National Mineral Policy Review – A Golden Chance for Change
October 25th, 2017
While illegal mining is worrying, what is little understood is the enormous loot that is taking place legally. Mineral owners sometimes receive less than 5% of the value of minerals.
The three iron ore scams in Karnataka, Goa and Odisha have some things in common. There were widespread and diverse breaches of the constitution, laws, rules and regulations. The environment was badly damaged. The minerals were being exhausted. Enormous corruption was apparent, with both the politicians and the bureaucracy likely involved. In turn, miners became politicians, politicians became miners, and crony capitalism bloomed.
In the Odisha mining case, the Supreme Court has responded in three principal ways:
(a) it has clearly defined what is illegal mining, and clarified that under the mining laws, illegal mining requires the return of the mineral or its full value (as would be the case with theft), and jail terms/fines in addition;
(b) it is considering the formation of an expert committee to examine the myriad ways the laws were breached and to suggest appropriate controls; and
(c) after a discussion on inter-generational equity, it directed the government to revisit its National Mineral Policy, with the aim of making it effective.
While illegal mining is worrying, what is little understood is the enormous loot that is taking place legally. Under the pre-auction regime, we calculated that over an eight-year-period (2004-2012), the iron ore mining in Goa resulted in the receipt by mineral owners of less than 5% of the value of the minerals (after deducting all expenses and a 20% post tax return on assets for the miners). These estimates were made using the audited financials of Sesa Goa and volume statistics from the industry body.
In simple terms, we were legally selling minerals worth Rs 100 for Rs 5. While this many have been legal (hence in the audited financials), any sensible person would see it as fundamentally illegitimate. A rational miner with such a deal would extract as much as possible as quickly as possible and exit. Trees, tigers or tribals stand between the miner and fabulous treasure, and are bulldozed with the full force of the establishment – speed is essential. When they resist, we have conflict and our civil war.
Goa isn’t an aberration. Iron ore mining elsewhere in India, coal, oil and gas, and even sand show similar results. And the results from the recent coal and mineral auctions bear out the enormous losses from the non-auction regime. Rs 335,000 crores is the coal auction premium, Rs. 69,000 crores is the subsidy on coal for power, and Rs 94,000 crores in mineral auctions premia. Rs 5 lakh crores.
This Rs 5 lakh crores, much more than the amount of black money found, has come about solely due to the PILs filed by some brave individuals and NGOs. It is a comment on the state of our democracy that instead of rewarding the petitioners, they are routinely vilified and called anti-national.
The 2015 amendment to the mining laws mandated auctions in future. It also contained a provision that extended all existing leases including many that stopped functioning years earlier. These leases are still on the old royalty only basis. In other words, in these leases, we will sell our minerals to the miners for a fraction of their value for the period of extension. One estimate that the loss on account of this provision in Chattisgarh for iron ore is estimated at Rs. 122,000 crores. One state one mineral!
In Goa, there were approximately 120 leases working prior to the ban. In 2014, the Supreme Court found that all iron ore mining in Goa was illegal for nearly five years. Today, there are 89 leases which have been renewed, over half in the week prior to the ordinance, including 31 on the day of the ordinance. And a further 188 leases have been extended by the ordinance. These are all on the royalty only basis. And nothing has been recovered due to the illegal mining.
It is already apparent that the mineral auctions are failing. The winning bidders are struggling to commence operations. This should be no surprise. Auctions have taken place at significant multiples to the royalty value. TAMRA (Transparency, Auction Monitoring and Resource Augmentation), the app from the mines ministry, informs us that of minerals worth Rs 156,747 crores auctioned, the amounts due under the royalty only regime amounted to Rs 27,439 crores (17.5% of mineral value), and the auction premia amounted to Rs 94,479 crores (60.3% of mineral value).
Again in simple terms, miners with a royalty only lease is paying Rs 17.5 for minerals worth Rs. 100 on the open market, while those with auctions are paying Rs 77.8 for the same mineral. Auctions will be failures as long as the old leases are grandfathered under a lower royalty regime. How can they compete?
The economic consequences are serious. The government will find mineral production hard to increase. It will lay the blame at the door of civil society and the people on the ground. Environmental regulations will be diluted and human rights ignored. All the while, the real issue lies in the enormous incentives for crony capitalism. When the Supreme Court mandated auctions, why were leases extended without auctions?
The review of the National Mineral Policy is a golden chance for a change. Minerals are a shared inheritance, akin to family gold. The foremost objective of our mining laws must be to ensure that we as owners do not suffer any loss when we sell our family gold. We are simply custodians over our inheritance for our children and our future generations. If we suffer a loss, so do our children and all future generations. The thieves are many, and they are often those responsible for safeguarding our common wealth.
Goa Foundation, the petitioner in the Goa mining case, is advocating some key principles be enshrined in the new mineral policy:
(a) treat minerals as our family assets or gold,
(b) conservation of minerals must include conserving the value of the minerals;
(c) mineral development to include zero waste mining;
(d) adopt zero loss mining as an explicit target of the policy;
(e) save all mineral receipts – royalty and auction premium – in Future Generations Funds and distribute the real income from such Funds to all citizens of the state as a commons dividend;
(f) caps on mining extraction on environment protection grounds and to ensure access to minerals (and job opportunities) for future generations;
(g) best-in-class and state of the art controls;
(h) radical transparency;
(i) active local control over mining, and
(j) restructuring the mines ministry at the centre and states to ensure these departments actively work to safeguard our shared family assets represented in these minerals.
Together, we can lay the foundations for a shared prosperity, where inequality is held in check, where corruption is controlled, where governance works, where human rights are safeguarded, where the environment is held in trust for our children. If we fail, our democracy itself is at stake.
The article was first published at The Wire. | Author: Rahul Basu, He is a member of Goa Foundation.