Mineral Price Index: A Pragmatic Step for Mineral Development in India
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Rajesh Deoliya
[rajeshdeoliya@gmail.com]
An
Index is indication of a value and performance of an asset and commodity with
reference to certain predefined parameters. Index gives idea of behavior of
specified commodity or asset in the time and space and help in quick and
rational decision making. Index also help in planning purposes in the
production schedule of minerals where grade and mineral conservation is prime concern
in-turn it also helps in sustainable mining. Therefore, when government of
India recently introduced National Coal Index (NCI), it is considered as a
pragmatic step to help coal miners and government to decide the coal block
bidding parameters. Now there is proposal for National Mineral Index.
The National
Mineral Policy, 2008 and 2019, says that “the approach shall be to make
available mineral based material to domestic users at reasonable prices as
determined by market forces”, and further states that “prices should reflect
their value … ". The old mineral
laws were not defining the mineral pricing methods.
NCI
is continuous exercise to decide cost of coal which is reliable and accepted. The Ministry
of Coal on 4th June,2020 rolled out National Coal Index considering
the year 2017-18 as base year. The index is the weighted average of change in
price level of coal based on the price level of FY-2017-18. It is applicable to
Non-Coking Coal and Coking Coal extracted and sold by Coal India and its subsidiaries.
It considers various channels of transaction, and express weighted sum as a percentage of the
corresponding sum at a chosen base period. The channels consist of combinations
of different types of transaction (import/ auction/ notified price), types of
coal (coking or non-coking), quality grades and the different coal producers.
The weights, represent the importance given to different channels. The NCI come
with two sub-indices for coking coal and
three sub indices for non-coking coal, further sub indices are possible in
future as and when required like at
present they are notified price, auction price and import price ( source: Discussion
Paper - Auction of Coal Mines for Sale of Coal)
Mineral Pricing System in India:
The present system of mineral price reporting is buyer and
seller based which consider demand and supply along with various factors coming
during one to one negotiation. Since about 55 minerals are part of Schedule –
II of MMDR, 1957 and their average sale price is reported by the Indian Bureau of Mines based on the
information collected by the reporting mine leases, many times it is not truely
reflecting the market behavior and does not serve any bench-marking. For coal since
1945, the price at which the various types and grades of coal were sold was
controlled by the Central Government, under the provisions of Colliery Control
Order of 1945. Such type of regulations were not available for minerals other
than coal and lignite. Beginning in March 1996, the Government gradually
deregulated the price of various types and grades of coal. The pricing of coal
in India was completely deregulated pursuant to the Colliery Control Order,
2000 with effect from January 1, 2000. ( source:
Report on Competitiveness on coal sector, February, 2012, Ministry of
Corporate Affairs, New Delhi). The Coal pricing till the declaration of
NCI was entirely dependent on the price notified by Coal India Ltd and quoted
in the E_Auction by prospective buyer.
For other minerals there had been no pricing structure which can decide the
payments to government till the IBM started declaring average mineral prices
after introduction of mineral auction for specified minerals. The prices which
are reported to IBM by mining lease holders are negotiated prices between
buyers and sellers and invoiced. These are dependent on several factors mainly
being demand and supply and has wide variation of grade with no bench-marking.
The average sale price for common understanding is okey-dokey
but for the purpose of price based
payment system as in the case of upfront
payments in the mineral auctions it has been an issue of high criticism as it
was found that the notified prices do not represent the majority of transactions
which is in huge volume. For example, the captive mines do not raise invoices
to the end user company which they are themself and hence mineral like
limestone is technically traded at Zero price to its end use plant. The pit
head cost of raising is hardly Rs 200 per tonne while the IBM Sale price for
such limestone mineral may be ranging Rs 400 plus per tonne forcing the bidders
to pay abnormally high price in the form of payments which is incorrect. Such high
price of minerals are due to the contribution by the small mine owners who sale
their mineral in the open market at high price. Hence, India’s
mineral pricing system lacks objectivity and transparency, resulting in an
unhealthy tussle between mining companies, user industries and government.
The Sale Price and Payment Related to the Royalty of Mineral:
The National Mineral
Index, if implemented will certainly affect the payments to government which
are linked with the royalty and average sale price. Since payment to District
Mineral Fund (DMF) and National Mineral Exploration Trust (NMET) are linked
with Royaly, any change in royalty due to NMI will affect these payments to
government and hence the revenue of the government may be affected it may
increase or decrease. If due to the NMI the statutory payments are coming lower
side than industry will certainly welcome. However, it would be interesting to
know once it is finalized.
|
The
rule 39 of Mineral Concession Rule, 2016 illustrates various modes of payment of royalty which are related to the
sale pattern of mineral. (1)
In case processing of run-of-mine is carried out within the leased area, then
royalty shall be chargeable on the processed mineral removed from the leased
area. (2)
In case run-of-mine is removed from the leased area to a processing plant
which is located outside the leased area, then royalty shall be chargeable on
the unprocessed run-of-mine and not on the processed product. (3)
Wherever the Act specifies that the royalty in respect of any mineral is to
be paid on an Ad valorem basis, the royalty shall be calculated at the
specified percentage of the average sale price of such mineral grade/
concentrate, for the month of removal / consumption, as published by the
Indian Bureau of Mines. (4)
Wherever the Act specifies that the royalty in respect of any mineral is to
be paid based on London Metal Exchange or London Bullion Market Association
price, the royalty shall be calculated at the specified percentage of the
average sale price of the metal for the month as published by the Indian
Bureau of Mines, for the metal contained in the ore removed or the total
by-product metal actually produced, as the case may be, of such mineral for
the month. (5)
Wherever the Act specifies that the royalty of any mineral is to be paid on
tonnage basis, the royalty shall be calculated as product of mineral removed
or consumed from the lease area and the specified rate of royalty. |
The category of minerals and their sales price calculation :
The second Schedule of Mines and Minerals (Development and Regulation) Act, 1957 list 55 minerals and price consideration for payments of Royalty:
|
Mineral
Pricing- Ad valorem |
Mineral
Pricing-London Metal Exchange |
Mineral
Pricing- Per
Tonne |
Mineral
Pricing – London Bullion Exchange |
Mineral
Not included in list |
|
Apatite
and Rock Phosphate Barytes Bauxite-
Non Metellic Ilmenite(Rutile,Zircon) Cadmium Calcite China
Clay- Kaolin Chromite Columbite-Tantalite Diamond Felspar Fire
Clay Fluorspar
(Fluorite) Garnet Gypsum Iron
Ore Magnesite Manganese
Ore Mica-Crude Pyrite Pyrophyllite Quartz Ruby Silica
Sand Sillimanite Talc(Steatite,
Soapstone) Vanadium Vermiculite Wollastonite All
minerals – listed in this list |
Bauxite-Metal
Grade Copper Nickel Lead Silver Tin Zinc |
Asbestos Clay
others Dolomite Dunite Graphite Limestone Lime
Kankar Lime
Shell Marl Monazite Ochre Sand-others Sand
for stowing Shale Tungsten Slate |
Gold |
Coal-Lignite Uranium |
|
Total=29 |
7 |
16 |
1 |
2 |
National Mineral Index - Grade Based:
There
is proposal from Government of India to bring National Mineral Index (NMI) in line with the Nation Coal Index, though the
things are at very incipient level but certainly a concrete step is being taken
by government. Since NCI is already working, it is expected that this might
serve as platform for many reforms in mining sector because businesses are
price oriented and price sensitive also. As the NCI consider broad categories like Non –coking
grade G1 to G6 ( GCV range 7000 to 5501
), Non-coking grade G7 to G14 ( GCV
range 5500 to 3101), Non-coking grade G15 to G17 ( GCV range 3100 to 2201), Coking coal ST-I ( ash content < 15
percent) and ST II ( ash Content < 15 to < 18 percent),Coking coal W-I to
W-IV ( ash content 18 percent to 35 percent). The same concept is expected to
be extended for designing National Mineral Index, where minerals shall be
reclassified into precise grade groups and thresholds.
Development and Regulation Agency:
The
National Coal Index was developed by Indian Statistical Institute, Kolkata and
Ministry of Coal, in similar line it is expected that the National Mineral
Index will be developed by Indian Statistical Institute and Ministry of Mines
in consultation with the state governments and stake holders. It shall be
regulated by Indian Bureau of Mines as it is current practice.
Advantage:
The
National Mineral Index is likely to improve the mineral reporting system. Some
advantages which are envisaged in this incipient stage are:
1. It may be mandatory for every
mine lease holder to report the sale of mineral even in zero sale situation.
2. The calculation of royalty and other
statutory payments will be easy.
3. Authenticated sale and purchase data will be
available which will help in maintaining of demand and supply.
4. It will help in conservation
of minerals as nobody will like to waste a high grade mineral in where low
grade mineral is required.
5. The present system of
calculating value of mineral resource will be appropriate as in today's
scenario low grade mineral is also valued as high mineral.
6. The use of automation in mining sector is envisaged
in systematic and scientific mine planning which will provide better blending
options.
7. The mining plans to have many stakes based on the value of
minerals.
8. The payments of upfront amount
and performance security are likely to reduce drastically because each grade
will have different price tag and its total will form the basis of calculation
of payments.
9. The NMI may lead in future to mineral trading platform.
10.The valuation of mines during merger/demerger
will be easy.
11.The mines are likely to be
more compliant to statutory clearances and permissions.
12.During prospecting and
exploration time the thrust on application of best analytical methods at best laboratory
will increase. .
13.During sampling and analysis
in prospecting and exploration work preference would be given to analyze entire
core instead of physical identification basis.
***
Comments
I would thank you on behalf of all.
Well done Sir.
Look forward for new article