India’s mining policy shift (GS Paper 3, Economy)
Why in news?
- Recently, the Parliament passed the Mines and Minerals (Development and Regulation) Amendment Bill, 2023, in a bid to attract private sector investment in the exploration of critical and deep-seated minerals in the country.
- The Bill puts six minerals, including lithium into a list of “critical and strategic” minerals.
- The exploration and mining of these six minerals, previously classified as atomic minerals, were restricted to government-owned entities.
How much of India’s critical minerals are imported?
- A variety of minerals, besides those used in creating fuel, are crucial to a country’s manufacturing, infrastructure, and advancement.
- Moreover, the clean energy transitions of countries including India, seeking to meet their net-zero emission goals, are contingent on the availability of critical minerals such as lithium, which has also been called ‘white gold’, and others including cobalt, graphite, and rare earth elements (REEs).
- These are also crucial for the manufacture of semiconductors used in smart electronics; defence and aerospace equipment; telecommunication technologies and so on.
- The lack of availability of such minerals or the concentration of their extraction or processing in a few geographical locations leads to import dependency, supply chain vulnerabilities, and even disruption of their supplies.
- For instance, China has majority ownership of cobalt mines in the Democratic Republic of Congo, where 70% of the world’s cobalt is mined. China also has by far the largest amount of reserves of REEs of any country in the world, followed by Vietnam, Brazil and Russia.
- Major economies including the U.S., U.K., and the European Union in the recent past have moved to secure supply-chain resilience for such minerals and to reduce reliance for their availability on countries like China.
India’s dependence on imports:
- The Ministry of Mines, in June 2023 came out with a list of 30 minerals critical to the country’s economic development and national security. However, India is highly dependent on imports for a majority of minerals on this list.
- For instance, India is 100% import-dependent on countries including China, Russia, Australia, South Africa, and the U.S. for the supply of critical minerals like lithium, cobalt, nickel, niobium, beryllium, and tantalum.
- Also for deep-seated minerals like gold, silver, copper, zinc, lead, nickel, cobalt, platinum group elements (PGEs) and diamonds, which are difficult and expensive to explore and mine as compared to surficial or bulk minerals, India depends largely on imports.
- For instance, in 2022-23, India imported close to 12 lakh tonnes of copper (and its concentrates) worth over ₹ 27,000 crore as per official figures.
Why is private sector vital for critical minerals exploration?
- Studies by organisations such as the Atomic Minerals Directorate for Exploration and Research and the Centre for Social and Economic Progress (CSEP) note that India’s unique geological and tectonic setting is conducive to hosting potential mineral resources and that its geological history is similar to the mining-rich regions of Western Australia and Eastern Africa.
- The primary step to discovering mineral resources and eventually finding economically viable reserves is mineral exploration, which comes in various stages before mining.
- The stages of exploration are divided as per the United Nations Framework for Classification of Resources into G4 (Reconnaissance), G3 (Prospecting), G2 (General Exploration), and G1 (Detailed Exploration).
- India has explored just 10% of its Obvious Geological Potential (OGP), less than 2% of which is mined and the country spends less than 1% of the global mineral exploration budget.
- Not many significant mineral discoveries have taken place in the country in the last couple of decades and a majority of exploration projects have been carried out by the government agency Geological Survey of India and other Public Sector Undertakings (PSUs) like Mineral Exploration Corporation Limited (MECL), with very little private sector participation.
- In Australia and multiple other jurisdictions globally, private mining firms called junior explorers, engage in risk-taking by putting their expertise and limited financials into explorations to find potential mines.
- Once discovered, these private companies can sell these to bigger mining companies who then develop and run these mines. This helps multiply exploration projects and accelerate the pace of exploration owing to private participation.
Is India’s mining policy conducive to private participation?
- The Mines and Minerals (Development and Regulation) Act (MMDR Act), 1957, the primary legislation governing mining in the country has been amended several times since its enactment including recently in 2015, 2020, and 2021.
- India recognised the need for private and foreign investment in the mining sector including mineral exploration back in 1993, amending the Act next year to allow interested parties to apply for mineral concessions through a First Come First Served (FCFS) basis.
- Later, private companies could also get Prospecting Licences (PL) or Mining Leases (ML), and could even apply for early-stage or greenfield exploration through Reconnaissance Permits (RPs).
- In the early 2010s, as the mining industry seemed to be gathering momentum, concerns about favouritism and misuse started coming up in the allocation of 2G spectrum and natural resources like coal blocks and the Supreme Court intervened.
- In 2015, the MMDR Act was amended to allow private companies to participate in government auctions for Mining Leases and Composite Licences (CLs). However, due to the Evidence of Mineral content (EMT) rule, only government-explored projects were auctioned, limiting private sector involvement.
- The amendment also permitted private firms to register as exploration agencies, with the National Mineral Exploration Trust (NMET) funding for G4 to G1 exploration, but private participation remained limited.
How does the Mines and Minerals Bill 2023 aim to encourage private players?
- The Bill omits at least six previously mentioned atomic minerals from a list of 12 which cannot be commercially mined.
- Being on the atomic minerals list, the exploration and mining of these six; lithium, beryllium, niobium, titanium, tantalum and zirconium, was previously reserved for government entities.
- The Act prohibits pitting, trenching, drilling, and sub-surface excavation as part of reconnaissance, which included mapping and surveys. The Bill allows these prohibited activities.
Exploration Licence (EL):
- The Bill also proposes a new type of licence to encourage reconnaissance, level and or prospective stage exploration by the private sector.
- This exploration licence (EL), for a period of five years (extendable by two years), will be granted by the State government by way of competitive bidding.
- In these auctions, eligible explorers would bid on their desired percentage share of the auction premium which will be paid eventually by a mining lease holder up the sale of a successfully explored mine by the State government.
- The lowest bid by an explorer would win the EL auction. This licence will be issued for 29 minerals specified in the Seventh Schedule of the amended Act, which would include critical, strategic, and deep-seated minerals.
- It also specifies the maximum area for exploration; activities in up to 1,000 sq km will be allowed under a single exploration licence.
- It also states that the licencee will be allowed to retain up to 25% of the originally authorised area after the first three years after submitting a report to the State government stating reasons for retention of the area.
- While most auctions are reserved for State governments in the Act, the Bill also reserves the conduct of auctions for composite licence and mining lease for specified critical and strategic minerals for the central government.
What are some of the possible issues with the Bill’s proposals?
- Industry experts and organisations like CSEP had pointed out certain issues and made recommendations on the proposed amendments.
- The primary way of generating revenue for a private company that has an exploration licence would be a share of the premium paid by the miner, which would come only after a successfully discovered mine is auctioned and operationalised.
- Trends show that such a process could take years to materialise owing to government timelines for clearances or may not happen at all considering depending on the complexity of the deposit and geography.
- The CSEP mentions the example of the Ghorabhurani-Sagasahi Iron Ore Mine, a greenfield captive mine, which was auctioned in 2016. Even though it was a bulk mineral, production started only in late 2021, taking close to six years to receive the necessary clearances.
- The explorer would not know how much revenue they will receive as the auction premium would be known only when a mine is successfully auctioned.
