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INDIA 2018

Best of Germany 2014 - Mining Equipment and Mining Technology

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INDIA 2018 * age growth rate (CAGR) of Indian mineral imports between FY 2012 and FY 2018 was 6.1% which in value terms increased from $15.81 billion in FY 2012 to $28.14 billion in FY 2018. Simply put, trade date revealed that during 2016-2017, for every 1 ton of domestic mineral production, downstream mineral processing industry imported about 10 tons of mineral resources. Policy Quirks So why are private investors, domestic and foreign, keeping a distance from vast unexplored mineral resources. Blame it on intended or unintended policy quirks. Ever since, 2015 auction route was made man- datory for allocation of a mineral block for development following Supreme Court verdict, private investors found the playing field rather uneven. Non-exclusive reconnaissance per- mits (NREPs) granted by the government for exploration projects found few tak- ers. Simply because a NREP holder was expected to undertake exploration proj- ects, invest high risk capital but on success- fully establishing a economically viable mineral blocks, had to hand over the asset back to the provincial government for sub- sequent auction. A NREP holder did not have any long term interest in the project apart from reimbursements on cost plus basis not no stake in ultimate development of the asset established by it. The government has now promised to ensure a level playing field by amending the legislative framework under which a NREP holder would be granted the first right-to-refusal at the auction of any miner- al block successfully explored by it. Taxes are Taxing The Indian mining industry is the highest taxed in the world. According to the Federation of Indian Mineral Industries (FIMI) the representative body of miners, the effective rate of tax in case of mines allocated earlier through the preferential allotment dispensation stood at 64% while in case of mines allocated through auction the effect rate amounted to 60%. The aggregate incidence of tax comprise min- ers' contributions to District Mineral Fund (DMF) and National Mineral Exploration Trust (NMET) apart from indirect tax rates under Goods and Service Tax (GST) as applicable, making total levy one of the highest in the world. Policy Procrastination Being caught between the rock and hard place are inherent risks for Indian miners. About 288 mineral operational blocks were slated to be up for auction in 2020 but neither the federal government nor state governments, responsible for holding the auctions were geared up to tackle an impending possibility wherein these mines would be forced to shut operations unless the mining leases were allotted to new investors for continued production. The legacy issue being that these mines had been allocated under the erstwhile dispensation of preferential allot- ment. But jolted by Supreme Court verdict, a 2015 auction route was made manda- tory for allocation of all mineral resource blocks. So once the existing mining lease of 288 assets lapsed in 2020, the gov- ernments would either have to complete auction and grant new mining leases to successful bidders or close mines where leases lapsed. Alongside, the federal Ministry of Mines has directed all state governments to conduct fresh exploration of all existing mining leasehold areas up to level of G2. But the state government maintain that con- ducting such levels of exploration through few government run exploration agencies within stipulated timelines was a challenge and the country facing possible risks in mineral production post-2020. The Federation of Indian Chamber of Commerce & Industry (FICCI) in a paper titled: "Indian Mining, A Different Perspective" suggested the following to increase the financial attractiveness of the sector: • Tax holidays for exploration and mineral production in initial years of the project; • Enabling full transferability of mineral concessions acquired at the auction to another entity at a pre-determined fees to ensure that no concession is disrupt- ed in case of consolidation in the industry through mergers and acquisitions; • A single rate of tax subsuming all taxes pay- able at every stage of mining operations; • Adoption of the Canadian TSX enabling venture capitalists and private com- panies to raise funds dedicated to min- eral exploration; • Aligning the effective tax rate payable by a mining company be benchmarked to the global average; and • Replacing flat rate of 15% royalty on iron ore with a graded rate depending on ferrous content of the ore mined. Iron Ore The fourth largest producer of iron ore in the world with 8% of world's deposit has turned from a net exporter of the steel-making raw material to a net import- er, indicating the impediments of increas- ing production from domestic mines. And this with the Indian government setting an ambitious target of domestic steel produc- tion of 300 million mt/y from 90 million mt/y at present. Indian iron ore production during 2017-2018 has been pegged at 210 mil- lion mt, but the moot point was that growth in domestic production has been ranging between 2%-5% over the past five years. During April-August 2018, Indian iron ore imports surged 190% to 6.34 million mt and forecast to cross the 12 million mt mark during full fiscal. In contrast iron ore exports from the country fell 40% during this period at 4 million mt. "Imports would not have been a neces- sity had iron ore been available in the domestic market, at competitive prices. That is why we are asking domestic mining companies to adjust the price of iron ore in line with quality of ore. At the same time, the problem is that even if iron ore is getting mined, there are transportation issues and costs of sourcing from mines and comparative logistical costs of imports are more competitive," Seshagiri Rao, joint managing director, of private steel producer, JSW Limited said. However, the present Gordion's Knot of the Indian mining sector is how does the government, both state and federal, get iron ore mines in coastal state of Goa back into operation. Goa mines accounting for an estimated 50 million mt of iron ore, albeit low grade for export markets, have remained closed since March 2018. This after the Supreme Court ruled in February 2018, that renew- al of lease holds of some 88 mines in Goa were done not through the now mandatory auction route and directed closure of all these mines until the government cancelled the renewed mining leases of existing holders and conducted auction to allot mining leases afresh. The seemingly intractable imbroglio before the governments entailed either amend related legislations that will grant legality to the last non-auction lease renew- als of Goa mines but then at the very least dilute the provisions of the law that entailed that all mineral resources should be allocated through competitive bidding. India Mining Report

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