Govt weighs iron ore auction rejig

With domestic steel demand projected to surge, India is preparing a sweeping overhaul of its iron ore mine auctions framework to boost production and deter cheap steel imports from countries such as China, Japan, South Korea and Vietnam, according to government officials and industry executives aware of the matter.

- Dipali Banka & Subhash Narayan

The Centre plans to make upfront payment the primary metric for mine allocation in auctions, along with a premium that will be capped at 50%, the people cited above said on the condition of anonymity. So, a company that bids with the highest upfront payment offer plus the best premium offering gets the mine. If more than one company quotes, say, a premium of 40%, then upfront payment decides the winning bidder.

That is different from the current system of auctions based on the Mines and Minerals (Development and Regulation) Amendment Act, 2015 (MMDR 2015), where bids are awarded solely on the basis of the highest premium that companies quote in the auctions. The premium is calculated in percentage terms over a monthly base price fixed by the Indian Bureau of Mines.

To be sure, an upfront payment is also made by a successful bidder—but as a fixed percentage of value of estimated resources (VER) for the lease area—as a performance guarantee, and not as a variable component that can give bidders a competitive edge in auctions.

"Since MMDR 2015, average auction premiums have crossed 100%, making mining operations uneconomical. Several mines remain non-operational under these conditions," said Dhruv Goel, chief executive officer of Big Mint, a market intelligence firm. "This measure could restore economic viability and encourage more mines to start production."