Page 8 - Why we need a New Mineral Exploration Policy for National Mineral Security?
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Discussion Paper
including that of a level-playing field, as well as the the revenue from the alienation of a public resource
true competitiveness of their bid for a revenue share in favour of a private party. Price discovery through
which is the basis of their selection. The possibility auctions has been incorporated into the law both to
that they may not share all the data in order to enjoy reduce arbitrariness (and provide equal opportunity
an advantage cannot be discounted. as provided in Article 14 of the Constitution) and to
enable a transparent price discovery. However, as
As already stated, the annual accrual into the National the Supreme Court in its Opinion dated September
Mineral Exploration Trust is of the order of `600 27, 2012, on a Reference by the President of India has
crore ($100 million); a significant proportion will be stated, (Special Reference No.1 of 2012 under Article
reserved for bringing prospects to G3 or G2 level 143(1) of the Constitution of India), auction is not the
through the GSI, Central Mine Planning and Design only way of discharging a public trust while alienating
Institute (CMPDI), MECL, and State Directorates of natural resources. As the Court has stated: “Therefore,
Mining and Geology. Capacity building of the States in conclusion, the submission that the mandate of Article
will also need to be undertaken out of Trust funds 14 is that any disposal of a natural resource for commercial
as mentioned in paragraph 15.1 of the NMEP. The use must be for revenue maximization, and thus by auction,
amount available to fund private exploration from is based neither on law nor on logic…. besides legal logic,
the Trust funds for exploration under the NMEP mandatory auction may be contrary to economic logic as
is, therefore, likely to be limited. Thus, though the well. Different resources may require different treatment.
NMEP in paragraph 11.2 advocates the development Very often, exploration and exploitation contracts are
of a mechanism by IBM to periodically fix national bundled together due to the requirement of heavy capital
priorities for exploration, it is difficult to see a in the discovery of natural resources. A concern would risk
major expansion in exploration for deep-seated undertaking such exploration and incur heavy costs only
and concealed mineral deposits or for identified if it was assured utilization of the resource discovered; a
strategic or other minerals identified on the basis of prudent business venture, would not like to incur the high
a prioritization process. costs involved in exploration activities and then compete for
that resource in an open auction.”
As the mining sector takes off, the country will need more
and more mining engineers, geologists, geophysicists, As has been brought out in this Paper, and in fact
geochemists, and geo-informatists. A comprehensive anticipated by the Court as is evident from the extract
review of the sector’s manpower was undertaken above, auctions have resulted in the potential for
through a study by the Confederation of Indian Industry exploration investments being seriously impacted.
(CII) in 2011 in the form of The Skill Mapping Report While it may be argued that auctions at least enable
commissioned for the Ministry of Mines. Based on independent and fair price discovery, the fact is that
that, the strategy paper for the Ministry of Mines titled till exploration processes become transparent in their
“Unlocking the Potential of the Indian Minerals Sector”, own right, the valuation for auction purposes will always
has estimated that in the period up to 2025, there will be subjective and prone to error, and as such the price
be a need to produce some 3,000 geoscientists and discovery may be seriously flawed, with the “winners
40,000 mining engineers over and above the normal supply. curse” on the one hand and the “windfall profit” on the
The MMDR Act’s current emphasis on exploration other becoming the Scylla and Charybdis of the sector.
predominantly by government agencies adds to the
urgency of ensuring the availability of appropriate human Currently Rule 9 of the Mineral (Auction) Rules 2015
resources in a sector where experience is as important refers to “mineral resources” as a bidding parameter
as expertise. and to the Geological Report as the information base
for bidding for mining leases, and Rule 17 has a similar
Transparency in exploration provision with respect to bidding for prospecting
(composite) licences. The framework for estimation of
The amendments made in the MMDR Act in 2015 were the mineral resources for bidding for mining stage and
mainly actuated by the desire to reduce undue discretion prospecting (composite) stage are given in the Minerals
and arbitrariness in the allocation of concessions which (Evidence of Mineral Contents) Rules 2015 and is called
are a source of potential corruption and to increase the UNFC Framework (see box).
8 JUNE 2017
including that of a level-playing field, as well as the the revenue from the alienation of a public resource
true competitiveness of their bid for a revenue share in favour of a private party. Price discovery through
which is the basis of their selection. The possibility auctions has been incorporated into the law both to
that they may not share all the data in order to enjoy reduce arbitrariness (and provide equal opportunity
an advantage cannot be discounted. as provided in Article 14 of the Constitution) and to
enable a transparent price discovery. However, as
As already stated, the annual accrual into the National the Supreme Court in its Opinion dated September
Mineral Exploration Trust is of the order of `600 27, 2012, on a Reference by the President of India has
crore ($100 million); a significant proportion will be stated, (Special Reference No.1 of 2012 under Article
reserved for bringing prospects to G3 or G2 level 143(1) of the Constitution of India), auction is not the
through the GSI, Central Mine Planning and Design only way of discharging a public trust while alienating
Institute (CMPDI), MECL, and State Directorates of natural resources. As the Court has stated: “Therefore,
Mining and Geology. Capacity building of the States in conclusion, the submission that the mandate of Article
will also need to be undertaken out of Trust funds 14 is that any disposal of a natural resource for commercial
as mentioned in paragraph 15.1 of the NMEP. The use must be for revenue maximization, and thus by auction,
amount available to fund private exploration from is based neither on law nor on logic…. besides legal logic,
the Trust funds for exploration under the NMEP mandatory auction may be contrary to economic logic as
is, therefore, likely to be limited. Thus, though the well. Different resources may require different treatment.
NMEP in paragraph 11.2 advocates the development Very often, exploration and exploitation contracts are
of a mechanism by IBM to periodically fix national bundled together due to the requirement of heavy capital
priorities for exploration, it is difficult to see a in the discovery of natural resources. A concern would risk
major expansion in exploration for deep-seated undertaking such exploration and incur heavy costs only
and concealed mineral deposits or for identified if it was assured utilization of the resource discovered; a
strategic or other minerals identified on the basis of prudent business venture, would not like to incur the high
a prioritization process. costs involved in exploration activities and then compete for
that resource in an open auction.”
As the mining sector takes off, the country will need more
and more mining engineers, geologists, geophysicists, As has been brought out in this Paper, and in fact
geochemists, and geo-informatists. A comprehensive anticipated by the Court as is evident from the extract
review of the sector’s manpower was undertaken above, auctions have resulted in the potential for
through a study by the Confederation of Indian Industry exploration investments being seriously impacted.
(CII) in 2011 in the form of The Skill Mapping Report While it may be argued that auctions at least enable
commissioned for the Ministry of Mines. Based on independent and fair price discovery, the fact is that
that, the strategy paper for the Ministry of Mines titled till exploration processes become transparent in their
“Unlocking the Potential of the Indian Minerals Sector”, own right, the valuation for auction purposes will always
has estimated that in the period up to 2025, there will be subjective and prone to error, and as such the price
be a need to produce some 3,000 geoscientists and discovery may be seriously flawed, with the “winners
40,000 mining engineers over and above the normal supply. curse” on the one hand and the “windfall profit” on the
The MMDR Act’s current emphasis on exploration other becoming the Scylla and Charybdis of the sector.
predominantly by government agencies adds to the
urgency of ensuring the availability of appropriate human Currently Rule 9 of the Mineral (Auction) Rules 2015
resources in a sector where experience is as important refers to “mineral resources” as a bidding parameter
as expertise. and to the Geological Report as the information base
for bidding for mining leases, and Rule 17 has a similar
Transparency in exploration provision with respect to bidding for prospecting
(composite) licences. The framework for estimation of
The amendments made in the MMDR Act in 2015 were the mineral resources for bidding for mining stage and
mainly actuated by the desire to reduce undue discretion prospecting (composite) stage are given in the Minerals
and arbitrariness in the allocation of concessions which (Evidence of Mineral Contents) Rules 2015 and is called
are a source of potential corruption and to increase the UNFC Framework (see box).
8 JUNE 2017
