Govt. to amend ‘deal-breaker’ mining law in Budget session
The government, during the Budget session of the Parliament, plans to amend a law which is holding up mergers and acquisitions worth thousands of crore in the distressed commodities and mining sector.
Some of the deals stuck due to the 2015 mining law include Birla Corp’s Rs. 5,000 purchase of two Lafarge India cement units and Kumar Mangalam Birla’s takeover of Jaypee Group’s cement plants in Madhya Pradesh that were announced this year. Consolidation, in stressed sectors such as metals and cement, is critical as companies seek to lower their debt levels by hiving off assets.
The deals are stuck in a no-go zone as the Mines and Minerals (Development and Regulation) or MMDR Act of 2015, which aims to ensure transparent auctions of minerals, doesn’t allow transfer of captive mines allotted to end-user plants in the past. So, Birla Corp. can take over Lafarge’s cement plant, but won’t get access to the captive limestone mines linked to the plant, making the transaction unviable.
“For allowing transfer of captive mines, there is no other way to proceed without an amendment. We are about to move a cabinet note for inter-ministerial consultations, proposing a change so that captive mines can be transferred,” Mines Secretary, Balvinder Kumar told The Hindu. The target was to introduce the amendments in Parliament’s next session.
“This is a progressive step and would be the only amendment we will make to the law,” Mr. Kumar said, conceding that this particular situation of deals falling through owing to the inability to transfer captive mines hadn’t been thought through at the time of amending the MMDR law.
The plan to amend the MMDR Act comes on the back of opinion from the law ministry that there is no alternative method to allow such acquisitions of captive mineral assets in the present law.
“Hundreds of mines have been allocated for captive use by industries in the past. In many circumstances, when these businesses change hands via mergers and acquisitions, it could be an issue if the captive mines linked to production capacities are not transferable,” said another official.
“The transfer of mineral concessions shall be allowed only for concessions which are granted through auctions,” according to the relevant sub-section of the MMDR Act of 2015, which came into force on January 12. Before this change, transfer of mining leases was allowed under the mineral concession rules of 1960 after getting an approval from the state government.
The clause has turned into a deal-breaker as a cement or steel plant with captive limestone or iron ore mines loses its utility without the assured mineral resources.
“The limestone mines in Lafarge have over 100 million tonnes of reserves. Birla Corp may buy the plant, but would have to source limestone from elsewhere, much farther, while Lafarge will keep holding the mining lease. No deals will get done in this situation,” said an industry official.
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Source:Thehindu
