Legislative Update - International Law Office

Offshore Areas Mineral (Development and Regulation) Bill 2002
Mining Laws
Foreign Direct Investment in the Mining Sector

Offshore Areas Mineral (Development and Regulation) Bill 2002

India is a party to the United Nations Convention on the Law of the Sea 1982, which allows coastal states to explore and exploit the natural resources over their continental shelf. India has rich deposits of heavy mineral sands containing mostly ilmenite (and some rutile) leucoxene, garnet, zircon, monazite and aluminium silicates which occur in isolated to extensive spreads along the coasts of India. For the development and regulation of mineral resources in the territorial waters, continental shelf, exclusive economic zone and other maritime zones of India, of which the central government is the owner, Parliament has cleared the Offshore Areas Mineral (Development and Regulation) Bill 2002. The bill awaits presidential assent.

Minerals covered by the bill include the atomic minerals covered by the Atomic Energy Act 1962, but exclude mineral oils and related hydrocarbons. The reconnaissance, exploration or production of any mineral in the offshore areas can be conducted only in accordance with a reconnaissance permit, exploration licence or production lease granted by the central government. Such rights can be granted only to an Indian national or a company incorporated or registered under the Companies Act 1956. Other conditions that must be satisfied include the submission of a work programme, possession of requisite technical ability and financial resources, and absence of breach of any previous licence or ineligibility.

The permits, licences or leases under the bill will be granted for a stipulated period. Production leases may be granted for a period of 30 years, with a renewal period of 20 years on satisfaction of the administering authority that the lessee has conducted production operations in accordance with the approved work programme. The area over which the lease is to be granted is limited to a block of 15 minutes' latitude by 15 minutes' longitude. Larger areas may be granted on a discretionary basis.

A lessee is required to pay royalties to the central government for any mineral removed or consumed from the area covered under the lease, at the rates specified in the bill. The lessees whose operations extend beyond 200 nautical miles from the baseline from which the breadth of the territorial sea is measured, will also be required to pay the amount payable by the central government to the International Seabed Authority under Article 82 of the UN convention.

The bill also empowers the central government to make rules for addressing concerns relating to pollution of offshore environment and security and safety of marine life. Each holder of operating rights is liable for any pollution or damage to marine environment resulting from activities in the offshore areas.

Mining Laws

Under a 2002 amendment to the Mineral Concession Rules 1960 (which outlines the procedures and conditions regarding reconnaissance, prospecting and mining operations), deadlines are prescribed within which the state government must decide applications for reconnaissance permits, prospecting licences and mining leases. However, the consequences of the state government failing to do so are not stipulated.

The government of India, with a view to encouraging private sector participation and inviting foreign investment in the coal sector, has announced a new Integrated Coal Policy. The policy proposes to allow Indian companies to undertake coal mining operations in new coal blocks without the existing restriction of captive consumption. The policy also proposes to allow Indian companies to be engaged in the exploration of coal reserves. The necessary amendments to the Coal Mines (Nationalization) Act 1973, the principal statute governing coal mining in India, are awaited.

Foreign Direct Investment in the Mining Sector

The Indian mining sector was opened up to foreign investment in 1993. Pursuant to liberalization measures, the current permitted limits for foreign investment in the mining sector are (i) 74% foreign equity under the automatic route for exploration and mining of diamonds and precious stones, and (ii) 100% foreign equity under the automatic route for exploration and mining of gold and silver and minerals other than diamonds, precious stones, coal, lignite, atomic minerals and petroleum and related hydrocarbons, metallurgy and processing.

Usually, investment is allowed under the 'automatic route' if the foreign investor does not have an existing or previous venture in India in the same or allied field, failing which a prior approval from the central government is required. However, for setting up 100% subsidiaries in the mining sector in India, central government approval would not be required if the foreign investor gives a declaration that it has no existing joint venture for the same area and/or the particular mineral.

For coal and lignite, the current limits on foreign investment are as follows:

• 100% for setting up or operating power projects as well as coal or lignite mines for captive consumption;

• 100% for setting up coal processing plants. However, no coal mining or sale of washed coal or sized coal from the coal processing plant is allowed; and

• 74% for exploration or mining of coal or lignite for captive consumption (in industries other than power projects which require the use of coal);
  

Up to 50% foreign investment in the coal and lignite sector is permitted under the automatic route. Investment beyond 49% in a public sector undertaking requires central government approval.

For further information on this topic please contact Anu Iyer or Aditya Shroff at CZB & Partners by telephone (+91 22 5639 6880) or by fax (+91 22 5639 6888) or by email (anu.iyer@czbpartners.com or aditya.shroff@czbpartners.com).