Category: DMF-News

The Telegraph | 27-04-2021

The gap between ownership and control over minerals has been at the core of many discussions on resource federalism in India

India produces 95 metallic, non-metallic, fuel, atomic and minor minerals. The share of mining in India’s GDP is 2.6 per cent but its contribution to the economy is greater as it provides the material foundation for other sectors. India has a detailed set of mining-related laws and rules for minerals exploration, extraction and incidental activities. As per the Constitution, the development of minerals is within the legislative jurisdiction of states as well as the Union. But the shared competence over minerals has often been a subject of contention rather than cooperation.

The Mines and Minerals (Development and Regulation) Act is the main legislation governing the minerals sector in India. Notable amendments were made to the Act in 2015 which changed the minerals concession system from a ‘first-come-first-serve’ basis to competitive auction and included the District Mineral Foundation.

In March 2021, the MMDR bill, 2021 was passed in Parliament through a voice vote despite demands for the bill to be referred to a Select Committee. The bill aimed at increasing and expediting exploration and auction of minerals and coal. It enables the Centre to intervene in matters such as mineral auctions, end use, utilization of funds and so on. As per the existing Act, state governments have the power to notify an area for the granting of mining lease. This lease is granted through competitive bidding. The 2021 amendment curtails the power of the states by adding a proviso that where a state government has not notified the area within a stipulated time the Centre can notify the area for the granting of mining lease. The stipulated time is going to be fixed by the Centre as well. The overall scheme of mining regulation, whereby states are the owners and, therefore, the granters of a lease, stands changed with the Centre empowered to auction mines in states.

Another domain where the Central government has expanded its reach is the DMF. When the DMF was included in the MMDR Act, it was hailed as a historic move to ensure decentralization and address social sustainability in the mining sector. The DMF is a non-profit trust to “work for the interest and benefit of persons, and areas affected by mining-related operations” in any affected district. Under the Act, any DMF is to be constituted, established, and assigned functions only by the state government. The 2021 amendment provides that “the Central Government may give directions regarding composition and utilisation of fund by the District Mineral Foundation.” The whole premise of the DMF was decentralized decision-making: the new provision attempts to reverse that.

The gap between ownership and control over minerals has been at the core of many discussions on resource federalism in India. Irrespective of the concession regime in place, states have always demanded greater autonomy in decision-making related to minerals. Since minerals comprise a major share in the revenue of resource-rich states, they want to defend their fiscal powers with respect to minerals. Granting of lease and licence for mining and prospecting is a prerogative of states, albeit as per the rules laid down by the Centre. The MMDR 2021 amendment has stretched the Centre’s powers by allowing it to auction mines when the states have not notified and auctioned a mine within the period specified by the Centre.

Taxation on mineral rights is a subject within state jurisdiction. However, the scope of the Central law (MMDR Act) is so expansive that it leaves little room for states to levy any additional charge on minerals. Even the royalty rates — the primary mineral revenue accruing to states — are determined and notified by the Centre.

The DMF’s large corpus of Rs 41,650 crore has attracted interest from every level of the government. The DMF was introduced for specific local purposes and beneficiaries but its fund has also faced centralization partly due to instances of inaction and misuse in states. The issues of under-utilization and misuse must be addressed by correcting procedural lapses, not by transferring the power to the Centre.

The 2021 amendment facilitates the Centre’s hold on the important and strategic mining industry but also the mineral resources and wealth of states. There are pros and cons of centralized and decentralized governance in mining. Central oversight or guidance can be instrumental in addressing some of the problems associated with decentralization, such as vested interests, corruption, inadequate capacity, information flows and so on. A decentralized governance of natural resources, including minerals, ensures that those affected by mining and those dependent on mining for employment or revenue are involved in the decision-making and revenue stream around minerals. It also gives the local governments an opportunity to voice concerns that are local or regional in nature. However, the potential of either strategy has seldom been utilized optimally.

This is not the first time that Centre-state issues are emerging in mineral regulation. This shall not be the last time either. There have been several such amendments, ordinances and rules in the past and the sector has often been a fertile ground for contention for resource federalism. Since the issue is unlikely to be settled or buried in the near future, it is imperative that the amendments do not exacerbate the conflict between the Centre and the states but help resolve the limitations in the jurisdiction of each and give effect to cooperative federalism.

Financial Express : April 22, 2021 || Rajesh Chadha & Ganesh Sivamani

The Mines and Minerals (Development and Regulation) Amendment Act, 1957, was amended in 2015 to address the Supreme Court’s three major concerns in the mineral asset allocation process – transparency, fairness, and objectivity – and introduced a system of auctions.

India has a great mineral potential yet to be explored and large mineral-bearing land available for mining. However, the allocation of national resources has been a challenging exercise in India. We have seen this difficulty in the case of the telecom spectrum and coal blocks. To this end, The Mines and Minerals (Development and Regulation) Amendment Act, 1957, was amended in 2015 to address the Supreme Court’s three major concerns in the mineral asset allocation process – transparency, fairness, and objectivity – and introduced a system of auctions.

With some oddities arising from the new auctions regime and the issue of ensuring mineral security a pressing concern, the time has come for us to rethink whether there can be alternative ways of allocating mineral concessions while maintaining the tenets laid down by the Supreme Court. Or, can the existing auctions system be designed differently?

A total of 103 auctions have been executed since 2015. Many of the auctions, particularly iron ore mines, have had high bids, even higher than the estimated value of resources. On average, the estimated auction premium cumulated over 50 years amounts to about 86% of the value of the estimated resources. Additional payment commitments on royalties, District Mineral Foundation (DMF) funds, and National Mineral Exploration Trust (NMET) funds are about 17% of the value of the estimated resources. Hence there is a total commitment of 103% of the value of the estimated resources, which does not include corporate taxes, forest and wildlife protection payments and stamp duties.

Furthermore, there has been a shift in the profiles of mining companies, from merchant miners (those selling minerals on the market) to captive miners (those with downstream plants to consume the minerals). Such a change might lead to less-than-efficient usage of the mineral resource acquired through auctions and induced general equilibrium externalities. The recently passed MMDR Amendment Act 2021 seeks to level the playing field between captive and merchant miners and public sector and private miners, which is a welcome step.

High bids unsustainable in the long run

Despite being aware of the impact of high bids on their operations, captive mining companies are amenable to bidding more than the theoretical value of the mineable resources as it would assure them of mineral supply. These higher costs can be absorbed in their downstream operations, and, in the case of steel production, the cost of iron ore constitutes only 10% of the manufacturing cost. However, this system is not sustainable, and the consequence of higher costs of raw materials would hurt the public, who would have to pay more for end products such as steel and concrete. The results of the auctions would be detrimental to the country’s interest.

The auction system also raises some questions on mineral security in India, particularly with iron ore. There have recently been 24 auctions of previously operational (brownfield) iron ore mines in Odisha (with bids ranging from 90%–104% of mineral value), yet a year later, only ten mines have commenced operation, and at less than a third of their capacity. While more auctions and time will enable the sector to return to its previous output, India may once again, in the short-term, become a net importer of iron ore despite being rich in resources.

The auctions regime has been extolled for bringing large revenues to state governments, but the high bids are unsustainable to maintain, and states may not receive these notional earnings. This regime would also deter foreign investors, who would prefer jurisdictions with lower taxation. There is also the question of the impact on local communities’ welfare if mining companies have fewer resources available to invest in their development due to the high auction bids commitment.

Some changes to the system can help resolve these issues. For example, it would be useful to have an auction calendar with multiple blocks available for bidding at a set time annually, which would allow companies to plan for their mineral security needs. Additionally, there could be a relook at the royalty system, which is an additional payment on top of the auction commitment.

We should be mindful of the importance of deep-seated minerals in India (such as lead, zinc, copper, diamond, and gold) and how a different policy regime would encourage further exploration and production. If more exploration had been done earlier, including deep-seated minerals, there would have been more mining blocks on offer, and oddities with auction bids could have been avoided.

The Centre for Social and Economic Progress (CSEP) held a webinar on April 15, 2021, to discuss India’s mineral auction regime and its impact on government revenue, mining operations, and the national economy.

The Hindu | April 16, 2021

Congress’ Tansukh Bohra pitted against BJP’s Deepti Maheshwari for the seat in upcoming Rajasthan Assembly by-election

A robust development of infrastructure, matching with the nearby temple town of Nathdwara, through the mining sector and an effective utilisation of the District Mineral Foundation Trust (DMFT) connect the local populace with employment generation in Rajsamand. These are also the key factors during the campaign for the upcoming Assembly by-election here.

The southern Rajasthan district has about 1,500 quarries of marble, granite and minerals and their owners contribute ₹150 crore annually to the DMFT for the benefit of areas affected by mining-related operations. People’s resentment over under-utilisation of DMFT funds and diversion to other towns has prompted the ruling Congress to field mining industrialist Tansukh Bohra as its candidate.

On the other hand, Bharatiya Janata Party (BJP) candidate Deepti Maheshwari expects to carry forward the legacy of her mother, the late Kiran Maheshwari, who was elected from the constituency thrice between 2008 and 2018 and was a Minister in the Vasundhara Raje government. The BJP also hopes to get “sympathy votes” with the Maheshwari family member being in the fray.

‘People will select BJP’

BJP MP from Rajsamand Diya Kumari, camping in the town to address Ms. Maheshwari’s election rallies, told The Hindu that the Union government had been “responsive” to the demands raised in the constituency and had been doing its bit in different sectors. “The people here will once again repose faith in BJP. They are fed up with the Congress government, which has no clear policies or intentions,” she said.

The Congress has made an attempt to influence the local mine owners and workers with the credentials of Mr. Bohra. The mining baron, who enjoys a clean image, has been involved in philanthropic activities. Nitish Surana, managing Mr. Bohra’s election office, said the Congress candidate had made large contributions to the government hospitals and built several school buildings, besides developing the amenities at cremation grounds.

“There is no anti-incumbency wave in Rajsamand, even though the BJP has been traditionally winning this seat. Much will depend on how the Congress projects itself and influences the voters,” Ajay Singh, a youth from the nearby Kelwa village, said. Interestingly, the Congress has asked Mines & Petroleum Minister Pramod Jain to camp in the region till the polling day on April 17.

The Congress has also assured the voters that it would formulate a plan to develop the Chittorgarh-Rajsamand-Kumbhalgarh triangle as a new tourism circuit and widen the Khara feeder to bring more water to the historic Rajsamand lake, built by erstwhile Mewar ruler Rana Raj Singh in 1660.

Controversial remarks

Some controversial remarks made by senior BJP leader Gulab Chand Kataria, who is also the Leader of Opposition in the State Assembly, about legendary warrior king Maharana Pratap during the poll campaign earlier this week led to an embarrassment for the party.

As the Rajput outfits expressed an outrage, Mr. Kataria tendered an apology twice to the electorate.

Among the total of 10 candidates contesting in the constituency, the BJP faces a challenge from its rebel leader Suresh Joshi, who has entered the fray as an Independent in the name of protecting the honour of the region.