India: Mines Ministry proposes new formula to address double calculation of royalty

In an important recent announcement, the Union Ministry of Mines has proposed to amend relevant sections of the Mines and Minerals (Development & Regulation) Act, 1957 (MMDR Act) to change the calculation methodology of the average sales price (ASP) of minerals to address the problem of 'royalty on royalty' which is imposing additional financial burden on miners.

ASP calculation formula

In a notice issued for public consultation, the ministry proposes to introduce a new section in the MMDR Act with respect to the provision that the ex-mine price of minerals used for ASP calculation "shall exclude GST, export duty, royalty, DMF and NMET and other levies".

A NITI Aayog committee had recommended that royalty is included in the sale value of the mineral and charging royalty and premium on the sale value amounts to double calculation of royalty. So ASP calculation should be made after deduction of royalty, DMF and NMET.

This proposal has been mooted in order to boost participation in mineral auctions in the coming days. The change will be applicable for all the mining leases (ML) auctioned or granted before or after the commencement of the proposed MMDR Amendment Act, for the minerals removed or consumed from the leased area after the commencement of the Act, and adoption of new calculation only for the future dues of existing MLs arising from amendment.

Lease area ceiling

A ministry appointed committee chaired by the GSI and with members from the IBM has suggested that a mineral-wise maximum area limit needs to be in place in the different states, separately for prospecting lease (PL) and ML. This ceiling is being proposed as "disproportionately large mining leases would defeat the present system of auctioning of mineral concessions through fair and transparent mechanism."

The ceiling proposed for iron ore in Odisha in 50 sq km for PL and 20 sq km for ML, while for iron ore mines in other states it is 25 sq km for PL and 10 sq km for ML. Lease area ceilings have been announced for almost all minerals including limestone, bauxite, potash, lead, zinc and diamond.

50% sales for captive miners

Moreover, the ministry has proposed that all captive mines have been given permission to sell up to 50% of their production in the open market with the MMDR Amendment Act, 2021 and the clause "after meeting the requirement of linked plant" should be deleted as "different stakeholders may interpret it differently". These companies are required to pay an additional amount on such sales to respective state governments.

Among the other reform proposals floated by the ministry for stakeholder feedback are dispensing with prior forest clearance (FC) for PLs and the removal of the obligation to seek the Centre's approval by the states before conducting auctions for composite licence (CL).