Miners seek cap on reservation of blocks for captive consumption

As the Union mines ministrycontemplates relaxing the Mineral Auctions Rules, 2015, the standalone mining companies are suggesting restricting the reservation of mineral blocks for captive consumption. They have demanded that the reservation for captive use should not exceed 25 per cent in any state for a particular mineral.

The merchant mining companies feel that reservation is against the principle of mineral conservation as all grades and sizes of ore cannot be used by a single end-use plant due to technology constraints.

R K Sharma, secretary general with the Federation of Indian Mineral Industries (Fimi) said, “Reserving blocks of iron ore, bauxite and limestone for captive use limits participation of mining companies. This practice has been very restrictive and does not provide a level playing field to mining companies who could mine the ore at competitive prices and sell to end user industries.”

Rule 6 (3) of Mineral Auction Rules, 2015 empowers the states to reserve any particular mine or mines for any end-use. A captive consumer can always participate in the bidding for a non-captive block.

  

“If non-captive bidders are restrained from participating in more blocks for auctions, the mineral prices would no longer be determined by free market prices and hence, would be skewed lower. This would translate into lower prices of ore, leading to lower royalty and auction money for states”, said an official with a standalone mining company.

Fimi has suggested some pre-requisites for auctions of mineral blocks. Before any mining asset is put to auctions, in-principle approval for grant of forest and environment clearances need to be obtained. That apart, the concerned state government should acquire the privately held land falling within the mine area and make it available to the lessee on payment of actual cost of compensation. This is expected to speed up development of mineral blocks after auctions.

On net worth requirements for auctions of mining leases, Fimi has pointed out that the eligibility criteria relating to net worth requirement are required to be reduced to increase competition by encouraging participation of medium and small scale enterprises. For example, if the value of an estimated resource is more than Rs 50 crore, the applicant should have a net worth of more than two per cent of the resource. If the resource valuation is less than or equal to Rs 50 crore, the applicant’s net worth should be greater than one per cent of the resource value.