Union Cabinet sets royalty rates for lithium at 3% of LME prices

Union Cabinet on Wednesday set royalty rates for three critical minerals including lithium, which are key for the country's clean energy ambitions.

The royalty rates for lithium would be fixed at 3% of prices prevailing at the London Metal Exchange (LME), which mining companies must pay for extracting the mineral, the government said in a statement.

Centre has been exploring ways to secure supplies of lithium, a critical raw material used to make electric vehicle batteries, and found its first lithium deposits in February in Jammu & Kashmir.

The government also set the royalty for niobium mining at 3% of the average sale price, and for rare earth oxide at 1% of the average sale price.

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

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.

The Second Schedule of the MMDR Act provides royalty rates for various minerals. Item No.55 of the Second Schedule provides that royalty rate for the minerals whose royalty rate is not specifically provided therein shall be 12% of the Average Sale Price (ASP). Thus, if the royalty rate for Lithium, Niobium and REE is not specifically provided, then their default royalty rate would be 12% of ASP, which is considerably high as compared to other critical and strategic minerals. Also, this royalty rate of 12% is not comparable with other mineral producing countries.