Mining Bill: Deviations from Hoda package will be retrograde

The ministry of mines has put on its website a draft of the proposed Mines and Minerals (Development and Regulation) Bill (MMRDA Bill) dated June 3, 2010.

The bill represents a comprehensive overhaul of the mining law of the country. It is based primarily on the recommendations of the Hoda Committee report and it attempts to translate into action, the new National Mineral Policy, 2008, which is based on that report.

However, there are at least three deviations in the proposed MMRDA Bill from the Hoda report which are serious enough to jeopardise the very objective of the new dispensation — that of creating a world-class mining sector in India contributing significantly to the country’s GDP without damaging the environment or compromising the interests of project-affected persons (PAPs).

These deviations are contained in the core provisions relating to the grant of prospecting licences in Section 13 (1), grant of mining leases in Section 13 (4) and transfer of mining concessions in Section 17.

These provisions appear to be designed to favour certain classes of bidders at the expense of the exchequer and they hit several core recommendations of the Hoda Committee including those which relate to attracting private sector investment, especially foreign direct investment (FDI), in the mining sector.

There are other deviations which, though, not fundamental, have serious implications such as those relating to sustainable development and PAPs in Section 43 and 54 of the bill.

Geological case
Geologists have made a clear case for India. Nearly 200 million years ago, when the continental drift started, the Indian subcontinent, along with Latin America, South Africa and Australia, was part of the southern land mass called Gondwana.

India’s geology being akin to these regions, its resource position follows their pattern of abundance and quality. It is not for nothing that that oldest office of the oovernment of India, the Geological Survey of India, opened and located in Calcutta, the then seat of government. The British knew the wealth existed and wanted to get on with the task of locating it.

The Hoda report begins with the revelation that we have not prospected more than 5% of our mineral-bearing hard rock area in the last 150 years. Now, consider these facts: Out of the top five resource-rich countries of the world, the first four — Canada, Australia, Brazil and South Africa — spend upwards of $500 million every year on prospecting and they still keep hitting new finds and revising upwards their resource bank statistics; the sixth, seventh and eighth resource-rich countries — China, Russia/CIS and the US — spend more than $100 million every year and are still decades away from locating their new finds.

Contrast these with the fact that the fifth resource-rich country in the world, India, spends less than $1 million a year on prospecting. Here we are faced with the stark reality of being in a class where despite our potential to become the workshop of the world like China, we have actually become the sweatshop of the world like a third world colony. Instead of locating and digging out our resources and adding high value to them we choose to import resources, exploit our “cheap” labour to add low value and then use or re-export at thin margins.

There are two important reasons why we should locate and start extracting our underground minerals as soon as possible. Firstly, our ambition of achieving great power status will depend on our willingness and ability to dig out and use the resources we possess. In the world of minerals, countries are divided into three groups — the resource-rich countries, the user countries and countries which are both resource-rich and user.

Resource-rich countries can become wealthy by exporting their resources, like Australia and Canada. User countries can become rich by importing other people’s resources, adding value and re-exporting them like Europe, Japan and Korea. But only countries that are both resource-rich and user can hope to create great wealth. You need the resources, you need the ability to add value and you need the demographic scale to produce and use the product. The Industrial Revolution and Britain’s great power status was based on her ability to access and use natural resources. When she lost her colonies, she lost her resource-base and that was the end of Pax Britannica.

Today, there are only five countries in the world which have the resources, the ability to add both high and low value and the demographic scale to use them. These are China, US, Brazil, Russia and India. US reached that stage 50 years ago. China has just arrived. Russia has finally got its act together, and like Brazil it is heading fast towards the goal post. In India, we are happy to remain in the ranks of the blissfully unaware.

We refuse to prospect on the defunct socialist principle of conservation in spite of reaping great benefits from the little work that we have actually done. The work we have done is in the area of bulks, namely iron ore, bauxite and limestone. So we have steel, aluminium and cement-making industries. In spite of being among the greatest users of base and noble metals and diamonds, we import and use or export adding only sweat value.

The structure of our industry reflects this reality. We have basic and capital goods industries based on bulks. Downstream industry is mostly based on imports and is mostly in the SME sector. Mass-based manufacture will not happen unless, like China, we get our resources off the ground.

The second reason is that the march of technology can be ignored only at our peril. In the fifties and sixties we decided to conserve our mica because we were told that we had the largest mica resources in the world and it was a rare commodity required by the then nascent hi-tech electronic industry. So we refused to dig it out, but the world soon came out with six different synthetic substitutes of mica.

The price of mica crashed in five years from $7000 to $700 and the demand fell to 10% of its original figure.

Only the uninformed will deny the strong possibility that in 50 years from now steel will be substantially replaced by titanium which is five times lighter and twice as strong. If we have not used our iron ore by then, its value will be greatly reduced.
We are also the largest storehouse of ilmenite, which goes to make titanium, in the world. Again not surprisingly, our ilmenite policy ensures that we do not have even a bit of a role in the great titanium game currently playing itself out in the world.

The Hoda package is a holistic solution for creatively using the country’s abundant and untapped natural resources. The objective is to achieve a higher growth trajectory without damaging the environment. The National Mineral Policy, 2008, lays down the framework for implementing this solution. Unfortunately, Sections 13, 17, 18, 43 and 54 of the new draft bill and indeed several other sections hit at its very core.

Section 13 (1)
Section 13 (1) has been introduced despite Section 22 which deals with the same subject. Section 13 (1) says that prospecting licences will be sold through a competitive bidding process. Section 22 says that prospecting licences (including large area prospecting licences) will be granted on first come first served basis.

The Hoda report proposes, for reasons to be explained shortly, competitive bidding only for certain types of mining leases and not for prospecting licences. The apparent contradiction between Section 13(1) and Section 22 is further deepened by provisions in each section which exclude the other. Section 13(1) says it will apply only if no other application is pending. Section 22 says it will not apply to applications received in response to Section 13 (1).

A careful comparison of both sections shows that Section 22 can be nullified by a state government which wishes to operate 13 (1) by the simple measure of declaring a pending application ineligible. The eligibility parameters have not been spelt out in Section 22 as they have been in Section 13 (2).

Under 22 (5) (b) proviso 2, an application can be rejected on the simple ground of incomplete material particulars “without requiring the applicant to supply the requisite documents or information”. Thus between the two, 13(1) prevails which means we want the prospector to pay. This has serious implications.
Despite being among the top five resource-rich countries of the world with a geological setting which assures huge resources underground, we have no clear idea of what our store house contains. This is simply because of minimal or no prospecting being done.

Prospecting requires risk funds on a massive scale — in hundreds of millions of dollars every year. Funds on this scale cannot come from the government. In no resource-rich country is the risky work of detailed prospecting done by the government. In India, we have kept private investment out by law (100% FDI post 1993 notwithstanding) and as a result of government’s average annual expenditure averaging less than $1 million we could prospect only about 10% of our known potential in the last 60 years.

Private investments are a function of risk and return. In prospecting, the risk is beyond simple venture because after spending huge amounts over long periods, the prospector may find that the deposits are not mineable. So the returns, when they come, have to be ample enough to make up for the expenditure incurred on no-find operations.

Not more than two out of five ventures will eventually succeed. The prospector takes the bold decision to invest on the basis of the meagre data that preliminary exploration or reconnaissance has made available. Risk funds in Canada and Australia specialise in this kind of funding and all countries vie for these funds. So like China we have to make ourselves attractive to risk investors for prospecting if we want to attract these risk funds for locating our minerals. This cannot be done by asking the investors to pay for spending their own money at their own risk.

Besides, detailed prospecting is a specialised standalone business which is becoming more and more high-tech. The technology is closely held by the exploration companies who are also known as “Junior” companies. It cannot be bought off the shelf. In India there is only one agency, a PSU called Mineral Exploration Corporation Limited, which does detailed exploration.  It mainly explores coal. Its technical competence for exploring base and noble metals and precious stones is low to non-existent. 

If we cannot get a Canadian or Australian Junior to prospect for us, then our resources are likely to remain under the ground for a long time. For these reasons Section 13(1), if it must be retained, should be restricted to bulks. In all other cases it should be clearly subordinated to Section 22 and resorted to only in exceptional circumstances.

The writer is a retired IAS officer. He was secretary, ministry of mines, government of India, from 2005-2007. He can be reached at akdjadjav@yahoo.com