29 January, 2020
The last decade has seen consistent changes in the laws governing the mining sector, thereby resulting in a steady growth of production. The Mineral Laws (Amendment) Ordinance, 2020 provides necessary legal changes to further liberalize the sector. The Ordinance came into force on 10.01.2010 to amend provisions of the Mines and Minerals (Development and Regulation) Act, 1957 [“Development and Regulation Act”/”MMDR Act”] and Coal Mines (Special Provisions) Act, 2015 [“Special Provisions Act”].
Combined permits for Coal
The Amendment has introduced, in MMDR Act, a combined prospecting license-cum-mining lease1 for coal and lignite under Section 11A. Such combined permits were already available for notified minerals and other minerals under Section 10B and 11 through a previous amendment to the MMDR Act in 2015. This two stage concession provides a commercial advantage for areas where there is inadequate information of mineral contents. Further, the terms of the auction may now include vesting of other rights such as a share in production or payments linked to royalties. Such combined permits have also now been added to Section 4(2) and 5(1) of the Special Provisions Act for auction and allotment respectively.
Increased Role of private entities
Amendments to Section 11A of the MMDR Act have eased restrictions on the nature of entities who may be granted permits through e-auction. Bidding for reconnaissance permits, prospecting license-cum-mining lease and mining lease for coal and lignite is now open to all companies regardless of end use. Prior to the 2015 amendment, the MMDR Act only allowed permits to be granted to public sector entities or companies involved in production of iron/steel, power generation, coal washing and other prescribed uses. In 2015, permits could be granted to companies that carried out mining operations in India and carried out coal mining for its own consumption, sale or other purposes as allowed by the permit2. However, the present ordinance is a sharp departure because rather than being restricted to “companies, that carry on coal mining operations in India” (i.e. Coal India Limited and its subsidiaries), permits may now be granted to any company or JV. Such successful bidders / allottees will not only be able to use coal in its own plants but also in its holding or subsidiary companies engaged in the same end use3.
Consequentially, the eligibility criteria to participate in such bidding under the Special Provisions Act stands altered4. Section 4(3) which provided for captive coal block auction has been omitted.
Exploration
Joint Secretary, Ministry of Mines, Mr Anil Kumar Nayak had previously emphasised the need for private investment in exploration of deep seated minerals5. The National Mineral Exploration Policy, 2016, also observed that changes were required to attract global-level exploration agencies for deep seated minerals which require technical specialization and speculative expenditure6. It is therefore fitting that Deep Seated Minerals have been given a definite meaning through an explanation inserted in Section Page 2 of 2
10C which deals with non-exclusive reconnaissance permits (“NERP”) and now refers to minerals which occur at a depth of more than three hundred metres with poor surface manifestations.
Section 10C (2) and Condition 4(e), Schedule II of the Mineral (Non-Exclusive Reconnaissance Permits) Rules, 2015 (“NERP Rules”) provide that the holder of such NERP would not be entitled to claim a mining lease or prospecting license cum mining lease. Furthermore, Rule 3(11) provides that an NERP would stand automatically terminated if the State government notifies the area for auction.
An exception is carved out by the Ordinance which provides that a NERP holder for deep seated minerals may apply to the State government for grant of license cum mining lease or a mining lease and the Central Government shall prescribe procedure for such bidding. However, to attract investments, further amendments in the NERP Rules would be required.
Continuity
The 2015 Amendment to the MMDR Act extended existing leases for minerals other than coal, lignite and atomic minerals till March 2020 or fifty years from the date of grant (March 2030 for captive mines) since the maximum period of lease had been increased from thirty years to fifty years). The present Ordinance has now inserted Section 8B which provides that when such leases expire, the new lessee/successful bidder shall be deemed to have acquired all valid rights, approvals, clearances, licenses which were vested in the previous lessee for two years within which time, the new lessee shall obtain the same and it shall be lawful for the new lessee to carry out mining operations in the meantime. The Ordinance confers powers on the Central Government to prescribe conditions and rules for commencement and continuation of production and for the new lessee to obtain new permits to ensure continuity7. Furthermore, State Governments are permitted to take advance action for auction before the mining lease expires8.
VERUS note
The enactment of the Special Provisions Act introduced a mechanism consisting of an e-auction for private companies for captive use and allocation for Coal India Limited and its subsidiaries. It led to immediate revenue generation and growth in production10. More recently, the Foreign Direct Investment Policy has been amended to permit 100% FDI in mining of coal and lignite for captive projects, setting up of coal processing plants and sale under the automatic route11. Coal India Limited and its subsidiaries have been consistently held to be dominant in the domestic market for the supply of coal and the present ordinance does not erase its dominance. However, it allows participation of private entities while creating a congenial environment by removing end use restrictions, combining licensing rights with exploration ensuring continuity, and thus providing the ground work to attract global mining majors.
For further information, please contact:
Uddyam Mukherjee, Partner, VERUS Advocates
uddyam.mukherjee@verus.net.in
1 See Section 3(ha), MMDR Act.
2 11(a)(b)
3 Section 20(2), Special Provisions Act.
4 Section 4, Special Provisions Act.
5 Press Information Bureau, 21.06.2018.
6 Para 12.10.
7 Section 4B and Section 13(2)(aa,ab).
8 Proviso, Section 8A(4).
9 (2014) 9 SCC 614.
10 https://pib.gov.in/newsite/PrintRelease.aspx?relid=133313.
11 See Press Note No. 4 (2019) Series) Department for Promotion of Industry and Internal Trade.
It is pertinent to recall that the Special Provisions Act had avoided disruption in coal production subsequent to the cancellation of coal blocks by the Supreme Court in Manohar Lal9. For the 46 iron ore leases expiring in March, the Ordinance is a timely step to provide for a seamless transition.
