India: MMDR Ordinance: An Overhaul Of The Allocation Process

Last Updated: 30 September 2015
Article by Ajay Shaw and Ashish Pahariya

The mine allocation process has always been a subject matter of various controversies due to allegations of arbitrariness and lack of transparency. The mining rights are alleged to be often granted to handful of people having close associations with the establishment resulting in constant judicial scrutiny and consequential cancellation of some of the allocations. In view of this and pursuant to the recent judgment of the Supreme Court on cancellation of coal mines allocations, a major overhaul of the allocation process prescribed under the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) was long overdue to ensure mine allocation and monetization of minerals in the larger public interest.

The Central Government has taken the ordinance route to overhaul the MMDR Act as revival of the mining sector is high on the agenda of the present Government. The Mines and Minerals (Development and Regulation) Amendment Ordinance, 2015 (MMDR Ordinance) ushers in major changes in the MMDR Act with the purpose of bringing transparency and certainty in the process of allocation of mines.

MINE ALLOCATION THROUGH AUCTIONS

The MMDR Ordinance sets out auction as the only method of mine allocation to private parties. The auction had become sole mode of coal and lignite mines allocation after 2012, however, it was not applicable to allocation of mines for other minerals. While the Central Government will continue to conduct auction for coal and lignite mine blocks, the auction for all other mineral mine blocks will be conducted by the State Governments. The auction will be conducted by a method of competitive bidding based on financial parameters. The procedure and bidding parameters of auction will be prescribed by the Central Government separately. While, the exact nature of the financial parameters is not available, it is hoped that these will be in line with the parameters prescribed for ongoing auction of coal mine blocks. The coal blocks are being auctioned by two methods i.e. forward bidding and reverse bidding. In the forward bidding the person who quotes highest price above the floor price fixed gets the coal block. The reverse bidding is being used for mines whose end use purpose is earmarked as power projects so that the benefit of low price can be passed on the consumers.

The Central Government has completely reserved the power to regulate the allocation of mining concessions for atomic minerals.

PROSPECTING LICENCE CUM MINING LEASE

A prospective licence cum mining lease means a concession granted for prospecting followed by mining lease, for areas where the existence of minerals is not established. Under the MMDR Ordinance, a prospecting licence cum mining lease can be granted through competitive bidding. There is no clarity on bidding parameters for such prospecting licence cum mining lease. The State Government will require prior approval of the Central Government before auctioning prospecting licence cum mining lease for bauxite, iron ore, limestone and manganese ore. For other minerals, the State Government will not require such approval.

It is to be noted that the MMDR Ordinance does not make any provision for prospecting licence cum mining lease for coal and lignite mines. Even the amendments introduced by the Coal Mines Special Provisions Ordinance in the MMDR Act do not provide for such dual licence. Earlier, the prospecting operations were incentivized by granting a preferential right to obtain mining lease for the area granted under the prospecting operation. However, the MMDR Ordinance has removed all such provisions from the MMDR Act. If such preferential right for mining lease is not granted, it would be interesting to see what will be the basis of competitive bidding in future for reconnaissance permit and prospecting licence for coal and lignite mines.

The MMDR Ordinance empowers the Central Government to specify end-use purposes for mines of bauxite, iron ore, limestone and manganese ore. Earlier, this was done only for coal mines under the Coal Mines (Nationalization) Act, 1973.

NON-EXCLUSIVE RECONNAISSANCE PERMIT

A reconnaissance permit is granted for undertaking preliminary prospecting of a mineral through regional, aerial, geophysical or geochemical surveys and geological mapping. Earlier, the reconnaissance permit used to come with a preferential right to obtain prospecting license and then, mining lease. The MMDR Ordinance has taken away the power of granting of such preferential rights. The preferential right was the only incentive for encouraging private parties for undertaking such reconnaissance operations. Now, it is to be seen how the Central Government will incentivize the private parties to take up reconnaissance operations.

NO PREVIOUS APPROVAL OF CENTRAL GOVERNMENT

Unlike earlier, the auction and grant of mining lease by the State Governments for metallic and non-metallic minerals will not require prior approval of the Central Government. A mining plan will also not require the Central Government‟s approval. The State Governments will be required to establish a system for preparation, certification and monitoring of mining plans with the approval of the Central Government. The applicant will be just required to file mining plan in accordance with the system before signing the mining lease.

JVS BY GOVERNMENT COMPANIES

Both the Central Government and the State Governments are empowered to reserve areas for prospecting license and mining leases for a Government company. However, such Government company will have to follow a competitive bidding process for forming any joint venture with private parties. Further, such joint ventures must have more than its seventy four percent stake held by the Government company.

TENURE OF LEASES

Prior to the notification of the MMDR Ordinance, all mining leases could be granted for a maximum tenure of thirty years with one renewal option for a maximum period of twenty years. Now, the mining leases can be granted for fifty years, at a go. However, after expiry of the said period of fifty years, renewal will not be possible. Further, the MMDR Ordinance has also extended the tenure of existing leases to fifty years. After expiry of the said fifty years, the mines are compulsorily required to be auctioned again.

Further, the lease tenure of all captive mines which are due to expire prior to March 31, 2030 has been extended till March 31, 2030 and the lease tenure of non-captive mines which are due to expire prior to March 31, 2020 has been extended till March 31, 2020. Additionally, after expiry of the lease period of the existing captive mines, the holder of such mines will have the right of first refusal in future auctions.

However, all the above provisions will not apply to coal and lignite mines. Coal and lignite mines will continue to be granted for thirty years with an option to renew for another twenty years.

CENTRAL GOVERNMENT TO PRESCRIBE MAJOR RULES

All rule making powers for auction and allocation of mine blocks have been reserved by the Central Government under the MMDR Ordinance. The MMDR Ordinance leave minimal discretion with the State Governments where the State Governments will be just conductors of auction for minerals (except coal and lignite) in accordance with the procedure and terms and conditions prescribed by the Central Government. While this will bring uniformity and transparency in the allocation process, this has become cause of concern for some State Governments. The Odisha Government is contemplating to proceed against the Central Government under the Constitution. However, a reading of the provisions of the Constitution of India (Entry 52 of Union List and Entry 23 of the State List of Seventh Schedule) suggests that the Central Government is vested with such regulatory powers.

DISTRICT MINERAL FOUNDATION AND NATIONAL MINERAL EXPLORATION TRUST

The MMDR Ordinance introduced certain welfare provisions in the MMDR Act. It contemplates setting up of a District Mineral Foundation in each mining district. The District Mineral Foundation will work for interest and benefits of the persons affected by mining in the districts under its purview. The leaseholders will have to pay a prescribed amount to the District Mineral Foundation. The said amount will be a percentage of the royalty which can be up to one-third of applicable royalty amounts.

For encouraging and undertaking mining exploration activities, the Central Government proposes to set up the National Mineral Exploration Trust pursuant to the MMDR Ordinance. The miners will have to contribute to the said trust a sum equivalent to two percent of the statutory royalties payable.

The aforesaid amounts payable to District Mineral Foundation and National Mineral Exploration Trust are in addition to statutory royalties payable under Second Schedule of the MMDR Act.

TRANSFER OF MINERAL CONCESSIONS

Transfer of mines has been a contentious issue where the approvals for transfer were often withheld by the Government without sufficient reasons. The MMDR Ordinance provides easy procedure for such transfers. Now, the State Government will be required to grant its consent/dissent for transfer within a period of ninety days. If the State Government does not convey its approval/dissent within the said time period, it will be considered as a deemed consent.

Further, the State Government can refuse to grant its approval only if the transferee is not eligible under the MMDR Act. However, the existing mine owners will not benefit out of this, as this will apply to only mineral concessions allotted through auction.

HIGHER PUNISHMENTS AND PENALTIES FOR ILLEGAL MINING

The Government has made punishments and penalties for illegal mining more stringent. Maximum jail term has been increased from two years to five years and the fine will be leviable on per hectre of the area under illegal mining which may extend to Rupees five lakh per hectre. Further, the MMDR Ordinance contemplated setting up of special courts for adjudicating offences under the MMDR Act for speedy trial.

The amendments brought in by the MMDR Ordinance are much needed reforms in the mining sector. The mandatory auction provisions, increase in tenure of leases and deemed consent for transfer are laudable reforms which will eliminate unnecessary discretion of the State. The effective implementation of the MMDR Ordinance should lead to transparency in allocation and stability and efficiency in mining operations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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