India: Govt proposes to amend ‘minimum dispatch rule’ for auctioned mines

In view of the prevailing iron ore shortage that weighs heavily on downstream steel producers, the Union Ministry of Mines has proposed to amend the Minerals Concession Rules, 2016 (MCR) in order to strengthen the minimum dispatch rule for miners failing to meet production and dispatch targets.

Rule 12A(1) of MCR, 2016 states that all new lessees conferred with vesting orders are required to ensure minimum dispatch of 80% of the average annual production of the two immediately preceding years on a pro-rata basis.

The new sub-rule that the Mines Ministry seeks to insert into the existing framework states: “In case the lessee dispatches less than the minimum dispatch required under sub-rule (1) on a quarterly basis, the lessee shall pay at least the amounts payable under rule 13 of the Mineral (Auction) Rules, 2015 for the quantity equal to the minimum dispatch required under sub-rule (1) on a quarterly basis.”

This means that the successful bidder has to make a payment equivalent to the revenue share and other statutory levies that would have been payable at the prescribed level of minimum production/dispatch on a quarterly basis.

Furthermore, the ministry’s draft notification states: “In case the lessee does not maintain minimum dispatch… for three consecutive quarters, the State Government may terminate such lease.”

Significance of proposed amendment

The proposed amendment is significant on several counts. To begin with, availability of iron ore was disrupted as a result of the non-operationalisation of many iron ore mines and/or delayed and lower than stipulated production from those mines, the leases of which had expired in Mar’20.

Iron ore production in the country as on Sept’19 was 110.95 mn t, whereas during the current financial year, production up to Sept’20 dropped to 76.01 mn t – a decline of 31.5%. In Odisha, production dropped by over 30 mn t in the Apr-Nov’20 period. This resulted not just in iron ore prices shooting up manifolds but also a grave supply crisis for those without captive mineral sources.