Consultants in the Indian Mining Sector: Unraveling the Legal, Financial and Practical Facets

Abstract

The mining sector includes a vast array of background players, who act as consultants to the bidding companies. Often, the companies pan out strategies to acquire blocks and thereby, have exploration permits. Additional strategies are then formulated for Mining Leases and Prospecting Licenses (PL). These strategies include creation of Joint Venture Companies to signing of Memorandums of Understanding with companies for supply. The Consultants act as strategic and financial advisers in connection with the mines by providing advice throughout the project. The scope of services provided are vast and inter alia include specialized advisory services in exploration, preparation of mine design and plan, due diligence. Normally, Companies aiming for acquisition of mines enter into Advisory Agreements with the consultants. After successful acquisition of the mines, the consultants are provided milestone based fees, which are divided into Retainer Fees and Facilitation Fees. This process of having consultants has been applied by companies such as Tata Steel, BHP Billiton and Rio Tinto for applying for coal and manganese blocks. However, there are several challenges that are faced by these consultants ranging from Land Acquisition to dealing with encroachers and local strongmen. Further, the consultants, on behalf of the company, handle Government officials during PL Application. This results in the consultants having to engage with the notorious red tapism that is rife in the Indian mining sector. Unfortunately, not much ink has been spilt on the workings of the consultants/ advisers in India. The author has tried to delve into the role played by consultants in the mining sector. Further, the author has proceeded to analyze the payment structure of these consultants to provide a holistic picture to the reader. For this purpose, the author will provide case-studies and proceed on a normative basis. Undertaking a study of consultants would entail three benefits: (a) it will provide a broader understanding of the background strategic planning of a company, which in turn would help in a more transparent bidding procedure for blocks; (b) it will have a direct effect on the procedure of consultation, which is currently functioning without any legal barriers; (c) lastly, in the interregnum it helps in providing a safeguard to the consultant regarding the investment it carries out until repayment by the company. With the advent of the Mines and Minerals (Development and Regulation) Act, 2015, Coal Mines Act, 2015 and the National Mineral Exploration Policy, 2016, the government is aiming to take necessary steps towards bolstering transparency in the Mining Sector. Additionally, the increase in foreign investment in the mining sector is necessary to realize the worth of critical commodities. Currently, it remains difficult for mining companies operating in India to meet investors’ growth expectations. Therefore, the need for a strategic advisor is critical in assisting the growth of the company, be it a strategic Joint Venture Company formulated for acquisition or a company applying for direct acquisition.