By Nilmadhab Mohanty*

It seems our legislators are more interested in making laws than making them work. Or else, how do you explain the recent efforts to make and amend laws that soon appear unworkable?

A few days back we saw the strange spectacle in the nation’s Parliament of the members of the ruling Bharatiya Janata Party (BJP) trying to amend the new land acquisition law whose passage in the legislature they themselves had supported with much gusto and fervour. In about a year after its passage, even before it could be implemented on the ground, they started arguing that the new law or at least some of its crucial provisions were not workable at all.

As if this embarrassment was not enough, the ruling party moved heaven and earth during the recent session of the Parliament to steam roll, among others, its Mines and Minerals (Development and Regulation) Bill 2015 into law, hustling the Rajya Sabha Select Committee on the subject to submit its report in a week and by dangling the carrot of higher resources allocation to the states to win over the regional parties in the upper house.

While some of the provisions are no doubt welcome, two of the core provisions of the amending mining law are flawed and bound to create implementation nightmares.

One is the provision to grant prospecting license (PL)-cum-mining lease (ML) through auction. This proposal no doubt, is a direct consequence of the Supreme Court’s judgment in the 2G case where the Court observed that the state was “duty-bound to adopt the method of auction” while allocating natural resources. It would have been more appropriate to have explained to the Court the difficulties inherent in this approach.

Firstly, one participates in the auction of a property when its value can be estimated, not for exploring a mineral where the extent and value of the deposits lying underground are yet to be ascertained.

Then there are inherent uncertainties associated with the discovery and exploitation of mineral deposits and very low success ratio of discovery becoming a profitable mine. Also, mineral exploration requires long-term engagement of professional mining companies (prospectors) involving sophisticated technology and large capital. Sometimes three or four prospectors work in an area before the reserves are proved and someone decides to develop the mine.

In these circumstances, opening mineral resources to auction may prompt speculative (but unprofessional) bidders to pre-empt potential areas and seek to realize maximum profit at the cost of scientific development of mineral deposits and environmental sustainability.

It is for these reasons that no major mining nation uses competitive bidding or auction for allocating mineral resources.

Additionally, in our country most minerals found near the surface and easily extractable—the amending law’s ‘notified’ or bulk minerals like iron ore, manganese and bauxite—have been explored and are now being exploited. The priority in exploration now has to be on base and precious metals—such as copper, zinc, lead, nickel, gold and platinum-group of minerals—lying in difficult terrain and greater depth below the surface. Many of these metals are essential to a range of new and ’green’ technologies, in greater demand world-wide.

The government and semi-government agencies which mostly do exploration (of surface minerals) in India do not have the resources, expertise and advanced technology needed for the purpose. The capital-intensive nature of developing new sites involves great risk which only professional (foreign) companies can undertake; and their exploration is focussed on specific mineral commodities with priorities determined by the price trend of minerals.

The auction method is inappropriate for these companies and their explorations. To claim that their concerns can be overcome by production or revenue sharing is to betray a lack of basic knowledge of the nature of mineral exploration.

The top exploration destinations in the world today have been Latin America, Africa, Australia and even South-east Asia. India is skipped and does not figure in the list because of its governance and policy hassles. Bureaucratic initiative like setting up a National Exploration Trust in order to promote exploration is not likely to improve matters.

In this scenario, it is somewhat fanciful to expect that professional foreign mining companies will come into the country for mineral exploration. After all, even more than two decades after the mining sector was opened for foreign investment no worthwhile foreign company (except Rio Tinto) has come into India; neither has much exploration work been done. In fact, no new mineral deposit has been discovered in our country over the past forty years!

The second provision of the amending law that seems to be the result of some conceptual confusion is the proposal to have government-sponsored District Mineral Fund (DMF) for carrying out development programmes for local communities in the mining areas. The creation of alternate assets in the form of physical and social infrastructure in place of the damaged natural capital (minerals) of the community is the miner’s obligation and not of the government.

But the miner’s responsibility is limited to his project area and its immediate environs, not for the entire district where local development works must be undertaken by public agencies.

A district-approach for pooling miners’ contributions may lead to the diversion of funds for expenditure in non-mining areas of a district and for non-essential projects such as creation of new bureaucratic structures and overheads. Additionally, the usual evils of local bureaucracy, namely, inefficiency, corruption and narrow partisan considerations are likely to bedevil the whole operation.

Besides, government officials rarely visit remote areas where mining enterprises work and have institutional infrastructure to execute development works.

In these circumstances, it would have been more beneficial and effective, if mining enterprises would have been put under a legal obligation to undertake local development works in their respective project areas through partnership arrangements with local communities in the form of “trusts” , “foundations” and
consortium (small mines)as is practised in many mining nations. Their performance could then have been made subject to compulsory government or social audit.

*(The author, a former civil servant, is an Honorary Senior Fellow, at the Institute for Studies in Industrial Development, New Delhi.)