Offshore mineral rules complicate selection but ease awarding

In a bid to capitalise on its underwater resources, the Indian government has introduced new rules for auctioning offshore mineral assets, aiming to ensure a transparent and competitive process.

While these rules feature stringent eligibility criteria, they also simplify the awarding process.

This move comes in the wake of the less-than-expected interest in critical mineral auctions.

The Offshore Areas Mineral (Auction) Rules, 2024, released on August 16, propose an ascending forward online auction for bidding.

To enhance the auction's effectiveness, the government has allowed the auction to proceed even if only one technically qualified bidder remains after the initial round.

If no bidders emerge in the second attempt, the administering authority has the option to restart the auction from scratch, known as a 'de novo' process.

Offshore mining is the process of extracting mineral resources, such as construction-grade silica sand, lime mud, calcareous mud, precious metals, and rare earth elements, from beneath the seabed or ocean floor.

The release of these rules precedes the Centre's planned launch of the first-ever offshore mineral auctions.

Initially, the Union Ministry of Mines aimed to auction the first batch of offshore mineral blocks by July this year.

However, the absence of established auction rules caused delays.

Now, with the rules finalised, the ministry is expected to proceed with the inaugural auction soon.

The Ministry of Mines has identified 10 offshore mineral blocks for potential auction and is currently engaged in inter-ministerial consultations to secure the required approvals for conducting the auctions at the earliest opportunity.

To expedite the mining process and prevent defaults by bidders, the Centre has introduced an upfront payment requirement for a production lease.

This payment is set at the lower of either 0.25 per cent of the estimated resource value or Rs 50 crore.

The chosen bidder must pay this amount to the Central Government in three installments: 10 per cent, 10 per cent, and 80 per cent, as specified in the tender document.

The full payment will be adjusted against the amount due once mineral production begins.

An upfront payment is an initial amount that a bidder must provide to secure a contract before operations commence.

It acts as a financial commitment, ensuring that only serious and financially capable bidders are involved, and helps prevent defaults.

To ensure the bidder s financial capability, the government also requires performance security, a financial guarantee that is adjusted periodically.

This security ensures that the successful bidder fulfills their contractual obligations, and if they default, the performance security can be forfeited to cover any losses or damages.

The rules mandate that for a production lease, the preferred bidder must provide a performance security equal to the lower of 0.50 per cent of the estimated resource value or Rs 100 crore.

This amount is adjusted every five years to reflect the reassessed value and include any newly discovered minerals.

For a composite licence, the performance security is set at the lower of 0.25 per cent of the estimated resource value or Rs 50 crore, with an initial amount of Rs 1.5 crore if the mineral resource value cannot be assessed.

When the composite licence is converted into a production lease, the security amount is adjusted to match the levels required for the production lease.

A production lease allows mineral extraction from a site, while a composite licence combines exploration and mining rights.

To ensure that only serious bidders participate, the government has established net worth requirements for both production leases and composite licences.

Although these requirements depend on the estimated resource value of the block, they are capped at Rs 100 crore for production leases and Rs 50 crore for composite licences.

For mineral blocks where the estimated resource quantity cannot be assessed but the mineral potential has been identified through existing geoscience data, the applicant must have a net worth of at least Rs 25 crore.

The rules stipulate a bid security at 0.25 per cent of the estimated resource value or Rs 10 crore, whichever is lower.

For blocks where the estimated quantity of mineral resources cannot be assessed, the bid security is Rs 5 lakh per standard block.

This bid security ensures bidders' commitment to the auction process and may be forfeited if the winning bidder fails to meet the auction terms or withdraws.