The story so far: On August 2, Parliament passed the Mines and Minerals (Development and Regulation) Amendment Bill, 2023, in a bid to attract private sector investment in the exploration of critical and deep-seated minerals in the country. The Bill puts six minerals, including lithium — used in electric vehicle batteries and other energy storage solutions — into a list of “critical and strategic” minerals. The exploration and mining of these six minerals, previously classified as atomic minerals, were restricted to government-owned entities.
How much of its critical and deep-seated minerals does India import?
The Russian invasion of Ukraine over the past year has made it clear more than ever how global supply chains of a range of commodities are vulnerable to shocks leading to a lack of availability and skyrocketing prices.
A variety of minerals, besides those used in creating fuel, are crucial to a country’s manufacturing, infrastructure, and advancement. Moreover, the clean energy transitions of countries including India, seeking to meet their net-zero emission goals, are contingent on the availability of critical minerals such as lithium, which has also been called ‘white gold’, and others including cobalt, graphite, and rare earth elements (REEs). These are also crucial for the manufacture of semiconductors used in smart electronics; defence and aerospace equipment; telecommunication technologies and so on. A World Bank study suggests that the demand for critical metals such as lithium (Li) and cobalt is expected to rise by nearly 500% by 2050.
The lack of availability of such minerals or the concentration of their extraction or processing in a few geographical locations leads to import dependency, supply chain vulnerabilities, and even disruption of their supplies. For instance, China has majority ownership of cobalt mines in the Democratic Republic of Congo, where 70% of the world’s cobalt is mined. China also has by far the largest amount of reserves of Rare Earth Elements (REEs) of any country in the world, followed by Vietnam, Brazil and Russia; it produces of 65% of the world’s REEs, which are crucial in making wind turbines, solar panels etc. India, meanwhile, has 6% of the world’s rare earth reserves but it only produces 1% of global output.
Major economies including the United States, United Kingdom, and European Union in the recent past have moved to secure supply-chain resilience for such minerals and to reduce reliance for their availability on countries like China. This has been done by way of the Mineral Security Partnership (MSP), which India became party to this year. Countries like the U.S., Australia, Japan, and the EU bloc have also created lists of critical minerals based on their specific economic needs and the supply risk of the minerals.
The Ministry of Mines, in June this year, came out with a list of 30 minerals critical to the country’s economic development and national security. However, India is highly dependent on imports for a majority of minerals on this list. For instance, as per figures quoted by the Ministry, India is 100% import-dependent on countries including China, Russia, Australia, South Africa, and the U.S. for the supply of critical minerals like lithium, cobalt, nickel, niobium, beryllium, and tantalum. In the case of lithium, for instance, India’s imports were worth $22.15 million in 2021-2022. As for the finished product lithium-ion batteries used in electric vehicles, a report by Fortune India notes that India imported 5,486.18 lakh units of lithium-ion batteries, spending $1,791.35 million.
Also for deep-seated minerals like gold, silver, copper, zinc, lead, nickel, cobalt, platinum group elements (PGEs) and diamonds, which are difficult and expensive to explore and mine as compared to surficial or bulk minerals, India depends largely on imports. For instance, in 2022-23, India imported close to 12 lakh tonnes of copper (and its concentrates) worth over Rs. 27,000 crore as per official figures. It imported 32,298.21 tonnes of Nickel worth Rs. 6,549.34 crore.
Why is private sector participation needed for the exploration of critical and deep-seated minerals?
Studies by organisations such as the Atomic Minerals Directorate for Exploration and Research and the Centre for Social and Economic Progress (CESP) note that India’s unique geological and tectonic setting is conducive to hosting potential mineral resources and that its geological history similar to the mining-rich regions of Western Australia and Eastern Africa. However, the primary step to discovering mineral resources and eventually finding economically viable reserves is mineral exploration, which comes in various stages before mining. With each stage of mineral exploration, starting from reconnaissance (preliminary survey to determine mineral resources), followed by prospecting (exploring, locating, or proving mineral deposits), and detailed exploration (estimating of mineral ore and grade), the knowledge of about mineral’s availability improves. The stages of exploration are also divided as per the United Nations Framework for Classification of Resources into G4 (Reconnaissance), G3 (Prospecting), G2 (General Exploration), and G1 (Detailed Exploration).
Notably, it is estimated that India has explored just 10% of its Obvious Geological Potential (OGP), less than 2% of which is mined and the country spends less than 1% of the global mineral exploration budget. Not many significant mineral discoveries have taken place in the country in the last couple of decades and a majority of exploration projects have been carried out by the government agency Geological Survey of India and other PSUs like Mineral Exploration Corporation Limited (MECL), with very little private sector participation. India’s mining policy had kept greenfield exploration of minerals out of the purview of private-sector explorers for some years which meant they could only get licences to further prospect and mine resources that had been explored by a government entity. Companies also saw a lack of adequate incentives.
Exploration requires techniques like aerial surveys, geological mapping, and geochemical analyses and is a highly specialised, time-intensive and monetarily risky operation with less than 1% of explored projects becoming commercially viable mines. Union Minister of Mines Prahlad Joshi pointed out that while Indian PSUs were in a relatively better position to explore surficial and bulk minerals like coal and iron ore, they had not fared well when it came to deep-seated and critical minerals owing to the high expenditure and long duration of risky projects while being under pressure to increase the supply of bulk minerals.
He mentioned that the new Bill seeks to bring exploration processes in India at par with that of developed countries by getting private sector capacity into exploration, giving the example of Australia. In Australia and multiple other jurisdictions globally, private mining firms called junior explorers, engage in risk-taking by putting their expertise and limited financials into explorations to find potential mines. Once discovered, these private companies can sell these to bigger mining companies who then develop and run these mines. This helps multiply exploration projects and accelerate the pace of exploration owing to private participation.
Has India’s existing mining policy been conducive to private participation?
The MMDR Act 1957, the primary legislation governing mining in the country has been amended several times since its enactment including recently in 2015, 2020, and 2021. A CSEP discussion note from June this year notes that India recognised the need for private and foreign investment in the mining sector including mineral exploration back in 1993, amending the Act next year to allow interested parties to apply for mineral concessions through a First Come First Served (FCFS) basis. Later, private companies could also get Prospecting Licences (PL) or Mining Leases (ML), and could even apply for early-stage or greenfield exploration through Reconnaissance Permits (RPs). Holders of RPs or PLs were also given the preferential right to get a PL or ML respectively. This encouraged Private investment in the sector between 1993 and 2011, with companies including Rio Tinto India, Hindustan Zinc, and De Beers India, engaging in exploration projects for diamonds, zinc, copper, and base and bulk metals.
A Brookings paper notes, however, that mineral exploration in the country halted almost completely after 2010 as none of the states issued RPs and PLs to any company. In the early 2010s, as the mining industry seemed to be gathering momentum, concerns about favouritism and misuse started coming up in the allocation of 2G spectrum and natural resources like coal blocks and the Supreme Court intervened.
The Court ruled in 2012 that the FCFS method of resource allocation was vulnerable to manipulation, favouritism, and misuse, asking the government to adopt a transparent and reasonable method. It noted that an auction which was duly published and fair would be the best method for resource distribution. It also held later that auctions were not the only available method and the test for an efficient method should be that it is “fair, reasonable, non-discriminatory, transparent, non-capricious, unbiased, and without favouritism or nepotism, in pursuit of promoting healthy competition and equitable treatment”.
In 2015, the MMDR Act was amended so that private companies could get either Mining Leases or Composite Licences (CLs) which are prospecting licence-cum-mining leases, through government auctions. However, owing to the usage of the Evidence of Mineral content (EMT) rule to keep the process fair, only projects whose early-stage exploration was already done by the government could be auctioned, meaning the private sector was once again kept out.
However, the amendment also allowed private firms to get registered as exploration agencies and get funding for G4 to G1 levels of exploration from the authority called the National Mineral Exploration Trust (NMET) with an incentive of 10% of the approved costs reimbursed. However, this also did not attract significant private-sector participation. In all, the NMET approved 118 projects for G4 exploration and just one was carried out by a private agency.
How does the Mines and Minerals Bill 2023 aim to encourage private players?
Firstly, The Bill omits at least six previously mentioned atomic minerals from a list of 12 which cannot be commercially mined. Being on the atomic minerals list, the exploration and mining of these six- lithium, beryllium, niobium, titanium, tantalum,and zirconium, was previously reserved for government entities. Secondly, the Act prohibits pitting, trenching, drilling, and sub-surface excavation as part of reconnaissance, which included mapping and surveys. The Bill allows these prohibited activities.
The Bill also proposes a new type of license to encourage reconnaissance-level and or prospective stage exploration by the private sector. This exploration licence (EL), for a period of five years (extendable by two years), will be granted by the state government by way of competitive bidding. In these auctions, eligible explorers would bid on their desired percentage share of the auction premium which will be paid eventually by a mining lease holder up the sale of a successfully explored mind by the state government. The lowest bid by an explorer would win the EL auction. This license will be issued for 29 minerals specified in the Seventh Schedule of the amended Act, which would include critical, strategic, and deep-seated minerals.
It also specifies the maximum area for exploration; activities in upto 1,000 sq kms will be allowed under a single exploration licence. It also states that the licencee will be allowed to retain up to 25% of the originally authorised area after the first three years after submitting a report to the state government stating reasons for retention of the area.
While most auctions are reserved for state governments in the Act, the Bill also reserve the conduct of auctions for composite licence and mining lease for specified critical and strategic minerals for the central government.
What are some of the possible issues with the Bill’s proposals?
Industry experts and organisations like CSEP had pointed out certain issues and made recommendations on the proposed amendments. Firstly, the primary way of generating revenue for a private company that has an exploration license would be a share of the premium paid by the miner, which would come only after a successfully discovered mine is auctioned and operationalised. However, the newly-passed Bill has a provision that if the resources are proven after exploration, the state government has to conduct a mining lease auction within six months of the submission of the report by the exploration licence holder.
Trends show that such a process could take years to materialise owing to government timelines for clearances or may not happen at all considering depending on the complexity of the deposit and geography. The CSEP mentions the example of the Ghorabhurani-Sagasahi Iron Ore Mine, a greenfield captive mine, which was auctioned in 2016. Even though it was a bulk mineral, production started only in late 2021, taking close to six years to receive the necessary clearances. Secondly, the explorer would not know how much revenue they will receive as the auction premium would be known only when a mine is successfully auctioned.
Vedanta Group economist Dhiraj Nayyar, in an Economic Times piece, pointed out another issue with the auction method of allocation for exploration licences. He points out that while it’s feasible to auction something that has a known value (like a spectrum or a discovered mineral deposit), it is difficult to auction something for which exploration has not begun.
Besides, in its 2012 ruling, the Supreme Court had observed that since big capital investments go into discovering natural resources through exploration and mining contracts, companies would only want to spend big amounts if they’re assured of utilising any discovered resources. In the new policy, only the government can auction what an explorer has discovered and the latter would only get a share of the premium at an unknown stage. This is unlike other global jurisdictions where private explorers can sell their discoveries to miners.