KASHMIR SAPPHIRE : How can we explore this Million Dollar Industry?

  • MUKEET AKMALI
  • Publish Date: Dec 2 2018 12:55PM
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  • Updated Date: Dec 2 2018 12:59PM
KASHMIR SAPPHIRE : How can we explore this Million Dollar Industry?Representational Pic

In May 2013, when a ring set with a 19.88 ct cushion-shaped Kashmir sapphire was put under hammer, world renowned auction house - Christies - expected it to fetch USD 3 million (Rs 21 crore), but the sapphire known as ‘Star of Kashmir’ smashed all records and eventually sold for over Rs 24 crore. However, the Kashmir sapphire was explored illegally as the J&K government has failed to explore this treasure trove which could give impetus to state’s economy. If experts are to believed, sapphire could generate over Rs10,000 crore revenue for the state. However, according to officials of Industries and Commerce department “till date no scientific and systematic investigation or exploration has been undertaken and the department is not aware about the quantity as well as quality of reserves.”

According to thejewelleryeditor.com, “There is no other sapphire that compares to a Kashmir sapphire. Looking through one is like looking at the Himalayan sky as the inclusions in the stone can sometimes resemble wispy clouds. The rich, velvety blue, unenhanced by man, is without peer.”

The Sapphire mine situated in the highly rugged terrain of great Himalayan range in Sumcham village of tehsil Paddar, district Kishtwar, remains almost snow bound throughout the year except for a few months of summer. Temperature during the working season of July to September remains around 5 degree to 10 degrees during day and around minus 1-2 during night. Inside the mine, temperature remains around minus 2-10 degrees on an average. J&K Minerals Limited, a Govt of J&K undertaking, started mining activity in the area from the year 1963. Very little mining has been done in the area due to limitations of working period and lack of financial resources with the corporation. The mining activities in the area were suspended by the corporation in 1977-78.

An attempt was made to sublet or transfer lease to interested parties for exploitation of deposits on the terms and conditions favourable to the corporation. In view of this, global tenders were issued in 1980-81. As many as 11 offers were received and four of them got shortlisted. Thereafter, lease of the mine was transferred to M/s M. A. Ramzana & Co. Srinagar and case was referred to central government for approval before issuance of formal orders. The central government informed the arrangement as void “ab-initio” as “the requirement of prior approval of central government was not fulfilled.” M/s Golden Films and Finance Ltd; one of the shortlisted parties, approached government for grant of mine lease for which the party had sought intervention of Supreme Court also. The Supreme Court had issued directions to the effect that the application of party be considered within 90 days. The State Government after examining the matter reserved the area for exploitation by state owned PSU vide SRO-48 of 1988 and reserved the entire area of Sapphire mines in Sumcham Paddar area of erstwhile District Doda in favour of J&K Minerals Limited.

Subsequently, in pursuance to government of India’s approval, sanction was accorded to the grant of mining lease of Sapphire and other gem stones such as Corrundum, Ruby, Topaz, Garnet, Rebellite and Acquamarines in Sumcham Paddar  district Doda in favour of J&K Minerals Limited in respect of area reserved in the public sector for a period of 20 years in the first instance, with the conditions: 1) National Mineral Development Corporation will associate itself with the preparation of mining plan of Sapphire deposits of the J&K Minerals. 2) J&K Minerals Limited will prepare required set of mining plans of the aforementioned area for obtaining approval from India Bureau of Mines.

In terms of decision made in a high level meeting, Laxman Rawat of Minex S.A. import/export of Geneva, Switzerland was appointed by J&K Minerals Limited as sole selling agent of the company for exploration/exploitation of Sapphire deposits for a period of ten years with an extended period of ten years on mutual consent of both the parties for which formal agreement between J&K Minerals Limited and Laxman Rawat was executed on 04.08.1989. Accordingly working permission was granted in favour of J&K Minerals. As per the agreement executed, 90% share in the profit was to be retained by Minex S.A and 10% share in profit from mining operation was to be distributed to the J&K Minerals Limited. 

In this regard the state government approached Ministry of Mines, GoI, in 1991 for accord of approval to the said arrangement. Main observation of the Ministry of Mines was:

“… prior approval of the Central Government is required under rule 37(1) of the Mineral Concession Rules, 1960, before the lessee i.e. M/S JKML could enter into arrangement of sole agent with the NRI for exploitation of sapphire in the leased out area. Further under Section 19 of the Mines and Minerals (Regulation & Development) Act, 1957 any prospecting licence or mining lease granted/renewed/acquired, in contravention of the Act or any Rules or orders made there-under is void and of no effect.” Another party M/s Golden Films and Finance Limited Bombay filed writ petition in 1989 in the High Court, Srinagar against the appointment of the NRI as sole agent by JKML and managed to obtain stay for maintaining status quo on spot. Alongside the stay, militancy started in the Valley and the law and order situation kept the project out of bounds till 1997-98 when the Court disposed the writ petition and vacated stay in favour of J&K ML. 

In 2004, a review meeting was chaired by the Chief Minister, regarding physical and financial progress of different schemes being implemented by the Industries & Commerce Department, wherein it was directed that a team of experts should be deputed to Paddar for deciding modalities for preparation of integrated mining plan to be followed by floating of global tenders for excavation of Sapphire. On the basis of the decision taken in the review meeting, process of Global Tendering  was initiated in the year 2004 but due to poor response, re-tendering was done in 2005 and subsequently in 2007. During the above bidding processes it was envisaged that atleast 51% equity stake in the Joint Venture (JV) Company shall be held by J&K Minerals Limited and 49% by JV Partner.

Besides, JV Partner was required to contribute and maintain a minimum level of 10% of the paid up capital as equity not to be subscribed by J&K Minerals Limited but allotted to J&K Minerals Limited as “sweat equity” in the proposed JV.

In 2007 bidding process, there were 3 pre-qualified bidders out of which only one bidder had submitted bid namely M/s Rawat S.A. (NRI) with a condition of at least 10% as sweat equity to J&K Minerals Limited and later through negotiation agreed to form JV on 51:49%  basis. However, the bid was not accepted by the state government as it was a single bid, therefore government directed for initiation of fresh Expression of Interest (EOI) to ensure healthy competition.

Fresh Expression of Interest (EOI) applications were invited in 2013 at Global Level by the JKML from parties having sound expertise in mine planning and mining of gem stones for exploration and exploitation of Sapphire Mine Paddar through Joint Venture through newspapers. Besides, EOI was forwarded to the Commercial Attachés of 32 countries so as to attract global players also for ensuring competitiveness in the bidding process. In response six offers were received.

In the meantime, Ministry of Mines, Government of India amended Section 17 A  of MMRD Act, 1956. The Mines and Minerals (Development and Regulation) Amendment Ordinance, 2015 notified by Ministry of Law and Justice (GOI) issued and published in official gazette on 12.01.2015 said: “(2B) Where the Government Company or Corporation is desirous of carrying out the prospecting operations or mining operations in a joint venture with other persons, the joint venture partner shall be selected through a competitive process and such Government company or Corporation shall hold more than 74% of the paid up share capital in such joint venture”.

The above amendment followed by another notification dated 10.02.2015 declared “Corundum” as “Minor Mineral”. Sapphire remained as major mineral. In view of amended provisions of MMRD Act, 2015, a revised / modified RFP was formulated by JKML in 2016 and submitted to the Finance Department (PPP Cell) for vetting who advised as under:-

“Department should seek professional advice of a Transaction Advisor/ Consultant to oversee the entire process including fixing qualifying criteria for the Joint Venture as well as parameters for final selection of JV partner.

The share of JKML in the Joint Venture should / shall be minimum 74% in line with the latest amendments made by the Ministry of Mines, Government of India.”

The matter was also referred to the Department of Law who advised as under:-

“The department is advised to proceed in the matter as per the advice of the Finance department. The Department may also consider incorporation of a penalty clause in case of default / breach of covenant by any party.” 

On the advice of the Finance/Law Departments, a revised / modified RFP document was circulated among shortlisted parties in October 2016.

As per the Terms of Association in the RFP, following are the obligations of the JV Partner:-

“The JV Partner agrees that the proposed JVC shall take up exploitation, exploitation and marketing of Gemstones in Padder, Kishtwar, and this will also include construction of required infrastructure in the State of J&K for exploitation and marketing of Gemstones from the said deposit(s).

The JV Partner agrees that the proposed JVC shall prepare a Detailed Project Report (DPR) at its own cost for the exploitation and marketing after successful completion of survey, exploration and evaluation which will initially incorporate among others a production plan for 10 years, investment plan for 10 years and cash flow plan for 10 years.

The JV Partner agrees that the proposed JVC shall pay royalty, taxes, license fee, annual area rental charges, other applicable taxes and dues during exploitation and marketing, as applicable under any Central or State Government laws for the project.

The JV Partner agrees that the proposed JVC shall abide by the provision of prevalent and relevant laws, policies, procedures and guidelines of Government of J&K and Government of India as may be in force from time to time.

The JV Partner agrees that the proposed JVC shall meet manpower requirement of JVC for the project to the extent available and found suitable from JKML and from population of Jammu and Kashmir, preferably from District Kishtwar.

The JV Partner agrees that the proposed JVC shall sell the entire quality of  Gemstones (Sapphire/ Corundum including other precious stones) produced by it through open auction held periodically globally.

The JV Partner agrees that the proposed JVC shall submit detailed time schedule to bring the deposits into production and to reach the optimum production level including construction of all required state of the art support services, equipment, laboratory and infrastructure facilities for exploitation and marketing of Gemstones.

The JV Partner agrees that the proposed JVC shall include representative of JKML/J&K Govt. in the Board of Directors as agreed under clause 7.04.

The JV Partner shall arrange Transfer of Technology to the Registered Indian Company and the JVC as an ongoing process from the exploration stages, into exploitation and marketing stage, save and except proprietary technology.”

As per the Terms of Association in the RFP, following are the obligations of the JKML:-

“JKML, as the lessee of the Padder area, has full sanction and authority to enter into these TOA or the exploitation of the mines covered under the Mining Lease.

JKML agrees that it shall be responsible to ensure that the lease is valid for   at least a period of 20 years from the date of incorporation of the JVC.”

Principal Secretary, Industries and Commerce, Shailender Kumar, said the  board in its meeting held on 13.03.2018 resolved for referring of the matter to state cabinet for consideration / approval to the selection of M/s Mineworks Pvt. Ltd. New Delhi who were shortlisted following global tendering for exploration and exploitation of Sapphire mines in Joint Venture with J&K Minerals Limited with distribution of equity share capital among respective partners in the ratio of (74.01% JKML and 25.99% M/s Mineworks Pvt. Ltd, New Delhi.

However after due consideration, I&C department proposed that whole process into the matter is examined by a group of officers since inception after which following course of action can be taken:

“Have Rs 50 crore as authorized capital for the JV with a paid up capital of Rs 5.00 crore. The contribution to the equity share shall be 74.01% from J&K Minerals Limited and 25.99% from M/s Mineworks Pvt Ltd (JV Partner). JKML shall pay this contribution from its own resources.

Further there shall be six Directors on the Board of Joint Venture (i.e. 04 from Government and 02 from JV Partner). The two non-official Directors shall be nominated by the JV Partner. Chief Secretary will be chairman of the board, Administrative Secretary, I&C Department, Administrative Secretary, Finance Department and Managing Director, JKML as directors.

Memorandum of Association (MoA) and Articles of Association (AoA) of the Joint Venture shall be prepared by the Joint Venture Company and get the same approved from the promoters of the Joint Venture in its BoD meeting under the chairmanship of the Chief Secretary for further roadmap to run the Company and get it registered with Registrar of Companies. The MoA and AoA shall then be put up to the Finance department, the Law department and to the Cabinet for final approval.” 

Business community in Kashmir has called it a move to allow “plunder” of state resources by the JKML through non-local companies. JKML has selected New Delhi-based M/S Minework Pvt Ltd for entering into joint venture for exploration and exploitation of sapphire mines under possession of the corporation in the Kishtwar district.

President, Federation Chamber of Industries Kashmir, Muhammad Ashraf Mir said, “It is highly condemnable that outside company has been roped in for extraction of sapphire mines with huge potential while ignoring local companies.”

Another industry body Associated Chamber of Commerce and Industries Kashmir (CCIK) has also expressed shock and surprise over handing over sapphire mines to an outside company. “As usual an outside agency is being unduly benefitted even though the local entrepreneurs are more than qualified for executing this kind of work. This fact stands established with all the concerned departments of the local government. This is deprivation of jobs and benefit to the local people,” read a statement issued by the CCIK. “This is again an attempt to plunder our natural resources as has been done earlier in the case of our water resources which are being looted without any substantial benefit to us,” it states adding that CCIK suggests to the administration that the local enterprise should be involved in the said industry rather than handing it over to outside agencies.

Former president of FCIK, Shakeel Qalander said, “Land and resources are property of the residents of Jammu and Kashmir. We won’t allow plunder of our resources. We are already facing brunt of loot of our resources.”