Cabinet endorses royalty rates for mining of critical and strategic minerals
The Union Cabinet, presided over by Prime Minister Narendra Modi, has given its approval to amend the Second Schedule of the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) to specify royalty rates for three critical and strategic minerals: Lithium, Niobium, and Rare Earth Elements (REEs).
A significant development occurred with the recent passage of the Mines and Minerals (Development and Regulation) Amendment Act, 2023, which came into effect on August 17, 2023. This amendment, among its provisions, removed six minerals, including Lithium and Niobium, from the list of atomic minerals, thereby allowing the private sector to obtain concessions for these minerals through auctions. Additionally, it stipulated that mining leases and composite licenses for 24 critical and strategic minerals (listed in Part D of the First Schedule of the Act), including Lithium, Niobium, and REEs (excluding Uranium and Thorium), would be auctioned by the Central Government.
The Union Cabinet’s recent approval, which specifies the royalty rates, signifies a pivotal milestone as it enables the Central Government to auction blocks for Lithium, Niobium, and REEs for the first time in the country. Royalty rates for minerals play a critical role in financial considerations for bidders participating in block auctions. The Ministry of Mines has also formulated the methodology for calculating the Average Sale Price (ASP) of these minerals, facilitating the determination of bid parameters.
Item No. 55 of the Second Schedule stipulates that when royalty rates are not specifically provided for minerals, the royalty rate shall be 12% of the Average Sale Price (ASP). Thus, if specific royalty rates for Lithium, Niobium, and REEs are not provided, the default royalty rate would be 12% of ASP, which is considerably high compared to other critical and strategic minerals. This 12% royalty rate is also not in line with rates in other mineral-producing countries. Consequently, the decision was made to establish reasonable royalty rates for Lithium, Niobium, and REEs as follows:
(i) Lithium – 3% of the London Metal Exchange price,
(ii) Niobium – 3% of the Average Sale Price (for both primary and secondary sources),
(iii) REE – 1% of the Average Sale Price of Rare Earth Oxide
Critical minerals have become vital for economic development and national security in India. Minerals such as Lithium and REEs have gained prominence in light of India’s commitment to energy transition and achieving net-zero emissions by 2070. Lithium, Niobium, and REEs are also recognized as strategic elements due to their applications and the geopolitical landscape. Promoting indigenous mining is expected to reduce imports and stimulate the establishment of related industries and infrastructure projects. Furthermore, it is anticipated that the proposal will enhance employment generation in the mining sector.
The Geological Survey of India (GSI) has recently submitted the exploration report for REE and Lithium blocks. GSI and other exploration agencies are actively engaged in exploring critical and strategic minerals in the country. The Central Government is actively working towards launching the first tranche of auctions for critical and strategic minerals, including Lithium, REE, Nickel, Platinum Group of Elements, Potash, Glauconite, Phosphorite, Graphite, Molybdenum, and more in the near future.
