The Mines Ministry has proposed capping the performance security and upfront amount – payable after bagging the rights to extract minerals – for making critical and strategic mineral blocks more lucrative for mining companies. Presently the performance security and upfront amount is a percentage of the Value of Estimated Resources (VER).
According to the Mines Ministry, “Such huge requirement for performance security and upfront amount would reduce participation of the bidders in the auction process.”
These relaxations follow pre-bid consultations conducted by the Mines Ministry that took place last week. The centre is currently bidding out 20 blocks of critical mines under the first round of auctions. The government recently listed 24 minerals as strategic and critical for the country. These include graphite, molybdenum, lithium and platinum group elements. Efforts are now underway to speedily auction mining leases for these minerals.
For auction of mining lease, net worth requirement is capped at INR 200 crore under the Mineral (Auction) Rules, 2015. Similarly, bid security amount is also capped at INR 50 crore for auction of mining and composite licence. But presently there is no cap for the performance security and upfront amount.
| Levy | Mining Lease | Composite Lease |
| Performance Security | INR 500 crore | INR 250 crore |
| Upfront amount | INR 500 crore | None |
Source: Amendment to Mineral (Auction) Rules
The centre now wants to cap the performance security and upfront amount mining lease at INR 500 crore each for a mining lease. A cap of INR 250 crore is in the works for performance security under a composite license.
Mining license or lease is for areas which have proven reserve of minerals. Composite licence also called a prospective-cum-mining license is for areas where preliminary exploration has been done but further exploration would be required by mining companies to establish more resources.
Under the Mineral (Auction) Rules 2015, Performance security and Upfront payment for a mining lease is 0.50% of the VER, which shall be adjusted every five years so that it continues to correspond to the resource value. For a Composite lease, the Performance security is 0.25% of the VER but it is revised upwards when the mining license is issued for the same block.
These amounts function as a monetary guarantee of performance by the successful bidder. The performance security is supposed to be maintained by the successful bidder till the expiry of the lease period and revised every five years on the reassessed VER. The upfront amount is adjusted in full against the auction of premium payable by the successful bidder after production commences.
“The amount of performance security and upfront amount beyond a certain amount does not serve any purpose but may act as a barrier in the participation of bidders in the auction process,” the Ministry said while adding that the successful bidder is required to pay auction premium (percentage quoted of the value of mineral dispatched) on the actual monthly production.
