January 21, 2015
I jotted down some initial thoughts on India's mining policy here. Some more info. These are extracts from info sent to me. I'm not attributing since I'm not sure these are publicly available. These points are additional to the points made in my first set of notes.
PATHETIC CONDITION AS AT 2010:
In February 1994, the Ministry of Mines, Government of India adopted the policy of liberalization in the mining sector throwing open high value metals such as gold, platinum, nickel, copper, lead-zinc and diamond for exploration and mining by the private sector. Sixteen years have passed since then, yet there are no new gold mines, no platinum mine, nickel, copper, lead, zinc mines and no new diamond mines in the country. Within the same span of 16 years China has been able to achieve tremendous progress in exploration and mining of gold from a few tonnes of gold in 1993 to 350 tonnes in year 2009. Not a single gold mine has come up during this period in India.
INFINITESIMAL EXPLORATION IN INDIA
Global expenditure on gold exploration alone is ~US$ 4 billion out of the global total exploration expenditure of US$ 18 billion on all minerals. Alas! India’s total exploration expenditure for precious metals stands at <US$ 5 million/annum of which GSI’s expenditure on precious metals exploration is about US$ 3 M and that of the private sector about US$ 2 mill., the latter due to inordinate delays in grant of license for prospecting and clearances from Forest Depts & MoEF.
The mining industry believes that with more investment the quantity of known resources/ reserves can multiply manifold, given India's geography.But hundreds of millions of dollars worth of investment is urgently needed. And much of it will need to be FDI, given the expertise of foreign companies in this area.
64,000 PENDING MINING LEASES
Total 63,395 mineral concession applications are pending with Karnataka, Andhra Pradesh, Rajasthan, Chhattisgarh, Goa, Gujarat, Jharkhand, Madhya Pradesh, Maharashtra, Odisha and Tamil Nadu as of April 30 of this year. In which 42,861 were pending for mining leases (ML), 19,891 for prospecting licenses (PL) and 643 for reconnaissance permits (RP) with these states. [as at mid-2014]
MINING INCREMENTALLY BECOMING A TINY SHARE OF INDIA'S GDP
The mining sector's GDP contribution has dropped from 4% in 1994 to 2% in 2014.
WHERE ARE THE MAIN DELAYS?
The main cause for lack of investments into mineral exploration & prospecting is the years of delay & the State Governments not acting in accordance with the concerned Rules & Sections of the Act.
VAST AREAS OF LAND LOCKED OUT FROM EXPLORATION
The existing provision under Rule 59 of MCR 1960(read with the MoM's GUIDELINES dt.30.10.14) mandates Gazette Notification of not only relinquished lands but also other virgin mineral bearing lands by the State Governments. It is an antiquated process. It unnecessarily blocks large exploration-worthy areas for years. It also makes room for corrupt practices in re-granting of such areas. The total area now locked up in India in this way amounts to more than 500,000 sq km out of the area of the GSI declared 750,000 sqkm of area having obvious geological potential.
THE IMPORTANCE OF GOVERNMENT EXPENDITURE IN GENERATING GEOSCIENTIFIC INFORMATION
Because of the many risk factors in exploration, Governments, world over, spend tax payers money only for generating geoscientific information useful for supporting private investments. Case studies have shown that every 1$ spent for generating basic geoscientific data would encourage private sector to invest 3-5 $ which eventually result in 25$ equivalent benefits to the Nation. … [A Government Authority] should acquire all the published and unpublished data and maps relating to precious metals and publicise them on it's website. [Sanjeev: This is, broadly, consistent with the finding of economic analyses of the sector: that it is worthwhile for the government to directly (or indirectly) conduct preliminary research and publish it widely]
WHEN SHOULD AUCTIONING BE USED?
The NMP-2008 recommends for auctioning of fully proven mineral deposits which are, in any case, rare in free hold areas. [Sanjeev: I agree with this to a large extent, with some qualifications re: considerations of optimality when a resource may not be fully but mostly known]
WILL THE NEW ORDINANCE HELP?
The industry feels it will not help. I haven't studied it thoroughly yet. I will outline world's best practice separately, and thereafter compare and comment on the Indian ordinance.
PURPOSE OF THIS ANALYSIS?
To refine SKC agenda policy on mining.
January 18, 2015
A mining industry leader from India has got in touch with me. He is totally disgruntled with the Indian system, after spending decades of effort in this area. The mining industry in India has been choked by bureaucrats and politicians.
I've not had occasion, earlier, to analyse the details of the Indian mining industry. In this post I am preparing preliminary notes on this topic.
Policy question: auction or not
The current licensing system for prospecting is "first-in-time", i.e. whoever comes first and pays relevant fees. I understand that this licence is not tradeable.
The Indian mining industry opposes auctions as a method of allocating natural resources. Reasons include:
(i) Prospecting evidence in the country is not sufficient, and to invite bids on the basis of such a meager information is to encourage speculative venture.
(ii) An entrepreneur would like to recover his (auction) cost at the cost of scientific mining which directly affects conservation of resources
(iii) auctioning would drive up the cost of minerals whereas prices are determined in a competitive market on the basis of supply and demand.
(iv) The spending on CSR activities to benefit the local populace would reduce since the bidder would try to recover his costs.
(v) auctioning could lead to monopolistic practices as well as cartelization by financially strong players.
(vi) auction of mineral resources is not the popular practice anywhere in the world except in Russia, Kirgizstan and Kazakhistan.
(vii) without a proper bankable prospecting report, the bidder might have to take a big risk in the deposits, like that in the coal blocks.
(viii) applications at various stages of processing might be affected due this system. [Source]
Evidence? In a letter to Modi, the mining industry states:
Auctioning of unproven resources has failed before in India and wherever it has been tried elsewhere in the world. About 20 years ago a proposed auction of land in Madhya Pradesh advertised as prospective for diamond‐bearing rock failed to attract any bids. Auctioning would threaten to exclude small companies that specialize in the science and techniques of mineral prospecting.
My preliminary analysis
Many reasons listed by the industry are relatively minor (e.g. CSR), but the first point is significant.
The objective function of the state is complex, but let's simplify to revenue maximisation. If that is so, the first thing the state should maximise is the extraction of minerals. It is wrong to keep the minerals in the ground. Resources are only relative to a particular state of economic development. There are no permanent resources (cf. Julian Simon). Thus, coal may be useful today but tomorrow may become totally irrelevant. By not exploiting coal to the hilt today, we reduce net national income.
So the main goal of the government should be to minimise obstacles to mining and motivate the private sector to drill and extract minerals. .
Further, the initial allocation of the right to drill (prospect) should be considered in the light of the Coase theorem. This theorem assures us that it is not the initial allocation of resources but the tradeability of the licence that matters. As a result, the most efficient producer will get hold of the licence.
As far as auctioning the prospecting permit (licence) is concerned, there is a trade-off between revenues raised through auction and revenue from royalties. If auction values are high, then royalties are generally expected to be low (since most value has been squeezed out at the time of auction), and vice versa. But there is a basic constraint involved: auction values can be high only if there is sufficient information available regarding the magnitude and extent of the resource. The greater the uncertainty, the lesser the chance that people will bid for the auction, or that the auction will be optimal for the state.
The resolution of uncertainty is not costless. It can require extensive prospecting and drilling by the state to certify what precisely is being sold. Even then, significant uncertainty remains. It appears that this precisely was the intent of the Central government:
the intention of this provision read along with the provision for sequestering was to allow the State Government to do promotional exploration and after identifying the deposits, throw open the area for mining through auction/bidding. .. If land for exploration is dealt with by the Auctioning, or the Notification method, the opportunity for serious Indian and Foreign investment into Mineral Exploration will not take place. [Source]
But that's not all. These two methods (first-in-time/ auction) have distinctly different impacts on incentives to prospect. If the initial cost of the prospecting licence is low, more people will try to prospect (although some might just hoard the licence), thereby maximising revenues in the long run. On the other hand, through auction, the initial cost of prospecting can become too high (winner's curse problem), thereby lowering the incentive to prospect more widely. The net result can be less discovery and commercial exploitation, thereby less revenues.
In brief, the idea of a mandatory auction system is likely to reduce prospecting and aggregate revenues. The matter requires extensive economic analysis. I am not sure whether GOI undertook the relevant modeling.
More later when I find some time.
[ADDENDUM: I'm informed that:
"The provision of free tradeability of licences specially Prospecting Licence, also called Mineral Exploration Licence, in Australia and Canada, that triggered heavy global investments pouring into those countries resulting in major discoveries of a variety of minerals and development new mines."]
Those who have attended PDAC in Canada or INDABA in Africa are witness to the enormous trading of exploration and mining licences for premium that take place at those annual Mineral Trade fairs.
Allowing hassle-free trading in exploration and mining Licences(instruments), permitting of exploration Companies to list on Stock Exchanges and extending tax concession to investments in SHARES of exploration Companies are the biggest incentives to investors in the highly risky business of exploration and prospecting. These are international best practices but the Govt of India has chosen to ignore these basics necessary for attracting high investments, both domestic and FDI.]
INDIA IS FLOATING ON MINERAL WEALTH
The following chart shows that the geology of India and Western Australia is very similar. If India's mineral sector is opened up, it can generate massive wealth and jobs.
Not just KGF: 90 places in state have gold. According to this article, "280 tonnes of gold reserves are waiting to be tapped in Karnataka".
January 18, 2015
I'm really angry that even as ordinary Christians, Muslims and Hindus try to live decent peaceful lives, their leaders CONTINUOUSLY prod them to violence.
Just yesterday I wrote about the shonky pope of Christianity who has been provoking Christians to violence in the long standing "traditions" of Christianity. (Those aware of history know that there was nothing more violent in human history than Christianity – till it was tamed by the classical liberals).
Muslim leaders have, of course, excelled in provoking violence. There is this Muslim goon in UK, Anjem Choudhary, who spews hate and incitement to violence with every word.
And now we have this goon in Australia called Abu Mohammed who is busy justifying violence by suggesting that his religious beliefs deserve to be respected ab initio and that those who publish cartoons are offering "a provocation intended to cause more turmoil" [DIRECT THREAT TO VIOLENCE]
And Hindu leaders (from RSS/VHP) are constantly spouting violent threats (and actually undertaking violence) in the same way.
These goons can't distinguish between SPEECH and USE OF VIOLENCE. They think that speech is "unethical" but violence is "ethical".
They are the ENEMIES OF MANKIND. Only hatred runs through their devil brain.
I think the time has come for the law to take very serious note of the ongoing avalanche of threats to violence by these "leaders" and lock them up for good.
They run a political mafia, and act as PURE DEVILS.
Let them remember that they CANNOT demand respect for their particular gang.
RESPECT IS ONE THING IN THE WORLD THAT HAS TO BE EARNED.
I respect ONLY peaceful people, that too for any contributions they may have made to society. These STUPID GANG LEADERS have NO contribution to make. They can only HARM the world by justifying VIOLENCE. VIOLENCE FLOWS THROUGH THEIR ENTIRE BEING.
Religion is pure garbage. I do not respect it. AND NEVER WILL.
I could use stronger words of condemnation, but I'll leave it here for now.
Remember, you must EARN my respect. It is not given to you by your birth or belief. Least of all by your threats. The more you threaten the lower the form you take (like an lowly insect) in my mind, AND THE MORE BARBARIC AND VICIOUS YOU PRESENT YOURSELF TO THE WORLD. There is lesser and lesser chance with every passing day of ANY religion surviving into the future. They are violent gangs. People will leave them. You can't fool all the people all the time.
WHO ARE MERE MORTALS TO FIDDLE WITH AND INTERPRET THE "WORD OF GOD"? ONLY THE VIOLENT ARE TRULY "RELIGIOUS". Bhagwad has a point.
EQUIVALENTLY, RELIGION IS PURE POISON.
"ISIS considers itself to be the true Islam. And I can’t argue with them. If they are following the Koran to the “T”, then they rightly consider everyone else to be not true Muslims." [Source]
Back to what they have been taught by their gang "leaders" – that if they feel "offended" that's sufficient cause to indulge in violence.
Pandering to this kind of an approach has only one outcome: a return to the medieval age. ALL progress will be reversed. All freedoms will come to an end.
The ring leaders and promoters of violence (the "religious" leaders) need to be locked up securely behind bars. No compromise is possible with those who indulge in (or incite) violence.
January 17, 2015
Dope Francis is a well-meaning fellow, concerned about the poor and about nature. I like his nice smile despite the fact that socialism comes naturally to him. Many people have derided his acutely anti-economics rants. The man doesn't understand how to eliminate poverty. But that's not his specialisation, so I've largely ignored him on this.
Recently he has gone tipsy on climate change, with his extremely poor knowledge and dramatically misplaced panic. No, Mr Pope, the climate is doing just fine. Take it easy. Don't worry. Be happy.
But now he has lurched into the space often occupied by goons and thugs.
“If my good friend Dr Gasparri says a curse word against my mother, he can expect a punch. It’s normal. It’s normal. You cannot provoke. You cannot insult the faith of others. You cannot make fun of the faith of others.” [Source]
I thought this otherwise well-meaning but clearly confused man deserves a cartoon in his "honour".
My 10 minute photoshopping attempt is provided below. I hope Popey gets the message. NO, Mr. Pope, you CAN'T justify violence in response to "provocation". You have NO right to punch others if you are offended.
Sheathe your fist. Use speech to explain your issues. Using the fist is OK for the comics and for Popeye, not for the Pope. Nor for anyone in real life.
Normally I'd strongly constrain such language on my FB wall or anywhere I operate, but pope has called this upon himself. I believe the same can be said without using such words but I have no sympathy for the dopey pope.
His bluff must be called. No, NO ONE can use violence if they feel offended.
No, Mr Pope, YOU CANNOT USE YOUR FIST if someone abuses your mother. Just ignore him, have pity on him, or go elsewhere. And no, no one in the Muslim world can use violence if someone blasphemes their "prophet" who maybe more dear to them than anyone else in the world.
January 14, 2015
I was pointed out to another Muslim speaker. I heard some of his talk. Mostly religious, but on a few things he has a clear message for the Muslims who kill in the name of Islam or Mohammed. Violence can only damage their religion and place in society.
This two minute section is good:
January 14, 2015
When I heard Nouman Ali Khan speaking on youtube – a moment ago – it was almost as if I myself was speaking. The rage, the anger at self-created stupidity, the anger at people who blame others for India's problems.
Only in this case, Nouman Ali Khan was talking about Islam.
This is an amazing talk.
A short extract below (around 4 minutes is a MUST LISTEN!)
The man excoriates the Muslims for a number of things. There is none better than someone from within a religion to show the mirror to its followers.
I excoriate Indians because I am an Indian. I have earned the right to speak bluntly about them. And if they will listen, India will become a HUGELY successful country.
So also Nouman is excoriating the Muslims FOR THEIR OWN GOOD.
If Muslims can listen to him, we are done. Islam would once again become a respected religion, somewhat like Buddhism has largely become a respected religion because of people like Dalai Lama.
One can use the gun to kill, but ONE Gandhi can earn BILLIONS of times more respect, merely by being a good man. Goodness trumps the gun.