The Khyber Pakhtunkhwa Royalty Auction Rules, 2017 (the “Rules”), were established by the Government of Khyber Pakhtunkhwa to regulate the auction process for the collection of royalties on minerals. These Rules were formulated under the Khyber Pakhtunkhwa Minerals Sector Governance Act, 2016, and aim to ensure a transparent, fair, and competitive system for royalty collection.

Key Provisions of the Rules

  1. Short Title and Commencement
    The Rules are titled the “Khyber Pakhtunkhwa Royalty Auction Rules, 2017” and came into force immediately upon their notification on 7th March 2017​​.
  2. Definitions
    Key terms are defined to provide clarity, including “Act,” “Appellate Authority,” “Auction Committee,” “Division,” “royalty,” “Schedules,” “successful bidder,” and “reserve price.” These definitions help ensure a common understanding of the terms used throughout the Rules​​.
  3. Constitution and Composition of the Auction Committee
    The Rules establish an Auction Committee responsible for conducting auctions, fixing reserve prices for royalties, and submitting recommendations to the Licensing Authority. The committee comprises:

    • Director General (Chairperson)
    • Director Licensing-I
    • Director Licensing-II
    • Deputy Secretary, Mineral Development Department
    • Deputy Secretary, Finance Department
    • Deputy Secretary, Law Department
    • Assistant Director (Royalty)​​.
  4. Public Notice of Auction
    The Auction Committee must invite sealed tenders or conduct open auctions for royalty collection. Notices are published on the department’s website and in print and electronic media, detailing the auction schedule and terms and conditions​​.
  5. Terms and Conditions of Auction
    The auction process involves:

    • Submission of sealed tenders by interested parties three days before the auction date.
    • Opening of sealed tenders in the presence of bidders or their authorized representatives.
    • Announcement of the highest bidder, who must fulfill all prerequisites for the tender.
    • Recommendation of the highest bid to the Licensing Authority for approval​​.
  6. Registration and Eligibility
    To participate in the auction, individuals or entities must register with the Licensing Authority, providing documents such as a bank certificate of financial soundness, partnership deed or articles of association, and attested copies of identification. Registration is renewable annually, and defaulters or blacklisted individuals are not eligible to participate​​.
  7. Security and Payment
    Successful bidders must deposit 10% of their bid amount as security within seven working days, along with 25% of the bid amount as the first installment, withholding tax, and professional tax. The remaining bid amount is paid in three equal installments, and failure to comply results in forfeiture of the call deposit and potential cancellation of the royalty contract​​.
  8. Appeals and Exemptions
    Contractors aggrieved by decisions of the Licensing Authority may appeal to the Appellate Authority within thirty days. The Rules do not apply to royalties on precious stones, precious metals, radioactive minerals, and minerals excavated by cement factories from their own granted areas​​.

Critical Analysis

While the Khyber Pakhtunkhwa Royalty Auction Rules, 2017, provide a structured framework for the collection of royalties on minerals, several areas warrant further scrutiny and improvement:

  1. Complexity and Bureaucracy
    The multi-step process involving various committees and stringent documentation requirements can be cumbersome and time-consuming. Streamlining the process and reducing bureaucratic layers could enhance efficiency and encourage more participation.
  2. Financial Barriers
    The requirement for substantial financial deposits (10% call deposit and 25% first installment) within a short timeframe may exclude smaller entities or less financially robust companies, potentially limiting competition and favoring larger, well-established players.
  3. Technological and Accessibility Challenges
    The reliance on technology for the auction process, including online registrations and notices, may pose challenges in remote areas with limited internet access. Ensuring robust IT infrastructure and support is crucial for effective implementation.
  4. Environmental and Social Considerations
    The Rules focus primarily on the financial and administrative aspects of royalty collection, with limited emphasis on environmental impact assessments and community consultations. Incorporating robust environmental safeguards and stakeholder engagement could enhance the sustainability and social responsibility of mining operations.
  5. Enforcement and Compliance
    The effectiveness of the Rules hinges on strict enforcement and regular monitoring. Adequate training and resources must be provided to officials involved in the auction and compliance processes to ensure consistent application and address any violations promptly.
  6. Transparency and Accountability
    While the Rules mandate public notices and open auctions, ensuring transparency and accountability throughout the process is critical. Regular audits and public reporting on auction outcomes and royalty collections could improve trust and confidence in the system.

Conclusion

The Khyber Pakhtunkhwa Royalty Auction Rules, 2017, represent a significant step towards regulating the collection of royalties on minerals through a transparent and competitive auction process. However, addressing the identified gaps and enhancing the framework through streamlined procedures, financial inclusivity, robust technological support, environmental and social considerations, strict enforcement, and enhanced transparency will be crucial for their successful implementation. For further assistance or legal consultation regarding compliance with these Rules, please contact Josh and Mak International.

By The Josh and Mak Team

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