Centre wants to rewrite the mining playbook. But states say the changes will cost them thousands of crores.

The ministry plans to limit so-called auction premiums to 50% of the ore value, replacing the current system where bids can cross even 100%. Also, companies who win the mining blocks would need to pay more money upfront. Premium is the extra amount a bidder agrees to pay the government above the base price.

Odisha and Goa have opposed the proposal to cap premiums, said one of the three people, a senior official in the steel ministry. Auction premiums are the biggest revenue earners for mineral-rich states, and both states fear the restrictions will hurt.

Premiums are the biggest revenue earners for mineral-rich states, and any restriction on auctions would reduce their income. For instance, when ore valued at ₹1,000 per tonne attracts a 100% premium, the state earns an equal ₹1,000 per tonne in premium, but a 50% cap would cut this income in half.

Queries emailed to the governments of Goa and Odisha remained unanswered. Odisha accounted for over 50% of iron ore mined in India in FY24 and Goa slightly over 4%.

The ministry official cited above said the measures to change the auction format are “currently on hold." A second official added, “Lower premiums directly translate into lower state revenues."

The limit on auction premiums will reduce state government revenues, since they are currently benefitting from exceptionally high bids, and switching to upfront payment may favour large steelmakers with deep pockets, as not everyone can afford heavy payments at the start, said Nishtha Mukerjee Sinha, general manager for iron ore, ferro alloys, coal at BigMint, a commodities market intelligence firm.

Executives and ministry officials said that internal objections from steel and mines ministries, resistance from iron ore-bearing states, and concerns raised by several stakeholders about the limited benefits of the proposals have together stalled the reform process. As a result, any policy changes now appear unlikely in the near term.

“The delay effectively pushes back any immediate improvement in ore availability or relief in steel input costs," a steel industry executive said, requesting anonymity.

The panel, mandated to meet every 15 days, has not convened for over two months. Its last meeting took place in the second week of September. Members include representatives from the environment, commerce and industry, steel and coal ministries, along with Steel Authority of India Ltd, JSW Steel, Jindal Steel, OMC, the Indian Steel Association, NMDC and others.

Upfront payments

Some auction payments are made in advance and are limited to ₹500 crore, while the majority are made throughout the contract's life in the form of premiums and royalty.

The government believes higher upfront payments would discourage companies from sitting on assets without production, a key factor, it says, that has weakened India’s iron ore supply chain. By shifting part of the payment upfront, the Centre hopes miners will be compelled to begin production sooner.

Steelmakers, however, believe this creates a different imbalance: shifting a large part of the payments earlier in the mining contract will favour larger players with stronger balance sheets and squeeze out mid-sized steel mills already struggling with high ore costs.

“It gives a natural advantage to deep-pocketed players and squeezes out small and mid-sized steel mills," said a senior executive from one of the larger steel companies.

The proposal for larger payments earlier in the contract originated in a high-level meeting of the mines, commerce and steel ministries, as well as key industry stakeholders. The plan was reviewed by an advisory committee set up by the mines ministry and chaired by additional secretary Sanjay Lohiya on 28 August. The 17-member panel was tasked with recommending ways to boost iron ore and steel output and identify policy bottlenecks.

An email sent to Lohiya and the steel and mines ministries remained unanswered.

An increase in upfront payment will significantly increase the cost for steel companies, impacting their cash flow and future investment prospects if the mine development processes are halted. Most of the mines proposed for auction need to be developed with additional investments, before the mineral can be retrieved.

How the reform process stalled

Additionally, another proposal to impose a duty on low-grade iron ore, which has an iron content of less than 58%, was also opposed by miners, Mint reported on 15 September. These proposed reforms—intended to boost ore supply, ease cost pressures for steelmakers, stabilize prices, and improve export competitiveness—have now suffered a setback.

The advisory committee was set up to reduce Indian iron ore prices and lessen steelmaking costs. With no significant price correction so far, the delay also hampers the much-needed ramp-up in iron ore output. For instance, India's crude steel production has grown at 15-20% in the last couple of fiscals, while iron ore supply has risen by 10-15%, said BigMint’s Sinha.

High premiums, high stakes

Under current norms, state governments continue to earn significant sums from mineral auctions. The right to mine for major minerals—including iron ore—is granted through state-level e-auctions. Successful bidders pay royalties on extracted ore and an auction premium based on their winning bid. For iron ore, these premiums often exceed 100% of the sale price.

Odisha, India’s largest iron ore producer, has been a major beneficiary. In 2022, then mines minister Pralhad Joshi told Parliament that the state collected ₹21,757 crore from royalties, rent, and premiums from just 35 blocks—contributing to nearly ₹50,000 crore of mining revenue in FY22. It was cited as the biggest success story of the Union government’s policy.