Within a few months of the amended mining law being operational, the Centre may push another amendment in to the new legislation to allow transfer of captive mines allotted in the past to new owners in case of a merger or acquisition deal. The move will immediately benefit deals entered into by Lafarge and Ultratech Cement where the new mining bill has put a question mark on whether the associated limestone mines would also be transferred in favour of the new entity.
Highly placed sources in the mines ministry said a cabinet note proposing the necessary amendment to the legislation would be finalised by the government. This, however, would be done on reaching a consensus after wide consultations as the government fears that a quick amendment to the new law could face strong political opposition.
“The law department is very clear that we cannot transfer any existing mining lease under the new law. This is an impediment for consolidation in the sector and government is working to resolve it,” the source quoted earlier said. The Mines and Minerals (Development and Regulation) Amendment Bill, 2015 became law in March this year replacing the older version of the legislation enacted in 1957.
Among other things, the legislation proposed allotment of mines of major minerals only on the basis of auctions. It also permitted transfer of mines allotted under auctions but did not specify how to deal with transfer of captive mines allotted in the past. Industry experts said a lot of deals were in the pipeline, especially in sectors such as steel, cement and aluminium and these would be abandoned if the government did not remove such restrictions.
“The provisions on the new mining law would severely hamper M&A deals in the metal sector as concluding deals in absence of associated captive mines would be difficult,” said Abhisar Jain, senior vice president- metals and mining, Centrum Broking. “A number of smaller companies such as Usha Martin, Godavari Power with captive mines may be looking at opportunities in M&A deals, but could not move forward in the absence of any clarity,” Jain added.
It is expected that the government would move slowly on processing the proposal on amending the mining law as the two impacted deals (Larfarge and Ultratech Cement) are also expected to conclude over a period of few months. “A clarity over the issue may emerge before the start of winter session of Parliament,” said a government official privy to the development.
In August, Lafarge Holcim announced sale of its two cement-making units to Birla Cements for Rs 5,000 crore. Earlier, UltraTech announced a Rs 5,400 crore deal for purchase of Jaypee Group's cement units in Madhya Pradesh. The two deals would become unviable if associated limestone mines are not transferred to the new owners.
A concerned industry has also asked the government to allow the acquirer of an asset with attached mines the right of first refusal to match the highest bid in the auction process for such captive mines. But the proposal has not found wide-scale favour in both the industry and the government. Such a right is allowed under the provision of MMDR Act but only in cases where the lease has expired and the original leaseholder wants an extension.
The new mining law has changed the way mines have been allotted in the past. All existing captive mines were allotted to companies without auction. A mines ministry committee did this allocation. A similar process for the coal sector was earlier declared illegal by the Supreme Court that cancelled all captive coal leases forcing the government to conduct auction for all cancelled mines.
