How fair is India’s non-fuel mine auction process?
The Mines and Minerals (Development and Regulation) Amendment Act, 2015 (MMDR Act, 2015) ended the first-come, first-served system of mining allocations and has brought in an auctions regime. This was intended to bring in ‘greater transparency’ and ‘[remove] discretion’ (ministry of mines, Government of India, 2019) in the allotment of natural resources. The Government of India noted that State governments would receive an ‘increased share [of revenues] from the mining sector’ with the new system.
According to the ministry of mines, 114 non-fuel mines have been successfully auctioned as of August 2021. These include iron ore, limestone, iron ore & manganese, bauxite, manganese, graphite, gold, chromite, copper, and diamond –technically qualified bidders (i.e., companies fulfilling certain criteria) participated in an ascending forward online electronic auction and bid on the percentage of the value of minerals that would be despatched over the lifespan of the mining operation.
In a new study from the Centre for Social and Economic Progress, authors Rajesh Chadha and Ganesh Sivamani offer an overview of the auction bids for non-fuel mines and argue that the system needs a thorough review.
The first year after the amendment in 2015 saw just six auctions. However, this number more than doubled over the next two years, to 15 and 14 respectively. The years 2018–19 and 2019–20 saw a surge in auctions (mainly of brownfield mines, i.e., already mined blocks, unlike greenfield mines that have never been mined). This surge was triggered by a provision in the amended Act, which stated that leases of certain merchant mines would lapse on March 31, 2020 for specific reasons mentioned in the MMDR Act, 2015.
The analysis shows that of the 114 non-fuel mineral auctions held so far, many received excessively high bids (particularly for iron-ore mines), bids higher than even the estimated value of reserves. For example, the Pratap Pura iron-ore mine in Madhya Pradesh, which was auctioned for 275% of the value of minerals in May 2018—the highest bid ever. Of the most recent iron-ore auctions in Odisha, all but two mines had a winning bid of over 100%, with the remaining two going for over 90%.
Mining company profiles changed from merchant miners (selling minerals on the market) to captive miners (owning downstream plants that consume the minerals). This could lead to less-than-efficient usage of the minerals acquired through auctions, with induced general equilibrium externalities.
High auction bids, combined with high royalty rates and some other statutory payments, have not encouraged new mining activity in any significant way. Short-term financial gains for State governments, and possible long-term revenue losses and strangulation of new investments, may result.
The aftermath of the auctions appears to be unfavourable with regard to boosting mining production in India:
• Some auctioned leases were surrendered, even before mining operations could begin.
• Some others, which started production, failed to meet their agreed-upon production outputs as per their Mine Development and Product Plans (MDPA).
• This will adversely impact the government’s estimates of earnings, and the availability of mineral resources for further processing
Considering these challenges, the paper recommends a thorough relook at the auctions regime. It is unlikely that the auction mechanism will be reverted to the first-come, first-served system used in India earlier, which is still used in other mineral-rich countries. However, it may be worth considering a policy that differentiates the allocation mechanism between bulk and deep-seated minerals. It is not feasible to estimate the quantities of deep-seated minerals in the same vein as bulk minerals without exploration using ore-specific geological expertise. This is evident because there have been very few auctions of these minerals and a limited number of deep-seated mineral discoveries in India.
Moreover, many of these minerals are critical for manufacturing clean energy technologies, electronics, and national security applications. Therefore, the process of allocation of mineral rights must be sensitive to incentivising exploration—including the right to mine, which is prevalent in many other mining jurisdictions.
(The study has been authored by Rajesh Chadha and Ganesh Sivamani)