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Tuesday, 15 Mar 2016
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Reform Measures in Real Estate & Mining sectors

PiyushGoyal

The Budget Session of Parliament saw introduction of three major reform measures in the Real Estate and Mining sectors.

 

On 10 March 2016, the Rajya Sabha approved the Real Estate (Regulation and Development) Bill, 2016, that seeks to protect the interests of house buyers while at the same time enhancing the credibility of the construction industry by promoting transparency, accountability and efficiency in execution of housing projects.

 

Further, the Union Cabinet chaired by the Prime Minister, has approved the Hydrocarbon Exploration and Licensing Policy (HELP) that aims to enhance domestic oil & gas production, bring substantial investment in the sector and generate sizable employment. The policy is also aimed at enhancing transparency and reducing administrative discretion.

 

Also, the Union Cabinet gave its approval for the amendment to the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act, 1957). The amendment will benefit lessees desirous of transferring the captive leases not granted through auction. It is also expected to benefit banks and financial institutions and will not entail any recurring or non-recurring expenditure on the Government.

 

Real Estate (Regulation and Development) Bill, 2016
 

The Bill seeks to put in place an effective regulatory mechanism for orderly growth of the sector which is the second largest employer after agriculture.

 

The Real Estate Bill, 2016, enables the people meet their genuine aspirations of owning a house including those of urban poor by giving a fillip to affordable housing initiative under which the Government intends to enable construction of two crore by the year 2022 under Prime Minister’s Awas Yojana (Urban). Compared to the previous version of the Bill, in which constructions below the size of 1,000 square metre or 12 apartments were left out of the accountability ambit, the new Bill has reduced the size and exempts projects only below 500 square meter.

 

The Real Estate Bill incorporates the following provisions:
 

 
  • Buyers will now be paying only for the carpet area and not the super built-up area.
  • The developers will now have to take consent of 66 per cent of the home buyers in case they have to increase the number of floors or change the building plans.
  • The builders would also be responsible for fixing structural defects for five years after transferring the property to a buyer.
  • Bill has a provision for imprisonment of up to three years in case developers are found guilty of fraud.
  • Regulatory authorities have 60 days to dispose off complaints.
  • It is mandatory for developers to deposit 70 per cent money from buyers in a third-party bank account.
  • Commercial Real Estate also comes under the purview of the Bill.
  • Registration of all projects in each state is now mandatory.

 

Hydrocarbon Exploration and Licensing Policy (HELP)

The four main facets of this policy are:
 

 
  • Uniform license for exploration and production of all forms of hydrocarbon: The uniform licence will enable the contractor to explore conventional as well as unconventional oil and gas resources including CBM, shale gas / oil, tight gas and gas hydrates under a single license.
  • An open acreage policy: The concept of Open Acreage Policy will enable E&P companies choose the blocks from the designated area.
  • Easy to administer revenue sharing model: Present fiscal system of production sharing based on Investment Multiple and cost recovery / production linked payment will be replaced by an easy to administer revenue sharing model. The earlier contracts were based on the concept of profit sharing where profits are shared between Government and the contractor after recovery of the cost. Under the profit sharing methodology, it became necessary for the Government to scrutinize cost details of private participants and this led to many delays and disputes. Under the new regime, the Government will not be concerned with the cost incurred and will receive a share of the gross revenue from the sale of oil, gas etc. This is in tune with Government’s policy of “Ease of Doing Business”. Recognising the higher risks and costs involved in exploration and production from offshore areas, lower royalty rates for such areas have been provided as compared to NELP royalty rates to encourage exploration and production. A graded system of royalty rates has been introduced, in which royalty rates decrease from shallow water to deep water and ultra-deep water. At the same time, royalty rates for on-land areas have been kept intact so that revenues to the state governments are not affected. On the lines of NELP, cess and import duty will not be applicable on blocks awarded under the new policy.
  • Marketing and pricing freedom for the crude oil and natural gas produced: The policy also provides for marketing freedom for crude oil and natural gas produced from these blocks. This is in tune with the Government’s policy of “Minimum Government - Maximum Governance”

 

Amendment to the MMDR Act, 1957

 

The MMDR Act, 1957, as amended through the MMDR Amendment Act, 2015, restricted the scope of transferability of concessions granted through auction. It was restricting the mergers and acquisitions of companies and was impeding the ease of doing business for companies dependent on supply of mineral ore from captive leases. The provision was coming in the way of banks and financial institutions to liquidate stressed assets where a company or its captive mining lease is mortgaged.

The recent amendment will allow transfer of captive mining leases not granted through auction. Transfer of captive mining leases, granted otherwise than through auction, would allow mergers and acquisitions of companies and facilitate ease of doing business for companies to improve profitability and decrease costs of the companies dependent on supply of mineral ore from captive leases. The transfer provisions will also facilitate banks and financial institutions to liquidate stressed assets where a company or its captive mining lease is mortgaged.

 
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