Background

The Mines and Minerals (Development and Regulation) Amendment Ordinance, 2015 (“Ordinance”), promulgated by the President of India on 12 January 2015 ushers in long awaited reforms in the mining industry and amends the Mines and Minerals (Development and Regulation) Act, 1957 (“Act”).The Ordinance comes on the backdrop of the long pending and now lapsed Mines and Minerals (Development and Regulation) Amendment Bill, 2011 (“Bill”).

Key Changes

Key amendments introduced by the Ordinance include the following:

1. Auction Process for Grant of Mineral Concessions

In order to limit the role of discretion in the grant of mineral concessions, the Ordinance provides that the grant of mining lease for all ‘notified minerals’ will be through a competitive bidding process including by way of e-auction. In this regard, a new schedule has been introduced identifying bauxite, iron ore, limestone and manganese ore as being ‘notified minerals’. 

2. Prospecting License-cum-Mining Lease and its Auction

While previously the Act only contemplated the grant of prospecting licenses and mining leases as distinct categories of concession, the Ordinance introduces a new category of mine concessions namely ‘prospecting license-cum-mining lease’ (“PML”) which is a two- stage concession for undertaking prospecting operations to be followed by mining operations. The availability of PML does not however extend to: (a) hydrocarbons/energy minerals and atomic minerals; (b) land in respect of which minerals do not vest with the Government; (c) minerals under applications made prior to the Ordinance which in terms of the Ordinance remain eligible; (d) minerals in reserved areas under Section 17A of the Act.

The Ordinance provides that the grant of PMLs for notified minerals and minerals which may not be notified will be made by way of competitive bidding process. However, in case of notified minerals a prior Central Government approval will be required prior to the grant of the PML. Having completed prospecting operations pursuant to the grant of a PML and established the existence of minerals in a specified area, holders of PMLs would then be required to apply for a mining lease and thereafter undertake mining operations under the Act.

3. Non-Exclusive Reconnaissance Permits

The Ordinance enables the grant of non-exclusive reconnaissance permits for notified and non-notified minerals or a group of specified minerals (other than energy minerals i.e. coal and lignite or atomic minerals) subject to terms and conditions to be prescribed by the Central Government. However, holders of such reconnaissance permits will not be entitled to make any claim for the grant of a PML or mining lease.

4.Maximum area for which a prospecting licence or a mining lease may be granted

Hitherto, the Central Government could permit a person to acquire one or more prospecting licences or mining leases for an area exceeding the total area of the mining lease.

The Ordinance seeks to curtail the use of this power by providing that the Central Government can do so only if it pertains to: (a) a particular mineral; or (b) a specified category of deposits of such mineral; or (c) any particular mineral located in any particular area.

5. Term of Mining Leases

The provisions related to the term of a mining lease have been divided into two sections: (a) for energy minerals (i.e. coal and lignite); and (b) for minerals other than energy and atomic minerals. It is important to note that for atomic minerals the Central Government will notify rules for regulating the grant of the mining leases or other mineral concessions and the State Government will grant a reconnaissance permit, prospecting licence or mining lease in accordance with such rules. It appears that the term of mining lease for atomic minerals will also be prescribed in the rules that will be subsequently notified by  the Central Government in this regard.

  1. Energy Minerals: The term of mining lease is the same as was prescribed earlier under the Act i.e. a minimum of 20 years and a maximum period of 30 years. Also, a mining lease may further be renewed up to a maximum of 20 years subject to a Central Government approval. However, unlike the earlier position, the renewal of mining leases in respect of all minerals will now require Central Government approval.
  2. Minerals other than energy and atomic minerals:
  • Term: The term of mining lease will be for minimum period of 50 years from the date of the Ordinance.
  • Deemed Duration of Lease: For mining leases granted prior to the Ordinance, the term is deemed to be 50 years.
  • Lease for Captive Usage: The term of mining lease granted prior to the Ordinance is deemed to be extended till the later of: (a) 31 March 2030, or (b) the expiry of the period of 50 years from the date of the lease.
  • Lease for Non-Captive Usage: The term of mining lease granted prior to the Ordinance is deemed to be extended till the later of: (a) 31 March 2020, or (b) the expiry of the period of 50 years from the date of the lease.

6. Right of First Refusal

A lessee of a captive mine (other than energy and atomic minerals) will have a right of first refusal at the time of auction for such lease after the expiry of the lease period.

7. Lapse of Applications Made Prior to the Ordinance

The Ordinance provides that all applications received under the Act prior to 12 January 2015 will become ineligible, save and except:

  • Applications received in respect of coal and lignite;
  • Applications for grant of prospecting license or mining lease (as applicable) with respect to minerals not being energy minerals or atomic minerals, where prior to 12 January 2015, reconnaissance permits or prospecting licenses (as applicable) had been granted in respect of any land for any mineral. The aforesaid is applicable subject to compliance with certain conditions such as—(a) the applicant having duly undertaken reconnaissance or prospecting activities to establish the existence of mineral contents; (b) the applicant having complied with the conditions of the reconnaissance permit or prospecting license; (c) the applicant not having become ineligible for grant of mining lease/PML under the Act; and (d) so long as the application has been made within a period of 3 months following the expiry of the reconnaissance permit or prospecting license as the case may be, or within a period not exceeding 6 months as may be extended by the State Government;
  • Applications in respect of minerals, where the Central Government had communicated prior approval for grant of a mining lease or if a letter of intent (by whatever name called) had been issued by the State Government for grant of a mining lease prior to 12 January 2015 wherein mining lease will be granted subject to fulfilment of the previous approval or letter of intent within a period of 2 years from 12 January 2015. 

8.Transfer of Mineral Concession

Mining leases and PMLs (for minerals other than energy or atomic minerals) obtained through the auction process are transferable with the prior approval of the State Government to transferees who are eligible to hold such leases or PMLs. The Ordinance contains a deeming provision which indicates that if the State Government does not convey its approval for transfer within 90 days following notification by the transferor, approval will be deemed to have been given.

9.District Mineral Foundation and National Mineral Exploration Trust

  1. The Ordinance envisages the establishment of District Mineral Foundations by relevant State Governments where mining operations are carried out. District Mineral

Foundations would be district-level non-profit bodies which would be tasked with addressing the concerns of people affected by mining operations and holders of mining leases or PMLs are required to pay to the concerned District Mineral Foundation an amount which in any case cannot be more than 33% of the royalty paid as per the Act.

  1. With a view on promoting regional and detailed exploration of mineral content in the country, the Ordinance requires the Central Government to establish a National Mineral Exploration Trust with which holders of mining leases or PMLs must deposit amounts equivalent to 2% of the royalty paid under the Act.

Khaitan Comments

The Ordinance comes close on the heels of the Coal Mines (Special Provisions) Second Ordinance, 2014 which was promulgated to provide for the re-auction of coal blocks. The Ordinance empowers the Central Government to make terms, conditions and procedures for auctions for grant of mining leases for notified minerals and licenses with specific reference to end use linkage. While the Ordinance seeks to enhance transparency in addressing issues relating to the grant of mineral concessions, increase of mining areas, in certain aspects the intent of the Ordinance is not clearly articulated. For instance, having introduced the concept of a PML, which ostensibly is intended as a simplification of procedure, the Ordinance retains the requirement for the holder of a PML to separately apply for grant of a mining lease following successful completion of prospecting activities.

Furthermore, questions that were raised in the Bill, specifically in relation to the timelines for disposal of applications including for interim stages and setting up of National Mining Tribunal and State Mining Tribunals have not been addressed in the Ordinance. It remains to be seen whether the aforesaid issues would eventually be addressed by the Central Government.