The government is set to end the reservation currently available for public sector companies in allocation of mines. The idea is to create equal opportunities for the private sector to compete with state-owned companies in grant of mineral concessions and, thereby, push private investment in mining.
Section 17 of the current Mines and Minerals Development and Regulation (MMDR) Act, 1957, allows the government to reserve a mineral-bearing area exclusively for the public sector. Owning a captive mine allows public sector units (PSUs) to get ore at the transfer price, which is much less than the market price.
“It would not be possible to continue with reservation provisions for PSUs in the new mining Act. This is the view of the Group of Ministers (GoM) on mining. We need a level playing field between the public and the private sectors. The Hoda committee (chaired by Anwarul Hoda, ex-member planning commission, given in 2006) had said reservation was incompatible with this,” mining secretary S Vijay Kumar told Business Standard.
India produces 1,123 million tonnes of minerals worth Rs 2 lakh crore annually. PSUs account for 74 per cent of this, worth Rs 1,19,000 crore.
A 10-member GoM headed by finance minister Pranab Mukherjee has already finalised amendments to be made in the MMDR Act after discussions spanning two years with states and the industry. The draft finalised by the panel is a sequel to the Hoda committee report of 2007.
“When an area is reserved and a PSU is granted a captive mine, it gets iron ore at Rs 350 a tonne. But a similar captive mine is not given to a private company which gets iron ore at Rs 5,000 a tonne. Because steel prices are determined by international prices, both of them sell at the same rate. This creates a non-level playing field,” Kumar said. A senior executive from a major steel PSU, who did not wish to be named, agreed that the company’s cost of captive mining of iron ore was between Rs 300 and Rs 700 per tonne. The cost at which a private entity gets ore varies between Rs 3,000 and Rs 5,000 per tonne.
The 1957 Act was created with the Industrial Policy Resolution of 1956 as the guiding principle. As the Resolution accorded a predominant role to the state in industrial development, most of the industries requiring large scale investments were reserved for the public sector. “Since then, a sea change has taken place in the private sector’s ability. It is able to access technology better. Their availability of resources is as good and they can also do things more efficiently,” Kumar said.
The proposal to eliminate PSU reservation in mining is not likely to go down well with the steel industry. Steel minister Virbhadra Singh, also a part of the GoM, had recently sought “special consideration” for PSUs such as Steel Authority of India and NMDC in the new mining legislation.