What Are the New Reforms in the Mining and Mineral Laws in India?

As part of its latest efforts to combat the effects of a pandemic-embattled economy, the Government of India has unveiled some defining reforms in the minerals and mining sector.

With an eye on promoting exploration, production and investments in the sectors, the reforms package has incorporated some comprehensive amendments in the existing laws, changes in pricing formulae, taxes and duties. The amendments are expected to go to the floor of the Parliament in the coming Budget session.

Let’s take you on a journey through the legislative and development landscape of mining in the country and demonstrate the impacts of the proposed reforms built thereon.

Mining in India

India currently produces about 95 different mineral commodities (as of April 2020). However, as one of the mineral-rich countries in the world, our exploration expenditure remains significantly lower compared to similar resource-rich countries.

A vast chunk of the geological matrix remains untapped with a limited policy framework in place for scientific exploration.

In order to change this, Governments have repeatedly endeavoured to bring incentivised changes to mineral policies from time to time. The Mines and Minerals (Development and Regulation) Act, 1957 (hereinafter referred to as the “MMDRA’’) is the principal legislation that standardises and governs all primary mining operations in the country. It was amended successively in 2015, 2016, 2020 (ordinance) and most recently now which was cleared by the Union Cabinet on January 13th 2021.

The most remarkable changes brought about in the mining legal framework in India can be summarised as follows:

The Latest Reforms

The Finance Minister, as part of the Atma Nirbhar Bharat package, introduced proposals for amendment of laws in the mining sector on May 16th 2020. These are the key points in the finalised reforms:

• Removal of distinction between ‘captive’ and ‘non-captive’ mines — Captive mines are those that produce coal or mineral for exclusive use by the company that owns the mines, while non-captive are the ones that produce as well as sell the fuel. With the difference eroded, now the former will also be able to sell their stock commercially by up to 50% of their annually excavated amount.
• Amendment to Sections 10A(2)(b) and 10A(2)(c) of MMRDA — The former deals with leases where reconnaissance permit or prospecting licence were granted and the latter relates to grant of mining leases. Maximum period for prospecting was five years which lapsed on January 12th 2017. Since then, innumerable cases have been pending in litigation causing immense financial loss to parties, which is why, the blocks under these provisions will be renewed for auction and transparent allocation via this amendment.
• Development of a National Mineral Index (NMI) — The Index will determine the value of minerals and fix royalty, statutory payments along with other levies.
• Amendment to Minerals (Evidence of Mineral Contents) Rules, 2015 — This will be done with a mind to transition from an exploration to production-centric mineral policy in the coming years, that is more and more in line with the United Nations Framework Classification (UNFC) for energy and mineral resources.
• Turn National Mineral Exploration Trust (NMET) into an autonomous body — It is a non-profit body set up by the Government to carry out detailed exploration projects and collect licensing fees from holders. The amendment is done to empower and confer it with greater regulatory and enforcement authority.
• Rationalisation of stamp duties across states which are payable at the time of awarding mining leases.

What Could This Mean for the Mining Sector?

The Cabinet emphasised that the scheduled reforms to the MMRDA will substantially ease business for miners and pave the way for auction of over 500 mines. In fact, a single window online clearance portal was launched recently to process the phased approvals for coal block allocations (as opposed to 19 different clearances from separate departments required earlier).

Similarly, the process of liberalisation in the mining sector which began two decades ago, climaxed in September 2019 with a 100% FDI permit in the coal and lignite mining sector through the automatic route. The first commercial coal mining auctions were also held on November 2nd 2020 that attracted big ticket bidders like Adani, JMS, Jindal etc.

The Broader Discourse on Mining Policy

After the infamous ‘coal scam’ of 2012, the coal and associated mining industry came to be perceived as a hotbed of criminality and corrupt practices. In an effort to control damage, the Supreme Court issued dual judgments in 2014 and 2017.

The first on almost-blanket delicensing of coal block allocations made between 1993 and 2010. The second, directing payment of damages worth ₹17,156cr ($2.3bn) from mining companies that were implicated for illegal extraction of iron ore and manganese in Odisha in violation of environmental laws.

Although the Government has sought to define “illegal mining” activities for some time, there is no legislative form to that intent yet. At present, there is no difference between illegal mining done outside the area held under lease and the mining done in violation of various clearances and approvals inside a mining lease area. Until the above distinction is legally qualified, the Supreme Court’s order on collecting the requisite damages can’t take precedence.

Among other discrepancies emerging out of the stated reforms are:

1. Removal of the right of first refusal available to existing captive mines — When the auction for captive mines begins, the new bidder will face an elaborate time frame to set up its functionaries in the block while the assets of the existing owner are stranded anyway, thus delaying the process. And while we are on it, why limit the commercial extraction for captive mines at 50% and reduce the scope for the economy by restricting maximisation of resource utilisation?
2. The Government seems to be in a hurry to remove legal hurdles and move exclusively towards an auction-only regime. It is estimated that c. 500 mines around the country are still embroiled in legal conflicts looming from the erstwhile legacy of non-transparent auctions. Giving closure to those litigants is only justified before proceeding into an expansive and renewed auction process.
3. The keenness to enlist the private sector’s participation in a dormant sector is praiseworthy, but the pandemic pulls the handbrakes. With an ongoing recession and questions on the nature and appetite of capital investments, one wonders at the fate of the fenced-out blocks after expedited approvals are granted and before mining operations begin.

Let’s wait and watch the next update on the impending enforcement of these reforms that, in essence, aim to improve upon a strategic sector that contributes about 4–5% to the national GDP.

(Originally published January 16th 2021 in transfin.in)