For a new law

Print edition : July 16, 2010

THERE are times when changes in the objects and reasons of a statute necessitate the replacement of the law itself because amendments to it are inadequate to reflect the changes. The most recent example of this is the Draft Mines and Minerals (Development and Regulation) Bill, 2010, which has all the ingredients to replace the existing law. The 1957 Act has outlived its utility despite the several amendments made to it up to 1999.

The many stages passed in the process of formulating the new law is a pointer to the tortuous road travelled and to the fact that the days of comfortable and easy law-making are over, at least in the area of regulation. The Mines and Minerals (Development and Regulation Act, 1957, came into force at a time when governments required much discretionary power to regulate a nascent mining sector. The rise of the market economy in the early 1990s brought about a fundamental change in the government's attitude to mining.

The National Mineral Policy, 1993, recognised the need to encourage private investment, including foreign direct investment (FDI), and to attract state-of-the-art technology in the mineral sector. But these objectives remained largely unfulfilled in the absence of a favourable investment climate.

Three-stage operation

Mining is a three-stage operation, involving regional exploration, detailed exploration, and actual mining. Regional exploration is mainly a survey activity to identify areas bearing deposits. Detailed exploration can involve close-distance drilling (depending on the mineral) and substantial testing to establish commercially exploitable ore bodies. Mining projects, therefore, have a long gestation period and require large investments in exploration and other development activities before commercial production can begin.

Predictably, mining projects are high-risk ventures because a prospector's investment may or may not result in finds of commercially exploitable deposits. In India, investment has been lacking in such high-risk ventures and work done by the Geological Survey of India (GSI) continues to be the main basis for investment in mining. In fact, the full potential of India's mineral deposits, including iron ore, bauxite, limestone, base metals, noble metals and diamond, are not known because of inadequate survey and exploration activities.

Meanwhile, the growing global demand for metals and minerals has pushed up continuously the prices, both domestic and international, of minerals. The country's accelerated growth rate warranted a rapid development of the mining sector because most of the basic industries in the manufacturing sector are dependent on assured ore supply. Besides, investments in mining and exploration flow into countries where the regulatory regime is investor-friendly.

Procedural delay

India, like other developing countries, felt the need to reorient its mining law and policy to attract global investment. In the federal scheme, the States are the owners of the minerals. The Centre is responsible for preparing and standardising the legislative framework by providing a single mining law. Thus, the Constitution gives States jurisdiction over the regulation of mines and the development of mineral resources, while Parliament makes the laws for such regulation and development.

Procedural delay was identified as one of the impediments in encouraging the flow of private investment and in the introduction of high-end technology for exploration and mining. The Anwarul Hoda Committee, constituted by the Planning Commission in 2005, in its report submitted in 2006 made specific recommendations on the legal framework to avoid procedural delay. The New Mining Policy (NMP) 2008, while reflecting these recommendations, also sought to develop a sustainable framework for optimum utilisation of mineral resources for industrial growth and for improving the life of people living in the mining areas.

Accordingly, the Ministry of Mines in the second United Progressive Alliance (UPA) government, which was formed in 2009, initiated an exercise to prepare a new mining law in consultation with all stakeholders, including State governments, industries, Ministries/departments concerned of the Central government and civil rights groups and non-governmental organisations. It drafted the new Act and consulted all stakeholders in seven rounds of meetings and a two-day workshop. Subsequently, the Ministry uploaded on its website, six progressively modified drafts, the latest of which was on June 3.

From micromanagement to good governance, is how a background note prepared by the Ministry put it. The proposed Act makes significant departures from the existing Act in areas that were seen as instances of micromanagement.

Prior approval clause

First and foremost is the Ministry's decision to give up its prior approval power in grant of concessions for minerals in Part C of the First Schedule. In the proposed Act, Part C includes 74 major minerals, while Part A includes coal and lignite and Part B atomic minerals. Part C of the First Schedule of the existing Act includes only 10 metallic and non-metallic minerals.

The existing Act requires that a State government has prior consultation with the Central government before undertaking fresh reconnaissance, prospecting or mining operations with respect to any mineral specified in the First Schedule in any area within the State. Similarly, a State government cannot grant a reconnaissance permit, prospecting licence or mining lease to any person in respect of any mineral specified in the First Schedule without the previous approval of the Central government.

However, the Act permits State governments to authorise the renewal of a mining lease in respect of minerals in Part C for a further period of 20 years beyond the first renewal for 20 years without the previous approval of the Central government. It also enables State governments to renew prospecting licences in respect of Part C minerals after the initially granted period of three to five years without such approval. These dilutions in the existing Act convinced the government of the irrelevance of prior approval.

The background note, therefore, states that the question of prior approval does not arise until a case is recommended by the State government, and that it does not address delays by the State government. Prior approval does not give the Centre the power to recommend concessions in favour of a person other than the one recommended by the State government, neither is it a mere Central government stamp for the action of State governments. The Ministry of Mines also feels that the prior approval process erodes the power of revision by making the Central government a party to the original decision and to all possible litigation as a result of that.

National mining tribunal

The proposed Act envisages the setting up of a national mining tribunal, which can check independently decisions as also indecision and delays. It gives more teeth to the Indian Bureau of Mines to regulate the mining plan and mine closure and empowers the Central government to enforce disclosure through databases and websites.

The proposed Act seeks to ensure transparency by assuring the first applicant for a reconnaissance permit of a mining lease as well. The existing Act does not give such assurance, and this, according to the Ministry, is a source of great inhibition for FDI in exploration.

The Chhattisgarh government has sought powers to override the principle of first-in-time even where a prospector has found minerals. The Ministry of Mines, however, has rejected this, saying that notifying an area after applications have been made will destroy investor confidence. Secondly, the Ministry says royalty is the principal method of revenue sharing and as the State regulatory mechanisms develop, a profit-based royalty system can be introduced. The draft Bill allows the setting up of a national mineral royalty commission with State governments as members, for progressive solutions for revenue-sharing through royalty.

However, in known areas of mineralisation, the proposed Act aims to maximise returns to the State by awarding the mining lease to applicants through auction. In the proposed Act, the detailed procedure for assigning weightage in criteria for competitive bidding is to be found in the rules.

The proposed Act provides for stringent measures to prevent illegal mining. It empowers State governments to detect, prevent and prosecute cases of illegal mining, set up special courts to try such cases and declare those convicted as ineligible for grant of mining concessions. It enables the Central government to direct the determination of mining lease on the basis of investigations by the Central government.

One of the consistent demands of the steel industry has been the reservation of mineral-bearing areas for public sector undertakings. The proposed Act rejects this demand, consistent with the Hoda Committee's recommendation that reservation goes against the principles of providing a level playing field. According to the Ministry, reservation will encourage the blocking of large mineral-bearing areas for long periods and promote the back-door entry of operators in these areas through poorly regulated joint ventures.

Therefore, in order to meet partly the steel industry's demand, the draft Bill provides for giving techno-economic weightage for PSUs and existing industries whose captive capacity is likely to be exhausted, and for any intended use for providing long-term linkages with domestic industries.

According to the Ministry's background note, the governments of Himachal Pradesh, Kerala, Uttarakhand, Punjab and Rajasthan and small miners have opposed fixing a minimum area for grant of mining lease for minor minerals and have sought the minimum area for major minerals to be fixed at four hectares. In the opinion of the Ministry, however, a minimum size of lease is necessary for viable, sustainable and scientific mining. The draft Bill provides for small deposits to be mined as a cluster, with a cooperative approach.

Rather than the regulatory aspect, it is the social content of the draft Bill that has appealed to large sections of stakeholders, including landlosers. The draft Bill guarantees assured annuity to the local population as a percentage of profits (26 per cent) earned by the miner, resettlement and rehabilitation of the local population through employment and skill enhancement, compulsory consultation with gram sabha/district panchayats in tribal areas before notification of the area for grant of concessions, and preference to tribal cooperatives in the grant of concessions over small deposits.

The draft Bill's emphasis on sustainable development is another salient feature in it. The Hoda Committee held that mining should be done with least damage to natural resources such as air, water, soil, biomass, and also to human community and life forms. The draft Bill, for instance, provides for mine closure during mining, and on closure, restoration of mining land to cultivability. Sections 45 to 48 of the draft Bill carry various provisions to enforce the principles of sustainable development and conservation of minerals.

Whereas the existing Act only provides a mechanism for licensing, the draft Bill aims to deal with the development of mining and the areas around mines. While the Ministry of Mines braces for resistance to the draft Bill in Parliament, the tougher task will be to satisfy all stakeholders, many of whom still nurse misgivings.

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