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India produced 729 million tonnes of coal in the year 2018-19. Despite these numbers and economic growth, the quantity of imports have increased indicating that the country’s massive domestic reserves are not being utilised properly. To combat this, the Rajya Sabha recently passed the Mineral Laws (Amendment) Act, 2020 on March 12th, which alters the existing Mines and Mineral (Development and Regulation) [MMDR] Act, 1957 and Coal Mines (Special Provisions) [CMSP] Act, 2015. The MMDR Act regulates the overall mining sector in India. The CMSP Act provides for the auction and allocation of mines whose allocation was cancelled by the Supreme Court in 2014. Under this amendment, the Environment Ministry has allowed the lessees to mine for two years before getting fresh environmental clearances for mining.
Companies with no prior experience in coal mining, along with companies in other nations as well, have now been allowed to participate in auctions for coal/lignite blocks. These highlight features of the amendment are aimed at promoting ease of doing business and ensuring continuous supply of minerals to industries, both of which shall eventually reduce the import quantities eventually. These changes will also lead to an increase in participation and will facilitate implementation of the FDI policy in this sector.
Since coal is responsible for 72% of the power generated in India and is also the basic building block for manufactured products and many agri-inputs, it is safe to say that this industry plays a pivotal role in ensuring raw material and energy security for the nation. Hence, this is a positive step towards improving the general economic condition of the nation after it was hard by the current pandemic.
Salient features of the Bill
Apart from the highlighted features mentioned above, this amendment also makes other significant changes. All of the changes have been listed below:
- Presently, companies purchasing coal mines under Schedule II and Schedule III through auctions may only use the coal extracted for particular end-use purposes such as power generation and steel production. The Amendment lifts this constraint on the use of coal mined by these companies. Companies will be permitted to carry out coal mining operations for their own use, sale, or for some other reason, as the central government can decide. They can also use this coal at the plants of their subsidiaries.
- The Amendment clarifies that to participate in the auction of coal and lignite blocks, companies do not need to have previous coal mining experience in India. In addition, the preferential bidding process for auctioning coal and lignite blocks does not extend to mines considered for allocation to firstly, a government company or its joint venture for own use, sale or any other defined purpose; and secondly, a company which has been awarded an electricity project on the basis of a competitive tariff offer.
- Presently, to prospect and mine coal, two licences are provided, known as prospecting and mining licence respectively. However, a third type of licence is added by this amendment which includes the lessee to prospect and mine coal, called the prospecting license-cum-mining lease.
- The holders of non-exclusive reconnaissance permits for the discovery of identified minerals do not currently have the ability to acquire a prospecting license or mining lease. Reconnaissance operations include initial prospecting of a mineral by certain surveys. The Amendment provides that holders of these permits can apply for a license-cum-mining lease or mining lease for prospecting purposes. This clause shall extend to all licensees as laid down in the Amendment.
- Upon expiry, mining leases for specified minerals (minerals other than iron, lignite, and atomic minerals) will usually be passed to new people by auction. These new people are expected to obtain statutory clearances before mining operations commence. The Amendment specifies that for a term of two years, the various permits, licenses and clearances granted to the previous lessee shall be transferred to the effective bidder.
- In some cases the CMSP Act allows for the termination of coal mining allotment orders. The Amendment adds that these mines may be reallocated by auction or allocation as the central government can decide. A designated custodian would be named by the central government to oversee those mines until they are reallocated.
- State governments need prior central government approval under the MMDR Act to issue recognition permits, prospecting licenses, or coal and lignite mining leases. The amendment specifies that, in certain situations, prior central government approval would not be necessary to issue certain coal and lignite licenses. Those include situations where, firstly, the central government has made the allocation, and secondly, the federal or state governments have reserved the mining block for the protection of a resource.
- At the expiry of the lease term, mining leases for listed minerals (minerals other than iron, lignite, and atomic minerals) are auctioned under the MMDR Act. The Amendment provides that prior to its expiry, state governments can take advance action to auction a mining lease.
Reasons behind introduction of the Bill
In September 2019, the Government of India started the process of liberalizing the long-standing restrictions imposed on mining activities in India by enabling 100% foreign direct investment (FDI) in coal mining operations to be sold. Nevertheless, the Coal Mine Act, 2015 (Coal Mines Act) and the Mines and Minerals Act, 1957 (MMDRA) continued to include end-use limits on minerals mined from a large number of coal mines, which did not bode well for attracting investment. In addition, firstly, reduced demand for power from conventional sources; secondly, decreased growth in the cement, iron and steel sectors; and thirdly, approval processes resulted in a scenario where, even if mines were allocated, mineral extraction would be limited and the development of mines stagnated. By way of the Mineral Laws (Amendment) Act, 2020, amendments were made to the Coal Mines Act and the MMDRA in order to address the same and to provide operational flexibility for persons engaged in mining.
Pralhad Joshi, minister of coal and mines said the bill was necessary as India would use its own natural reserves, rather than importing Rs 2.7 lakh crore-value coal. “We need to produce coal and reduce imports,” he said adding more domestic production would lead to more generation of electricity and cut bills for oil imports as well. “The amendments would open up new growth areas in the industry,” he added. The law would introduce a “sea shift” in the industry Joshi said. The stress should be on reserve exploitation, without harming the environment. The government is proposing to kick-start this month’s commercial coal mining auction process, with release of bid rules and stakeholder consultations.
The minister said Coal India was tasked with producing one billion tons by 2023-24 but output will still fall short of demand and private players need to be introduced into coal mining. Joshi also said the amendment would help in gaining further interest in coal block auctions. In addition to mining majors such as Peabody, BHP Billiton and Rio Tinto, the Government plans to draw investments from other Indian and global corporations too. For commercial coal mining auctions that the Center expects to conduct in the near future, the passage of this act is considered necessary. The automatic transfer of environment and forest clearances for iron-ore mines authorized by this legislation is intended to ensure domestic industry supplies of raw materials.
Major Concerns about the Amendment itself:
No guarantee is provided that these amendments will allow large multinational miners to invest in India’s coal sector. This may be because pricing is not obvious. Few will be able to invest trillions of dollars in the new mining technologies without a remunerative offer. On top of that, miners actually have to pay large sums in order to get a mine after winning an auction. Regardless of this, auction bidders just don’t exist. Coal also has a ‘dirty fuel’ stigma and only a few multinational lenders are willing to put their money into the field.
Other Relevant Concerns:
- Although many countries are moving away from fossil fuels, especially coal, to fight climate change, India is stepping up its demand in this field, putting the environment in danger.
- It allows for an increase in rivalry in the mining industry, paving the way for increasing chances of resource overexploitation.
- Fostering the development of the coal sector is jeopardizing India’s Paris Agreement commitments.
- There are also health issues with mining sector growth as carbon-burning releases particulate matter, sulfur dioxide, nitrogen dioxide, and mercury, and this will endanger the health of people living in the region.
- Private businesses have a tremendous potential to compromise labor standards to increase their income and increased production costs. It can impact employee safety and wellness.
Probable future of the Bill
During the course of the most recent couple of years, exploration by private players has almost reached a stand still. Interventions, for example, introducing a seamless transition from exploration to mining license, permitting the offer of license at any stage, and allowing private companies to proactively approach administration of India for exploration areas will help overturn this pattern.
Streamlining the auction procedure will likewise prompt more prominent efficiency and increasingly effective outcomes.
Mining companies in India are subject to a lot of higher financial demands than different nations, (because of high royalty rates, multiplicity of duties and double taxation). Thus, royalty rates ought to be reduced in accordance with international benchmarks.
The government should ascertain that all policy interventions take cognisance of rising worldwide patterns in mining, for example, savvy mines, remote ocean mining and the changing composition of the mining workforce.
The amendments are an appreciated step towards the progression of the mining part and attracting the genuinely necessary outside speculation. While the Ordinance is a positive decision to give operational proficiency, the conforming rules and bidding procedures must be evaluated in detail to guarantee that these liberal steps according to the Ordinance are safeguarded and given full impact. The changed approach will permit worldwide players to search for venture openings which will permit the nation to use their specialized abilities for successful usage of regular assets to support individuals on the loose.
Mineral Laws (Amendment) Act, 2020 is a noteworthy decision towards encouraging simplicity of working together and expanding the commitment of private players in the mining segment. As this additionally advances the development of coal creation inside the nation, it expands coal utilization. This, thus, leads to an upsurge in pollution levels and other detrimental effects on the earth. Hence, steps must be taken to protect the earth while guaranteeing the financial development of the nation.
Author: Kabir Chaturvedi from Rajiv Gandhi National University of Law, Patiala.
Editor: Tamanna Gupta from RGNUL, Patiala.