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Before The Bids Start

Before The Bids Start

With many mining leases expiring next year, quick action is required to keep steel production on track.

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About 329 mining leases are set to expire by March 2020. The majority of these are in Goa (184), followed by Karnataka (48), Odisha (31), Jharkhand (18) and Madhya Pradesh (13). Of these mines (mostly iron ore or manganese), only 48 are operational currently but they contribute to 28-30 per cent of the total iron ore production.

To avoid any disruption in ore supplies to end users, predominantly steel companies, the mines need to be auctioned and re-allocated fast. But state governments need to take a number of preparatory steps before a mine can be auctioned. Under the Mineral Development and Regulation (MMDR) Amendment Act, 2015, proper exploration is a pre-requisite for an auction. A majority of mineral bearing states have conducted auctions under the new regime, and 54 mineral blocks have been successfully auctioned, while others are in the pipeline.

The mineral property has to be explored and a geological report prepared as per certain standards. The balance reserves - mineral deposits left in an operational mine - need to be ascertained prior to auctions. Areas need to be demarcated using total station and differential global positioning system, and land details provided.

While the state governments have conducted auctions of greenfield projects in the past, the challenge is to ensure that the mines to be auctioned are operational, and the existing leaseholders have been mandated to undertake exploration and provide other technical details.

First, many current leaseholders are yet to complete the exploration. The deadline was April 1, 2019.

Second, state governments have mostly auctioned greenfield projects, and given the "operating" nature of these mines, the bidding terms need to be modified to pave the way for a seamless transition. The 'Value of Estimated Resources' - to which a slew of bidding parameters are linked - has to be adjusted to account for the estimated production from the mine in 2019/20. While the value has to be determined for balance reserves, the lessee has to provide information on the balance reserves prior to the lease expiring. The state government then needs to estimate the production for the remaining part of the lease period to arrive at a more reliable estimate of the value.

Third, subsequent to granting the letter of intent to the preferred bidder, the bidder has to get the mining plan approved. The new allottee will have to apply afresh for environmental and forest clearances, which can take two to three years.

Lastly, the process of transferring the existing mine infrastructure, land or ore lying within the lease area provides a significant challenge.

What can be done? First, as the exploration deadline has passed, the state government needs to ensure completion of pending exploration. The central government can also involve exploration agencies such as Geological Survey of India, Mineral Exploration Corporation, and others. This will be especially needed in non-working leases.

The state governments also need to expedite the preparatory work - surveys, land schedules, pre-feasibility assessments, fixing reserve price and preparation of bidding documents. The central government may modify the existing model tender document in the context of mines expiring in 2020 to ensure consistency in the bidding terms across states. To ensure a smooth transition, the validity of existing clearances could be extended by two to three years. This will give the new leaseholders time to procure approvals and prevent any loss of production. The state government could establish a special cell with representatives from relevant authorities to expedite clearances. The entire process of granting clearances can be monitored frequently.

Lastly, the central government needs to evolve a common mechanism regarding the takeover of the mine infrastructure, land as well as the ore. This may require issuing relevant directives for greater clarity.

The writer is Director, CRISIL Infrastructure Advisory.