(The Select Committee of the Rajya Sabha is dealing with the proposed Amendments to the Mines and Minerals Development and Regulation Act, 1957. The Amendments have been issued as an ordinance on 12 January 2015. The MMDR Amendment Bill 2015, which incorporates the provisions of the ordinance, has been passed by the Lok Sabha. This article raises fundamental issues about some of the amendments which enable mining companies to bypass the auction process for the next several decades – which has a huge bearing on the way this country’s natural wealth is being misappropriated.)

Over the past three years, the country has been convulsed by illegal mining reports, documented in multi-volume detail by the efforts of the Justice M B Shah Commission of Inquiry. The Supreme Court has already, in the last two years alone, passed two judgements with far-reaching consequences in the case of mining in Bellary and Goa. Another petition is awaiting final disposal in the case of illegal mining in Odisha.

Side by side, the issue of recovering the full extent of the value of natural resources from private parties to whom they are being assigned has reverberated through the economy in the form of the Supreme Court’s judgements in the 2G scam (dealing with the state’s earnings from sale of spectrum) and the recent judgement dislodging coal block assignments. Both spectrum and coal are natural resources. In both cases, past practice and legal provisions unthinkingly allowed these resources to private players at a pittance. However, auction procedures now installed have together generated from both coal and spectrum auctions some Rs.3 lakh crores and augur well for the future. Those who ridiculed the CAG’s estimates of stolen earnings as “presumptive” losses are desperately hoping the public has its proverbial short memory intact.

Under the Constitution, the States (not the Centre) are the owners of sub-soil minerals. In old language, these are Commons, owned equally by the public, and held by the state as public trustee. The Supreme Court has held that when alienating mineral assets, the State should get the full value of these sub-soil minerals – else, the public is being cheated.

Further, in the 2G Presidential Reference, the Supreme Court declared: “Alienation of natural resources is a policy decision, and the means adopted for the same are thus, executive prerogatives. However, when such a policy decision is not backed by a social or welfare purpose, and precious and scarce natural resources are alienated for commercial pursuits of profit maximizing private entrepreneurs, adoption of means other than those that are competitive and maximize revenue may be arbitrary and face the wrath of Article 14 of the Constitution.”

Though the Government has now accepted the auction route for coal and spectrum, it has, for reasons best known to it, opted for a two-faced proposal for assigning valuable mineral resources like iron, bauxite and manganese ores. Only one category of leases (new grants) will now face the auction route. However, in most other cases, the present Government has opted to continue with the policy of renewing leases and forgoing the possibility of enhanced or maximum earnings, contrary to what it was compelled to do in the case of coal and spectrum. These escape routes are enshrined in the Mines and Minerals Ordinance 2015, now already passed as a bill in the Lok Sabha, where the Government has a brute majority.

The proposed amendments [sub-sections 8A(3), (5), (6) and 10A (2) (b)] all result in the grant of leases, renewals or extensions of existing or even expired mining leases bypassing the auction route. In other words, the companies or lessees privileged by these amendments will continue to get access to the ore, as they did in the past, without charge. Bad habits are being allowed to continue.

For instance, those who have a reconnaissance or prospecting license can claim preferential treatment in obtaining rights to the mining lease thereafter (without auction). Since vast amounts of the country’s recoverable mineral resources are falling in this category, they will escape auctions and will not pay the full price of the ore. If the Select Committee demands the list of licenses issued under this category, it will get a very good idea of who is benefitting directly from this amendment.

In another major instance of malfeasance, the Goa government has approved 88 mining leases most in the days just prior to the notification of the ordinance on 12 January, 2015. This has enabled these leases to bypass auctions and continue with business as usual.

The Odisha government has notified the third renewal of leases belonging to TISCO and OMC Ltd. These are approved by separate orders on 31.5.2014 and 29.5.2014 respectively. Huge resources have been handed over by these arrangements without the real owners, the public, represented by the State, getting the full value.

The MMDR Act 1957 is a colonial piece of legislation passed by independent India. It almost assumes that once a lease is granted, all the ore for all practical purposes belongs to the lease owner. The State, which is the legal owner, gets a royalty per tonne, which is very low. Though the resource is owned by the State, the rate of royalty is set by the Centre. Windfall gains go to the lease owner. But, wait, this is hardly the way we manage the family jewels.

It is useful to consider how Indians deal with their family gold. They will first raise a loan on it, but repay the loan and regain the gold at the earliest opportunity. If they are forced to sell the family jewels, they will buy an alternative durable asset with it, including land, property, or some other asset. Only drunks and gamblers do not follow these norms.

And how is the sale of this asset conducted? The expectation is the sale of the asset must capture 100% of its value. We do not know of any person who is willing to sell the family gold for less than 100% of its value. This is what we call the “capture rate.” But in the case of mineral ore (and till recently, also in the case of coal), we captured less than 5% of the value. International data shows that entire countries achieve capture rates greater than 90%.
Let us provide a specific example from the State of Goa which we know very well.

We examined iron ore mining earnings from the published annual reports of one company – the biggest – for the period (2004-05 till 2011-12) in the state of Goa. We then extrapolated the figures to the other players.

The absolute amounts are indeed staggering. Over the 8 year period, 282 million tons of iron ore assets were exported from Goa. This reduced the collective wealth of the state by Rs. 53,833 crores. In return for the huge decline in common wealth, the state received only Rs. 2,387 crores as royalty! In comparison, total government receipts for that period from all sources were only Rs. 27,402 crores, approximately half of the assets lost.

Rs.2,387 crores is less than 5% of the value of the iron ore extracted and sold! This is not an anomaly. The capture rates calculated from the public sector National Mineral Development Corporation (NDMC) annual reports over 10 years are <8%. The lost value of the assets is many times the income to mining dependents, putting paid to any social or welfare arguments.

In Goa, the net loss of Rs. 51,446 crores worked out to Rs.3.69 lakh for each man, woman or child. Each and every man, woman and child, in Goa, whether rich, poor or in debt, lost assets worth Rs. 40,000, each year, eight years running! This is more than twice the poverty line figure.

The provisions of the new MMDR Amendment 2015 continue this totally ruinous method of dealing with the country’s natural wealth. Sale of ore, like sale of gold, is sale of asset. It is not revenue. Once the asset is sold, it is no longer part of the family jewels.

This is nothing but a second enclosure movement, another instance of cornering of wealth of the public by the rich. Alternatively, one could call it a highly regressive hidden poll tax – where every person had an equal share in the common wealth that was lost.

In April 2014, the Supreme Court ruled that all iron ore leases in the State of Goa were invalid post 2007. It also struck down as illegal mining without valid leases in all other States. This gave the present BJP government a golden opportunity to raise the capture rate to 100% and put all existing (and expired) leases to auction or any better recovery method.

We have calculated thathe value of the iron ore still remaining in the ground in Goa is conservatively worth Rs. 17 lakhs per man, woman and child. A capture rate of <5% of this ore still remaining for extraction would give Rs. 80,000 per person. However, a capture rate of 100% gives Rs. 17 lakh a person, or Rs. 68 lakh a household. This could still be the future scenario for this small State and its population. Current NSSO studies (70th round) show the Average Value of (private) Assets (AVA) in Goa is only Rs. 10.44 lakh a household.

However, as stated earlier, 88 leases in Goa have been renewed at the <5% capture rate. By doing so, the government has doubly rewarded those who illegally mined for nearly 5 years, violated every rule in the book and now get public resources cheap. And it has crippled its own ability to collect the penalties due from illegal mining, conservatively estimated at Rs. 8 lakh per capita. Can this ever be in public interest?

What is said about the implications of the new MMDR Amendment Bill and its provisions for Goa is applicable to all other leases in other mining states. Natural resources represent the largest common wealth of our nation. A mammoth transfer of the wealth reflected in these resources out of the public’s ownership is proposed through the proposed mining amendments, despite Supreme Court’s orders in the spectrum and 2G scam matters. This must be speedily halted either by the Select Committee or Parliament itself.

(Written by Claude Alvares and Rahul Basu of the Goa Foundation)
March 2015