India Tackles The Licence Raj

Published by MAC on 2006-06-07
Source: Australian Financial Review/Bloomberg

India tackles the licence Raj

Australian Financial Review/Bloomberg
Debarati Roy

7th June 2006

India plans to overhaul its 49-year-old mining law to cut permit delays, boost output and bolster economic growth in changes that may benefit investors such as South Korea's steelmaking giant, Posco.

An official panel will advise the government within two months of amendments to the Mines and Minerals Act of 1957, says Mano Ranjan, secretary to the Department of Steel. The present logjam has prevented the Steel Authority of India, the nation's largest steelmaker, from gaining a new mining licence for 15 years.

The drive is aimed at spurring investment in mining in India, which, according to McKinsey & Co, holds the world's fourth-largest reserves of bauxite and the fifth-largest of iron ore.

The legal revamp comes as India's government is opening up the economy and attempting to simplify the maze of bureaucracy known as the "licence Raj".

Easing the rules may lead to a 10-fold increase in India's iron-ore reserves, which stand at 23 billion tonnes, Ranjan says.

"Getting approvals in India seems a very difficult thing," says Jeong Tae-Hyun, deputy managing director of Posco India. Posco is the world's fourth-largest steelmaker. "We were supposed to get the initial licence to prospect ore two months back but it seems it will take much longer."

The panel is headed by Anwarul Hoda, a member of India's Planning Commission, and includes ministry representatives and officials from states holding mineral deposits. The group will seek to reduce the time it takes to issue licences, says Ranjan, who is the most senior official in the ministry.

The committee's recommendations will be effective after a revised law is approved by parliament.

The Steel Minister, Ram Vilas Paswan, said last month the government was "very keen" on the reform provided iron ore supplies for domestic users remains adequate.

"We are eagerly waiting for the Hoda committee recommendations," says P.K. Mukherjee, managing director of Sesa Goa, India's biggest exporter of iron ore, in which Japan's Mitsui & Co owns 51per cent."Companies spend a lot of time and energy running around from one government department to the other seeking approvals, which can go on for several years."

Under the act, a company has to ask the government of the state holding the reserves to recommend its proposal to the federal departments of environment and forests, according to P.K. Mishra, deputy secretary of the Federation of Indian Mineral Industries, a trade body.

The investor must then get a land-clearance permit from the state government, which is granted after the company has devised a plan to replant in another area the trees and crops that are lost due to mining.

Clearances need to follow from the state for pollution of noise, air and water. If the site is inhabited, a rehabilitation plan needs to be worked out. An application which has cleared all these stages may then be recommended by the state to the federal government, which issues the licence.

"We have been waiting for 15years to get environmental clearance to develop a mine in Chattisgarh state," says Mukund Trivedy, a spokesman for the Steel Authority in New Delhi.

Chattisgarh in eastern India holds 13per cent of the nation's reserves of iron ore and 16per cent of its coal, according to McKinsey.

"A few investors are reluctant to invest in India as it may take several years to resolve bureaucratic issues, get clearance and all the necessary paperwork before you can start work on the plant," says Alfred Wong, who helps manage $US12billion ($16 billion) of funds at Singapore-based UOB Asset Management.

Global prices of iron ore have soared because of a surge in steel demand in China, the world's biggest consumer of the metal, where the economy grew 10per cent last year.

Long-term iron-ore prices climbed 19per cent this year after rising a record 71per cent last year.

India will need to produce 71per cent more ore by 2020, according to the National Mineral Development Corporation.