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| Scratching just the surface: What
lies underneath could bring a richer haul |
They came;
they saw; and then nothing happened. That, in a nutshell, is the
story of foreign direct investment (FDI) in India's mining sector,
which hasn't quite managed to live up to its potential-only around
$100 million (Rs 440 crore at current exchange rates) has been invested
over the last 16 years, and worse, this accounts for a mere tenth
of the total foreign investment approvals in the sector. But now,
the sentiment seems to be improving, as was evident in January-end
at the World Economic Forum at Davos. On the sidelines of the forum,
when senior Indian government functionaries were courting global
mining companies, the response was overwhelming. Says Minister of
State for Commerce Ashwini Kumar: "At the table were more than
half-a-dozen mining majors, including some of the biggest names
like BHP Billiton, Rio Tinto and Alcoa."
There's a reason for this; and no, it isn't merely
because global prices of metals are rising. The government is
now in the process of fixing the policy bugs that have impeded
private investments in the mining sector. The National Mineral
Policy (NMP) 2007 will be considered by the Union Cabinet shortly.
What are the salient features of the policy? And will it make
a significant difference to various stakeholders?
| A NEW MINING
REGIME |
| NMP 2007 proposes the following: |
| Automatic and seamless transition from prospecting
rights to mining rights.
Security of tenure for concessionaires.
Grant of Large Area Prospecting Licence, whereby a company
can undertake prospecting work over a large area.
Private-public participation for mining infrastructure.
Easy and transparent norms for transfer of prospecting
and mining licences. |
Seamless Clearances
 |
| Sitting on a gold mine: Provided
the National Mineral Policy 2007 delivers |
A serious regulatory disconnect today plagues
the key aspects of the mining business-reconnaissance, prospecting
and mining. For example, the current laws do not protect the investments
of an explorer who strikes a mineral-he does not automatically get
the rights to extract it or transfer the extraction rights to another
party.
Since the upside of a discovery is not protected
by law, very little investment has flowed into the sector. As
a result, the only minerals that have been exploited are those
close to the surface of the earth-like hematite (iron ore), bauxite
(aluminium) and limestone (which is used in the manufacture of
cement).
The new policy seeks to fix this problem. Hence,
a seamless linkage from prospecting to mining is envisaged. And
investors, including some global companies looking to infuse some
much-needed cash into this sector, are visibly excited. Says Nik
Senapati, Country Manager, India, Rio Tinto: "The policy
recommendations sound positive; we'd be happier still if the government
offers some clarity on issues relating to the security of tenure."
So, which minerals will become attractive under
the new regime? Titanium is a mineral you quite literally have
a brush with every morning (it is there in your toothpaste). It
is also abundantly used in airplanes since it is lightweight and
strong. Its mineral base (limelite) has the highest presence in
the beach sands of the country, though it is among the least exploited
metals across the globe. Clearly a new-age metal, its exploitation
will require more than mere security of investment in various
business segments. Here's why: over 400 mining projects are languishing
on account of environmental clearances. Through the NMP 2007,
the government plans to ease this bottleneck by reducing the extent
of regulation. "Environment Impact Assessment will not be
made mandatory for projects where the mining area is less than
50 hectares," says a government official.
Time Matters
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| Stuck in red tape: Iron ore
mines |
But rules and procedures are just a part of the problem.
The state is wont to drag its feet on approving a project; this
often stretches to several years. But, under the proposed policy,
if a state fails to dispose of applications within a prescribed
time limit, an independent tribunal will be empowered to force a
decision on the state. Yet, the industry is not convinced. "What
good will a policy do if the project file doesn't move past the
bureaucrat's table?" asks R.K. Sharma, Secretary General, Federation
of Indian Minerals Industries (FIMI), the apex body of the minerals
sector in India. "It is incumbent upon the government to ensure
transparency and fair play. Until then, it will, at best, be a moth-eaten
initiative."
The policy, when it becomes official, will also
result in a windfall for states. It proposes that royalty be calculated
on an ad valorem basis; this, it has been estimated, will result
in the states earning additional revenues of Rs 2,400 crore per
annum. The present fixed tonnage-based royalty gives them only
about Rs 600 crore every year.
Ironing out Issues
The policy is expected to provide a fillip to mining
of minerals like limelite, gold and diamonds, but there's one
mineral that requires very little push, if at all-iron ore. Here,
the problem is not of insufficient reserves or lack of interest
on the part of investors. The roadblock here is socio-political
in nature. For example, the Government of Orissa is working actively
with South Korean steel major POSCO Steel, to expedite its $12-billion
(Rs 52,800 crore) 12 million tonne project in the state. But the
acquisition of land is proving to be a problem. The contentious
issue: rehabilitation of displaced persons. The Centre has to
finalise its Resettlement and Rehabilitation Policy, and the absence
of a uniform policy across the country is leading to investment
uncertainties. Soung Sik Cho, CMD, POSCO India, however, professes
optimism but goes little beyond saying that he is confident that
POSCO will "acquire the required land in the near future
with strong support from the Orissa government".
While states like Orissa, Jharkhand, Chhattisgarh
and Karnataka are keen to invite investments from companies-like
POSCO, and Tata Steel-that are willing to invest in "value
addition" (read: setting up manufacturing capacities), they
are reluctant to open the gates for those interested only in mining
and exporting ore, either to neighbouring states or to overseas
markets. The proposed policy addresses this issue by forcing states
to award mineral concessions even in the absence of value addition.
Says V.K. Jerath, Secretary, Department of Industries, Government
of Maharashtra, where several sponge iron units are located: "We
already have a concessional policy, which encourages captive use
of mineral resources, in place. NMP 2007 will, however, force
us to fine tune this."
The issue of iron ore exports is fast turning into
a hot political debate. Union Minister of Steel, Chemicals and
Fertilisers Ram Vilas Paswan recently shot off a letter to Prime
Minister Manmohan Singh and Finance Minister P. Chidambaram demanding
that exports of iron ore be banned. "Exports will lead to
faster depletion of resources, thereby forcing our units to close
down," he says. Is the domestic steel lobby behind this?
One can only speculate. The state-run National Mineral Development
Corporation (NMDC), which exports around 3 million tonne of high
grade iron ore annually, has also had to face political heat.
Explains B. Ramesh Kumar, CMD, NMDC: "In 1991-92, we were
exporting 74 per cent of our total production against only 3 per
cent today. In fact, the spurt in demand for steel has ensured
that we mostly service the domestic sector." There's obviously
an urgent need to have some clarity on the issue, but the constraints
of coalition politics have ensured that it remains on the backburner.
Budget 2007, meanwhile, has slapped an export duty of Rs 300 per
metric tonne on iron ore and Rs 2,000 per metric tonne on chrome
ores. How this affects the plans of individual companies will
soon become evident.
Legal cases also sometimes play spoilsport. Arcelor
Mittal's request for ore reserves from the Chiria mines in Jharkhand
is stuck on account of a public sector steel giant Steel Authority
of India's legal claim on it. The Centre is driving an out of
court settlement since it feels that the reserves far outstrip
sail's needs in view of their future expansion plans. L.N. Mittal,
Chairman of the company, meanwhile, is being wooed by the governments
of both Jharkhand and Orissa. He is planning to set up a 12-million
tonne plant at an investment of Rs 40,000 crore.
But all these investments and proposals hinge crucially
on NMP 2007. Will it deliver what it promises? Experts say that
given the immense job creation potential of the mining sector,
the political class has a vested interest in seeing it through.
Quick clearances and security of investment are, after all, sine
qua non for greater investment flows to the sector. And if the
policy fails to live up to expectations, the minerals will remain
where they have been for millions of years.
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