Mineral Auction Rules in India: Latest Amendments

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Recently, the consensus emerged that the Mineral Auction Rules need to be amended to make the process more pragmatic without sacrificing the checks on successful bidders. The Mineral Auction Rules have been amended on 30th November, 2017.

Changes in Mineral Auction Rules and its impact:

1. Under the old rules the process of auction was annulled if there are less than 3 bidders and this process used to be carried out for 3 rounds at least. Only in the 4th round flexibility was allowed. Each round of auction carries on for 3 months at least and this resulted in many blocks getting annulled time and again. While a minimum of 3 bidders is still stipulated in first attempt to auction, in the amended rules now the states have the flexibility of allocating the block in the 2nd round itself even if there are less than 3 bidders. This will make the auction process less cumbersome and will help states auction mineral blocks quickly.

2. Earlier the state used to prescribe end use conditions on miners and it was very rigid. This resulted in inefficient mining as many mines with low grade ore dumps were saddled with this burden as they could neither use it for captive purpose nor could dispose it of. In the amended rules, such miners will be able to dispose of 25% of such dumps, which are not used for captive purposes. This will help progress towards zero waste mining and utilization of minerals even in low-grade ore. This provision holds good only for the mines that would be granted through auction after 30/11/2017 i.e. the date of publication of the amendment rules. Bid values are likely to improve and participation will improve further.

3. The amended rules have also provided adjustment of the upfront premium to be adjusted against the due payments of miner at the earliest. This would increase the liquidity of the mining entities at the most stressed time i.e. when production begins. This will further ease their capacity to carry out the business.

4. A major amendment in the rules has been that the requirement of net worth for the prospective bidders. In practical terms for an average annual production of up to Rs. 2 Crore, the net worth required was Rs. 4 Crore, which is reduced to Rs.0.5 Crore. For an average annual production up to Rs. 20 Crore the net worth required was Rs. 40 Crore which has been reduced to Rs. 10 Crore.

5. For small bidders the value of unencumbered immovable property can also be taken in net worth, thus allowing larger participation.

6. Provisions have been made to discourage squatting on bid out leases.

Expectation from the changed Rules:

In sum, these changes in Auction rules will lead to enhanced participation in the auction process. Further, it is expected that this will also give a fillip to the auction process and will result in more mineral blocks being auctioned successfully. It is expected that by March 2018, 34 blocks will be put through the process of auction.

Government expect additional revenue over lease periods to be Rs. 75,000 Crore during the balance period of the current year. It is expected that bigger effect of these changes will be felt in the year 2018-19, as some of the auctions may spill over from the current year 2017-18. Given below are the blocks in pipeline for the year 2017-18, which will be put to auction after amendment of Auction rules.

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