INDIAN MINING INDUSTRY

INTRODUCTION ► Indian mining industry, like any other industry, was inward looking. ► FDI limit to 40% ► Coal Mines Nationalisation in 1972 and 1973 gave set-back to foreign investment. ► Industry was protected from foreign competition by raising the tariff walls. ► Vested interests developed leading to high cost economy.

OPENING-UP ► National Mineral Policy (NMP) revised in August, 1993 leading to amendments in MMRD Act, 1957(in January 1994) allowing foreign companies to invest upto 50% in mining and throwing open all the non atomic and non-coal minerals for private investment. ► In December 1999, the Act was further changed and rechristened as Mines and Minerals (Development and Regulation) (MMDR) Act, 1957 to give prominance to development over regulation. ► Provision of reconnaissance permits was introduced and raising the cap of FDI in February, 2000 from 50% to 100% for all minerals other than diamond and precious stones where it was kept upto 74% which has also been now raised to 100%.

► Tariff walls have been reduced and in the latest Budget 2006, the customs duty has been reduced to:  Mineral ores and concentrates: 2%  Mineral products except for cement, marble, granite and asbestos: 5% marble, granite and asbestos: 5%  On primary and semi-finished metals, Ferro alloys and raw materials for refractories : 7.5% Ferro alloys and raw materials for refractories : 7.5% Tariff walls

GROUND LEVEL REALITY ► A large number of companies (267) applied for reconnaissance permits covering an area of 3,68, sq. kms. ► Area of interest: gold, copper, lead, zinc, diamond No substantial discovery so far reported ► Area of interest: gold, copper, lead, zinc, diamond No substantial discovery so far reported ► Reasons : procedural hurdles and delays leading sometimes to frustration. ► Constitution of High Level Committee to Review the National Mineral Policy under the Chairmanship of Mr. Anwarul Hoda, Member, Planning Commission (Hoda Committee) to go into all these aspects to attract investment in mining.

FUTURE SCENARIO ► Geological potential, mineral policy and political stability are the prime conditions to attract investment FactorHigh Ranking Low Geologic potential1 Mineral policy 2 Political stability 3 Negotiable terms and conditions 4 Infrastructure and utilities 5 Financial regime 6 Past experience 7 Environmental policy 8 Source: Paper on Structural Reform of the Mining Industry in Asia and the Pacific Region by Dr. Allen L. Clark and Mr. Koh Naito, Asian Journal of Mining, July-August, 1997 issue

SCOPE ► Being part of Gondwana land, India has good geological potential. ► Mineral policy will undergo tremendous change after Hoda Committee submits its recommendations. ► Being a democratic country, political stability is ensured with independent judiciary and free press as added advantage.

8  INDIA WILL BE AMONG THE LEADING MARKETS FOR BASIC MATERIALS, DRIVEN BY RAPID DEMAND ROWTH Source: McKinsey analysis Steel Million tons th largestmarket Coal th largestmarket Aluminium 10% 2.4 largestmarket 4% 8% 7% 7% 4% CONSERVATIVE SCENARIOS

9 Steel (HRC) operatingcost  FURTHER INDIA IS AMONG THE LOW COST PRODUCERS Region wise cost comparison of best-in-class players; USD/ton, 2003 *Integrated with alumina Source:World Steel Dynamics; Jaakko Poyry; James F King; McKinsey analysis Aluminaoperatingcost Aluminum operating operating cost cost Brazil India Russia Japan IndiaVenezuelaAustraliaBrazil India* Australia* S. Africa N America Europe Mid-EastEurope Europe

4  FOUR KEY BARRIERS NEED TO BE ADDRESSED BarriersDescription Infrastructure limitations  2-3 times higher railway freight  Inadequate availability of rail wagon capacity  Inadequate power evacuation infrastructure Delays in approval  3-7 years for approvals and clearances  Higher than other countries (e.g. 1.5 years in Australia) Unclear mechanism for sharing benefits with local population  Royalties not commensurate with economic value  No ‘at source” sharing mechanism with local population Constraints of regulated industries  Regulated monopoly industry structure (e.g. coal)  Power industry growth uncertain despite reforms 1 2 3

 THE GOVERNMENT INITIATIVES TO UNLEASH THE POTENTIAL OF INDIA’S MINERALS POTENTIAL : SUGGESTIONS Accord priority on minerals on minerals policies and use that as a vehicle for all vehicle for all round benefits Ensure speedy approvals/ clearances for projects Develop dedicated infrastructure through public- privatepartnerships Deregulate the coal sector and coal sector and allow private sectorparticipation ► Have outcome targets ► Share economic benefits with local population ► Push for separate mining zones (SMZs ) ► Create fast track approval process (18 months) ► Create a pull for value addition ► Build infrastructure to give logistics cost advantage ► Proactively build consensus amongst the various states and the center In order that the real mining potential of India is realised, the government must push the following four initiatives to unleash the potential of India’s mineral and metal sectors: