Opinion Concessions to reality

But all this means a paradigm shift. Because it will no longer be the metal-producing mining company who will conduct a simple prospecting survey to locate deposits close to the surface. It will have to be specialised high-risk high-return exploration companies,possessing or acquiring sophisticated but high-cost technologies,and having a huge appetite for risk who will have to be tasked with looking for deeper deposits. 

The Planning Commission set up a committee in 2005 under Anwar-ul-Hoda,which found that worldwide new deposits are mainly located by specialised exploration companies. Attracting such exploration companies (and the technology they bring),however,requires the concession system to possess two main characteristics,particularly since venture capital will be involved: first,transparency and quickness in decision-making; and second,easy transferability of the data they generate,as well as the rights and liabilities of the concession at the value they discover to another company,that will do the actual mining and value addition.

The process of making legislative changes to the concession framework in India will,therefore,need to focus specifically on these two aspects. At the same time,an analogy with either the coal sector or the oil sector for purposes of concession management will be highly misplaced.

Not only is the geological provenance of coal well known,relatively compact and limited,but technology required to locate such deposits is of a much lower order than for deep-seated mineralisation of base and precious metals. Oil too is different: it is a migrating mineral trapped between structural boundaries below the earth’s surface. Thus high-tech geophysics will be required to locate potential areas — but,unlike base or precious metals,the area of occurrence is relatively large. 

The mechanics of a concession management system which will attract high technology that can locate deep-seated mineralisation in the non-coal,non-oil sectors are therefore complex.

First of all,forming compact blocks and allocating or auctioning them like coal for mining will not work; because,unlike coal,the location of narrow,deep-seated deposits of minerals is not well known,unless some general exploration has already established it. Nor will the oil method — forming large blocks and auctioning them for reconnaissance and prospecting — necessarily work either,since,unlike oil,the actual area of occurrence will be very small in the case of deep-seated metallic minerals. Most important,while oil is a single mineral,here specific groups of associated minerals are involved,each requiring different specific technologies at some point of the exploration process. 

Therefore we need to consider a multipronged strategy. Where the ore body has been sufficiently delineated through prospecting and detailed exploration,mining rights can be directly auctioned. However,in areas where the extent of the deposits,as well as their extractability,require further detailed exploration,prospecting rights of a relatively larger area can be auctioned — though the valuations in such a case are likely to factor in the risk and uncertainty. In areas where mineral occurrence is merely detected because of regional level geological surveys — but its extent and remains unknown — blocking off an area (small or large) for granting a concession may be premature. It is probably better in such cases if the risk and reward are left open-ended.

Finally,in areas where mineral occurrence is only thought to be possible,creating even large blocks and hoping for bids might not work,since the data is too insufficient to make any kind of valuation.

Any new legislative framework must,therefore,take into account objective reality: an exploration company may spend huge sums in exploring,say,nine empty prospects before it finds one promising prospect. Such a company must have a reasonable chance to recover its cost of exploration on the failed prospects from the successful one. If this macro picture is lost,and only prospect-level transactions are factored into the framework,the paradigm shift will not be achieved,and the sector will continue on the low-risk low-return trajectory of mining mainly iron ore,bauxite and limestone. 

The writer is Special Secretary in the Ministry of Mines. The views expressed here are personal 

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