Captive mines may get to sell 50% output in open market
3 min read . Updated: 04 Nov 2022, 12:53 AM IST
Premium- Proposed amendment further blurs the distinction between captive and commercial mines
NEW DELHI : Captive mines producing major minerals may soon be allowed to sell half their output in the open market, two people aware of the development said, outlining a striking departure from norms.
According to one of the persons, the proposed change is aimed at incentivizing captive mines to increase mineral production, in turn boosting manufacturing and job creation. It essentially allows captive miners to turn commercial miners for half their production.
Currently, captive mine operators can sell 50% of the annual output from their mines but only after meeting the entire needs of the end-use plant for which a mineral block was originally allocated by the government.
But this reform, which was introduced as legislation last year, is thought to disincentivize miners from raising mineral production. Any disruption in end-use plants—such as power, steel and cement plants—leads to unused mineral stocks, which would not be permitted to be sold. In fact, the previous amendment failed to lead to an increase in production and the end-use clause was seen as an impedinment.
“The phrase ‘after meeting the requirement of end-use plant linked with the mine’ in the Mines and Minerals Development and Regulation (MMDR) Amendment Act, 2021 is being removed in the new Amendment to MMDR Act, 1957 that would come up for approval during the winter session of Parliament," the person quoted above said. Queries sent to the ministry of mines and minerals remained unanswered at press time.
The reform is expected to speed up production from mineral blocks and aid industrial production. Growth of production by the mining sector has been flat for the last several years as is indicated by the Index of Industrial Production (IIP). The government now expects captive mines to play a major role in stepping up mineral production. In the coal sector, production from captive mines is targeted to increase from just about 85 million tonne (MT) in FY22 to over 138 MT in FY23. Permission for unrestricted market sale from captive mines may lead to faster development and production from idle blocks. “Unrestricted market sale of minerals from captive blocks will be a big reform initiative that would help in raising production of key minerals in the country. Restrictions in place currently disincentivize production in the event of a shutdown of end-use plant or any other disruption, including fall in demand for end-product," said a top executive of a private sector steel maker who did not wish to be named.
The government amended the MMDR Act last year giving permission for open market sale of 50% of annual production from captive mines with restrictions and after payment of additional amount to state governments as royalty. But the restriction proved counterproductive and mining companies asked the government to remove the clause. The government sees expansion of mining as key to promoting manufacturing and creating more jobs. Endowed with a big mineral resource base, the changes in law are now aimed facilitating investment from the private sector.
Apart from captive mines, the government is also auctioning commercial mines now to quickly expand the sector. Changes in MMDR Act will further blur the line between captive and commercial mines, allowing universal auction of mineral resources at competitive bids.
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Major companies with captive mines include Hindalco, Balco, Jindal, JSW, Adani, GMR, Essar, ArcelorMittal, NTPC and SAIL. Other than coal, captive mines produce minerals such as iron ore, bauxite, limestone, copper, potash, lead and zinc.
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