Stakeholder interests drive new legislation

Author: | Published: 1 Aug 2012
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The Mines and Mineral Development and Regulation (MMDR) Bill 2011 (the Bill) was approved by the Cabinet in September 2011. It introduces provisions aimed at providing compensation to stakeholders, sustainable mining, and local area development, as well as ensuring transparency, equity and elimination of discretion by local authorities in the mining process.

Once passed, it will have significant financial implications for the mining industry. Some legal practitioners, however, are not optimistic that the Bill will be passed successfully despite the Government of India's (GOI's) hard stance, as they expect its execution to be very difficult.

The Bill was introduced in the Lok Sabha in December 2011 and, at the time of going to press, was awaiting approval. After being approved, the Bill should be passed in the monsoon session (July to September) of parliament. Once passed, it will replace the Mines and Minerals (Development and Regulation) Act, 1957, with the aim of comprehensively regulating the mining regime in the country.

The Bill introduces provisions that are aimed at providing compensation to stakeholders, especially to families affected by mining operations, as well as sustainable mining and local area development. Mining operators will be required to compensate project-affected persons including those with occupation rights, usufruct rights or traditional rights over the land.

A general increase in the amounts payable as royalties or dead rent to the central or state government is also proposed. Mining lease holders will be required to contribute 26% of their annual profit from mining-related operations for coal and lignite, and one year's royalties for other major minerals, to the district mineral foundation. This will be on a pro rata basis to actual production. And the amounts are additional to any compensation or other amount payable to project-affected people.

To increase transparency in the process of granting mining leases or prospecting licenses, the Bill has also proposed the implementation of a competitive bidding process in mine allocations. It is hoped that this will encourage the participation of private parties, and also incentivise the GOI to invest in sustainable exploration and mining.

In March 2012, a report drafted by the Comptroller and Auditor General of India (CAG) that discusses 'the coal licensing scam' was leaked and published by The Times of India. The report says that the GOI extended 'undue benefits' of Rs 1,067 trillion in total by allocating coal mines to private parties without auction in the years 2004 to 2009.

Phoenix Legal partner Saket Shukla says that the Bill reflects a greater awareness by the GOI of the social responsibilities of developers. "The Bill will replace existing legislation and seeks to introduce significant reforms in the mining sector by encouraging scientific mining, providing for revenue sharing with the population impacted by mining operations, encouraging sustainable development, and promoting a more transparent mine allocation system."


Challenges

But the Bill will also complicate the mining process as extensive administrative effort will have to be spent on negotiating compensation with local communities as well as involving them in the bidding process. This is expected to have serious financial implications for mining operators.

"A significant amount of money may have to be spent by the project developers to comply with the new regulations," says Shukla. "Foreign investors will also be affected as there is significant investment in the sector, especially in metals and industrial metals."

Some legal practitioners also hold the view that the Bill will be impossible to pass in the near future, as various regulatory issues are yet to be overcome. For example, the Bill overlaps with legislation such as the new Companies Bill, which requires companies to contribute 2% of net profit to corporate social responsibility (CSR) activities. A similar provision also exists in the Bill.

In addition, there are also concerns over whether the Bill will overlap with some of the provisions of the National Land Acquisitions Rehabilitation and Resettlement Bill 2011, which also aims to address compensation to project-affected persons. The Land Acquisition Bill is currently under review in parliament.

Capacity to execute the Bill is also a big problem. One law firm partner who wished to remain anonymous says that the legislation is "completely unrealistic and very difficult to execute". He adds: "It is very difficult to define which people are being affected. The compensation and negotiation process is very hard to execute as well. It is unlikely that the Bill will be passed when these execution problems are yet to be resolved."

But other legal commentators believe that the introduction of a mining legislation programme in India is inevitable, with the country already beyond the initial stages of development. JSW Steel's legal and group general counsel Girish Gokhale says: "There will be pains in the process, but if India is to develop it will need a robust environment programme. And unless such a programme is implemented, goals of further developing India in the long-term will not be met. Companies should also adopt the right mindset in order to comply with an environmental programme that will soon be implemented."

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