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Tapping Andhra PradeshsMineral Wealth

And hra Prad esh has hu ge reserves of key minerals such as coal, limestone, granite,

bauxite, and barytes. In fact, the State is estimated to have a third of Indias total

mineral wealth. Andhra Pradesh is the only southern state with coal deposits and

has 20 per cent of Ind ias limestone reserves and 27 per cent of its bauxite reserves.

The w orlds best granite, Black Galaxy, is foun d only in And hra Pr ad esh.

Careful exploitation of this mineral wealth w ould create a thriving and sustainab le

mining ind ustry in An dh ra Prad esh, generating sizeable incomes for its p eople.

The mining sector30

also has mu ch export potential: there is considerable dem andin world markets for granite and bauxite. Furthermore, Andhra Pradeshs long

coastline w ould prov ide significant logistical and cost adv antag es for exports.

By 2020, Andhra Pradesh will have a strong mining sector, growing at 10-12 per

cent a year. The State w ill have strong m ineral-based indu stries like cement, alum ina

and granite and healthy, growing exports of minerals like granite. Andhra Pradesh

will be Indias cement and granite powerhouse and continue to be a dominant

prod ucer of coal in South India. The States mineral p otential will be utilised in an

environmentally and socially sustainable manner (Exhib it 19.1) .

To achieve this vision, the State w ill imp lement th e following p rogram me:

Focusing on developing select, high potential minerals.

30 The term mining sector is used here to include not only traditional mining but also related activities such asexploration and down stream mineral processing.

C HAPTER 19


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Adop ting a policy framew ork that allows sustainable use of the States mineral

wealth.

Developing infrastructure that enables access to minerals and creating institutions

that supp ort the development of mining.

Actively seeking p rivate investment in mining.

Tapp ing And hra Pr ad eshs Mineral Wealth


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DEVELOPING HIGH POTENTIAL MINERALS

Today, Andhra Pradeshs mineral wealth is largely untapped. Though it ranks

second in reserves, the State ranks only fifth in minera l produ ction in India. Annu al

coal produ ction is an almost negligible p roportion of reserves (0.3 per cent). The

State produ ces only 14 per cent of Indias limestone th ough it has 20 per cent of

its reserves; it d oes not m ine bau xite at all, though it has 27 per cent of Indias

reserves.

According ly, the State w ill focus on d evelopin g three or fou r key min erals: coal,

granite, limestone and bauxite. These minerals have a tremen dou s potential to

c rea te economic impac t e i the r d i r ec t ly o r t h rough the deve lopmen t o f

downstream industries. Coal mining alone can generate incomes of aboutRs.5,000 crore, wh ile an increased sup ply of limestone can stim ulate significant

cement production. Coal, granite and limestone are the States strong suits

and Andhra Pradesh should be able to build a reasonably strong position in

these industries. In the case of bauxite, however, almost all deposits are to be

found in the tribal areas of the State and th e law p rohibits the exploitation of

any resource located in tr ibal areas except by the Government or tr ibals

themselves.

The State also has other mineral reserves but th e econom ic imp act from d eveloping

them is not likely to be very high. Barytes is a good example. Andhra Pradesh

today su pp lies one-fourth of the worlds consum ption and can raise this to one-

third. How ever, the world market today amou nts to less than Rs.100 crore and the

mineral has limited potential for downstream processing. Therefore, although

barytes w ill continue to be m ined, the m ineral will not be a focus area.

Apart from developing the four minerals listed above, the State will actively

encourage exploration and prospecting in beach sands for gold, diamonds, and

natural gas. Continuous exploration and prospecting is necessary to ensure that

And hra Prad esh has enough reserves to develop over the long term. The key to thesuccess of Australias mining sector is sustained high investment in exploration;

almost Rs.4,000 crore is spent every year on exploration alone. Preliminary

prospecting suggests that And hra Pradesh has considerable d eposits of these

minera ls and gases. If these assessments a re confirm ed, they w ill offer significant

poten tial for the State economy.


Coal, granite,limestone and bauxite have tremendous potential to create

economic impact either directly or through the development of downstream industries.


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AD OPTING A CON DUCIVE POLICY FRAMEWORK

To d evelop th e mining sector in the State, it is critical to enun ciate a clear po licy on

mining for the sector as a whole. This policy should provide a framework for

economic operation of the mining industry while addressing key issues of

environm ental sustainab ility, local resettlemen t and resource conservation.

The mining policy should also remove obstacles to developing minerals such as

the p rohibition of private mining of reserves in tribal or forest areas. Since neither

the Govern ment nor th e tribals have the resou rces to invest, these reserves are likely

to remain untapped unless this policy is reviewed. Changing the policy would

unleash this potential and develop not only the mining sector but also the

un derd eveloped p arts of the State. Orissa has already set the precedent. Tod ay, the

state has a thriving aluminium and bauxite industry because it allowed private

mining of reserves located in tribal areas.

While reviewing its policy, Andhra Pradesh will ensure that the interests of the

local pop ulation and tribals are p rotected perhap s by following Au stralias ap proach

wh en it allowed p rivate mining in aboriginal land s. Australia used several

mechanisms, includ ing d eveloping d etailed resettlement p lans, earmarking a p art

of mining royalties for local developm ent, and edu cating local aborigine leaders on

the econom ic benefits of dev eloping th e reserves.

A major emph asis in framing enabling p olicy will be to create regulation that m akesmining environmentally sustainable and economically feasible. Regulation can

ensure environmentally sustainable mining in many ways, such as making the

restoration of mined areas a precondition for obtaining mining licences, or

developing financial instruments that guarantee restoration of land. For instance,

Western Australia requires that, before initiating mining, enterprises provide

performance bonds (bank guaranteed security d eposits) guaranteeing that they

will restore mined areas once mining in a par ticular area has been comp leted. Deposit

sizes are kept m arginally above th e restoration cost to make it economically beneficial

for enterprises to restore mined land.

DEVELOPING D EDICATED INFRASTRUCTURE AN DINSTITUTIONS

To bu ild a strong mining sector, sufficient infrastru cture to link minera l dep osits to

their ma rkets is essential. This has been critical to developing m inerals and related



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ind ustries in other cou ntries. For instance, in South Africa, ded icated m ineral rail

lines connect deposits at Sishen and Saldana to a major port, Richards Bay.

Furthermore, the provision of a port dedicated to minerals at Richards Bay hasgreatly stimulated coal exports.

In add ition to creating su ch links, Andh ra Prad esh w ill need to p rovide access to

deposits, particularly in remote areas. Huge limestone deposits in Kurnool and

Na lgonda an d bau xite reserves in north -eastern p arts of the State are particularly

inaccessible. To enable th e export of granite, mining enterpr ises will need d edicated

infrastructure such as a processing par k (at Prakasam or N ellore) and stron g

linkages to a port on the southern coast. Some infrastructure will be developed

by m ining compan ies themselves. For instance, in Orissa, an international m ining

compan y, Rio Tinto, has offered to bu ild a d edicated railway line for its mines.

How ever, even if private enterpr ise builds the specialised infrastructure it need s,

the Government (State or Central) will need to facil i tate and support the

investments of m ining enterp rises, wh ether p rivate, Central or State, in creating

access to remote m ineral dep osits.

The State will also need to set up services to assist the dev elopmen t of mining.

These includ e dr illing contractors; laborator y and analytical services; groun d a nd

aerial surv ey facilities; research centres; and equip men t and m achinery sup pliers.

Thriving mining sectors in other countries are well provided with this kind of

sup por t. In Perth in Western Australia, a proliferation of such services sup por ts the

mineral industry.

ATTRACTING PRIVATE INVESTMENT IN MINING

Mining and exploration are highly capital intensive. For instance, developing a

coal mine of Singarenis cur rent size w ill requ ire an investmen t of Rs.3,000 crore.

Vibrant exp loration activity is critical to identifying new mineral dep osits as existing

ones are exhausted. H owever, government-owned mining enterp rises are financially

weak and suffer from budgetary constraints, limiting their ability to invest in

exploration. Therefore, to develop strong mining an d m inerals-based ind ustries in

the State, it is critical to attract private inv estment in mining and exploration.

Further, the mining industry in the world is rapidly globalising and major

companies l ike Australias Broken Hill Proprietary (BHP) are gaining in



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importance. Attracting investment by these majors will be a pre-condition to

dev eloping comp etitive mining and mineral-based indu stries in the State and

gaining access to global markets.

Under the Centres new mining policy, mining has been opened to private

investment and states have been given the authority to develop the sector.

Andhra Pradesh needs to ac t on three f ronts : (1) create wel l -s t ructured

relationships with private players; (2) simplify approval processes; and (3)

proactively attract private majors to make exploration and mining investmen ts

in Andhra Pradesh.

Carefully structure relationships with private players: The relationship with

private players will need to include many elements that, taken together, will

allow the creation of a strong m ining sector. These includ e:

1. Providing secure land rights so that investors can safely commit large resources

to m ining p rojects.

2. Developing objective p erforman ce criteria for continu ation of title, e.g., minimu m

annu al investment, mining schedu les, and gaining investor agreement to th ese

at the start.

3. Allowing tran sfer of title to minimise title hoard ing and enable the utilisation

of untapped mines.

4. Clarifying progression from exploration to mining rights, e.g. , al lowing

conjun ctive rights, i.e., rights to both exploration a nd mining , if necessary.

5. Creating reasonable and mu tually acceptable cond itions for joint ventures.

6. Structuring royalties carefully, e.g., ad valorem in line with intern ational pra ctice,

to allow economic operations w hile ensuring a fair return for the use of resources

owned by people.

7. Deregu lating pricing for comm ercial pur poses, e.g., in coal, to stimulate pr ivate

entry.

Simplify approval/clearance processes for private exploration and mining:

Ap prov al processes for mining are notoriou sly tedious even in other parts of the

w orld. H ow ever, quick ap prova ls are essential for comp etitiveness, especially in



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a dynamic and international commodity-pricing environment. To simplify

procedures, the Government w ill need to:

1. Minimise the nu mber of clearing au thorities. Aut horise a one-stop coun cil to

grant mining and prospecting leases quickly.

2. Simplify land acquisition processes.

3. Qu ickly identify, and a ssign for private m ining, blocks unu tilised b y pu blic sector

enterp rises like Singareni d ue to lack of fund s.

4. Lobby for quicker Central Governm ent processes (e.g., perm issions from the

Foreign Investment Prom otion Board for gold, d iamonds; quicker/ automaticclearan ces from the Directorate General of Civil Aviation/ Defence Ministry for

aerial prosp ecting).

5. Make operational the regulation allowing p rospecting and exploration in large

areas to a llow scale.

Proactively attract private players: To attract p rivate investm ent in th e sector,

the Governm ent w ill need to u nd ertake the following initiatives:

1. Gather and collate geological information about m inerals in the State and makeit available to prosp ective private en trants.

2. Provide indu stry status to mining to allow players to benefit from incentives to

industry.

3. Develop effective marketing materials.

4. Proactively seek out w orld majors and market And hra Prad eshs potential to

them.

To achieve these objectives, key short term initiatives w ill be un derta ken ov er the

next three years. They includ e:

Framing mineral-specific policies for all major minerals including bauxite and

integrating th em into an ov erall mining policy.



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Stud ying Orissas approach to allowing private mining in backward areas as

well as Australias to developing aboriginal lands to build the case for private

mining in An dh ra Prad eshs tribal areas.

Framing a strategy for private participation in m ining.

Reviewing and streamlining current procedu res for mining and exploration.

The liberalisation and dev elopm ent of And hra Pra desh s mining sector will allow

the State to create considera ble wealth from its m ineral reserves.


mdsw-andhra pradesh03

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