Auctions fail to get mine blocks running, only five leases inked in 5 years

28 Jan, 2020

Analysis by Fimi shows how auctions have lulled mining from virgin blocks

Five years into the amendment of the Mines and Minerals (Development & Regulation) Act and enunciation of Mineral Auction Rules in 2015, mining leases (ML) have been executed for only five mineral blocks.

What’s disquieting is that all are brownfield blocks and no virgin block has been opened up for mining yet.

This is in glaring contrast to the pace of mineral concessions awarded and MLs executed in the pre-auction regime. In its latest publication titled 'Indian Mining: A Synopsis', Federation of Indian Mineral Industries (Fimi) notes that before introduction of auctions to award mineral assets, 2754 MLs were executed between 2006 and 2010, most of which were greenfield blocks. Though the count dwindled in the period from 2010 to 2014, still 494 ML deeds were executed.

To this date, 70 freehold or virgin mineral blocks across states have been put to online auctions since 2015-16. The estimated value of these resources is Rs 2.52 trillion and the host states are tipped to gain total revenue worth Rs 2.02 trillion over the lease period spanning 50 years. But, the euphoria on auctions has not generated the alacrity on getting these blocks mining ready.

“What has held back the opening of the virgin mineral blocks is the labyrinth of clearances that the new lesses have to obtain. Though the Union government has set up the Post-Auction Mining Clearances and Approvals Facilitator (PAMCAF), an inter-ministerial group to hasten clearances, it hasn't proved to be of much help. And, in some case, there have been unexpected problems cropping up like successful bidding firms turning insolvent”, said a mining industry source.

In Odisha, the first three iron ore blocks to be successfully auctioned - Ghoraburhani-Sagasahi, Kamalang (West) and Netrabandha Pahar have gone to companies that turned bankrupt and were admitted to the National Company Law Tribunal (NCLT). Of the three, the resolution of Essar Steel and Bhushan Steel Ltd (BSL) have been completed under an NCLT monitored process. The other firm - Bhushan Power & Steel Ltd (BPSL) in still in the throes of insolvency resolution.

Fimi, however, believes that auctions have halted extraction of minerals from new blocks. Data compiled by the mineral body illustrates that India is among the chosen few mineral rich nations or jurisdictions where auctions are the preferred method of grant of mineral assets. Most resource rich nation still swear by the time honoured First Come First Served (FCFS) allotments.

China, for example, has mix of both auctions and FCFS allotments. FCFS is meant for unexplored areas whereas auctions are applicable only to explored mineral deposits. Leases are granted for tenures ranging from 10 to 30 years depending on the quantum of deposits. Mozambique follows the same strategy as China's granting mineral blocks for 25 years with provision to renew by another 25 years.

Indonesia has the auctions regime for metallic minerals and coal. For non-metallic and rock minerals, FCFS is still the preferred option. Peru has mainly the FCFS system in place and auctions are invoked only if multiple applications are filed simultaneously on overlapping mining areas. Brazil conducts auctions only for cancelled mineral blocks.

Source: Business Standard