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Govt notifies draft rules for transfer of mines, seeks comments till 25 May

12 May, 2016

The government on Wednesday notified draft rules for transfer of captive mine leases in the event of ownership changing hands.

According to the terms and conditions laid down by the mines ministry, the miner or transferee, to whom the mine is being transferred, shall pay transfer charges to the state government. These charges will be equivalent to a certain percentage of the royalty paid, the notification added without specifying them. These charges will be notified separately.

This follows after the Rajya Sabha, earlier this month, passed amendments to the Mines and Minerals Development and Regulation (MMDR) Act, which allowed companies to transfer captive mining leases that were allotted before January 2015. The amendment will help revive stuck deals in India’s cement and mining space.

The rules also specify that the state government shall raise a demand upon the transferee for making an upfront payment of an amount equal to 0.50% of the value of the estimated resources. The ministry of mines has sought comments and suggestions on the draft rules by 25 May.

The government’s move comes in the backdrop of a rout in the resource space with depressed mineral prices and is an attempt to avoid future high-value deals such as Ultratech Cement Ltd’s, part of the Aditya Birla Group, acquisition of Jaiprakash Associates Ltd hitting a spanner as such transfers were previously not allowed.

The draft rules added that within 90 days of receiving an application, the state government will have to convey its decision to approve or reject such a transfer. Also, the transferee shall contribute to the National Mineral Exploration Trust (NMET) and District Mineral Foundation (DMF).

Experts are of the opinion that charging a transfer fee is logical as miners who were allotted mines before the auction route came into force, have not paid any upfront payment to the government.

However, they are quick to add that the critical question is about the percentage of royalty to be charged from them.

“Currently, commodity prices are low and there is severe pressure on the margins of miners. They will also have to shell out a huge proportion towards DMF, NMET funds along with royalty. Hence, a higher percentage will be really prohibitive for miners,” said Dipesh Dipu, partner at Jenissi Management Consultants, a consultancy focused on energy and resources.

According to a notification related to contribution towards DMF on 17 September 2015, the ministry of mines levied 10% of the royalty on those mining leases granted after the enforcement of the Act on 12 January 2015 and 30% of the royalty on those leases granted prior to that.

India’s mineral production for financial year 2015-16 increased by 9% to 495 million tonnes. A total of seven states including Madhya Pradesh, Chhattisgarh, Gujarat, Goa, Odisha, Andhra Pradesh and Karnataka have set up DMF in their respective districts, while the state Cabinets of Jharkhand and Telengana have approved setting up of DMF, but it is yet to be constituted.

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Govt notifies draft rules for transfer of mines, seeks comments till 25 May

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