India's Mining Policy Shift

Relevance: GS3 - Energy and Infrastructure Prelims

(Source: The Hindu, 08 /07/2023)

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Why in the news?

• Recently the Mines and Minerals (Development and Regulation) Amendment Bill, 2023 was passed by the Parliament.
• It aims to increase private sector participation in the exploration of critical minerals in order to tackle the high risks and costs associated with such projects.
• According to a World Bank study, the demand for critical metals is expected to rise by nearly 500% by 2050.

How much of India's critical minerals are imported?

• In June 2023, the Ministry of Mines released a list of 30 minerals that are critical to the economy and security of the country.
• India is highly dependent on imports for most of these critical minerals.
• This includes a 100% dependence on China, Russia, the U.S.A., Australia, and South Africa for critical minerals such as beryllium, lithium, nickel, cobalt, niobium, and tantalum.
• India imported nearly $22.15 million worth of lithium in 2021-22 and 5,486.18 lakh units of lithium-ion batteries, costing $1,791.35 million.
• India is also heavily dependent on imports for deep-seated minerals such as gold, silver, copper, zinc, lead, nickel, cobalt, platinum group elements, and diamonds.
• These minerals are comparatively more difficult and expensive to explore and mine in comparison to surficial or bulk minerals.
• In 2022-23, India imported around 12 lakh tonnes of copper (and its concentrates) costing ₹27,000 crore and 32,298.21 tonnes of Nickel worth ₹ 6,549.34 crore.
• China produces 65% of the world’s REEs while India has 6% of the world’s rare earth reserves but only produces 1% of global output.
• According to the Atomic Minerals Directorate for Exploration and Research and the Centre for Social and Economic Progress (CESP), India’s tectonic and geographical settings have a geological history similar to the mining-rich regions of Western Australia and Eastern Africa.
• This means that India could be hosting potential mineral resources.

Why is private sector participation needed for the exploration of critical and deep-seated minerals?

Mineral exploration

• Mineral exploration is a highly specialized, time-intensive, and monetarily risky process that consists of techniques such as aerial surveys, geological mapping, and geochemical analyses.
• Mineral exploration is the first step toward discovering mineral resources and viable reserves.
• According to the United Nations Framework for Classification of Resources, mineral exploration is classified into four stages - G4 (Reconnaissance), G3 (Prospecting), G2 (General Exploration), and G1 (Detailed Exploration).
• In another classification, the stages of exploration are
  • reconnaissance (preliminary survey to determine mineral resources),
  • prospecting (exploring, locating, or proving mineral deposits),
  • and detailed exploration (estimating of mineral ore and grade),

Private investment

• India has explored just 10% of its Obvious Geological Potential (OGP), of which less than 2% has been mined.
  • India spends less than 1% of the global mineral exploration budget.
• The Geological Survey of India and other PSUs are responsible for the majority of exploration projects in India but have struggled due to the high expenditure, long duration and risk, and pressure to increase the supply of bulk minerals.
  • Less than 1% of explored projects became commercially viable mines.
• The country’s mining policy had excluded Indian private concerns from the greenfield exploration of minerals as licenses could be obtained only for resources that had already been explored by a government entity.
• The MMDR Amendment Bill, 2023 aims to develop the mineral exploration processes in India at par with that of developed countries through private sector participation.
  • Eg: In Australia, private mining firms called junior explorers perform explorations to find potential mines and then sell them to bigger mining companies who develop and run them.
  • The number and pace of exploration projects thus increase through private participation with junior explorers bearing most of the risk.

Has India’s existing mining policy been conducive to private participation?

• The primary legislation that governs mining in India, the MMDR Act 1957, has been amended several times including recently in 2015, 2020, and 2021.
• An amendment to the Act in 1994 allowed interested parties to apply for mineral concessions on a First Come First Served (FCFS) basis.
• Private companies could receive Prospecting licenses (PL) or Mining Leases (ML) as well as early-stage or greenfield exploration through Reconnaissance Permits (RPs).
  • This preferential right encouraged private investment in exploration projects for diamonds, zinc, copper, and base and bulk metals.
• Mineral exploration halted almost completely after 2010 as none of the states issued RPs and PLs.
• In 2012, the Supreme Court ruled that the FCFS method was vulnerable to manipulation, favoritism, and misuse.
  • It asked the government to adopt a transparent and reasonable method for resource distribution which promoted healthy competition and equitable treatment.
• In 2015, the MMDR Act was amended to allow private companies to get either Mining Leases or Composite licenses (CLs) which are prospecting licence-cum-mining leases, through government auctions.
  • However, only projects whose early-stage exploration was already done by the government could be auctioned.
  • Private firms could be registered as exploration agencies and get funding from the NMET, reimbursing 10% of the approved costs.
  • However, just one of the 118 approved projects was implemented by a private agency.

How does the Mines and Minerals Bill 2023 aim to encourage private players?

• Commercial mining: It omits at least six previously mentioned atomic minerals from a list of 12 that cannot be commercially mined.
  • Lithium, beryllium, niobium, titanium, tantalum, and zirconium, were previously reserved for government entities.
• Removal of prohibitions: It permits previously prohibited activities such as pitting, trenching, drilling, and sub-surface excavation as part of reconnaissance.
• Licensing: It proposes a new type of license to be granted by the state government via competitive bidding (for five years, but extendable by two) to encourage exploration by the private sector.
  • This license will be issued for 29 minerals specified in the Seventh Schedule of the amended Act.
• Maximum area: Activities in an area up to 1,000 sq km will be permitted under a single exploration license with the licensee allowed to retain up to 25% of the originally authorized area after the first three years after submitting a report to the state government stating reasons for retention of the area.
• Reservation of auctions: The Bill also reserves the conduct of auctions for composite license and mining leases for specified critical and strategic minerals for the central government while most auctions are reserved for state governments in the Act.

What are some of the possible issues with the Bill’s proposals?

• Delays: Private companies with exploration licenses primarily generate revenue from the premium paid by the miner, which would come only after a successfully discovered mine is auctioned and operationalized.
  • However, this process could take years due to bureaucratic red tape or not happen at all.
  • Eg: The Ghorabhurani-Sagasahi Iron Ore Mine, a greenfield captive mine was auctioned in 2016 but production started only in late 2021 because of the time taken to obtain necessary clearances.
• Unpredictable revenue: The explorer can not predict how much revenue they will receive as the auction premium would be known only when a mine is successfully auctioned.
• Uncertainty: While it is feasible to auction something that has a known value it is difficult to auction something for which exploration has not begun such as exploration licenses.
• Profitability: The Supreme Court observed that companies would spend big amounts only if they’re assured of utilizing any discovered resources.
  • The new policy allows the government to auction what an explorer has discovered with the latter only getting a share of the premium at an unknown stage.

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FAQs

MCQs

Question: Consider the following statements:

1. In India, State Governments do not have the power to auction non-coal mines.
2. Andhra Pradesh and Jharkhand do not have gold mines.
3. Rajasthan has iron ore mines.

Which of the statements given above is/are correct? (UPSC CSE 2018)

(a) 1 and 2 only

(b) 2 only

(c) 1 and 3 only

(d) 3 only