November 9, 2014 1:27:24 am
The mines ministry has asked the state governments to shed their insistence on setting up end-use plants within their boundaries and treat the country as a “single economic space”.
Since end users of minerals are spread across the country, their insistence on setting up plants may evoke mixed responses towards the impending auctioning of mining leases of major non-coal minerals.
The government is concerned that reluctance of the states to allow minerals extracted from within their boundaries to be used elsewhere may invite lukewarm response to the eventual competitive bidding of non-coal minerals like iron ore and bauxite.
It has already short-listed 31 mining leases to be auctioned to prospective bidders by April next year and 150 leases through 2015.
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Although preparations are on to promote competitive bidding, the states would have to come on board as they would be executing the mining agreements with the winning bidders. Their established position is that minerals extracted within their territorial domain should be value added there and not outside, a senior mines ministry official pointed out.
But the National Mineral Policy 2008 says that mineral processing units should not only get an assured supply of the mineral raw material but should also have close links with the production and marketing agencies of the mineral based end products.
“Mining as a backward linkage and Value addition within the same state as a forward linkage will, therefore, be encouraged,” says the policy.
It is learnt that states like Chhattisgarh and Orissa have reservations on the bidding process. This is because they feel that this could encourage companies to leave a infrastructure deficient state for other locations which have better evacuation mechanisms and potential markets, the official reasoned.
This offers a direct challenge to the demand for value-addition by the states within their boundaries as the winning bidders can buy mining rights through auction and then ship the mineral to any part of the country for processing it after paying royalty.
Steel plants have traditionally come up in the backward areas and have contributed immensely in uplifting the economic landscape of those places, which these states have maintained.
However, the government is moving ahead with the auctioning of 31 mines in the first phase and it is understood to have decided to invite financial bids wherein the intrinsic value of the mineral would be captured through the discounted cash flow (DCF) approach.
The DCF methodology uses future free cash flow projections and discounts them (most often using the weighted average cost of capital) to arrive at a present value, which is used to evaluate the potential for an investment proposal, the official said.
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