India has now set new rules for mining through its “Mines and Minerals Amendment Bill, 2023”. Through this Bill India wants to secure its mineral supply chain and wants to use clean energy technologies. This bills provision enables collaboration between public and private sector stakeholders towards sustainable resource development. Let us understand in details what is Mines and Minerals Amendment Bill, 2023.
The Mines and Minerals Development and Regulation Act (MMDR)
- MMDR Act, 1957regulates the mining sector in India and specifies the requirement for obtaining and granting mining leases for mining operations. The MMDR Act, 1957 was amended in 2015 to introduce auction based mineral concession allocation for transparency.
- The Act was further amended in 2016 and 2020 to address specific emergent issues and was last amended in 2021 to bring further reforms in the sector such as removing the distinction between captive and merchant mines, etc.
- The Rajya Sabha has now passed the Mines and Minerals (Development and Regulation) Amendment Bill, 2023 for making amendments to Mines and Minerals (Development and Regulation)(MMDR) Act, 1957.
What Amendments are done through the Bill?
MMDR Act 1957
MMDR Amendment Bill
Private Sector to Mine Atomic Minerals
Exploration of the atomic minerals such as lithium, beryllium, niobium, titanium, tantalum and zirconium was allowed only for state agencies.
The Bill allows the private sector to mine six out of 12 atomic minerals such as lithium, beryllium, niobium, titanium, tantalum and zirconium. When it becomes an Act, Centre will have powers to auction mining lease and composite licence for critical minerals such as gold, silver, copper, zinc, lead, nickel etc.
Auction for Exploration Licence
The exploration licence will be granted by the state government through competitive bidding. The central government will prescribe details such as manner of auction, terms and conditions, and bidding parameters for exploration licence through rules.
Maximum Area in which Activities are Permitted
Under the Act, a prospecting licence allows activities in an area up to 25 square kilometers, and a single reconnaissance permit allows activities in an area up to 5,000 square kilometers.
The Bill allows activities under a single exploration licence in an area up to 1,000 square kilometers. After the first three years, the licence will be allowed to retain up to 25% of the originally authorized area.
Incentive for exploration Licence
If the resources are proven after exploration, the state government must conduct an auction for mining lease within six months of the submission of the report by the exploration licence. The licencee will receive a share in the auction value of the mining lease for the mineral prospected by them.
Why Amendments was Done in the MMDR Act, 1957??
- The primary goal of encouraging private sector participation in the exploration of essential and deep seated minerals within the nation. The bill designates six minerals which are crucial for electric vehicle batteries and energy storage systems as critical and strategic minerals.
- India correctly possesses around six percent of the world’s rare earth reserves. But the contribution to global output stands at just one percent. India and many other countries are striving to achieve net zero carbon emissions.
- The demand for essential metals like lithium and cobalt which are integral parts for applications like semiconductors to aerospace equipment and telecommunication technologies is projected to achieve growth by 2050.
- The bill has developed significance due to the import dependency and vulnerabilities arising from concentrated supply chains. India has recently aligned itself with the Mineral Security Partnership a collaborative initiative joined by Major economies like the United States, the United Kingdom and the European Union. Through MSP these countries are focusing to cultivate resilience in mineral supply chains and mitigating vulnerabilities in the availability of essential minerals.
- Presently India is completely dependent on imports from countries like China, Russia, Australia, South Africa, and US to meet the critical mineral demands. The minerals such as lithium, cobalt, nickel, niobium, beryllium and tantalum play vital roles across industries. During FY 2021-2022 India imported lithium products valued at US $ 22.15 million. Notably a substantial segment of these imports consisted of 548.618 million units of lithium-ion batteries entailing a considerable outlay of US $ 1791.35 million.
- Furthermore the challenge is to extract deep seated minerals like gold, silver, copper, zinc, lead, nickel, cobalt, platinum group elements and diamonds. The processes are intricate and capital intensive. As a result India is dependent on imports of these resources. For instance in FY 2022-23 the country imported nearly 1.2 million tons of copper and its concentrates and also the import of nickel totaled to 32298.21 tons, corresponding a value of INR 65.49.
Why Private Sector Participation is Essential and critical for Deep Seated Mineral Extraction??
Private sector participation is crucial for the exploration of critical and deep-seated minerals for several reasons:
- Expertise and Investments: Private sector companies often possess the expertise and resources specialized technical knowledge, advanced exploration techniques, and substantial financial investment needed for these complex and high-risk operations, which can lead to more effective and efficient exploration efforts.
- Involvement of Junior Explorers: Private companies, particularly junior explorers, are often more agile and willing to take risks in exploring uncharted territories. Private Companies involvement may lead to higher number of exploration projects, thereby accelerating the pace of mineral discovery.
- Diversified funding sources: Government agencies sometimes face difficulty due to limited budgets for mineral exploration. Private sector involvement diversifies funding sources, reducing the financial burden on governments and allowing for greater investment in exploration activities.
- Innovation: Private companies are more likely to adopt and develop cutting-edge exploration technologies and methodologies. Their innovation can lead to breakthroughs in mineral discovery and extraction.
- Efficient and Competitive: Private sector participation creates competition, which can drive efficiency and better allocation of resources. This can result in more cost-effective exploration processes.
- Employment and economic growth: Exploration activities, when successful, lead to the establishment of mines and associated infrastructure, creating jobs and contributing to economic growth.
- Reduced government burden: Government agencies may not have the capacity to explore and develop all potential mineral resources. Private sector involvement relieves the government’s burden and allows them to focus on regulatory oversight and environmental management.
- Best practices at Global Level: Private companies bring international best practices and experience to the exploration process, helping to align exploration activities with global standards and norms.
Challenges Faced By India in Mining Sector.
1. Legal Issues
Different formalities and clearances that are required to continue operations conveniently in mining sector. These also include legal obligations that make mining activities unviable and unprofitable.
2. Environmental Issues:
Various mines have to close down due to failure in meeting environmental compliances. Mining is not permitted in certain areas due to the possibility of adverse effects on the population and environment.
3. Lack of New Technology:
The mining sector suffers from the lack of modernized techniques for exploration and extraction. Most of the mines use old and inefficient machinery without making any progress toward the upgrade in technology.
4. Administrative Issues:
The mining sector suffers from the problem of low asset and resource underutilization, especially under the control of public sector units. Moreover, the state governments are generally involved in the auction of mines and there may be ambiguities in political approaches between the center and state.
5. Cost Increase :
The mining sector has to bear the pressure of taxation that makes the operation less profitable. Also, there is a lack of further investment and involvement of private enterprises in mineral exploration.
6. Displacement of Communities:
Several mining zones are located in areas that are the natural habitat of tribes and rural communities. The displacement of these people is a matter of concern. Due to complexities related to the rehabilitation or compensation of these people, it becomes difficult to start the mining activities. Also, there are security threats in some mining belts from local people and agitators.
How India’s Mines and Minerals Bill 2023 encourages private players: Key provisions
The Mines and Minerals (Development and Regulation) Amendment Bill, 2023, introduces some important provisions aimed at private sector engagement, which differs with the existing MMDR Act of 1957. Some of the key provisions in comparison include:
- Sub-surface activities in reconnaissance: The MMDR Act, as amended in 2015, currently defines reconnaissance as preliminary prospecting, encompassing aerial surveys, geophysical, and geochemical surveys, and geological mapping. The Mines and Minerals Bill, 2023, expands reconnaissance to include activities like pitting, trenching, drilling, and sub-surface excavation that were previously prohibited.
- Exploration license (EL): The MMDR Act provides permits for reconnaissance, prospecting, mining leases, and composite licenses. The Amendment Bill introduces the concept of an exploration license, allowing reconnaissance or prospecting, or both, for specified minerals. This license covers 29 minerals listed in the Seventh Schedule, which includes precious metals like gold, silver, base metals like copper and nickel, and even atomic minerals.
- Declassification of atomic minerals: Six atomic minerals, previously restricted to government entities, are declassified as atomic minerals under the Bill. These minerals—beryl, beryllium, lithium, niobium, titanium, tantalum, and zirconium—can now be explored and prospected by private players as well.
- Auction mechanism for exploration licenses: Exploration licenses will be granted through competitive bidding by state governments. The federal government will define the auction framework, rules, terms, and bidding parameters.
- Exploration license validity and area: The exploration license is issued for five years, extendable by two years upon application. Activities under a single exploration license can be conducted within an area of up to 1,000 square kilometers. After the initial three years, up to 25 percent of the originally authorized area can be retained by the licensee, subject to submission of reasons.
- Geological reports and incentives: The licensee must submit a geological report within three months of exploration completion or license expiration. If proven resources are found, the state government must conduct an auction for a mining lease within six months of the report. The licensee is entitled to a share in the auction value of the mining lease for the prospected mineral, with the share defined by the central government.
- Federal government-led auctions for critical and strategic minerals: The federal government will conduct auctions for composite licenses and mining leases of specified critical and strategic minerals, including lithium, cobalt, nickel, phosphate, potash, and tin. However, the state government will continue to grant concessions.
Concerns Raised By Industries For Amendment through Mines and Minerals Bill, 2023
Industry experts have raised certain apprehensions regarding the Mines and Minerals Bill, 2023. These include:
- Revenue generation mechanism: Private companies’ revenue generation depends mostly on a share of the premium paid by mining entities. However, this revenue realization is subject to successful discover of a mine and subsequently auctioning it. The 2023 Amendment Bill mandates mining lease auctions within six months if mineral resources are proven post-exploration. This timeline may not align with historical trends, potentially leading to delays or even non-materialization of auctions due to clearance timelines and deposit complexities
- Revenue Uncertainty : The lack of clarity in revenue prospects during exploration poses a significant challenge. Private explorers will not have a clear understanding of the revenue they will receive until the premium from a successful mine auction becomes known. This uncertainty might discourage private sector participation, as companies would prefer clearer revenue visibility during exploration.
- Auction-based allocation: Auctioning is more useful when it is dealing with resources of known value, such as discovered mineral deposits. Auctioning unexplored resources is complex due to the inherent unpredictability in estimating the value of undiscovered mineral resources.
- Capital investment assurance: A 2012 Supreme Court ruling emphasizes that companies are more likely to invest significantly in exploration and mining contracts if they are assured of utilizing discovered resources effectively. But The 2023 Bill restricts private explorers from directly selling their discoveries, instead, allowing government auctioning. Private explorers are entitled only to a share of the premium at an unspecified stage. This differs from global best practices where private explorers have the option to directly sell their discoveries to mining entities, potentially affecting investment incentives.