Merchant mining leases lapsing by March 2020 may get three-year extension

Topics Mining industry

The Union mines ministry is working on a proposal to extend the validity of merchant mining leases due to lapse by March 2020, by another three years.

If the latest government plan falls in place, merchant miners will get a reprieve. Earlier, Federation of Indian Mineral Industries (Fimi) had suggested to planning think-tank Niti Aayog to extend the validity of the merchant leases by 10 years till 2030, co-terminus with the captive mines. Fimi's suggestion was stoutly contested by steel and other end-use industries. They argued there was no case for extending the leases since merchant miners got ample time to prepare their mines for auctions after the amended Mines and Minerals- Development & Regulation (MMDR) Act, 2015 was promulgated.

“The (Mines) ministry is considering an option to extend the leases. The ministry is receptive to some genuine concerns on the anticipated raw material crunch after the merchant mines go offline. Moreover, the time lag between auctions and actual mineral extraction would run into about three years or more given the historical delays in obtaining statutory approvals,” said a source acquainted with the development.

Backing its case for mine lease extension, Fimi pointed out that non-extension of leases will lead to disruption in raw material supplies to steel and other industries, resulting in chaos and litigation. Nearly 70 per cent of the country's steel plants are without captive iron ore resources and hence, dependent on supplies by the merchant miners. The working mines in Odisha and Jharkhand meet around 45 per cent of the raw material requirement of steel mills concentrated in the eastern sector. Though these two states have accumulated stockpile of 127 million tonnes, they are of baser grade and not lifted by the steel industries.

Fimi's seemingly plausible arguments have failed to strike a chord with industry bodies on the other end. In a rebuttal of Fimi's views, the Associated Chambers of Commerce & Industry (Assocham) held that the government stands to lose substantial revenue in the form of premium if auctions are not organized in time. Assocham said that when new iron ore mines in Odisha were put to online auctions, they garnered premium of up to 100 per cent. Predicating on this auction response, Assocham estimates that the government is staring at a revenue loss of Rs 79,500 crore if merchant mines in Odisha alone are granted extension. Assocham's calculations are based on the assumption that online auctions of lapsing mines will fetch at least 50 per cent premium. The projected notional loss in revenue is sure to mount if mines in Jharkhand, Chhattisgarh and Karnataka add up.

Other industry bodies such as Pellet Manufacturers Association of India (PMAI) and Indian Chamber of Commerce (ICC) have found common ground with Assocham, pressing for auctioning the expiring mineral leases.

To corroborate its case, PMAI noted that even after 2020, total production capacity of operative merchant mines would still be 100 million tonnes (mt) per annum, added up by NMDC's 37.8 mt, Odisha's 43.72 mt and 20 mt in Karnataka. Over and above merchant leases, captive mines in Odisha, Jharkhand, Karnataka and Chhattisgarh will have a combined capacity of 99 million tonnes per annum (mtpa), leading to approximately 200 mtpa in iron ore capacity despite older merchant mines going offline. To supplement the total output, some of the virgin iron ore blocks won through competitive auctions, are expected to commence mining after 2020. 

Data by the Union mines ministry's central empowered cum coordination committee (CCEC) shows 329 merchant mines are headed for expiry by March 31, 2020. Only 48  mines are operative and 101 are eligible for auctions.

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