India is highly endowed with vast mineral resources and produces 89 minerals of which 4 are fuel minerals (Oil, Natural Gas, Coal and Lignite), 11 metallic, 52 non-metallic and 22 minor minerals.
The Indian Government has been consistently and in a pragmatic manner opening up the previously controlled regime to usher private investment in the sector and infuse funds, technology and managerial expertise.
Foreign Direct Investment (FDI) policy opened up mining sector for investments involving foreign equity participation in a limited way.
At present the following limits of FDI is permitted:
- Oil & Natural Gas - FDI up to 100% under the automatic route is permitted in all activities in this sector, including exploration and production, pipelines and liquefied natural gas terminals and refining and marketing (except in existing refineries owned by public sector units) subject to sectoral policy regulations.
- Coal & Lignite mining - 100% FDI through automatic route is permitted only for captive consumption by power projects, and iron & steel, cement production and other eligible activities.
- Atomic Minerals - FDI up to 74% with prior Government approval except that in Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities, FDI up to 100% is permitted with prior Government approval.
- Other Mining Activities - 100% FDI through automatic route is permitted for Mining activities, covering exploration and mining of diamonds & precious stones; gold, silver and minerals.
THE RELEVANT ADMINISTRATIVE MINISTRIES
The Ministry of Petroleum & Natural Gas (MPNG) is entrusted with the responsibility of exploration and production of oil and natural gas, their refining, distribution and marketing, import, export, and conservation of petroleum products and Liquefied Natural Gas.
The Ministry of Coal (MC) is responsible for development and exploitation of coal and lignite reserves in India.
The Ministry of Mines (MM) is responsible for:
- survey and exploration of all minerals, (other than natural gas and petroleum)
- mining and metallurgy of non-ferrous metals like aluminium, copper, zinc, lead, gold, nickel etc. and
- administration of the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) in respect of all mines and minerals other than coal and lignite.
- Department of Atomic Energy under the charge of the Prime Minister of India is responsible for execution of the policies laid down by the Atomic Energy Commission.
MINING FOR PETROLEUM & NATURAL GAS (P&NG)
The Government of India has adopted a multi-pronged strategy to enhance the energy security of the country. India launched its 7th round of NELP (NELPVII) on December 13, 2007 at New Delhi with the bid closing date for NELP-VII being April 11, 2008.The government has put on offer 57 oil and gas blocks - the highest under any NELP round - spanning over 171,000 sq km. Of these, 19 blocks are in deep water, nine in shallow water and the rest on land.
In order to attract multiple and experienced players in deepwater, the concept of consortium under the heading of technical capability for deepwater blocks is introduced. This intends to benefit experienced companies in deepwater exploration who are bidding for NELP deepwater blocks along with other Indian companies.
Intensive exploration of oil and gas through the New Exploration Licensing Policy (NELP) and so far 161 blocks have been awarded for exploration to contractors under the NELP regimes.
- Accelerating exploration by national oil companies namely Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL) in their nomination blocks, and
- Increasing recovery of oil and gas from existing major producing fields by application of Enhanced Oil Recovery/Improved Oil Recoveries techniques.
The country, which raked in investment commitments of USD 8 billion for exploration in the previous six rounds of NELP auctions, is now expecting USD 3 to 3.5 billion in NELP-VII.
MPNG has short listed the following highlights of NELP-VII:
- Blocks have been divided into three categories (on-land, shallow water and deep water) based on geological perceptions. Size of the blocks and tailor made bid evaluation criteria are framed accordingly.
- For on-land and shallow water blocks, technical capability is the qualifying criterion.
- For on-land blocks, bid evaluation will be made on work programme and fiscal package parameters.
By the Government’s own admission, it has received just 181 bids for 45 blocks by the bid closing date i.e. June 30, 2008. What is more is that of the 57 blocks offered there was not a single bid for 12 blocks (viz. 7 deep water blocks, 2 shallow water blocks and 3 on-land blocks).Out of the remaining blocks,19 blocks received single bids only.
A total of 96 companies (21 foreign and 75 Indian) have bid either on their own or as a consortium. 42 new players have bid for the nine S-type blocks, either singly or as parts of a consortium. Similarly, in the deep water blocks 2 ‘Super majors’ viz. BP and BHP Billiton have bid in consortium with Indian companies, namely, RIL and GVK, respectively. Other bidders in deepwater include ONGC, Cairn and GSPC. It is not yet clear if global giants like Exxon, Mobil and Chevron have evinced any interest in the seventh round of NELP.
Mandatory 2D seismic is only for 23 exploration blocks, out of 57 blocks. The successful bidders will be required to enter into a Production Sharing Contract (PSC) with the Government as per the draft model PSC issued by MPNG.
Evaluation of the bids will be undertaken by the Government and the blocks are expected to be awarded by August 31, 2008 culminating in the contracts being signed by September 30, 2008.
By 2015, the entire area of Indian sedimentary basins is likely to be under exploration, of which 80 percent is targeted to be covered during the years 2007-12.
Some of the incentives available are:
- No custom duty on imports required for petroleum operations.
- No minimum expenditure commitment during the exploration period.
- No mandatory state participation.
- No carried interest by National Oil Companies.
- Freedom to sell crude oil and natural gas in domestic market at market related prices.
- Biddable cost recovery limit upto 100%.
- No cess on crude oil production.
- Royalty payment: 12.5% for on land areas, 10% for offshore and 5% for deep-water areas.
- Liberal depreciation provisions.
- Seven years tax holidays from the commencement of production. [Obviously it came as a rude shock to prospective bidders when they were advised through the ministry’s official website that no Income Tax rebates were available for commercial production of Natural Gas, as against “Crude Oil” which would enjoy a 7 year Income tax rebate from the date of Commercial production.]
MINING FOR COAL & LIGNITE
Based on the exploration carried out up to the depth of 1200m, it is estimated as on January 01, 2006 that there is a cumulative 253.30 billion tonnes of geological resources of Coal in the country.
In Coal & Lignite mining, 100% FDI under automatic route is permitted only for captive consumption by power projects, iron and steel, cement production and any other activities declared eligible by the Government.
No FDI in mining of Coal & Lignite is permitted other than for captive consumption.
FDI upto 100% is permitted for setting up of coal processing plants on the condition that, such company shall not do coal mining or sell the washed coal or sized coal in the open market.
Generally, industries, which are coal, based, such as power projects, iron and steel, cement production are given coal linkages from the coal mines owned and operated by public sector coalmines. Depending on the availability and requirement of coal, captive coal mines are identified and allocated by the MC to such industries.
Indian industries import coal in enormous quantities from various countries including Australia, Indonesia etc. to meet the increasing demand in the domestic industries.
Coal Liquefaction
In consonance with the well-accepted global wisdom of reducing dependence on the fast depleting reserves of oil, the Indian Government’s Ministry of Coal (MC) has been continuously exploring/ implementing alternative-energy options. Under the Ministry’s guidelines ‘for allocation of captive blocks for coal liquefaction [Coal to Liquid (CTL) projects] & Conditions of Allotment’ applications were invited to facilitate the entry of more players in this venture. The last date for submission of applications stands extended from July 01, to July 21, 2008.
MC proposes to allocate captive coal mines, reserves of about 1-1.5 billion tonnes, for converting coal into liquid fuel like petrol, diesel and others. Definitely a step in the right direction.
MINING FOR ATOMIC MINERALS
Surveys, prospecting and exploration of uranium, thorium, rare metals and rare earths, titanium and zirconium mineral resources are done by the Atomic Minerals Directorate for Exploration and Research (AMD).
FDI limit 74% with prior Government approval, except in the case of Titanium.
FDI up to 100% with prior Government approval in Mining of Titanium bearing minerals and ores and its value addition in Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities. However, FDI up to 100% shall be allowed for mineral separation only if value addition facilities are set up within India along with transfer of technology.
MINING FOR OTHER MINERALS
Mining of is regulated by the National Mineral Policy, 1993. Mining covering exploration and mining of diamonds & precious stones; gold, silver and minerals. 100% FDI through Automatic route is permitted.
Management of mineral resources is the responsibility of the Central Government and the State Governments as per the Constitution of India.
The Mines and Minerals (Regulation and Development) Act, 1957 lays down the legal framework for the regulation of mines and development of all minerals other than petroleum and natural gas.
The Central Government have framed the Mineral Concession Rules 1960 for regulating grant of prospecting licences and mining leases in respect of all minerals other than atomic minerals and minor minerals.
The State Governments have framed the rules about minor minerals. The Central Government have also framed the Mineral Conservation and Development Rules, 1988 for conservation and systematic development of minerals. These are applicable to all minerals except Oil & Gas, coal, atomic minerals and minor minerals.
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