Draft mineral auction rules: Single bidder allowed in second attempt

The Centre has unveiled the Draft Mineral (Auction) Second Amendment Rules, 2023, signalling a significant shift in the bidding regulations for mining contracts.

The proposed alterations introduce a significant relaxation, overturning the previous mandate requiring a minimum of three technically qualified bidders for the auction’s progression.

This amendment aims to streamline and maintain the auction process, especially in situations with restricted participation, ultimately accelerating the allocation of mining contracts.

The proposed amendments would enable the awarding of contracts even if only one technical bidder participates in the second attempt of the auction process.

In August, the government approved private sector involvement in exploring crucial and deeply embedded minerals within the country. This decision permits both national and international private mining companies, referred to as junior explorers, to participate in risk-taking endeavours.

The objective of this initiative is to enhance the likelihood of granting exploration licences, as there are currently no players with expertise in mining deeply embedded minerals.

Even though the minimum requirement for the second round has been lowered, the initial round of bidding still maintains the prerequisite of a minimum of three bidders. If the total number of technically qualified bidders is less than three, then no technically qualified bidder shall be considered a qualified bidder, and the first attempt of the auction shall be annulled.

Furthermore, the rules strictly prohibit any affiliate associated with a bidder from submitting bids in the same auction where the bidder has already placed a bid. To enforce compliance, any bids found to violate this rule, whether from the bidder or its affiliates, will face rejection.
 

Panel for oversight

According to the regulations, the state government is required to establish a committee responsible for the selection of blocks earmarked for auction to award exploration licences.

The primary function of this committee is to deliberate and decide on the identification of areas suitable for auction for the grant of exploration licences within the state’s jurisdiction.

This committee comprises three key members: the principal secretary or secretary in the mining and geology department (designated as chairman), the deputy director-general from the state unit of the Geological Survey of India (acting as member), and the director in the mining and geology department (serving as member secretary).

The state government is also mandated to define, within the tender document, the maximum percentage share, termed as the ‘ceiling price’, of the auction premium payable by the future lessee of the mining lease, obtained through prospecting operations conducted under the exploration licence to be auctioned.

This provision ensures that the ‘ceiling price’ set by the state government must not be less than 25 per cent. Bidders interested in obtaining the exploration licence are required to specify, for payment purposes from the state government, a percentage share of the auction premium payable by the prospective lessee. This share should either be equal to or below the stipulated ‘ceiling price’.

This provision outlines the specifications for bid security when applying for mining licences.

According to these guidelines, individuals or entities seeking mining rights are required to furnish bid security in the form of a bank guarantee or a security deposit. The amount of bid security is contingent upon the area of land for which the mining licence is being sought.

For areas equal to or less than 500 square (sq) kilometre (km), the bid security is fixed at Rs 50 lakh. However, for land areas exceeding 500 sq km but not exceeding 1,000 sq km, the bid security escalates to Rs 1 crore.

The state government will be responsible for electronically transferring the specified percentage share, as quoted by the licensee during the exploration licence auction, within 30 days of the deposit of the auction premium. This payment is to be made for the entire duration of 50 years of the mining lease or until the exhaustion of resources, whichever occurs earlier.

Furthermore, in the event of the termination, lapse, or surrender of the mining lease, the exploration licensee’s share will be payable from the auction premium deposited by subsequent lessees for the remaining period within the 50-year lease term or until resource depletion, depending on which occurs first.

THE PROPOSALS

State government is required to form a committee for block selection for auction 
 

The committee would have three key members
 

Individuals or entities seeking mining rights are required to furnish bid security in the form of a bank guarantee or a security deposit