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Will MMDR Amendment Act, 2015 change the mining situation in India?

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After much deliberation and delay the Mines and Minerals (Development and Regulation) Act, 1957 has been revised and Rajya Sabha has passed the Mines and Minerals Amendment Bill, 2015. This new Act aims to legalize the system of auction of mines to enhance transparency in mineral allocations in India. Though the passing of this act is being considered as a welcoming change in a sector which has always been like a breeding ground for scams and controversies, there are a few questions which are still causing worries among the integrated mining companies.

The original Act of 1957 was amended many times during 1958, 1960, 1972, 1978, 1986, 1994, 1999, 2010 and 2012. Finally in January 2015, The Mines and Minerals (Development and Regulation) Amendment Ordinance, 2015 was promulgated to amend the original act. The act specifies the requirement for obtaining and granting mining leases for minerals and streamlines a number of provisions related to this. The Bill had been passed by the Lok Sabha on March 20th which replaced the ordinance and the new MMDR Amendment Act, 2015  would be considered effective from January 2015. Along with regularizing mining auction the act also aims at developing the backward areas of the country through mining projects and bringing those areas into the mainstream society.

Though most of the major clauses remain unchanged, there are a few crucial additions/exceptions which have been added with the expectations of improving the mining laws of India and putting a check on illegal mining license and improving the lifestyle of the communities in and around mining lands. The act has given considerable rights to state government in granting mining lease at the same time provided for relevant interference and approval from the Central Government on selected matters.

Under the Act, the lease period for coal, lignite and atomic minerals remains unchanged for a maximum of 30 years and a minimum of 20 years which could be renewed for a period not more than 20 years after the lapse. For all minerals other than that, mining leases shall be granted for a period of 50 years. All mining leases granted for such minerals before the Bill, shall be valid for 50 years. On expiry of the lease, instead of being renewed, the leases shall be put up for auction, as specified in the Act.

All captive mining leases granted before the Act would however be extended upto 31st March 2030 or till the expiry of the lease or for a period of fifty years from the date of grant of such lease, whichever is later.

The Bill provides for the creation of a District Mineral Foundation (DMF) and a National Mineral Exploration Trust (NMET). The DMF is to be established by the state government to work towards improving the lives of people from the areas affected by mining operations. The NMET shall be established by the central government for regional and detailed mine exploration. The amount payable to both these organizations by the mining lease owners as tax would be utilized for such developmental work.

However, there is a twist to this tax to be paid as royalty to DMF. Though the amount to be paid to DMF has been fixed at 33% of the royalty payable, the existing miners of minerals including coal will have to pay to the District Mineral Foundation (DMF) a 100% of the royalty over and above the royalty paid by them to the state governments. While a rate of 100% has been specified for mines allotted prior to the amendments to the MMDR Act, state governments are expected to recover the full amount. Since all current operating mines of Tata Steel, SAIL, Hindalco and Sesa Sterlite were granted before the MMDR Act was amended; the 100% ceiling will apply to all of them. Once the leases expire and the mines are re-auctioned, the amount will be 33% of the royalty payable. Mining lease holders would be paying to NMET an amount equivalent to two percent of the royalty prescribed by the central government.

The Act also makes it mandatory for State Governments to conform to the constitutional provisions related to Scheduled Tribes and Other Traditional Forest Dwellers and panchayat acts while framing operating rules of DMF. This would allow the Government to have a dedicated fund for undertaking exploration. Besides, transferability provision in mining leases granted through auction would promote greater flow of investment in the mining sector and increase efficiency. The act also has strict provisions against illegal mining as offenders of mining related issues would be subjected to a maximum punishment of 5 years imprisonment or fine of Rs. 5.00 lakhs per hectare. State Governments are also empowered to set up Special Courts for speedy trial of offences. Considering the issue of local oppositions for mining which is affecting the operations of the metal and mining sector for so long, these provisions are expected to tame the grievance and put the money into the creation, management and maintenance of local infrastructure in mining affected areas.

The levy of tax to the state governments in the form of District Mineral Foundation (DMF) is seen by the integrated mining companies as an additional burden. According to spokespersons from the industry the royalty for the minerals like iron ore, chromite, zinc, lead and silver are already high at 15%. They feel that extra levies will impact the cost component of their products to a considerable extent. The rate of royalty on coal shall still be @ 14% (Fourteen percent) ad-valorem on price of coal, as reflected in the invoice, excluding taxes, levies and other charges. The royalty rates for coal and lignite have not been raised in 2014, taking note of state electricity boards’ apprehensions that this could raise the cost of power generation.

The rate of royalty on bauxite is unchanged at point six zero per cent of London Metal Exchange Aluminium metal price chargeable on the contained aluminium metal (revised in 2014). States like Odisha have been asking for a hike in the royalty rates for the minerals in order to establish smooth mining operations in the state. Though the royalty rate has not been hiked for bauxite, the tax to be paid to DMF (100% for existing miners and 33% for new lease) is expected to bring revenues to the state where a large number of forest dwellers are dissatisfied with the mining operations happening in their locality.

To sum up, the silver lining is that though the levy in terms of royalty and DMF contribution is very high, it should reduce local opposition on the ground that the money is supposed to be used for mining area development in the key states of Jharkhand, Odisha, Chhattisgarh and MP which have a large reserve base across minerals. JP Morgan also says in a report that “Post the coal block auctions, where there is significant money flow to the states, the increase in tax would also bring the cash inflow from other minerals closer to coal,” Considering it is a much needed step towards regularizing the mining sector and local infrastructure development, we hope to see a change in the mineral and mining scene in near future.

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  1. Beethika Biswas Post author

    Dear Mr. Bhatt,
    Thank you for reading the article and putting up your feedback. As a mineral consultant you can throw more light on this topic in future so that the view becomes clearer from both sides.

  2. Prathap

    Can any one please inform from which date lease holder has to deposit 2% of royalty to National Mineral Exploration Trust.?

  3. Raja Gamini

    It is not clear that all pending applications for grant of mining lease prior to the date of amendment of this Act shall become ineligible as said in the Act. Also it is not clear that whether ineligibility is applicable for applications for major minerals or minor minerals or both.

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