If the failure of successive governments to auction coal mines nearly caused the national exchequer losses of Rs 1.86 lakh crore, the amendments introduced by the National Democratic Alliance government in India's mining law could result in losses several times greater.
The Mines and Minerals Development and Regulation Amendment Bill 2015 has been approved by the Lok Sabha, and is currently under consideration in the Rajya Sabha.
As Scroll reported last week, the Bill claims to introduce auctions for minerals other than coal, but in reality it exempts a large number of mineral deposits from auctions through caveats.
If the law is passed in its current form, Scroll's calculations show that for just one mineral (iron ore) in just one state (Chhattisgarh), the value of exempted deposits could amount to at least 1.71 lakh crore rupees and the losses to the national exchequer could come to at least 1.22 lakh crore rupees (method of calculation explained below).
Extrapolating from this, it seems plausible that losses on account of the exempted deposits of all minerals ‒ iron ore, bauxite, gold, diamond, manganese, copper ‒ across all the states could run into possibly tens of lakhs of crores.
Background
So far, mineral leases have been granted in India on the basis of government discretion. Not only has this method of granting mining rights been dogged by arbitrariness and non-transparency, it has also resulted in a staggering loss of revenue.
This became starkly apparent in 2012, when the national auditor estimated that the government had lost Rs 1.86 lakh crore by giving out more than 200 coal mines without auctions. The United Progressive Alliance government dismissed the figure as "notional loss". But three years later, it has proved to be an underestimate. In 2014, the Supreme Court cancelled all the coal allocations. Over the last month, the competitive bidding of just 31 coal mines has fetched more than Rs 2 lakh crore as auction proceeds and future royalties.
It was this logic that the Bharatiya Janata Party-led National democratic alliance government cited while promulgating an ordinance in January to change the law that governs minerals other than coal. In a press release, it said the aim of the ordinance was to bring "greater transparency and removing of discretion". The ordinance has now been presented as the Mines and Minerals Development and Regulation Amendment Bill 2015 for the approval of Parliament.
Changes and caveats
In the existing system, mining rights in India are granted in a step-by-step process. The state governments issue prospecting licences to companies interested in exploring mineral deposits. After the company has arrived at an estimate of the mineable reserves, it applies for a mining lease. The state government recommends the company to the Centre, which must approve the mining grant. Once the company gets environmental and forest clearances, the state executes the mining lease.
The new Bill seeks to change this discretionary process. Section 11 (5) of the Bill states that mines shall be given out through competitive bids. To pave way for auctions, Section 10 A (1) cancels all pending applications for mining grants. But sub section (2) introduces caveats, putting outside the purview of auctions all mines for which:
*reconnaissance permits and prospecting licences have been granted.
*the Centre has approved grant of mining lease (even thought the lease awaits execution by the state).
*the state government has issued a letter of intent, recommending the grant to the centre.
The case of Chhattisgarh
Taking into account the exemptions under the bill, Scroll.in examined the status of iron ore deposits in Chhattisgarh. Prospecting licences have already been issued for more than 100 iron ore mines with 572 million tonnes of reserves.
In terms of grade, the bulk of iron ore in the state ranges from 60%-68% ferrous content, according to Chhattisgarh Mineral Resources Department.
On March 18, 2015, the market price of iron ore with 60% ferrous content came to Rs 3,000-Rs 3,500. At higher grades, the price went upto Rs 6,600-Rs 6,800.
For the purpose of calculation, Scroll chose the lowest price: Rs 3,000.
At this price, the value of 570 million tonnes of Chhattisgarh's iron ore, which is being kept outside the purview of auctions by Modi government's mines bill, comes to Rs 1,716,000 crore.
For calculation of losses, Scroll took the method adopted by the national auditor in its 2012 coal report. The largest iron ore mining company in the India, the government owned National Mineral Development Corporation, made Rs 7773 crore as profits in 2013-14. With an annual production of 30 million tonnes, NMDC's profit per tonne comes to Rs 2591, which for 572 million tonnes amounts to Rs 1.48 lakh crore. Taking profits after tax of Rs 6420 crore, the figure comes to Rs 1.22 lakh crore.
This is the figure for just one mineral in just one state.
The national picture
The situation is likely to be worse in states like Odisha where several mining leases have lapsed and the state wanted to put them up for auctions. But, in addition to the exemptions under Section 10 of the bill, Section 8 of the bill extends the duration of mining leases due for renewal by 5-15 years. The bill also extends the duration of existing mining leases from 30 to 50 years, ensuring that companies holding the leases will not be threatened by auctions anytime soon. The government has said that the extensions are needed to ensure that the transition to auctions is smooth and does not affect mining output.
But in a submission to the select committee of the Rajya Sabha that examined the bill, the non-profit Goa Foundation said this was "tantamount to transferring the wealth of the States, and therefore of the people, to miners. This violates the constitution and is in violation of the Supreme Court’s findings in coal allotment and spectrum judgments. These sub-sections must be deleted as they seek to transfer publicly owned resources to parties without payment, against the public interest."
The select committee was formed on the demand of the opposition in Rajya Sabha. But it was given just one week to examine the bill. "They are in a hurry," said Ravi Rebbapragada of Mines, Minerals and People, a mining watchdog. "After all, the mining industry has given donations to political parties. This is payback time."
Ignoring the exemptions
On Wednesday, the select committee submitted its report to the Rajya Sabha. The report deliberates at length on other aspects of the bill, but makes just a cursory reference to the exemptions. It says, "The rights of those holding prospecting licences and reconnaissance permits have been exempted from the amendment ordinance because they have made investments."
Barring diamonds, for bulk minerals like iron ore, companies make limited investments at the stage of prospecting licences, given that it is only the first step towards getting mining rights. Take the case of Tata Steel in Chhattisgarh. In 2007, the company was granted a prospecting licence for exploring 2,500 hectares of land which holds an estimated 138 million tonnes of iron ore. According to an affidavit submitted in the Supreme Court in 2009, which was not updated subsequently, the company had made an investment of Rs 113 crore in both the mine and the steel plant linked to it. To put this in perspective: The value of the deposit at the lowest current price is Rs 41,400 crore.
The attempts to exempt such mines from future auctions is "nothing short of a scam", said Sudiep Shrivastava, a lawyer and activist from Chhattisgarh. "In the past, this happened through executive decisions which could be challenged in court and invite criminal charges. But this time, it's happening in a novel way, where the government is getting legislative approval and making itself immune from courts and criminality."
Attempts to speak with the mining minister Narendra Singh Tomar were unsuccessful. Calls and messages to two members of the select committee went unanswered.
(This article has been updated to reflect the methodology of the calculation in greater detail.)
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The Mines and Minerals Development and Regulation Amendment Bill 2015 has been approved by the Lok Sabha, and is currently under consideration in the Rajya Sabha.
As Scroll reported last week, the Bill claims to introduce auctions for minerals other than coal, but in reality it exempts a large number of mineral deposits from auctions through caveats.
If the law is passed in its current form, Scroll's calculations show that for just one mineral (iron ore) in just one state (Chhattisgarh), the value of exempted deposits could amount to at least 1.71 lakh crore rupees and the losses to the national exchequer could come to at least 1.22 lakh crore rupees (method of calculation explained below).
Extrapolating from this, it seems plausible that losses on account of the exempted deposits of all minerals ‒ iron ore, bauxite, gold, diamond, manganese, copper ‒ across all the states could run into possibly tens of lakhs of crores.
Background
So far, mineral leases have been granted in India on the basis of government discretion. Not only has this method of granting mining rights been dogged by arbitrariness and non-transparency, it has also resulted in a staggering loss of revenue.
This became starkly apparent in 2012, when the national auditor estimated that the government had lost Rs 1.86 lakh crore by giving out more than 200 coal mines without auctions. The United Progressive Alliance government dismissed the figure as "notional loss". But three years later, it has proved to be an underestimate. In 2014, the Supreme Court cancelled all the coal allocations. Over the last month, the competitive bidding of just 31 coal mines has fetched more than Rs 2 lakh crore as auction proceeds and future royalties.
But while the government has introduced auctions for coal, the system of mining grants for other minerals ‒ iron ore, bauxite, gold, diamond, manganese, copper ‒ remains opaque. In recent years, there has been a consensus that mines should be given competitive bids. The process is fair and transparent. Market forces determine the price of minerals, and the government fetches revenues.
It was this logic that the Bharatiya Janata Party-led National democratic alliance government cited while promulgating an ordinance in January to change the law that governs minerals other than coal. In a press release, it said the aim of the ordinance was to bring "greater transparency and removing of discretion". The ordinance has now been presented as the Mines and Minerals Development and Regulation Amendment Bill 2015 for the approval of Parliament.
Changes and caveats
In the existing system, mining rights in India are granted in a step-by-step process. The state governments issue prospecting licences to companies interested in exploring mineral deposits. After the company has arrived at an estimate of the mineable reserves, it applies for a mining lease. The state government recommends the company to the Centre, which must approve the mining grant. Once the company gets environmental and forest clearances, the state executes the mining lease.
The new Bill seeks to change this discretionary process. Section 11 (5) of the Bill states that mines shall be given out through competitive bids. To pave way for auctions, Section 10 A (1) cancels all pending applications for mining grants. But sub section (2) introduces caveats, putting outside the purview of auctions all mines for which:
*reconnaissance permits and prospecting licences have been granted.
*the Centre has approved grant of mining lease (even thought the lease awaits execution by the state).
*the state government has issued a letter of intent, recommending the grant to the centre.
The case of Chhattisgarh
Taking into account the exemptions under the bill, Scroll.in examined the status of iron ore deposits in Chhattisgarh. Prospecting licences have already been issued for more than 100 iron ore mines with 572 million tonnes of reserves.
In terms of grade, the bulk of iron ore in the state ranges from 60%-68% ferrous content, according to Chhattisgarh Mineral Resources Department.
On March 18, 2015, the market price of iron ore with 60% ferrous content came to Rs 3,000-Rs 3,500. At higher grades, the price went upto Rs 6,600-Rs 6,800.
For the purpose of calculation, Scroll chose the lowest price: Rs 3,000.
At this price, the value of 570 million tonnes of Chhattisgarh's iron ore, which is being kept outside the purview of auctions by Modi government's mines bill, comes to Rs 1,716,000 crore.
For calculation of losses, Scroll took the method adopted by the national auditor in its 2012 coal report. The largest iron ore mining company in the India, the government owned National Mineral Development Corporation, made Rs 7773 crore as profits in 2013-14. With an annual production of 30 million tonnes, NMDC's profit per tonne comes to Rs 2591, which for 572 million tonnes amounts to Rs 1.48 lakh crore. Taking profits after tax of Rs 6420 crore, the figure comes to Rs 1.22 lakh crore.
This is the figure for just one mineral in just one state.
The national picture
The situation is likely to be worse in states like Odisha where several mining leases have lapsed and the state wanted to put them up for auctions. But, in addition to the exemptions under Section 10 of the bill, Section 8 of the bill extends the duration of mining leases due for renewal by 5-15 years. The bill also extends the duration of existing mining leases from 30 to 50 years, ensuring that companies holding the leases will not be threatened by auctions anytime soon. The government has said that the extensions are needed to ensure that the transition to auctions is smooth and does not affect mining output.
But in a submission to the select committee of the Rajya Sabha that examined the bill, the non-profit Goa Foundation said this was "tantamount to transferring the wealth of the States, and therefore of the people, to miners. This violates the constitution and is in violation of the Supreme Court’s findings in coal allotment and spectrum judgments. These sub-sections must be deleted as they seek to transfer publicly owned resources to parties without payment, against the public interest."
The select committee was formed on the demand of the opposition in Rajya Sabha. But it was given just one week to examine the bill. "They are in a hurry," said Ravi Rebbapragada of Mines, Minerals and People, a mining watchdog. "After all, the mining industry has given donations to political parties. This is payback time."
Ignoring the exemptions
On Wednesday, the select committee submitted its report to the Rajya Sabha. The report deliberates at length on other aspects of the bill, but makes just a cursory reference to the exemptions. It says, "The rights of those holding prospecting licences and reconnaissance permits have been exempted from the amendment ordinance because they have made investments."
Barring diamonds, for bulk minerals like iron ore, companies make limited investments at the stage of prospecting licences, given that it is only the first step towards getting mining rights. Take the case of Tata Steel in Chhattisgarh. In 2007, the company was granted a prospecting licence for exploring 2,500 hectares of land which holds an estimated 138 million tonnes of iron ore. According to an affidavit submitted in the Supreme Court in 2009, which was not updated subsequently, the company had made an investment of Rs 113 crore in both the mine and the steel plant linked to it. To put this in perspective: The value of the deposit at the lowest current price is Rs 41,400 crore.
The attempts to exempt such mines from future auctions is "nothing short of a scam", said Sudiep Shrivastava, a lawyer and activist from Chhattisgarh. "In the past, this happened through executive decisions which could be challenged in court and invite criminal charges. But this time, it's happening in a novel way, where the government is getting legislative approval and making itself immune from courts and criminality."
Attempts to speak with the mining minister Narendra Singh Tomar were unsuccessful. Calls and messages to two members of the select committee went unanswered.
(This article has been updated to reflect the methodology of the calculation in greater detail.)