India: Jharkhand follows Odisha in opposing proposed national mineral index

The Jharkhand government has expressed disagreement with the proposal for introducing a National Mineral Index (NMI) floated by the Union Ministry of Mines (MoM) in its note on proposed reforms in the minerals sector issued on 7th Aug'20.

No to NMI

In response to the MoM's invitation for feedback on the reforms proposals, the Jharkhand government, in its letter dated 9th Sept'20, stated: "We do not agree with the introduction of NMI and we recommend that the existing regime of IBM (Indian Bureau of Mines) Average Sale Price should be maintained."

SteelMint has a copy of the letter that further observes: "In the mineral industry there are a number of captive mines and transfer price between the captive mine and the plant shall not be calculated in national mineral index. Similarly, mines that have a long-term supply contract with customers that are plants of the sister or associate companies of the mines shall not be included."

Although the introduction of NMI wouldn't clog the state government's revenue stream generated through royalty and premium, the letter stated that in the absence of a draft methodology on NMI the state government is unable to come up with a precise response.
It bears recall that the government of Odisha, another mineral-rich state like Jharkhand, had earlier expressed reservations about introduction of NMI as factoring in "captive sales and Non-Arm's-Length sales prices" of minerals could "substantially lower the average sale price, auction premium, etc." and have an adverse impact on the revenues of the state government.

Removing 'end-user restriction'

However, the Jharkhand government has welcomed the MoM's proposal to settle legacy issues in the sector and remove the distinction between captive and non-captive mines for future auctions. Doing away with the "end-use restriction" would optimise mining output and raise the auction premium as end-use restriction usually "distorts the auction process" resulting in "suboptimal premiums", the letter states.

The letter notes that the MoM's proposal to scrap the right of first refusal for captive miners will not just increase participation in auctions for those mineral blocks but captive producers should also be willing to participate in auctions of the blocks they have mined for long and that are still of interest to them.

For captive miners suboptimal grade of ore produced is a liability as neither can they use such material due to the design restrictions of their furnaces nor can they sell it in the merchant market due to legal restrictions.

However, the MoM's provision for raising the ceiling of commercial sale of extracted ore by captive players from the current 25% to 50% is redundant, according to the Jharkhand government, as the captive/non-captive distinction will cease to remain.

Reallocation to pump up production

Expressing support to the MoM's proposal to rev up mining output by vesting back to the government the inoperative mines of private companies that haven't commenced operations within three years, the letter argues that the MoM should also reallocate to the state governments virgin areas allocated to PSUs where production is yet to commence instead of just the vague promise to "review" such a proposal.

Likewise, the MoM's proposal to issue "seamless prospecting-cum-mining licenses" to companies and involve private participation in exploring partially explored blocks of G4 (United Nations Framework Classification) or equivalent level were welcomed by the government with the rider that the rights of auctioning such blocks should be vested with the concerned state governments.

Similarly, funding from the National Mineral Exploration Trust (NMET) for such activities could boost private participation in exploration and thereby usher in advanced technology and know-how, the letter states.

Stamp Duty Debate

However, like Odisha, the Jharkhand government too has opposed the MoM's proposal as regards stamp duty rationalisation. The proposed reform is outside the ambit of the MMDR Act, 1957, the letter asserts, adding that stamp duty includes both duty on land and the mineral resources underneath it and any attempt to tinker with it amounts to compromising the state's right to collect taxes and thereby the country's federal structure.
In view of the long-term implications of the proposed reforms and its socio-economic bearing on the mineral-rich eastern states, the Jharkhand government has urged the Union Mines Ministry to consult the state government before formulating a draft proposal to reform certain portions of the MMDR Act.

~ By Nirmalya Deb