Offshore mining: Rules may be eased to bring small players to auction table

In a bid to attract smaller players to the country’s first offshore mineral mining auction, the government is considering easing the regulations related to performance security and upfront payment.

The proposed plan involves a cap of Rs 100 crore each for performance security and upfront payment for a production lease (PL).

A holder of a composite licence (CL) would only need to pay Rs 50 crore as performance security.

However, if the CL holder applies for a PL, this amount would be revised to Rs 100 crore.

Notably, no upfront payment is required for a composite licence.

For onshore mining, the government’s proposal sets both performance security and upfront payment at Rs 500 crore for a mining lease (ML).

Additionally, the performance security for a composite licence (CL) is set at Rs 250 crore, with the potential to be revised to Rs 500 crore if the CL holder applies for an ML.

So far, the country has not engaged in offshore mining. However, for onshore operations, the performance security and upfront amount are set at 0.50 per cent of the value of estimated resources (VER).

This payment is required upfront before obtaining the mining lease (ML).

For a composite lease, the performance security is 0.25 per cent of the VER but is revised to 0.50 per cent when the mining licence is issued for the same block.

The decision to cap performance security and upfront payment comes from the observation of the Ministry of Mines that bidders are deterred by the need to pay a substantial amount upfront, leading to reduced participation in the auction process.

The relaxation of the regulations follows the Centre’s announcement regarding the auction of 20 critical mineral blocks onshore and the proposed auctioning of 15-20 offshore mineral blocks in the first quarter of 2024.

These sums act as a financial guarantee of the successful bidder’s commitment to performance.

The successful bidder is required to maintain the performance security throughout the lease period and revise it every five years based on the reassessed VER.

This amount can be forfeited if the licence holder fails to sign a production lease deed within a maximum period of five years after receiving a letter of intent from the state government.

The entire upfront amount is credited towards the payable auction premium by the successful bidder once production begins.

"The amount of performance security and upfront amount beyond a certain amount does not serve any purpose but may act as a barrier in the participation of bidders in the auction process,” the ministry said in a statement.

Regardless, the successful bidder is required to pay an auction premium (percentage quoted of the value of mineral dispatched) on actual production per month, it further stated.

Following the mining ministry’s pre-bid consultations held on December 22, the ministry has fixed the deadline for selecting the preferred bidder by April 18.

Additionally, the final bid submission deadline has been extended from January 20 to February 22.