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India faces policy logjam over equity stakes to private miners

12th August 2013

By: Ajoy K Das

Creamer Media Correspondent

  

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KOLKATA (miningweekly.com) - The Indian government is caught in a quandary over whether to facilitate the participation of specialised mining majors in projects through equity participation by way of public-private partnerships (PPPs), or as pure mine developer operators (MDOs).

In response to feedback sought by the Mines and Coal Ministries, leading global resource majors, including the likes of Rio Tinto and BHP Billiton, have conveyed that, apart from longer tenure of between 30 and 35 years for contract mining, most global miners would only be interested in minority equity holding in projects if contract miners were expected to bear the project risk and be involved in raising finance to fund it, a Mines Ministry official involved in fleshing out a framework for contract mining policy said.

Despite the reluctance of standalone mining majors to participate in projects on a pure MDO contract basis, without equity participation, the Mines Ministry was working on severely restricting PPPs in which mine operators were offered minority stakes, Mining Weekly Online recently reported.

In modifications in the new mining legislation currently before the Indian Parliament, the Ministry proposed private sector participation in mining projects, particularly in coal, through MDO contracts only, since private equity participation would not stand up to legal scrutiny without amending the coal nationalisation laws which sanctioned only government mining of coal.

A note incorporating the lukewarm response of global miners to MDO contracts has been drafted and circulated by the Mines Ministry, with the latter favouring offering equity in PPP projects, in principle, but noting it is hamstrung in framing an enabling policy in the face of opposition from within government, including the Coal Ministry, officials said.

According to an official in the Coal Ministry, addressing concerns of mining majors and accommodating their preference for equity investments in projects would require a fine balance - a policy that would be difficult to achieve under the present political and industrial relations environment in the Indian mining sector.

Elaborating, he said that trade unions operating in Coal India Limited (CIL) were readying for an indefinite strike to oppose government’s plan to disinvest 10% of CIL's equity to private investors, alleging that such a move would be ‘backdoor privatisation of the coal sector violating the coal nationalisation laws.”

The various trade unions, representing 363 000 CIL workers, were currently in the process of serving the mandatory notice to go on an indefinite strike from next month.

If disinvestment of a small government equity holding to private investors provoked such opposition and risk of industrial unrest, the political and industrial environment would not be conducive to offering equity in mining assets to overseas miners for development.

Acknowledging a logjam in policymaking, the official conceded that in any PPP project the private partner would invariably be responsible for bringing in the latest mining technologies, ensuring the shortest possible gestation period and leveraging its global presence to raise funds, adding that no private major would be willing to take such responsibilities without a financial stake in the project.

Edited by Esmarie Iannucci
Creamer Media Senior Deputy Editor: Australasia

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