Following is the text of the address by Shri R. Sridharan Additional Secretary Ministry of Mines at the 55th Central Geological Programming Board (CGPB) meeting of Geological Survey of India, Ministry of Mines being held on 17-18 Feb 2016 at AP Shinde Symposium Hall, Indian Council for Agricultural Research, NASC Complex, Pusa, New Delhi.
“We are now in the process of discussing and finalizing our National Mineral Exploration Policy (NMEP). The deliberations and decisions of the CGPB are intimately linked to the NMEP. I wish to, therefore, deal with some issues that will provide a backdrop to the NMEP and the deliberations here at the CGPB.
The Fraser Institute annually brings out the results of a survey conducted amongst Mining and Exploration Companies. The Survey ranks jurisdiction around the world on a comparative basis and is widely perceived to be an indicator of where a country stands. The survey attempts to assess the impact of 2 factors, namely, mineral endowments, and public policy factors (such as taxation and regulatory uncertainty) that affect exploration investment.
Two indices are constructed from the responses obtained. The first is what is known as the Best Practices Mineral Potential Index. This index rates a region’s attractiveness based on the perceptions of mining company executives about a jurisdiction’s geology. Respondents are asked to rate the pure mineral potential of each jurisdiction assuming that the policies are based on the best practices. The maximum score on this index is 1. For 2014, India scored 0.57 and was ranked 69th amongst 122 jurisdictions. The highest rank was that of the Yukon Province of Canada with a score of 0.87. Most provinces of Canada and United States and Australia scored higher than 0.6.
Though India is considered a part of original Gondwana land and therefore, of good geological potential, the score on the Best Practices Mineral Potential Index shows we are in the lower half of the jurisdictions surveyed. However, the silver lining seems to be that there has been some steady improvement in this perception. In 2013, India was ranked 82 out of 112 and was 70 out of 79 in 2010-11.
The second index is called the Policy Perception Index. The Fraser Institute terms this index a “report card” to Governments on the attractiveness of their mining policy. As the Fraser Institute Explains, the Policy Factors that are examined include uncertainty concerning the administration of the current regulations, environmental regulations, regulatory duplication, the legal system, the taxation regime, uncertainty concerning protected areas and disputed land claims, infrastructure, socio-economic and community development conditions, trade barriers, political stability, labour regulations, quality of the geological data base, security, and labour and skills availability.
The maximum score possible on the Policy Perception Index is 100.
Ireland was at the top with a score of 96. India’s score was 47.45 and it ranked 63 amongst the 122 jurisdictions surveyed.
The country’s position has steadily improved over the past 5 years as can be seen from the following table:
Combining these two indices, the Investment Attractiveness Index is computed. The maximum score here is also 100. Finland tops the list with a score of 83.8. India’s score is 53.2 and the rank is 60 out of 122. Even here, there has been a steady improvement. In 2011, India was ranked 79 out of 79 jurisdictions, that is the very last.
As I mentioned earlier, Ireland scores the highest in the world in the Policy Perception Index with 96 out of a maximum possible 100. An interesting fact of Ireland’s policy is that Prospecting License Areas are granted through a method of open competition. Ground available for application under competitions offered every three months through publication on 1st February, 1st May, 1st August and 1st November. PL areas are open for application under equal competition. Interested parties have two months in which to apply for such areas, with all applications received during that period deemed to have been received at the same time. A technical evaluation team evaluates the applications on the basis of criteria such as Quality of Exploration, Programme, Availability of Funds, Applicant’s Track Record, Quality of PL application etc., with definite weights being given for the same.
Of course, it goes without saying that huge amount of detailed preparatory work will have to be done before areas can be thrown open for competitive bidding in order to award PL.
On all above parameters assessed under Policy Factors, the responses are asked on continuum ranging from; (1) encourages investment, (2) not a to deterrent investment, (3) mild deterrent to investment, (4) strong deterrent to investment, (5) would not pursue investment due to these factors. As far as the quality of India’s geological data-base is concerned, there is a zero per cent response under (1) which is encourages investment. 75% response is under (2), not a deterrent to investment, while 13% each fall under (3), mild deterrent to investment and (4) strong deterrent to investment. This would seem to indicate that we have quite some distance to go in meeting the quality of our geological database. On the quality of geological database, India’s score, according to Fraser Institute’s methodology, would be 0.38. The highest is that of Finland. Virtually all the provinces in Canada have very high values on this indicator. So is the case with Australia (Ranks 2 to 27) and even United States. India’s rank in the quality of the geological database is 65th amongst 122 countries.
The Fraser Institute survey is conducted in the second half of the calendar year. We are likely to get the results for 2015 very soon (the 2014 survey was published on February, 24th, 2015).
While looking at this survey, we also need to keep in mind that India suffers from a perception handicap. It also appears as some of the respondents have replied on the basis of incorrect information.
One of the optional questions asked during 2014 survey was about how the time for permit approval has changed over the last 10 years. In the words of the Institute, the results are dramatic. Approximately, 65% of the respondents indicated that the time for permit approval has increased from 10 years ago. 39% indicated that the time has lengthened considerably, while 26% indicated that it has lengthened somewhat.
One of the best known geologists of Australia, Mark Creasy, who is reportedly credited with some of the country’s biggest mineral discoveries, has recently warned that juniors face unprecedented hurdles to bring projects to markets due to excessive regulation and high start-up costs. In his words, “when I started prospecting in the late 1960s, I put pegs into the ground around the area I was interested in, then went and registered my claim and six weeks later, I had the application granted. It used to be instantaneous. We have now got very long delays and it is a hellishly expensive process.”
The Chief Executive of the Association of Mining and Exploration Companies of Australia has emphasized the need for a green field exploration increases (considering it takes between 7 years to 10 years from applying for an exploration license to get to a stage of extracting and selling a mineral).
The point in mentioning all this is to highlight the fact that the mining sector has become the object of intense public scrutiny and debate all over the world. Governments have been compelled to respond substantively to the concerns raised. The sources of public disquiet may be diverse across countries, but they cannot be ignored. Policy prescriptions that attempt to do so would be bound to fail.
Australia’s is frequently cited as an example of a standard or even the best world practice. In 2010, the Exploration Investment and Geoscience Working Group of the Standing Council of Energy and Resources of Australia commissioned a paper on Levers to Improve Australia’s Global Position for Attracting Resource Exploration Investment. This was published in April, 2012. The paper noted that Australia has experienced a poor discovery rate for the past 20 years and that discovery was becoming more harder and costly. It also noted that approximately 80% of Australia is covered by deep cover and has not been explored. The ratio of exploration expenditure on brown fields to green fields was reported to be 2:1. The paper noted that there is no doubt that Government funded pre-competitive geoscience stimulates exploration and that this has been benefited Australia immensely. It states that a strong commitment to pre-competitive Geoscience programme is arguably the most effective way for a jurisdiction to tell the world that it is open for exploration business. It adds that Government’s continuing commitment to geological surveys and pre-competitive geoscience sends a loud message to industry that it is welcome to investment in this intrinsically high risk industry.
Based on this analysis, Australia has recently announced its National Mineral Exploration Strategy. This strategy focuses on 3 areas –
(i) the acquisition and delivery of pre-competitive geoscience information;
(ii) an applied geoscience research initiative to assist exploration undercover; and
(iii) Mineral Exploration Investment Attraction Plan.
The major initiatives of the National Mineral Exploration Strategy have been declared to include a renewed commitment to generation and delivery of government funded pre-competitive geoscience information from all jurisdictions.
The strategy also includes a national geo-science research initiative which will be a cross institutional research venture focused on delivering the applied geoscience needed for industry to better explore under the covered green field areas of Australia.
The strategy notes that the pre-competitive geoscience information and digital delivery systems have provided Australia with a substantial competitive advantage. Since future mineral discoveries must be made in green field areas, the strategy states that the provision of pre-competitive geoscience information is one of the fundamental activities that can demonstrate the potential of a green field area and provide a catalyst for action by industry. In a covered area, the strategy says, a critical source of information required to reduce the risk in exploration is drilling to confirm the nature of the bedrock geology.
The Prospectors and Developers Association of Canada had commissioned a study which was published in March, 2010 on “Government Geoscience to support Mineral Exploration: Public Policy Rationale and Impact”. This study identified 3 important ways in which Government Geoscience mitigates the challenges faced in mineral exploration and development. First, it attracts exploration investment by allowing industry to identify areas of favourable mineral potential. Second, public geoscience increases exploration efficiency by making it unnecessary for individual companies to duplicate common information or to spend money on non prospective ground. Third, it increases exploration effectiveness by providing key information inputs to risk based decision making.
The study notes that there is ample evidence that government geoscience stimulate private sector exploration. It notes that while there can be no norm for level of government geoscience expenditure, the evidence suggests that the level of expenditure in Canada has been insufficient in recent years. As a result, it notes, mineral discovery rates have decreased over the past 3 decades and discovery costs have increased leading to declining production and reserves of several important metals.
Attracting the needed technology and investment into exploration is a long gestation process. It is akin more to a marathon than a sprint. Success will, therefore, be dependent on the clarity with which priorities are set, and the perseverance and determination to stay the course. There do not appear to be any shortcuts or quick fixed in this regard.
The CGPB performs a very important function of resource allocation. It is here that decisions have taken about how much money, manpower and equipment resources are to be allocated to the basic functions of pre-competitive geoscience generation, regional and detailed exploration as well as technology development. While making these decisions, it would be essential to keep some of the issues referred to by me in mind. I wish the deliberations of the CGPB all success.