September 06, 2008

Global mining majors may be allowed to enter India

It is reported that union government is considering a proposal to allow foreign mining companies to pick up stakes in mining in India.

Currently multinationals firms engaged only in mining are not allowed stakes and up to 100% foreign direct investment is allowed in captive iron ore and coalmines. The report cited an official as saying that these rules may soon be changed to allow foreign mining majors and even foreign financial institutions to pick up stakes in captive projects.

He said “Mining is a very specialized business and requires lots of money as it is capital intensive and making the rules slightly more flexible can bring in new technology besides dollars.”

Government has decided that in the future it would offer such reserves through open bidding among captive users. Under the bidding route, the competition will be in terms of production sharing. The winning bidder will be the one who offers the highest share to the government. Successful bidders will have to furnish a bank guarantee equal in value to three years share to the government and if the mine is not developed in time, these guarantees would be encashed and the leases cancelled.

Officials said that “This will be a first step. Later when it is permitted politically, we would like to allow even pure mining companies to own and run coal and iron ore mines and sell the output to end users. This could lead to more optimum use of resources.”

The new rules could be part of a review of FDI being done by the government. Another option before the government is to include them in the mining policy, which is being discussed by a group of ministers and an allocation process is followed by the government in coal and iron ore mines.