Legislative Update - International Law Office

International Law Office

Energy & Natural Resources - India

Legislative Update

November 17 2003

Mining Law
Oil & Gas Law
Domestic Infrastructure


Mining Law

Mineral Concession (Amendment) Rules 2003
The Mineral Concession Rules 1960 outline the procedure and conditions for obtaining reconnaissance permits, prospecting licences and mining leases. The rules apply to all minerals other than atomic minerals. On April 10 2003 the central government issued the Mineral Concession (Amendment) Rules 2003, which will come into force on the date of publication in the Official Gazette.

The amendment rules prescribe a minimum size for any mining lease granted under the Mining Concession Rules. Under the new Rule 22D, a mining lease should be for a minimum of:

  • one hectare in respect of small deposits;
  • two hectares in respect of beach sands and placers; and
  • four hectares in respect of all minerals that do not fall under either of the above categories.

Rule 29A, to be inserted into the Mining Concession Rules, provides that no lessee shall determine all or part of the lease unless a final mine closure plan has been approved by the regional controller (or such officer authorized by the state government) and the plan is implemented as per the approval.

Further, the amendment rules prescribe fresh guidelines for the calculation of royalties for various minerals.

Mineral Conservation and Development (Amendment) Rules 2003
The Mineral Conservation and Development Rules 1988 outline the measures to be taken for scientific mining and environmental conservation. These rules do not apply to coal, lignite, stowing sand, petroleum, natural gas, atomic minerals or minor minerals. On April 10 2003 the central government issued the Mineral Conservation and Development (Amendment) Rules 2003, which will come into force on the date of publication in the Official Gazette.

The amendment rules introduce new provisions into the Mineral Conservation and Development Rules in line with the amendments to the rules with regard to mine closures.

The amendment rules provide that every mine must have a closure plan of either a progressive or final closure nature. The purpose of the closure plan is to provide details of reclamation and rehabilitation work that is to be carried out by the mining leaseholder.

In the case of a new mining lease, the progressive mine closure plan must be submitted in the prescribed format, as part of the mining plan, to the regional director of mines or any officer authorized by the state government. In the case of an existing mining lease, the plan must be submitted to the regional director of mines or any officer authorized by the state government within 180 days from the commencement of these rules.

Progressive mining plans must be reviewed once every five years and re-submitted to the relevant authority.

A final mining closure plan must be submitted in the prescribed format to the regional director of mines or any other office so authorized by the central government one year before the proposed closure of the mine.

The mining closure plan may be modified by an application to the director general of mines.

Under the amendment rules, the leaseholder must ensure that protective measures including reclamation and rehabilitation are carried out in accordance with the approved mine closure plan. A yearly report on the implementation of the protective measures must be submitted to the state government.

Financial assurance must be supplied by every leaseholder as security for the implementation of reclamation and rehabilitation work. Where such work is carried out by the leaseholder, the financial assurance shall be reduced by the amount spent. The leaseholder will be released from the financial assurance if it is given notice that there has been satisfactory compliance with the mining closure plan.

Certain forms have been introduced by these amendments for the purpose of filing periodic reports.

Mineral Conservation and Development (Second Amendment) Rules 2003
On April 10 2003 the central government issued the Mineral Conservation and Development (Second Amendment) Rules 2003, which will come into force on the date of publication in the Official Gazette. The second amendment introduces the United Nations Framework Classification of Mineral Resources into the rules, which essentially lays down the method for calculation of mineral resources and reserves.

Oil & Gas Law

Supreme Court order on disinvestment of government stake
On September 16 2003 the Supreme Court held that the government can divest its shareholdings in two major oil companies, Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum Corporation Limited (BPCL), only with parliamentary approval.

HPCL and BPCL were formed in 1974 and 1976 for vesting the Indian oil and gas assets of Exxon and Caltex respectively, which were acquired and vested in the government through acts passed by Parliament. The acts impose no restrictions on the sale of shares in BPCL and HPCL by the government. However, the Supreme Court observed that the acts empower the government only to vest assets that were acquired pursuant thereto, in a "government company". HPCL and BPCL would cease to be government companies after disinvestment by the government. On this basis and others, the Supreme Court held that sale of the government shareholding can be carried out only with parliamentary approval.

This ruling may signify a major setback in the implementation of the government's disinvestment policy. The government is now examining its options for resuming the sale process and restoring investor confidence in its disinvestment policy.

Draft Natural Gas Pipeline Policy
On September 29 2003 the central government announced a draft Natural Gas Pipeline Policy for governing the development of the natural gas pipelines network in India. The government invited comments on the draft policy from interested parties, which were to be submitted by October 31 2003.

The salient features of the draft policy are as follows:

  • Pipelines that cover more than one state or that operate at a pressure over a specified level will be built/managed by a company to be notified by the government and until such time by GAIL (India) Limited, a government company.
  • The establishment and operation of natural gas pipelines will be governed by a regulatory body, to be established pursuant to the Petroleum Regulatory Board Act (which is presently before the Parliament) and until then by the government.
  • The consent of the regulator is required for the establishment of any network of natural gas pipelines.
  • The producers of gas (with the permission of the regulator) will be entitled to sell gas within 100 kilometres of the well-head or land-fall point to consumers directly, and lay pipelines for this purpose.
  • All gas pipelines except captive transmission gas pipelines must be built on the common carrier principle.
  • The regulator will approve the tariff for transmission and distribution pipelines, so as to provide a reasonable rate of return. This tariff will serve as a ceiling to enable lower negotiated rates based on market prices.

Domestic Infrastructure

The Indian infrastructure sector is believed to have great growth potential over the next few years. One of the most recent and important developments in this sector is the introduction of the Electricity Act 2003, which came into force from June 10 2003.

The act deals with four main categories of entities engaged in the electricity sector:

  • generating companies;
  • transmission licensees;
  • distribution licensees; and
  • trading licensees.

Each of these categories, other than generating companies, requires a licence pursuant to the act.

The appropriate commission (ie, the Central Electricity Regulatory Commission or the State Electricity Regulatory Commission, as the case may be) is entitled to fix the tariff for:

  • the supply of electricity by a generating company to a distribution licensee;
  • the transmission of electricity;
  • the wheeling of electricity; and
  • the retail sale of electricity (which in some cases may serve as a ceiling).

The details and provisions for the regulation and functioning of the electricity sector, including principles for granting open access, are to be laid down in policies, regulations and rules to be framed by the government or the appropriate commission, pursuant to the act.

Previously, under the Electricity (Supply) Act 1948, a generating company was required to sell electricity generated by it only to the state electricity board and the sale of electricity to any other person required the consent of the relevant state government. Accordingly, power purchase agreements were entered into with the state electricity board in question, since consent for third-party sales was seldom forthcoming. However, pursuant to the act, a generating company may sell electricity to any person in accordance with the regulations to be framed by the State Electricity Regulatory Commission for open access.

A transmission licensee must provide non-discriminatory open access to its transmission system by other licensees or generating companies upon payment of transmission charges. A transmission licensee is also barred from engaging in trading in electricity. 'Open access' refers to a non-discriminatory provision for the use of transmission lines, distribution systems or associated facilities with such lines or systems, by any licensee, consumer or individual engaged in generation in accordance with the regulations specified by the appropriate commission.

A distribution licensee must supply electricity with its area of supply as a common carrier providing non-discriminatory open access.

Pursuant to Section 185(2) of the act, actions taken under the enactments repealed thereby (including any rule or notification issued) shall be deemed to have been done or taken under the corresponding provisions of the act. Therefore, it appears that erstwhile policies issued by the state governments, including captive power policies, continue to apply even under the regime governed by the act.


For further information on this topic please contact Bahram N Vakil, Anu Iyer, Manisha More or Upendra Joshi at CZB & Partners by telephone (+91 22 5639 6880) or by fax (+91 22 5639 6888) or by email (bahram.vakil@czbpartners.com or anu.iyer@czbpartners.com or manisha.more@czbpartners.com or upendra.joshi@czbpartners.com).



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