An Appraisal of the Mineral Laws Amendment, 2020
Authors: Ketan Jain & Akanksha Vashistha
The Government of India has recently introduced Mineral Laws (Amendment) Act, 2020 and has also recommended certain policy changes for the coal mining industry as part of its COVID-19 relief measures. In this blog post we undertake an appraisal of these changes which are bound to shake-up the coal mining sector of our country. Background
The Government of India, via a series of revolutionary policy and legislative measures over the past few months, has sought to rejuvenate the coal mining sector. The changes seek to liberalize the industry and allow for greater participation of the private sector. The industry, which was dealt a huge blow when the ‘Coalgate’ scam was brought to light nearing the end of the UPA administration in 2014, had been left crippled for the past few years. At the time, almost all ongoing coal mining leases were cancelled by the Supreme Court. The government had since then followed a policy of maintaining a virtual monopoly over coal mining and has sub-contracted to the private sector only on a ‘fixed rupee per tonne’ basis.
Since then however, the country’s coal mining sector has stagnated and imports have risen sharply. In 2014 alone, a twenty five percent increase in coal imports was witnessed over the previous year levels. These import levels continue to rise; for which industry experts primarily blame Coal India Limited and its inefficient management. As per 2020 data of the Ministry of Power, thermal power generated from coal still accounts for 54.2% of the electricity requirement of the country. Coal is therefore seen to be an incredibly important strategic resource for the Indian economy. The changes have primarily been brought in with the intended purpose of decreasing reliance on such imports, in accordance with the Centre’s Atma Nirbhar Bharat Abhiyan (‘Self-reliant India Scheme’). Another reason cited for the shakeup is the fact that Coal India Limited is reported to be under severe stress owing to working capital dues of nearly INR seventeen-thousand crores. The government has hailed the amendments as part of its ambitious plan to enhance ease of doing business in our country. The changes have also been met with great approval from industry and the media alike. However, a largely ignored aspect is the fact that these changes come following intense lobbying by private industry groups like the Federation of Indian Mineral Industries (FIMI) which represents most major domestic mining companies. It is a well-known fact that the industry body has had the government’s ear for a long-time and has had earlier blocked the introduction of a ‘national coal index’ which would have allowed for foreign investment in the industry, jeopardizing the position of the domestic producers that FIMI represents. The measures being adopted in the present form are seemingly a compromise that has been struck between the government and domestic producers to protect them from foreign competition while allowing for privatization at the same time. Thereby at this juncture, it needs to be asked whether the changes introduced have the potential of increasing efficiency and doing away with the much dreaded red-tape that has become a part and parcel of operating in the sector; or are they just another in a series of legislative measures with corporatist sub-text which are fast becoming the norm in India?
Firstly, on the legislative front, the Mineral Laws (Amendment) Act, 2020 (‘the Amendment’) was passed by the Parliament in March following the January, 2020 ordinance. The Act amends both the Mines and Minerals (Development and regulations) Act, 1957 (‘MMDR Act’) and the Coal Mines (Special Provisions) Act, 2015 (‘CMSP Act’). One of the major changes introduced is the removal of end-use restrictions for coal and lignite mines. Such has been done through the amendment of Section 11A of the MMDR Act and the omission of Section 4(3) of the CMSP Act, respectively. The newly amended Section 11A allows for leaseholders to use their mined product “for own consumption, sale or for any other purpose as may be determined by the Central Government”.Additionally, the amended Section 11A of the MMDR Act allows any corporate entity to bid for allocation of coal and lignite mining leases which earlier was only open to certain entities with experience in specific end-uses. The omission of Section 4(3) of the CMSP will remove similar conditions, earlier essential for bidding in auctions for mines with minerals specified under Schedules II and III. However, the central government may still in consonance with Section 7 of the CMSP Act, ear-mark certain mines for specific end-uses.
Another major change instituted is the introduction of a ‘prospecting-cum-mining’ license. Sections 11 and 11A of the MMDR Act have been amended to reflect this change in law. Such a license would potentially allow the license holder to undertake prospecting activities as well as mining activities on a piece of land that has been auctioned to it under the same license, obviating the need to pass through repetitive bureaucratic hurdles. Another notable change in this regard is that of non-exclusive reconnaissance permit holders, who earlier had no claim to a prospecting permit or mining lease under Section 10C of MMDR Act. Following the amendment, they have been allowed to apply for such licenses provided they meet the “prescribed level of exploration in respect of deep seated minerals or such minerals as may be notified by the Central Government”. The changes aim to remove the rather prevalent bureaucratic inefficiencies in the mining industry.
Further, on the policy front, the Ministry of Finance has stated that it will put up for auction five-hundred distinct coal blocs in the coming years, of which fifty are to be auctioned off immediately. It has also promised rationalization of stamp duties at the time of award of leases. Most of these changes are need of the hour as the country goes through a period of record increase in coal imports and is yet to feel the carry-over effects of the COVID-19 lockdown which will affect the economy for years to come. State-specific lockdowns and social distancing measures have led to coal mines in states like Orissa being shut down for considerable periods leading to lowering efficiency. All the while, demand for electricity in the country (generation of which is the primarily end use for coal) has sharply fallen – 21% within ten days in March alone. Further, the foreign exchange spot price of coal has also dropped by up to twenty-five percent in certain countries. To cope with this lower demand and cheapening of foreign coal imports, the sector is in urgent need of increased efficiency and tightening of operations. In light of these impending circumstances, these changes insofar as they allow for higher efficiency in production will certainly be a positive influence for the industry. The results are yet to be seen, but stakeholders are hopeful and have welcomed the amendments. Problem Areas
As much as the mentioned developments have the potential of benefiting the sector, certain other provisions of the newly passed Act also bring in changes which may be cause for concern and might bring the ultimate objective into question. These changes have the propensity of invalidating much of the mentioned positive changes. In its zeal for allowing ‘ease of doing business’ in the sector, the legislature seems to also have whittled away some of the protections that are given to communities in mining areas. A primary example is the introduction of Section 8B and the insertion of a proviso to sub-section 4 of Section 8A of the MMDR Act. These clauses allow the government to auction leases for blocs which are about to expire, and grant statutory clearance to the allottees to continue mining activities for the first two years without obtaining the requisite clearances (on the basis of licenses granted to the earlier lessee). Such changes will effectively allow leaseholders to carry on mining activities initially for a period of two years without complying with clearances which are required as on the date of commencement of lease.
Mining is a commercial activity of great public character. Mining conducted callously can lead to destruction of ecosystems, communities and can lead to exploitation of those who live in the mining belt, who are predominantly adivasis. For this purpose, clearance mechanisms have been erected. Diluting these requirements may have dangerous consequences.
On a similar note, Section 4B has also been introduced to the MMDR Act. This section carves out an exception for these newly auctioned units to Section 4A, which gives authority to the State governments to cancel mining leases for preservation of environment, reduction of pollution, floods, etc. The government has deemed the changes as being necessary for continuity of operations and efficiency. Hitherto, the State government had the primary authority to terminate leases under Section 4A of the MMDR Act. The Central government could only have cancelled leases with the consultation of the State government and that too on limited grounds. These changes concentrate a great amount of power with the Centre, while the earlier scheme of the Act tries to balance powers between the states and the Centre, potentially to create checks and balances. Vesting greater powers in a branch of government always has the potential of it acting arbitrarily. The same is especially concerning when much of the turmoil which led to introduction of the amendments is a result of rampant corruption and arbitrariness in the sector. These changes pose of risk of bringing us back to the same conditions which culminated in the ‘Coalgate’ scam, in turn hemorrhaging the sector instead of improving it.
It is in this light that the introduced amendments must be analysed. Positive reactions from the press and the industry do not tell the full story, as they are bound to have inherent biases. How these changes play out in reality, however, remains to be seen. That being said, as far as the big picture goes, the developments are certainly positive and will no doubt bring in some much-needed private investment into the sector. Though the question remains, at what cost? [The authors are students of Law at the West Bengal National University of Juridical Sciences (NUJS), Kolkata and members of the Centre for Research and Studies in Land, Mineral and Real Estate Laws, NUJS.]
Notes and References
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