Cabinet Approves Royalty Rates For Mining Of Lithium, Niobium, And Rare Earth Elements

The Union Cabinet chaired by Prime Minister Narendra Modi approved the amendment of the Second Schedule of the Mines and Minerals (Development and Regulation) Act, 1957 ('MMDR Act') for specifying the rate of royalty in respect of three critical and strategic minerals, namely, Lithium, Niobium and Rare Earth Elements (REEs).

The approved royalty rates for lithium, Niobium, and REE are 3%, 3%, and 1%, respectively.

Mineral royalty is the economic rent that is due to the sovereign owner (government) in exchange for the right to extract mineral substances.

Lithium is a critical raw material used to make electric vehicle (EV) batteries.

Recently, the Mines and Minerals (Development and Regulation) Amendment Act, 22023 was passed by the Parliament, which has come into force from August 17, 2023. The Amendment, among other things, delisted six minerals, including Lithium and Niobium, from the list of atomic minerals, thereby allowing the grant of concessions for these minerals to the private sector through auction.

Further, the amendment provided that the mining lease and composite license of 24 critical and strategic minerals (which are listed in Part D of the First Schedule of the Act), including Lithium, Niobium, and REEs (not containing Uranium and Thorium), shall be auctioned by the Central Government.

"Today's approval of the Union Cabinet of specification of rate of royalty will enable the Central Government to auction blocks for Lithium, Niobium and REEs for the first time in the country. Royalty rate on minerals is an important financial consideration for the bidders in auction of blocks. Further, manner for calculation of Average Sale Price (ASP) of these minerals has also been prepared by the Ministry of Mines which will enable determination of bid parameters," according to a press release.

Critical minerals have become essential for economic development and national security in the country. Critical minerals such as Lithium and REEs have also gained prominence in view of India's commitment towards energy transition and achieving net-zero emission by 2070. Lithium, Niobium, and REEs have also emerged as strategic elements due to their usages and geo-political scenarios.

The decision comes at a time when there were reports that India was getting prepared to start the auction process for some 100 critical mineral blocks. Last month, Mines Secretary Vivek Bharadwaj announced that the government will start the auction of critical mineral mines in a few weeks.

According to a Bloomberg report, Bharadwaj revealed that the blocks that are being prepared for auction include nickel, lithium, cobalt, and platinum, along with rare earths.

In September, a Reuters citing sources said that the auction for Jammu and Kashmir's lithium reserves will occur in the next few weeks.

One must note that State-owned enterprises have been actively searching for these valuable mineral resources. The mining sector can see active participation from energy majors like Coal India Ltd. and NTPC Ltd. to tap into these essential materials if things go in the right direction.