Mining in India

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InfoPAKSM Energy and Natural Resources Multi-Jurisdictional Guide: Mining in India

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Energy and Natural Resources

Multi-Jurisdictional Guide: Mining in India

December 2014

Provided by the Association of Corporate Counsel 1025 Connecticut Avenue, NW, Suite 200

Washington, DC 20036 USA tel +1 202.293.4103 fax +1 202.293.4107 www.acc.com

This InfoPAKSM provides a high level overview of the domestic mining sector, its regulatory structure and ownership, the environment and health and safety. It covers foreign ownership and tax issues and proposals for reform.

The information in this InfoPAKSM should not be construed as legal advice or legal opinion on specific facts, and should not be considered representative of the views of PLC or of ACC SM or any of its lawyers, unless so stated. This InfoPAK is not intended as a definitive statement on the subject but rather to serve as a resource providing practical information for the reader.

This material was developed by PLC. For more information about PLC, visit their website at http://www.practicallaw.com/ or see the “About the Author” section of this document.

Contents

I. Overview ...... 5

A. Provide an Overview of the Recent Developments in the Exploration and Extraction of Mineral Resources in Your Jurisdiction...... 5

II. Regulatory Structure ...... 6

A. Regulation ...... 6

B. Ownership ...... 7

C. Authorisation ...... 8

III. Environment ...... 11

A. What Are the Main Ongoing Requirements for Environmental Protection? ...... 11

IV. Health and Safety ...... 12

A. What Are the Main Ongoing Requirements for Compliance with Health and Safety Regulations? ...... 12

V. Foreign Ownership ...... 12

A. Are There Any Restrictions Concerning the Foreign Investment and Ownership of Companies Engaged in the Exploration and Extraction of Mineral Resources in Your Jurisdiction? ...... 12

VI. Tax ...... 13

A. What Payments, Such as Taxes or Royalties, Are Payable by Interest Holders to the Government? ...... 13

B. Does the Government Derive Any Other Economic Benefits from the Exploration and Extraction of the Mineral Resources? ...... 13

C. What Taxes and Duties Apply on the Import and Export of Mineral Resources? ...... 13

VII. Reform ...... 14

A. Are There Any Plans for Changes to the Legal and regulatory framework? ...... 14

VIII. The Regulatory Authorities ...... 14

A. Ministry of Mines ...... 14

B. Indian Bureau of Mines (IBM) ...... 14

C. Petroleum and Natural Gas Regulatory Board ...... 15

IX. About the Authors ...... 16

A. Alice George, Partner ...... 16

B. Manasvini Raj, Associate ...... 16

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C. Paridhi Adani, Associate ...... 17

I. Overview

A. Provide an Overview of the Recent Developments in the Exploration and Extraction of Mineral Resources in Your Jurisdiction.

India is wealthy in its mineral resources and is largely self sufficient in the primary mineral raw materials used in industry. The primary mineral resources found are:

■ Mineral fuels coal and lignite.

■ Bauxite, chromite, iron and manganese ores.

■ Metallic minerals Ilmenite and rutile.

■ Almost all industrial minerals with the exception of chroysotile asbestos, borax, fluorite, kyanite, potash, rock phosphate and elemental sulphur. According to the latest reports released by the Indian Bureau of Mines (IBM) in 2013, the mining and quarrying sector accounted for about 2.4% of total GDP at US$32.381 billion. The mining sector also provides employment to around 0.6 million people.

Some of the current major mining projects in India are:

■ Development and operation of coal blocks in the State of Chhattisgarh by Adani Mining Private Limited (a joint venture company with Rajasthan Rajya Vidyut Utpadan Nigam Limited).

■ Iron ore mining project in Kandhadhar Mines in the State of Odisha being undertaken by POSCO.

■ Iron ore mining project in Gua in the State of Jharkhand being undertaken by Steel Authority of India. Recent developments in mining include the introduction of the Mines and Minerals (Development and Regulation) Bill 2011 (the MMDR Bill), which is aimed at replacing the existing Mines and Minerals (Development and Regulation) Act 1957 (MMDR Act). The MMDR Bill seeks to provide a better environment for attracting both investment and technology in the mining sector (see Section VII.A).

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II. Regulatory Structure

A. Regulation

1. Describe the Regulatory Framework for the Exploration and Extraction of Mineral Resources in Your Jurisdiction. a. Regulatory Framework India has a federal structure. Power and responsibilities are divided between the Union and the states in accordance with three lists contained in the Seventh Schedule of the Constitution of India 1950 (Constitution). These lists are:

■ Union - List I.

■ State - List II.

■ Concurrent List - List III. The union parliament has the exclusive power to make laws on matters enumerated in List I, the state legislatures on matters enumerated in List II and both the Union and the states have the power to legislate on matters enumerated in List III.

Under the Constitution, state governments have been given powers under entry 23 of List II to regulate mines and the development of minerals, subject to entry 54 of List I, which allows the central government to exercise powers concerning the regulation of mines and the development of minerals to the extent that such regulation and development is declared by the parliament to be in the public interest. Apart from these entries, the state governments have been granted the power to impose taxes on mineral rights under entry 50 of List II.

Minerals are classified into minor minerals and major minerals. Minor minerals include building stones, gravel, ordinary sand and any other minerals that the central government may declare to be a minor mineral (Mines and Minerals (Development and Regulation) Act 1957 (MMDR Act)). Minerals other than minor minerals are typically treated as major minerals, including coal, manganese ore, iron ore as well as other minerals used for industrial purposes.

The MMDR Act contains substantive and procedural law relating to the grant, renewal and termination of reconnaissance permits (RPs), prospecting licences (PLs) and mining leases (MLs) (see Section II.C.1). It also sets out the legal framework for the development of all minerals (other than petroleum and natural gas) and the regulation of mines.

Among other things, the Mineral Concession Rules 1960 (MC Rules) outline the procedures for obtaining an RP, PL and/or ML and the terms and conditions of such licences or leases.

In addition, the Mineral Conservation and Development Rules 1988 (MCD Rules) ensure that mining is done on a scientific basis, while conserving the environment.

The provisions of the MC Rules and MCD Rules are, however, not applicable to coal, atomic minerals and minor minerals, which are regulated separately. There are additional laws that govern the framework of coal mining in India, which are not covered here.

The general restrictions on the undertaking of mining operations contained in sections 4 to 9 of the MMDR Act have no application to minor minerals. The state governments have formulated minor mineral concession rules, under the MMDR Act, to regulate, among other things, the exploitation of minor minerals in the respective states.

The Offshore Areas Mineral (Development and Regulation) Act 2002 regulates the development of mineral resources in territorial waters, continental shelf, exclusive economic zone and other maritime zones of India.

In addition to the legislation listed above, several environmental, health and safety laws apply to the mining industry (see Section III.A and IV.A).

b. Regulatory Authorities The Ministry of Mines is responsible for the administration of mining laws in India. In addition, the Indian Bureau of Mines monitors and regulates mining activity through the processing and approval of mining plans and also advises the government on matters in relation to the mineral industry, export and import policies, trade, mineral legislation and related matters (see Section VIII).

The state governments grant mineral concessions for all minerals located within the boundary of their respective area.

B. Ownership

1. How Are Rights to the Mineral Resources Held, and Who Holds Those Rights? a. Proprietary Rights The relevant state government is the licensing authority in relation to all minerals located within the boundary of the state (Mines and Minerals (Development and Regulation) Act 1957 (MMDR Act) and Mineral Concession Rules 1960 (MC Rules)).

The Supreme Court recently conferred rights to mineral wealth on landowners rather than vesting them in the state (Threesiamma Jacob and Ors. v. Geologist, Dptt. of Mining and Geology and Ors [2013 (9) SCALE 1]). However, judicial precedent is still evolving and the Supreme Court is yet to rule on certain aspects of ownership of minerals such as the liability of private owners to pay royalties.

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b. Surface Rights The holder of a reconnaissance permit (RP), prospecting licence (PL) or mining lease (ML) has the right to enter lands over which the permit, lease or licence has been granted and carry out all such operations as may be prescribed (MMDR Act). The holder of a permit, licence or lease is also liable to pay compensation in such manner as may be prescribed for any loss that is likely to arise or has arisen from or in consequence of its operations.

In addition, where the land is not owned by an applicant for any of an RP, PL or ML, such an applicant is required to obtain surface rights over the area or obtain the consent of the owner to start prospecting or mining operations (MC Rules).

C. Authorisation

1. What Are the Key Features of the Leases, Licences or Concessions Which Are Issued under the Regulatory Regime? Can These Rights Be Leased by the Right-Holder? The following licences are issued by the state government (Mines and Minerals (Development and Regulation) Act 1957 (MMDR Act)):

■ Reconnaissance permit (RP): an RP is for the purpose of undertaking reconnaissance operations and is a right to perform any operations undertaken for preliminary prospecting of a mineral.

■ Prospecting licence (PL): a PL is for the purpose of undertaking operations with respect to exploring, locating or proving mineral deposits.

■ Mining lease (ML): an ML is a lease, which also includes a sub-lease, for the purpose of undertaking mining operations with respect to extracting minerals from the relevant mine. For certain minerals, such as hydro carbon energy minerals (like coal), atomic minerals, metallic and non-metallic minerals, the state governments can only grant the licences/permits listed above with the prior approval of the central government.

a. Lease/Licence/Concession Term RPs and PLs can be granted for any mineral or prescribed group of associated minerals for a maximum period of three years. There is no provision for extension by renewal of the period of an RP. The relevant state government can renew a PL up to a maximum aggregate period of five years. An ML must be granted for between 20 and 30 years.

b. Fees RP. An application for an RP must be accompanied by a non-refundable fee at the rate of INR5 per square kilometre. The holder of an RP must also pay a permit fee fixed by the

Copyright © 2014 Practical Law Company (PLC) & Association of Corporate Counsel 9 state government, which cannot be less than INR5 per square kilometre nor more than INR20 per square kilometre of land held by the permit holder for each year or part of a year.

The applicant must also pay a security deposit of INR20 per square kilometre or part.

PL. An application for a PL must be accompanied by a non-refundable fee at the rate of INR250 for the first square kilometre or part and INR50 for each additional square kilometre or part. The licensee must pay a prospecting fee as fixed by the relevant state government, which cannot be less than INR1 nor more than INR10 per hectare of land covered by the licence for each year or part of a year of the period for which the licence is granted or renewed.

In addition, the applicant must pay a security deposit of INR2,500 per square kilometre or part.

ML. An application for an ML must be accompanied by a non-refundable fee of INR 2,500. The holder of an ML must pay dead rent and royalties to the state government (MMDR Act).

In addition, the applicant must pay a security deposit of INR10,000. The lessee must also pay surface rent and water rates in accordance with the Mineral Concession Rules 1960.

c. Liability Mining tenements are subject to conditions imposed by legislation and the terms of the grant. These conditions may require the holder to comply with environmental standards, undertake environmental rehabilitation or provide security to the state.

Failure to comply with the relevant laws may result in regulatory action being taken against a tenement holder. Such action can include statutory orders, notices or injunctions being issued or significant fines, if convicted of a criminal offence. It may also result in the forfeiture of the mining tenement.

RP. The primary obligations of the permit holder include to:

■ Progressively relinquish the area.

■ Adhere to the minimum expenditure commitment and specific physical targets specified in the order of grant of the permit, failing which the permit may be cancelled.

■ Maintain accurate accounts of expenses.

■ Submit a report of the work done during the period and refrain from using any forest area without prior permission. PL. The primary obligations of the licence holder include:

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■ To report the discovery of any mineral to the relevant state government within 60 days of discovery.

■ A restriction on the transfer of the licence without the prior permission of the state government.

■ The payment of compensation for surface rights. ML. The primary obligations of the lessee include duties to:

■ Report to the relevant state government the discovery in the leased area of any mineral not specified in the ML within 60 days of such discovery.

■ Pay compensation for the surface area used by the lessee for the purposes of mining operations.

■ Commence mining operations within two years of the date of execution of the lease. An ML can contain any other conditions that the relevant state government deems necessary.

d. Termination of Leases/Licences Where there is a breach of any condition imposed on the holder, the RP, ML or PL can be cancelled by the relevant state government and/or the amount deposited as security deposit (as applicable) may be forfeited in whole or in part.

The central government can, after consultation with the relevant state government, cancel an ML or a PL if it is in the public interest to do so (MMDR Act).

e. Restrictions Eligibility restrictions. An RP, PL or ML can only be granted to an Indian national or a company registered in India under the Companies Act 1956, as amended from time to time (MMDR Act).

Restrictions on transfer. A PL can only be transferred with the prior approval of the relevant state government (Mineral Concession Rules 1960 (MC Rules)).

In relation to an ML, the lessee cannot, without the prior written consent of the relevant state government (MC Rules):

■ Assign, sublet, mortgage, or in any other manner, transfer the mining lease, or any right, title or interest to it.

■ Enter into any arrangement, contract or understanding under which the lessee will or may be directly or indirectly financed to a substantial extent, or under which it may allow itself to be controlled by any trust, syndicate, corporation, firm or person. However, such prior consent is not required where the mortgagee is an institution, bank or corporation as specified in Schedule V of the MC Rules.

2. How Are Such Leases, Licences or Concessions Awarded? An application for a licence or lease must be made to the relevant state government in the prescribed form, and be accompanied by the prescribed fee (Mines and Minerals (Development and Regulation) Act 1957 (MMDR Act)). The state government grants a lease or licence, having regard to the provisions of the MMDR Act and any rules made in accordance with it.

The holder of a reconnaissance permit (RP) has a preferential right to obtain a prospecting licence (PL). Where a PL has been granted in respect of any land, the licensee has a preferential right to obtain a mining lease (ML) in respect of that land.

III. Environment

A. What Are the Main Ongoing Requirements for Environmental Protection?

The key environmental permits required in relation to mining operations are:

■ Consent as required under the Forest (Conservation) Act 1980 for any mining activity in a forest area.

■ Consent from the relevant state Pollution Control Board before establishing or operating any industry or process likely to pollute the environment (required under the Air (Prevention & Control of Pollution) Act 1981 and the Water (Prevention & Control of Pollution) Act 1974).

■ Consent as required under the Hazardous Wastes (Management and Handling) Rules 1989 in respect of "hazardous waste". Such consent must be obtained from the relevant state Pollution Control Board.

■ Environmental clearance from the Ministry of Environment and Forests, as required under the Environment Protection Act 1986, including the provisions of Environmental Impact Assessment Notification 2006.

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IV. Health and Safety

A. What Are the Main Ongoing Requirements for Compliance with Health and Safety Regulations?

Employers must ensure that they comply with requirements under the following key labour welfare and safety-related legislation:

■ The Mines Act 1952, which contains requirements relating to the safety and welfare of workers in mines.

■ The Mines Rules 1955, which set out health and sanitation provisions for workers in mines.

■ The Metalliferous Mines Regulations 1961, which are applicable to all mines other than coal mines and oil wells concerning notification of an accident or disease inside a mine.

■ Mines (Rescue) Rules 1985, which relate to the welfare of workers in the event of accidents inside mines and rescue operations.

V. Foreign Ownership

A. Are There Any Restrictions Concerning the Foreign Investment and Ownership of Companies Engaged in the Exploration and Extraction of Mineral Resources in Your Jurisdiction? Foreign direct investment is permitted in mining up to 100% under the automatic route (under the Consolidated Foreign Direct Investment Policy of 5 April 2013):

■ For mining and exploration of metals and non-metal ores (subject to the Mines and Minerals (Development and Regulation) Act 1957 (MMDR Act)).

■ For mining and mineral separation of titanium bearing minerals and ores, value addition and integrated activities, subject to approval of the Foreign Investment Promotion Board, sectoral regulations and the MMDR Act.

■ For mining of coal and lignite for captive consumption for power projects, and iron and steel (among other things), and for setting up coal processing plants.

VI. Tax

A. What Payments, Such as Taxes or Royalties, Are Payable by Interest Holders to the Government?

1. State Royalties The holder of a mining lease (ML) must pay royalties and dead rent at specified rates (Mines and Minerals (Development and Regulation) Act 1957 (MMDR Act)).

2. Corporate Income Tax Mining, like any other industrial sector, attracts corporate taxes under the Income Tax Act 1961. The corporate tax rate for domestic companies is 30% and foreign companies (defined as companies that are not registered in India and whose management control is exercised from a foreign country) are taxed at 40%. A surcharge and education cess is also applicable in certain situations.

3. Tax on Dividends Indian companies are liable to Dividend Distribution Tax (DDT) at the time of declaration, distribution or payment of a dividend, whichever is earlier.

B. Does the Government Derive Any Other Economic Benefits from the Exploration and Extraction of the Mineral Resources?

Certain additional economic benefits derived by the government from mining activity include, among other things, revenue from the auctioning of mining blocks for captive use through competitive bidding; and value added tax on the sale of goods within a state and forex from mineral exports.

C. What Taxes and Duties Apply on the Import and Export of Mineral Resources?

Customs duty is an indirect tax levied on the import of goods including mineral resources into India, as well as goods exported from India. The import duties imposed include import taxes, true countervailing taxes, additional customs taxes and anti-dumping duties.

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VII. Reform

A. Are There Any Plans for Changes to the Legal and regulatory framework?

A bill amending the Mines and Minerals (Development and Regulation) Act 1957 (MMDR Act) has been proposed to overhaul the mining regime. The bill addresses issues relating to:

■ Sustainable mining.

■ Local area development.

■ Ensuring transparency, equity, and effective redress and regulatory mechanisms.

■ Incentives encouraging good mining practices, technology absorption and the exploitation of deep-seated minerals.

VIII. The Regulatory Authorities

A. Ministry of Mines

Address. 3rd Floor, A wing Shastri Bhawan New Delhi 110001, India T +91 11 2338 8121 F +91 11 2338 3011 E [email protected] W http://mines.nic.in/

Main responsibilities. The Ministry of Mines is responsible for the administration of mining laws in India.

B. Indian Bureau of Mines (IBM)

Address. 2nd Floor, Indira Bhawan, Civil Lines Nagpur 440001, India

T +91 712 256 0041 F +91 712 256 5073 E [email protected] W http://ibm.gov.in/

Main responsibilities. The IBM monitors and regulates mining activity through the processing and approval of mining plans and also advises the government on matters in relation to the mineral industry, export and import policies, trade, mineral legislation and related matters.

C. Petroleum and Natural Gas Regulatory Board

Address. First Floor, World Trade Centre Babar Road New Delhi 110001, India T +91 11 2345 7700 F +91 11 2370 9151 E [email protected] W www.pngrb.gov.in

Main responsibilities. Regulates the refining, processing, storage, transportation, distribution and marketing of petroleum products.

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IX. About the Authors

A. Alice George, Partner

Amarchand & Mangaldas & Suresh A. Shroff & Co.

T +91 22 2496 4455 F +91 22 2496 3666 E [email protected]

Professional qualifications. Admitted to the Bar Council of Maharashtra and Goa, 2006. BA, LL.B(Hons), MSc in Development Management.

Areas of practice. Projects; project finance; private equity.

Recent transactions

Advised a large Indian conglomerate in its acquisition of assets, liabilities and operations of various cement units of a company in India including acquisition of various prospecting licences and mining leases and their transfer; and on the required consent of the relevant state government for such acquisition.

Languages. English

B. Manasvini Raj, Associate

Amarchand & Mangaldas & Suresh A. Shroff & Co.

T +91 22 2496 4455 F +91 22 2496 3666 E [email protected]

Professional qualifications. Admitted to the Bar Council of Uttar Pradesh, India, Advocate, 2010. BA, LL.B (Hons).

Areas of practice. Project finance; infrastructure.

Recent transactions

Has acted for lenders as well as developers. Has done several deals in the power sector including renewable energy projects as well as the ports and roads sectors. Has recently advised a large Indian conglomerate in relation to supply of mining equipment and provision of mining services in relation to an offshore mining project.

Languages. English

C. Paridhi Adani, Associate

Amarchand & Mangaldas & Suresh A. Shroff & Co.

T +91 22 2496 4455 F +91 22 2496 3666 E [email protected]

Professional qualifications. Admitted to the Bar Council of Maharashtra and Goa, India, 2014. LL.B.

Areas of practice. Corporate; projects (especially ports and mining).

Non-professional qualifications. Bachelor of Commerce (accountancy and finance)

Recent transactions

Has been involved in various joint venture agreements for rail and port projects.

Languages. English

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