Indian provinces oppose sharing royalty for exploration projects

KOLKATA (miningweekly.com) - Several Indian provinces have expressed their reluctance to loosen the purse strings to promote mineral exploration within their respective geographies.

These provinces have communicated that they were not willing to let go any part of their revenue streams from mining activities, thereby throwing a spanner in the federal government’s plans to incentivise mineral exploration through the New Mineral Policy (MNP), currently in the works.

According to an official in the Mines Ministry involved in formulating MNP, provinces like Maharashtra, Rajasthan, Chhattisgarh and West Bengal have pointed out that revenue streams from minerals extracted from their respective territories formed a crucial element in meeting capital and revenue expenditures of local provincial budgets and in meeting the developmental commitments of the respective governments.

Some of the provinces, such as West Bengal, claimed that since the provinces had no control over the end-use of minerals extracted within their territories and most often the extracted minerals were transported for value addition to other locations beyond provincial boundaries, local governments could not be asked to forsake this part of their revenue stream.

The NMP, slated to be unveiled by the Mines Ministry in the next couple of months, was expected to lay down the framework for a slew of fiscal incentives for private exploration and mining companies to undertake exploratory projects in at least 100 prospective mineral reserves across various provinces.

Indications were that the NMP would entitle exploration projects to reimbursements of expenses incurred in projects based on specific parameters set out in the policy.

But according to the officials, what had raised the hackles of the provincial governments was the proposal that part of the incentives to exploration companies would need to be met from the royalty receivables of the local government once projects for extraction were commercialised.

Under an NMP provision, an exploration company would be assured of a definite revenue stream from the royalty receivables of the provincial government for a period of 50 years, even if the exploratory agency did not itself undertake an extraction project but it was taken up by another miner.

According to the Mines Ministry, the sharing of royalties between local government and the exploration investor formed a crucial part of the twin incentive on offer under NMP.

As the first benefit to exploration company, a reverse auction would be held under which mineral exploration companies would put in their bids to secure exploration rights of the blocks which would be based on bids for royalty in the case of successful discovery, or compensation claims in the case of no discovery.

The successful bidder in the reverse auction would be the exploration company bidding for the lowest share of royalty from that payable by a miner to the provinces or the lowest claims of reimbursement in the case of no discovery.

Post successful exploration, when a mineral block would subsequently be put up for auction for extraction of resources, the exploration company could be offered the first right of refusal to match the highest bid and secure mining rights to the block it had explored.