify the permitting and lease process under the mining regulations.

The separate permitting regimes for conducting reconnaissance operations (for preliminary prospecting of minerals), prospecting operations (for exploration, locating or proving of mineral deposits) and for grant of mining leases (for conducting actual mining operations) are now replaced by a single concept of "mineral concessions." However, the central and state governments retain flexibility on the approvals that may be included in a single mineral concession granted to a concessionaire.

The "prospecting-licence-cum-mining-lease" regime under the previous legislation — which was relevant where there was inadequate evidence to show the existence of mineral contents of minerals in a certain area — has now been replaced with a "composite license" regime. This is a two-stage concession for undertaking prospecting operations followed by mining operations in a seamless manner.

Under this new regime, a composite license holder must submit a geological report specifying the area required for the mineral concession after it completes prospecting operations. Once the conditions of the composite license are met, then the state government must grant a mineral concession to the composite license holder.

A composite license will be granted though an auction process.

The state governments require the central government's approval before granting composite licenses for mining atomic minerals, a category that includes uranium, lithium-bearing minerals and minerals in the "rare earth" category.

Starting over

According to the Ministry of Mines of the central government, the central government exploration agencies have handed over geological reports for 143 mineral blocks to various state governments since 2015. However, of these, only seven blocks have actually been auctioned by the relevant state governments.

To facilitate efficient auctioning of the available mineral blocks, the amended legislation provides that all applications for prospecting licenses or mining leases that were awaiting approval will now lapse.

The applicants under these applications will be reimbursed by the central government for the expenditure incurred by them toward conducting reconnaissance or prospecting operations.

The relevant areas will then be re-auctioned under the terms of the amended legislation.

The government expenditure for the reimbursement will be drawn from the National Mineral Exploration Trust and will be recouped from royalties received from successful bidders of the mineral concessions in that area.

In the case of atomic minerals of a certain minimum grade that are relevant from a national security perspective, the auction will be conducted under central — rather than state —government rules.

Auction process

The amended legislation allows for a uniform process for auctioning mines. Prospective concessionaires would now not have to deal with the array of processes that vary from one state to the next.

One of the more contentious amendments made to the legislation is to empower the central government to take over the auction process or identify mining areas to be auctioned if the state governments to which those areas belong are facing difficulty in conducting auctions or have failed to identify mining areas to be auctioned.

The goal is to ensure that more mineral concessions are auctioned on a regular basis for continuous supply of minerals in the country.

However, the affected state governments may see this as a way for the central government to usurp their authority and possibly undervalue mineral concessions in order to encourage private participation.

Government-owned concessionaires will be granted mining leases for terms "as prescribed by the Central Government."

Previously, the term of a mining lease granted before 2015 was at least 20 years and not more than 30 years. Mining leases granted after 2015 were for a 50-year period, with some exceptions.

The flexibility for concessions granted to government-owned entities is useful in cases where the government has been unable to auction a particular mine and requires a government-owned company to commence work at the site before it can be auctioned to the private sector as a brownfield asset.

The amended legislation also requires payment by government-owned mining companies of additional amounts to the state governments when mining leases are granted to such companies or extended. This is expected to create a level playing field between mines auctioned to the private sector and the mines operated by government-owned companies.

Transfers and end uses

If a holder of a mining lease fails to undertake mining operations within two years or discontinues mining operations for two years, then the mining lease will expire at the end of the two-year period.

The amended legislation makes the rules more specific on this point by referring to "production and dispatch" in place of "mining operations." This would give concessionaries more certainty around what would trigger loss of a mineral concession.

The amended legislation provides that in the case of a mineral concession that has been granted by auction, all approvals, clearances and licenses in relation to the mineral concession will remain valid even after expiration or termination of mineral concession (other than in the case of atomic minerals).

Previously, the new transferee lessee had to reapply for everything within two years after transfer of the mining lease.

A new transferee concessionaire will therefore be permitted to continue mining operations without having to reapply for approvals, clearances and licenses and can avoid the repetitive and redundant process of obtaining clearances for the same mine.

The amended legislation removes the distinction between captive mines — where the concessionaire must apply all of the extracted minerals toward a dedicated purpose — and merchant mines.

Where mining concessions are being auctioned, no mine can now be reserved for captive purposes.

Previously, where mining concessions were being auctioned, the state governments could require that the offtake from a mining concession only be used for a particular end use. This meant that only certain end users were eligible to participate in the auction of those mining concessions. This also discouraged mining concessionaires from producing more than what they required for the particular end use.

The amended legislation also allows existing captive mines (including captive coal mines) to sell up to 50% of the minerals produced to third parties after meeting the requirements of the concessionaire. An additional charge will be levied on such sales.

DSK Legal said that the amended legislation will leave concessionaires free to determine the end use of the mine output, thereby increasing the domestic supply of minerals.

This is particularly relevant to minerals such as manganese, which is a by-product of iron ore mining. Previously, manganese could not be sold by captive mines or refined if that was not a permitted end use. At the same time, India imported manganese from South Africa and Australia to support its steel mills.

Government funding

The amended legislation clarifies that holders of mining concessions will be eligible to receive funding from the National Mineral Exploration Trust.

The National Mineral Exploration Trust was set up by the central government and is funded through royalties received from mining concessionaries. The funds in the trust are to be used for exploration activities.

DSK Legal said that this change should address some of the financing concerns faced by mining projects by providing an alternative funding option.

The more contentious change is in relation to the District Mineral Foundation.

Under the mining legislation, state governments are required to establish a district mineral foundation for each district that is affected by mining related operations. This is intended to operate as a not-for-profit trust and is funded by royalties received from holders of mining concessions.

The earlier legislation provided that use of funds in a district mineral foundation was left to the direction of state governments.

The amended legislation lets the central government now give directions about the composition and use of funds by a district mineral foundation.

As with the change to the auction rules, this change is also likely to be seen as an attempt by the central government to take some authority away from the state governments.