Resumption of mining: A financial windfall

Iron ore mining in Goa has a nearly century-old historical perspective. While the initial mining concessions were granted by the Portuguese prior to the 1930s, the mining activity picked up around 1947 to 1955, including export shipments. These privately owned leases continued to operate even after Goa’s liberation in 1961. While mining in India is regulated under the legislative framework of the Mines and Minerals Development Act 1957 (MMDR Act, 1957), the mining leases in Goa continued to operate as per the provisions under the mining concessions granted by the Portuguese. It was in the year 1987 that the Government of India abolished all mining concessions in Goa through a new legislative framework, viz. Goa, Daman and Diu Mining Concessions (Abolition & Declaration of Mining Leases) Act, 1987. Thus, all the mining leases were converted into mining leases under the MMDR Act 1957, with retrospective effect from 20th December 1961.  

Until 2015, the only source of direct revenue earned by the Government from iron ore mining was in the form of royalty under the MMDR Act 1957. The highest revenue earned by the Government of Goa in a single year in the form of royalty from iron ore mining was around Rs. 900 crore in the year 2010-11. Over the years, with mechanisation and increasing export demand, the iron ore mining activity in Goa grew exponentially. However, due to growing complaints of illegalities and concerns of environmental degradation, iron ore mining in Goa halted in the year 2012. An NGO, led the litigation proceedings in the Supreme Court, terming the mining activity as illegal. The post-2012 period witnessed a legal battle in the Supreme Court to continue with iron ore mining, both by the Government and the then lease holders. Although the Government of Goa renewed the leases in the year 2015, allowing resumption of iron ore mining, the Supreme Court struck it down in the year 2018, mandating auctioning of mining leases as per the Mineral Auction Rules, 2015 under the MMDR Act, 1957.  

It is a known fact that under the Portuguese concessions, the iron ore mining activity in Goa was mostly held by a few private entities for decades. With the expiry of the mining lease period of the lease holders, as declared by the Supreme Court, the award of fresh leases had to be governed by the Mineral Auction Rules, 2015. These rules removed the discretion of grant of mineral leases at all levels and mandated electronic auctioning of major mineral leases in India. It may be recalled that in the year 2014, the Supreme Court declared all coal block allocations made from 1993 to 2019 illegal and arbitrary, cancelling 204 out of 218 allocations. Basically, this was the genesis for the subsequent notification of the Mineral Auction Rules 2015 for all major mineral leases.  

The Mineral Auction Rules 2015 turned out to be a jackpot for the mineral-rich States. The auction process enabled a two-stage electronic bidding process with auction premium as the bid parameter. The qualified bidder quoting the highest auction premium in the live bidding process is automatically declared as the winning bidder and prospective lease holder, subject to fulfilment of post-bidding requirements. The auction premium, as the base price for auction, sets a minimum percentage of mineral value as per the Indian Bureau of Mines (IBM) notified Average Sale Price. The auction of mineral leases in different States revealed fierce competition among the bidders to win the mineral leases in the auction process. The auction premiums quoted by the bidders were found to be exceptionally high and, in many cases, more than 80% and even more than 100%. This turned out to be a huge revenue source for the State Governments. The State Governments started getting revenue in the form of auction premium several times more than the royalty, while hitherto royalty was the only source of revenue to the Government. To give an example of impact, in Odisha, the annual revenue shot up from around Rs. 9000 crore prior to auction to over Rs. 45,000 crore post auction.  

Finally, Goa took the auction route in the year 2022. When I was posted as Director Mines by the Government of Goa in July 2022, the utmost priority of the Government was to conduct mineral lease auctions as per the Mineral Auction Rules, 2015. As desired by the Government, the auction process was expedited and the first NIT for auctioning 5 mineral blocks was released in September 2022. Thereafter, the 2nd NIT was released to auction four more blocks in January 2023. The auction process witnessed intense competition and a very high auction premium by the winning bidders. As of now, 12 blocks have been auctioned by the Government of Goa, of which a few have become operational. However, considering the annual extraction limit of 20 million metric tonnes fixed by the Supreme Court, there is limited scope to auction all the erstwhile leases and the Government may be able to auction a few more blocks only till the extraction limit gets exhausted.  

The revenue from the auctioned blocks will be highly rewarding to the Government of Goa. Post auction, the revenue stream from mining leases comprises auction premium as a percentage of IBM Average Sale Price, royalty (15% of IBM Average Sale Price), 10% of Average Sale Price as contribution to the Goa Iron Ore Permanent Fund (GIOPF), 10% of royalty as contribution to the District Mineral Fund (DMF) and 2% of royalty as contribution to the National Mineral Exploration Trust (NMET). Even if a conservative IBM average sale price of Rs. 3000 per tonne and an average auction premium of 80% are considered, then the revenue from auction premium for 20 million tonnes of annual extraction alone becomes Rs. 4800 crore. The royalty will be Rs. 900 crore, GIOPF Rs. 600 crore, DMF Rs. 90 crore and NMET Rs. 19 crore. If the IBM ASP per tonne is higher, the revenue flow will also be higher. Therefore, full-scale operation of iron ore mining in Goa is expected to be a financial windfall for the Government. It will not be a surprise if the revenue from mining exceeds GST revenue and the Mining Department becomes the largest revenue earner for the State Government.