Future of mining in India
Posted on December 3, 2010 | Author: Rajiv Kumar | View 471 | Comment : 1
The government must ensure that laws and regulation foster an environment that discourages bounty hunters and encourages long-term investors in mining.
There is clearly a direct trade-off between exploitation of natural resources and conservation of environment and human habitat.
In the past, due to lower environment consciousness, the trade-off was always decided in favour of exploitation.
This is deplorable.
Yet, environmental fundamentalism can also exact a high cost that will prevent a number of people to remain without access to basic necessities of life.
This apparently intractable trade-off has to be resolved.
The bottom line is that striking a balance between conservation (protecting environment and rights of indigenous people) and meeting the resource needs of a developing economy implies additional costs and requires the use of superior technology.
In the past, this tradeoff has been addressed by creating a public sector monopoly.
This has not delivered the desired results.
The alternative approach has been to encourage natural resource exploitation by organised and progressive private sector companies that are tightly regulated.
This is globally the dominant model.
Neither the unregulated free market nor government monopoly successfully addresses this trade-off.
Effective regulation requires that production agents are amenable to regulation and large enough to employ modern mining technology and incur the costs of environment protection, its restoration and compensating those affected.
This implies that any policy that effectively discourages large-scale, scientific and organised mining is destined to worsen the trade-off between conservation and exploitation.
Experience in advanced economies unambiguously demonstrates that modern mining techniques and regulatory obligations can ensure that environment restored to its original pristine state or even better.
Also that indigenous people can be appropriately compensated and their lifestyles protected if that be the policy intention and the issue is not unduly politicised.
In India, the regulatory and executive processes required to balance this tradeoff have been greatly compromised.
This has spawned environmental activism, with heavy bias towards ecological fundamentalism adopted by NGOs competing for resources and volunteers.
It has also necessitated judicial activism with courts intervening to lay down safeguards, set up independent monitoring mechanisms and the introduction of payment of net present value and compensatory afforestation.
Such activism, not based on clear objective criteria and applied inconsistently, causes acute uncertainty in the investment environment. It drives out the large and progressive firms and leaves the field open for small, unorganised and politically connected miners whose only comparative advantage often is their unscrupulousness as they pursue the only goal of maximising short-term profits.
Unfortunately, these 'fly-by-night' operators dominate the mining scene in the country.
The proposed amendments to the Mines and Minerals (Development & Regulation) Act (MMRDA) for sharing of revenues, profits and equity in mining operations, will make organised and scientific mining unviable.
This is clear under different scenarios for global prices.
More unfortunately, the profits and revenues ostensibly to be transferred to the affected population will not reach the intended beneficiaries for lack of clarity in how these will be handled and leakage to petty state government officials prevented.
This needs serious, dispassionate consideration.
Other provisions in the amended Act will make organised mining virtually impossible.
Statutorily, a firm mining forest land will have to pay three times the value of the land.
First, the net present worth of the existing forest.
Second, compensation for equivalent afforestation elsewhere and third, for restoration of land to its pre-mining condition on closure.
This requires the use of modern technologies for cost minimisation and raising extraction levels to generate the needed revenues.
Small unorganised firms cannot achieve this.
They will continue with their ruthless exploitation of nature and people.
Similarly, the provision of ‘go’ and ‘no go’ areas in mining needs to be carefully prescribed.
Unfortunately, there remain already very small and well-identified regions with pristine rainforests that contain rare biodiversity and ‘sanjeevni booti’ type herbs.
These must be preserved as they cannot be replaced.
These should be the 'no-go' areas.
But this does not apply to all forested areas that are today covered with second or third generation forests.
If rare earths or critically needed minerals like uranium are found in these second or successive generation forested lands, there is a case for permitting such activity while ensuring that these are restored to their pre-mining state.
On the other hand there are minor minerals like limestone, clay, sand, graphite, etc, found in plentiful supply but not critical for security or development. Their mining should be confined to non-forest lands.
A balanced approach that ensures the country's security, economic development and employment generation is needed.
Impractical and stringent regulation will encourage illegal and slaughter mining because minerals are essential for economic activity and economic rationale will find a way to beat misdirected administrative fiats.
The road to undesirable destinations is often paved with good intentions.
The proposed amendments to the MMRD Act, which will drive out serious and organised mining firms, are an apt example.
To attract long-term investors, statutory provisions need to be simplified and the burden of taxation and levies kept at rational levels.
Windfall gains need to be shared and directed towards the development of the sector rather than be expropriated.
For instance, for major minerals, although the lease period envisaged is effectively 50 years, the proposed legislation still envisages return of land to the private owner of surface rights, instead of an outright sale!
Does this not create a clear disincentive for the mining firm for developing the mining area and maximise the residual sale value?
Similarly, liabilities for compensation and rehabilitation of project-affected persons are defined in an ambiguous manner.
It is, therefore, important that legislators keep in mind the need to create an environment that discourages bounty hunters and encourages long-term investors.
Wrong choice could result in irreparable damage to both our environment and social fabric. This must be avoided.