Foundation to Ministry of Mines on Proposed Reforms

September 3, 2020

03.9.2020

Dr Veena Kumari Dermal
Director
Government of India
Ministry of Mines
Room 308, D-Wing, Shastri Bhawan
New Delhi 110001
veena.kumarid@gov.in
Subj: Your public Notice dated 24.8.2020 on Proposed Reforms in Mining Sector/Second letter of the Goa Foundation

Dear Dr Dermal,

The Goa Foundation has already written to you on 26.8.2020 to protest the absurdly short time period provided to respond to the Public Notice dated 24.8.2020, the violation of the Pre-Legislative Consultation Policy of the Government of India, the lack of detail in your policy proposals, and the lack of information required to analyze the policy proposals. These are statutory requirements under the RTI Act 2005. This approach of opaqueness while ignoring law and procedure will inevitably lead to conflict and litigation, which can only be counter to the needs of the country at this crucial juncture.

Through this second letter, we are responding to the issues raised in the Public Notice on merits.

In continuation to the above letter, we are a little amazed at how much reform the mining sector has indeed required. In recent years, the Government has amended the MMDR Act in 2015, 2016 and earlier this year. The Government has come out with a National Mineral Policy in 2019. Numerous changes have been made to subsidiary legislation, rules and regulations. Yet there is a perceived need for more “reforms”.

It is even more distressing to discover that the reasons proposed for reforms change all the time, indicating a wholly ad-hoc approach. First, it was to bring our mining laws in consonance with the Constitution. Then we have “Ease of Doing Business”  (discontinued by the World Bank). Now the new reason for reforms is employment. Surely the government is aware that a crucial aspect to attracting long term investment in the minerals sector is stability in the regulatory regime. Annual changes to the policy framework are highly counter-productive, as they corrode public confidence.

Regarding the Atmanirbhar Bharat Abhiyan, we would like to point out that this comprises 5 powerpoint presentations uploaded onto government websites.[1]There is nothing published in the Gazette. All the content is in point format, leaving little context. If we have to consider this as new policy, then the Atmanirbhar Bharat Abhiyan itself violates both the Pre-Legislative Consultation Policy as well as Section 4(1)(c) of the Right to Information Act, 2005. Put simply, the Atmanirbhar Bharat Abhiyan is itself invalid. And further, it isn’t clear how the National Mineral Policy 2019 can be over-ridden in this manner.

Atmanirbhar Bharat Abhiyan presentation 4, slides 9 & 10, on minerals,says:

Enhancing Private Investments in the Mineral Sector

Structural reforms to boost growth, employment and bring state-of-the-art technology especially in exploration through:

  • Introduction of a seamless composite exploration-cum-mining-cum-production regime
  • 500 mining blocks would be offered through an open and transparent auction process
  • Introduce Joint Auction of Bauxite and Coal mineral blocks to enhance Aluminum Industry’s competitiveness. Will help aluminium industry reduce electricity costs.

Policy Reforms – Mineral Sector

  • Remove distinction between captive and non-captive mines to allow transfer of mining leases and sale of surplus unused minerals, leading to better efficiency in mining and production.
  • Ministry of Mines is in the process of developing Mineral Index for different minerals
  • Rationalisation of stamp duty payable at the time of award of mining leases.

While some of these proposals are now part of the Notice for comments, the points connected with joint auction of bauxite and coal blocks is not included, but some new points are included such as DMF and NMET. If the points in the Atmanirbhar presentations are government policy, then the purpose of post-facto consultation is simply a rubber-stamping mechanism. If this is a fresh consultation, then some explanation is needed why these points have been selected from the many potential policy reforms that are possible. For example, in our submissions on the draft National Mineral Policy, we had recommended “Fit & Proper Person Tests” so that persons/companies of questionable integrity are precluded from having any further role in managing our shared inheritance of mineral wealth. This has not formed part of this consultation and it isn’t clear why not.

Further, there is no explanation why the brand new National Mineral Policy 2019 – prepared pursuant to a Supreme Court direction – is being over-ridden in this hasty manner. We note that the Notice for comment asserts that the proposals would help harmonize employment, growth, technology and environment.  We have already pointed out that constant and ad hoc regulatory change hinders investment and growth.

We would like to point out that the National Mineral Policy 2019 declares “Natural resources, including minerals, are a shared inheritance where the state is the trustee on behalf of the people to ensure that future generations receive the benefit of inheritance.” It goes on to say that “State Governments will endeavour to ensure that the full value of the extracted minerals is received by the State.”

We would like to point out that these are reflections of the Constitutional position vis-à-vis natural resources, including minerals. Therefore, key stakeholders, as the beneficial owners of the public trust, are the citizens and especially future generations of the mineral bearing states. They have not been considered in these proposals at all, only employment is an issue. This is equivalent to requiring all house owners to sell their homes every five years so that brokers get employment.

While the National Mineral Policy insists that states must endeavour to achieve Zero Loss, the national government actively violates federalism and insists on micro-managing issues such as stamp duty, clearly one of the tools that states can use to ensure Zero Loss.

While we are on the National Mineral Policy, there are a number of provisions that have been completely ignored in implementation so far. For example:

“The Government shall identify such areas that are critically fragile in terms of ecology and declare as ‘in-violate areas’ or ‘no-go areas’ out of bounds for mining. In order to achieve a better semblance between mineral based development and environment, there shall be an endeavour to create Exclusive Mining Zone (EMZ) with prior in-principle statutory clearances demarcated for the mineralized belt/zone to avoid conflict of interest and to curtail delay in commencement of mining operation.”

“for assessment of inter generational equity in respect of each mineral, a disaggregated approach shall be adopted considering aspects like reserves/ resources and potential for reuse through recycling, which are relevant and suitable in the Indian context.”

“A unified authority in the form of an inter-ministerial body under Ministry of Mines, with members like Ministry of Coal, MoEarth Sciences, MoEFCC, Ministry of Tribal Affairs, Ministry of Rural Development, Ministry of Panchayati Raj, Ministry of Steel, including state governments, shall be constituted to institutionalise a mechanism for ensuring sustainable mining with adequate concerns for environment and socio-economic issues in the mining areas, and to advise the Government on rates of royalty, dead rent etc.

This proposed mechanism shall also decide the limits on the extent of mining activities that should be permitted which would, inter alia, involve undertaking a detailed study for assessing what should be the state-wise/region-wise ceiling of annual excavation of minerals, considering the availability of mineral resources, the carrying capacity of the region, and the macro environmental impact on the region while also keeping in mind the principles of sustainable development and intergenerational equity and all other relevant factors.”

Resource Inventory Database will be “maintained for open dissemination as a public good”;

Mining Tenement Registry “shall be a web-based system for public viewing integrated with GIS, such that information could be shown spatially in the form of map based service.”

“There shall be an adequate and effective legal and institutional framework promoting zero-waste mining as the ultimate goal and a commitment to prevent sub-optimal and unscientific mining.”

 “Provisions shall be made for end-to-end accounting of mineral/ore in the supply chain with use of IT enabled systems.”

It is clear to us that all of these proposals are extremely progressive and modern and intended to safeguard one of more inheritances – the environment inheritance, the mineral inheritance, and when selling the mineral inheritance, ensuring both zero waste and zero loss. There is no action proposed in the reforms on these aspects of the existing policy. However, quite a few of the proposals in this Notice (as well as Atmanirbhar Bharat Abhiyan) go directly counter to the National Mineral Policy as well as constitutional requirements. It is remarkable that the government believes that a powerpoint uploaded onto a website can override both a cabinet approved and notified policy, as well as the Constitution of India.

The Notice says that these proposals for structural reforms in mining sector are all aimed at a harmonious balance between employment and environment. We object to the false dichotomy between employment and the environment. As already pointed out, this completely ignores the interest of the states as public trustees, as would be required under constitutional federalism, as well as the beneficiary owners of the minerals, the people and especially future generations. Further, the government has failed to implement provisions in the existing policy relating to the environment, and has separately proposed a vast dilution of the environmental clearance process. Auctions of coal blocks in high bio-diversity areas is directly contrary to the idea in the policy of in-violate areas, out of bounds for mining.

We are further astonished to find that not a single one of the proposals in the Notice in any manner promotes the interests of the environment. In reality, the proposals to redefine illegal mining go directly counter to the interests of the environment. Surely,the opening up 500 blocks for auction, when there are only 1,508 major mineral(non-fuel) reporting mines in India[2], would have a very significant adverse impact on the environment and the local communities.

The Notice also asserts that“Mining activities are concentrated in the areas that need most employment opportunities.” The Notice does not reflect on why that is the case. All over the world including India, mineral extraction has risen sharply while mining employment has steadily declined. This is due to mechanisation, and is reaching its logical conclusion with fully automated mines, railways and ports already operational around the world. The only employees are in an operations control center. Surely it is apparent that there is likely a huge and growing mismatch in the skills of the unemployed in the mining regions compared with the needs of the mining industry. A reasonable response would have been to focus on increasing the skill levels in the mining-affected population while discouraging mechanisation so that the skill shortfall is reduced.

The Notice asserts that Mineral sector is one of the highest employment generating sectors.This is incorrect, if not downright false. IBM reports that the Average Daily Employment in mining for major minerals (non-fuel) is only 108,704 in 2016-17, having declined from 132,184 a decade earlier.[3] It may be worthwhile to remember that India’s workforce is estimated at 470 million or 47 crore. So this is approximately 0.23% of India’s workforce. If we assume that active mines are going up by around a third, and the employment would go up commensurately, we would be adding around 33,000 workers due to the proposed interventions. If we were truly interested in employment, we would deploy more resources into MNREGA so that community assets are created, instead of selling off community wealth in the form of minerals. Far more jobs would be created, and far more useful community assets.

A truly Atmanirbhar Bharat would be one which kept its mineral inheritance for future generations while importing its raw commodity requirements and exporting value added goods. Instead, India is exporting iron ore to China which the Chinese convert into weapons and tanks, while we have to import our arms from all over the world. Serious consideration should be given to a ban on exports of minerals, to designate strategic reserves of minerals for future generations, and to promote both imports of minerals and exports of value-added products. Japan, China and the Asian tigers all are significant importers of raw materials and fuel. As long as we continue to export our natural resources – and not processed goods – we remain a backward nation. Government is responsible for continuing such policies.

At the height of India’s economic strength, history records that India’s primary imports were the mineral wealth of other nations in the form of gold and silver. Pliny records that Rome was being depleted of these metals to pay for imports of manufactured goods from India. The same was true centuries later. In fact, it was this wealth of India that attracted invaders from multiple directions. Even today, our extremely successful diamond processing industry in Surat imports rough diamonds and exports polished diamonds. Surely the rest of the country should emulate the successful Surat model?

This discussion is connected to the claim that since mining is linked to many industries, increasing mining will increase employment in these other sectors. But surely importing ore will have the same multiplier effects, at least for the steel, aluminium, commercial vehicles, rail transportation, ports, shipping, power generation, etc., sectors. And exports of minerals do not create these kinds of impacts. It is an additional reason for Atmanirbhar Bharat to disincentivize mineral exports.

With the foregoing, and under protest, we offer the following observations on the Notice:

  1. The Notice proposes changing norms for exploration for auction and seamless transition from exploration to production, and specifically:
    1. Auction of G-4 blocks for seamless exploration and prospecting
    2. Private entities in exploration work (regional exploration)
    3. Private exploration funded by NMET

We are somewhat surprised that a government that has sent Chandrayaan to Mars, has implemented an overnight demonetization, a nation-wide GST, and even surgical strikes does not have the administrative capability to rapidly explore the nation’s minerals in mission mode. However, it may be even quicker if exploration were contracted out to private players depending on tool or technique used. Some may be more suited to exploration using satellite imagery, others may be better at Lidar, and still others may be better at seismic exploration. India has had significant success with global scale tenders in the area of solar power or even LED bulbs, which has dramatically reduced the cost of acquisition. Further, there is the famous case of Goldcorp, a Canadian gold mining company that put 50 years of its geological data online and successfully ran a contest to find new deposits of gold within its existing lease[4]. This can be replicated in India. In light of the above, we do not have any issue with outsourcing of the exploration for minerals to private players, provided they are under competitive service contracts which are fully under the control of the mineral owner / trustee, ie, the states. This can very well be funded by the NMET, which has been set up for this purpose.

However, we are strongly opposed to the proposal to auction G-4 blocks. The UNFC categorizes mineral blocks along three axes, M (economic), F (feasibility) and G (geological). Within the G axis, there are 4 levels of exploration as follows:

G-1 is where detailed exploration has been completed

G-2 is where general exploration has been completed

G-3 is where prospecting has been completed

G-4 is where reconnaissance has been completed

It is apparent that as the quality of knowledge of the block declines, the amount that any bidder will be willing to pay will be lower. The constitutional objective with natural resources has already been set out as Zero Loss. In response, the Minerals (Evidence of Mineral Contents) Rules, 2015 provides:

  1. Existence of mineral contents for auction of mining lease under sub-section (3) of section 10B and sub-section (2) of section 11 of the Act. –

An area shall be considered to be having existence of mineral contents under sub-section (3) of section 10B or sub-section (2) of section 11 of the Act, if, in respect of such area, – 

(a) at least General Exploration (G2) has been completed to establish Indicated Mineral Resource (332); and

(b) a geological study report has been prepared conforming to Part IV of the Schedule.

Arguably, states should be required to complete Detailed Exploration (G1) in order to ensure minimum loss. By contrast, the proposed relaxation to auction of G4 blocks will certainly result in a loss to the mineral owners – the people and especially future generations of the states. This goes against the Constitution, the rights and duties of states as public trustees, the interests of the people and future generations of states, as well as the National Mineral Policy 2019 as it stands. This is certainly not acceptable in public interest..

  1. The Notice suggests resolving legacy issues u/S 10A(2)(b) and 10A(2)(c), and as a partial solution, to reimburse exploration costs under NMET. Unfortunately, there is absolutely no clarity on the number of mines involved, the exploration status, exploration costs, reserves, lessees and the litigation and status thereof. This makes it impossible to meaningfully comment on this proposal. Newspaper reports are that in Goa alone, there are 695 such blocks.[5] This would seem an alarmingly large number. However, since blocks saved under these sections would not be subject to auction, there are obviously enormous losses in value as well, which have not been taken into account. It is important to ensure all leases are under the auction regime as quickly as possible. We therefore encourage this move, with caution that if all these blocks are put up for auction at the same time, it will inevitably depress the price resulting in losses, as well as unavailability of the mineral itself and the associated extraction work for future generations after the 50 year lease period.
  2. The third proposal in the Notice suggests the removal of the distinction between captive and non-captive mines. It makes three specific proposals:
  3. a) All future blocks not earmarked
  4. b) Removing first right of refusal for captive miners
  5. c) Raising limit of 25% of production for merchant use to 50%

We are in agreement with the first two suggestions. Any restriction on the end-use of a mineral from a particular lease inevitably reduces the value of the mineral and the lease. This is unconstitutional. However, by the same argument, after an auction is completed, raising the limit of production that is not subject to end-use restrictions is effectively a grant of largesse to these extractors and therefore unconstitutional.

  1. The creation of a Mineral Index along the lines of the National Coal Index is the fourth proposal in the Notice. It is not entirely clear what a Mineral Index is or its purpose. If it aims to substitute the IBM price, then it should be called a National Price Benchmark. We would like to point out that economic theory suggests many considerations that need to be taken into account in order to ensure that a price benchmark is transparent, fair and truly represents the price at which transactions can take place. There are many dangers in getting it wrong, as the recent manipulation of LIBOR has demonstrated. Further, Price Benchmarks are usually tied to delivery of the commodity at a specified well connected sensible location. In a geographically large country like India, it is conceivable that the iron ore price benchmark in Odisha is meaningless in Bellary and irrelevant to Goa.

In the much more developed financial sector, the function of setting such Price Benchmarks is usually left either to exchanges or to self-regulating organizations. This is preferable to having the IBM set the price based on returns from miners as it is clear that IBM is not up to the job. In an RTI responded on 28-May-2018, the IBM stated that it did not have the detailed calculations for determining the IBM prices for major minerals for Goa for the months of October, November and December 2017, andJanuary, February and March, 2018. This is barely 2 months later and the audit trail has disappeared. One advantage of outsourcing it to the market is that there is an interest in avoiding fraud, and there can be significant liabilities imposed. If there’s fraud or even negligence at the IBM, the state could lose crores but what could it claim back from the IBM? Further, does the Ministry of Mines truly have the expertise to develop and monitor a Mineral Index for multiple minerals and grades of ore?

  1. The first proposal in the Notice that is outside both Atmanirbhar Bharat Abhiyan as well as the National Mineral Policy seeks to clarify the definition of illegal mining to differentiate between illegal mining done outside leasehold area and mining in violation of various clearances and approvals inside a mining lease area. It further seeks to amend Sections 21(4)& 21(5) of the MMDR Act on a prospective basis. We need to first understand what is illegal mining.

Under the Constitution, sub-soil minerals are usually the property of the state, held in trust for the people and especially future generations. The extractor is given a right under a mining lease to extract minerals subject to the terms of the lease. We should note that title to the minerals transfers when three conditions are met: (a) the extractor has a valid right to extract and is in compliance with the terms of that right, (b) the extractor “wins the ore”; (b) the extractor pays the consideration for the minerals extracted.

The goal of the state is to ensure it gets the full value of its minerals. Therefore, it must set up a regime that creates the incentives to obey the laws, rules and regulations in all aspects.

Section 4(1) of the MMDR Act states:No person shall undertake any reconnaissance, prospecting or mining operations in any area, except under and in accordance with the terms and conditions of a reconnaissance permit or of a prospecting licence or, as the case may be, of a mining lease, granted under this Act and the rules made thereunder.

It is clear that illegal mining, whether outside a lease or within a lease in violation of the terms of the lease including non-payment of the consideration is effectively theft of public property from the people and especially future generations of the state. Therefore, Section 21 Penalties provides for both a jail term/fine for the thief as well as recovery of the stolen ore or its full value.

Section 21(1) states:Whoever contravenes the provisions of sub-section (1) or sub-section (1A) of section 4 shall be punishable with imprisonment for a term which may extend to five years and with fine which may extend to five lakh rupees per hectare of the area.

Section 21(5) states:Whenever any person raises, without any lawful authority, any mineral from any land, the State Government may recover from such person the mineral so raised, or, where such mineral has already been disposed of, the price thereof, and may also recover from such person, rent, royalty or tax, as the case may be, for the period during which the land was occupied by such person without any lawful authority.

Each year, approximately 1 lakh cases of illegal mining are reported. This is far in excess of the number of reporting mines. Further, a series of spectacular cases of illegal iron ore mining have been detected, reported and litigated in Karnataka, Goa and Odisha. The violations cover the gamut. Weakening Section 21 will simply embolden the corrupt. Instead of weakening the penalties that exist, we would suggest that certain further steps are needed to protect the inheritance of future generations:

a) Known thieves and people with questionable integrity must be excluded from managing the family gold of the states, the shared inheritance of mineral wealth. The World Bank has developed a manual, Licence to Drill, for nations to implement Integrity Due Diligence. The manual is based on the experiences with the work of the Financial Action Task Force (FATF), which was set up to counter terrorism financing, money laundering and corruption. It is important that Section 5 of the MMDR Act be amended to include a requirement for licencees & lessees to annually pass a Fit and Proper Person Test, as well as grant or acquisition of such a right.

b) Given the scale of the wealth, insiders – politicians and bureaucrats – would collaborate with extractors to steal from the people and future generations. It is therefore imperative that the restriction in Section 22 that only a complaint in writing made by a person authorised in this behalf by the Central Government or the State Government can be taken cognizance of by a Court be removed to allow any citizen to report the theft of his inheritance.

c) Under the Insolvency and Bankruptcy Code, 2016, Section 29A(d) states: A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person–has been convicted for any offence punishable with imprisonment –

  • for two years or more under any Act specified under the Twelfth Schedule; or
  • for seven years or more under any law for the time being in force: Provided that this clause shall not apply to a person after the expiry of a period of two years from the date of his release from imprisonment

The Twelfth Schedule has a list of 25 significant Acts plus an enabling proviso allowing the Central Government to notify additional Acts. Clearly the exclusion of the MMDR Act is an oversight that the Central Government must rectify immediately.

d) Similarly, the Prevention of Money Laundering Act, 2002 must be amended to include the MMDR Act in Part A of its Schedule.

6. The proposal in the Notice to rationalize stamp duty is completely without merit. Let states decide what to charge. Bidders for auctions will adjust their bids accordingly. If a particular method of calculation or charging is inefficient, then states adopting these methods would receive lesser amounts and suffer losses. However, what is unclear is how the Central Government has the authority to override the State’s constitutional powers to charge stamp duties. Presumably if charging on the worth of the minerals in the ground is unconstitutional, a court would strike it down. This reeks of the center usurping the powers of the states, with the aim of awarding largesse to people who are refusing to pay the stamp duty required upon signing of lease deeds for minerals.

7. The second proposal in the Notice that is outside of Atmanirbhar Bharat Abhiyan is the proposed amendment to Section 9B to focus DMF on creating tangible assets. The Notice incorrectly asserts that theDistrict Mineral Fund was introduced to earmark funds for benefit of the persons affected by mining as also for the rebuilding of infrastructure in mining affected areas.

Section 9B(2) states: The object of the District Mineral Foundation shall be to work for the interest and benefit of persons, and areas affected by mining related operations in such manner as may be prescribed by the State Government.The statement of Objects and Reasons of the MMDR Amendment Bill 2015 clearly shows: 6(iii) Safeguarding interest of affected persons: There is provision to establish District Mineral Foundation in the districts affected by mining related activities. There is no mention of either rebuilding infrastructure in mining affected areas, or a focus on creating tangible assets. Further, we have not been able to find any recommendation by the Parliamentary Standing Committee to give greater focus for the use of DMF funds in directly affected areas for creating tangible assets.

The Central government has full authority to issue mandatory directions on the utilization of the funds in the District Mineral Foundations towards “tangible assets”. In fact, the PMKKKY is pursuant to the exercise of this authority. We can only conclude reluctantly that the actual proposal here is to modify the objects of the DMF itself to include mining related infrastructure in directly affected mining areas. Put simply, the DMF will be used to build infrastructure for the benefit of the miners, not the mining affected! This is fraudulent and we object strongly. A major, exclusive mining bypass road in south Goa for mining trucks was one of the first proposals put to the DMF in Goa. It was shot down.

  1. The proposal to set a time limit to operationalize allocated blocks is positive, and certainly unallocated blocks must revert to the state within a definite time limit. However, we believe that it cannot become mandatory that these blocks be auctioned off again. This must be left to the judgment of the mineral owners, usually the state. We therefore encourage this move, with caution that if all these blocks are put up for auction at the same time, it will inevitably depress the price resulting in losses, as well as unavailability of the mineral itself and the associated extraction work for future generations after the 50 year lease period.
  2. The last proposal to make NMET truly autonomous would seem reasonable on the face of it. However, the Notice itself states that the government itself diluted the autonomy of the NMET by amendment to the rules in 2018. What is further vague is the proposal that all entities notified under u/S 4(1) shall be eligible for NMET. This could be any entity at all. What are the rules for the notification of entities under Section 4(1)? How is this different from the first proposal where private exploration could be funded under NMET? We must object to this proposal simply due to the lack of clarity.

As we mentioned in our earlier letter, in order for a meaningful analysis, the wording of the proposed changes to the laws / rules / regulations ought to have been provided.And since most of the minerals are in areas most in need of employment generation, it would have been appropriate to have the Notice available in languages spoken in those areas, at a minimum, the official languages of the affected states.

Best wishes

 

(Dr. Claude Alvares)
Director

[1]https://www.india.gov.in/spotlight/building-atmanirbhar-bharat-overcoming-covid-19

[2] Indian Mineral Industry at a Glance 2016-17 – Indian Bureau of Mines, page 17

[3]ndian Mineral Industry at a Glance 2016-17 – Indian Bureau of Mines, page 95

[4]https://www.ideaconnection.com/open-innovation-success/Open-Innovation-Goldcorp-Challenge-00031.html

[5]https://www.heraldgoa.in/Goa/Govt-seeks-to-amend-MMDR-to-allow-auction-of-leases-stuck-in-legacy-issues/164851