The Industrial Policy Resolution adopted in 1956 also contained a mineral policy which envisaged grant of mineral concessions on first-come-first-served basis for mineral development.
This policy was reflected in Section 11(2) of Mines and Minerals (Development and Regulations) Act 1957. Since then, mineral concessions like prospecting licences, mining leases and, more recently, reconnaissance permits for exploration and mining of metallic and non-metallic minerals in our country are being granted to applicants on first-come-first-served basis.
The Supreme Court in its verdict on the 2G spectrum scam on February 2 cancelled 122 licences awarded to various companies on that basis. It also held that public trust doctrine warrants that the auction route be the sole method of distribution for all natural resources of the country.
In view of the fact that there are established laws of the land for allocation of natural resources for development, the Union Government on April 2 made a Presidential reference to the apex court, seeking its opinion whether auctions will be mandatory for allocation of all natural resources, including metallic and non-metallic minerals.
In the meantime, the Government of Odisha decided on July 26 not to recommend any mineral-concession application to the Centre for grant, pending clarification from the apex court on the modality of allocation of natural resources in the Presidential reference.
APEX COURT RETHINK
The State Government has also withheld execution of some mining leases for coal, pending a decision of the apex court. Odisha in 2011, while commenting on the Mines and Minerals Amendment Bill 2011, also advised the Centre for the enforcement of the auction route for grant of mineral concessions, instead of the first-come-first-served basis, on the plea that this will provide revenue to the State. There has been rethinking by the Supreme Court on the policy of auction for distribution of natural resources. In a verdict on 2G spectrum scam, the Constitution bench of the Supreme Court on July 10 upheld the cancellation of 2G spectrum licences, but agreed to examine the reservation of the Centre on allocation of all natural resources through auctions.
Similarly on August 1, on the 2G spectrum scam, the Supreme Court observed that the first-come-first-served policy was fine, but its application was flawed in the allotment of 2G spectrum licences in 2008.
Therefore, it is not certain whether the policy of auction route for allocation of mineral resources will be adopted by the Supreme Court.
PROBLEMS AHEAD
It will not be smooth on the part of the Centre and the State to enforce this policy in the near future, due to the following reasons. First, the Centre has to convert this policy to law by way of amending Section 11(2) of the 1957 Act, which is time-consuming. For example, the amendment of the Act to introduce auctions for allotment of coal blocks was initiated in 2004, but the Government has not yet finalised its modus operandi . Secondly, the State Government has to mobilise its resources to undertake detailed exploration of non-captive free mineralised deposits with a view to assessing its reserve and grade vested in the area to be auctioned.
That apart, the reserve price of a mining-lease area does not solely depend upon its reserves and grade of minerals. It also largely depends upon the cost-intensive proposal of diversion of forest land, acquisition of revenue land, reclamation and rehabilitation of displaced persons, and conservation of environment, and clearance of wildlife management plan, without which the State cannot arrive at its reserve price to facilitate auction. Thirdly, the State Government has to prepare a due diligence report on each mining-lease area to be auctioned by a renowned independent agency acceptable to the bidders. The completion of these processes on a crash-programme basis will take at least a decade for the State to initiate action for auctioning mining leases, which will no doubt retard the growth of mineral industry.
Fourthly, the past experiences of the State Government for allocating mining leases by competitive bidding have not been encouraging. In 1991, Odisha suddenly realised that mining gemstones by the State-owned Orissa Mining Corporation was not remunerative and decided to auction gem-rich blocks by competitive bidding through Orissa Mining Corporation.
The State Government identified 12 such blocks for aquamarine and sapphire in Bolangir and Kalahandi districts for a reserve price of Rs 20 lakh. Out of 12, the State Government could auction only five blocks for Rs 22 lakh, but these leased-out areas could not be worked subsequently to fetch more revenue for the State Government. Taking cue from Odisha, Andhra Pradesh identified seven blocks of gemstone for auction at a reserve price of Rs 35 lakh, which fetched the State Rs 5 crore on auction, but more than a decade has passed, and the leases have not been mined yet. Therefore, it is evident that mechanism of auction is not conducive to mineral development and revenue-earning for the State.
HIDDEN COSTS
Fifthly, the Supreme Court in its order of February 2 observed that while allocating natural resources through auctions, the doctrine of public interest within the framework of the Constitutional rights of the people has to be adhered to, which is not possible if the country adopts the auction route for allocation of mineral resources. For example, if we auction fish resources of the Bay of Bengal, the Japanese trawler companies may bid the highest price, but the livelihood of the east-coast fishermen will be in jeopardy. Similarly, when auctioning mining blocks for minerals, multinational companies may bid the highest, but the mining lease may not be feasible for work in areas such as the Nyamagiri Bauxite Mining project of Odisha in the midst of conflicting interests. The CAG report on August 1 suggests allocation of coal blocks to private sector companies for generation of power through competitive bidding, which may bring substantial revenue to the exchequer and transparency in the system, but eventually shall transfer the cost of auction to the consumers. This contradicts the doctrine of public interest.
The auction route is not the best alternative to a first-come-first-served approach. The Centre has tried to make mining more people-centric and brought the M&M (D&R) Amendment Bill, 2011, in Parliament. This is in consonance with the doctrine of public interest. The Bill awaits the clearance of the Parliamentary Standing Committee.
(The author is former General Manager (Geology), Orissa Mining Corporation Ltd, Bhubaneswar.)