The Union Cabinet has approved changes to the Mines and Minerals Act. The proposed changes were to make auction the preferred mode to sell important minerals.
Discussing the development, RK Goyal, Managing Director of Kalyani Steel, said the Ordinance brings level-playing field for domestic steel companies, and is very positive for the sector.
He feels managing efficiencies will now determine profitability and that the captive miners had a clear advantage earlier. He however does not think this will lead to cartelisation as most mines would be auctioned. He also added that the company has no issue in sharing royalty with people where mine is located. GD Mundra, Director, Sarda Energy & Minerals, feels controversial issues in the mining sector would be removed through the Ordinance and it would help in bringing more transparency. Besides, the changes in the MMDR Act can help in reducing time that mines remain idle. “Mines that will be put for auction will be ready to run,” he said.
Below is the transcript of RK Goyal and GD Mundra's interview with Reema Tendulkar and Sonia Shenoy on CNBC-TV18.Sonia: How much of a positive is it for steel players like yourself, the fact that finally there will be assured captive supply of raw materials like iron ore, etc and for the industry as a whole how much of a positive is it you think? Goyal: It is a great ordinance. For the first time in steel industry there will be level-playing field. Till now there are few companies which have captive iron ore and others would not have. However, at the same time they have to compete in the market with the same customers. So, it is a great event where eventually the cost of inputs will be same for everybody and whatever is the differential will go down and it will be the hardcore manufacturing efficiencies or business acumen which will bring profit or loss to the company.All the mines which I understand will come for auction which are pending for renewal as of now or even if they are recommended and the lease date is not executed they will come for auction. For the captive buying, what I understand it will continue for 15 years. However, I understand it is to be divided into two companies, one is the mining company and another is the manufacturing company. I am sure the direction in which government of India is working they may like to have some differential royalty on the mining part of the business so that the differential in the cost of the iron ore for captive mine owners and people who do not have mines will be minimal.
Reema: How do you think the biding for the auctions will be done because what will be the benchmark rates that we will work with? In the case of coal it was easier because you had a Coal India notified price but how will it be for other minerals and how can one value these mines? Mundra: I think we will have to wait for this draft of the ordinance as well as the ruled framed there under. However, one thing is good that this will remove all the controversies which mining sector so far has and those controversies had to be resorted to by the judicious intervention. The Supreme Court had to cancel all the coal mine allocation, they had to regulate the mining in Karnataka, they had to regulate mining in Odisha, and they had to regulate mining in Goa. So, to remove all those controversies and then insulate the sector for future controversies this amendment has been brought in. So, this will be most probably a transparent process with the consistency, level playing field where everybody is at par and then mine is allocated to them which they can start running. What we are given to understand, whatever mines they will put for auctions the mines will be ready to run. Otherwise right now the resources are allocated but to start the mine it takes 10-15 years. By the time mine starts, your end use plant is in place and is waiting or it is bleeding or you are not able to commission that plant for the want of the minerals which is allocated to you but you are not able to start for various other clearances. So, if the mines are auctioned where all clearances are there mines are ready to run it will help the whole metal sector, the whole power sector because you can plan your offer in a best possible manner and you are investment will start giving return the day one you commission your project. Otherwise, also you are spending a lot of money in developing those mines for years together. Instead of wasting money and time you bid. Here the government will have to see that there is no undue competition that takes place and those who are real end users they compete with each other so they are having a level playing field. It should not be a revenue generating exercise for the government. Government in case of coal block made it very clear that the whole auction process is not revenue generating exercise and they are going the same way. Similarly if they go for auction of all the minerals it will be good for the industry, good for the sector, it will give boost to the Make In India mission also which government is trying hard.
Sonia: What is your own view on how the bidding for the mines could be done? Goyal: If we take a clue from the way they have started the process for the coal mining, I believe they will workout something in similar manner and transparency will be there in the system which is good for everybody. Reema: Federation of Indian Mineral Industries (FIMI) has opposed this move saying that it will lead to cartelisations and it is a retrograde step. How would you react to how FIMI is reading this development?Goyal: Finally in the business everybody will have to take care of their own interest. Cartelisation will happen only if one-two or few mines have to be auctioned. When almost everything is going to be auctioned, I don’t think the merchant miners will have that much of interest if they have to buy mine in e-auction. It will be the captive users, the end users or steel plants who will be more keen and all steel plants would like to compete with each other rather forming a cartel. So, I don’t subscribe to that thinking. Definitely the merchant miners, they will get affected because after five years the mines will not belong to them or they have to bid again in an auction by which their costs will go up. So they are definitely a affected community.Sonia: What is your own estimate of the timeframe because there are some mines in India that have already completed 50 years, what would happen with those? Mundra: No, what ordinance says in case you have applied you for the renewal of the mines where the lease is expired, so, in case of captive users they will extend it for 15 years and in case of non captive user they will extend it for five years. In case of auction, if it is done, that is for 50 years and after that again auction will be done. So, there is no renewal options in case mines are allocated under auction. Reema: In the draft which was issued for public comments, the government had proposed that a company owning the mine will a pay a certain amount to the district mineral foundation (DMF) which will be a fixed percentage. Are we aware in the final ordinance what this percentage will be and will that be a hit? Goyal: We are yet to see the final ordinance. We have not seen that document. It is yet to come in the public domain. However, finally if it is a common thing for everybody in the country, it doesn’t make any difference. So, if some part of the royalty we have to share with the district where the mines are located it is in a positive direction. Finally the people of that local area should get benefit out of this.
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