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12th October 2023 (9 Topics)

Government approves royalty rates for lithium, niobium, and rare earth

Context:

Recently, the government sanctioned royalty rates for three pivotal and strategic minerals -- lithium, niobium, and rare earth elements (REEs).

About the move:

  • The Cabinet approval of specification of rate for royalty will enable the government to auction blocks for lithium, niobium and REEs for the first time for the private sectors.
  • The royalty rates on these minerals are ---
    • Lithium at 3% of the London Metal Exchange price,
    • Niobium at 3% of the average sale price, both for primary and secondary sources, and
    • For REE the rate will be 1% of the average sale price of rare earth oxide.

Recently, the Mines and Minerals (Development and Regulation) Amendment act, 2023, was passed.

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 the private sector through auction. 

What is a Royalty?

  • A royalty is a legally binding payment made to an individual or company for the on-going use of their assets, including copyrighted works, franchises, and natural resources.
  • An example of royalties would be payments received by musicians when their original songs are played on the radio or television, used in movies, performed at concerts, bars, and restaurants, or consumed via streaming services.
  • In most cases, royalties are revenue generators specifically designed to compensate the owners of songs or property when they license out their assets for another party's use.

Mineral royalties: Also called mineral rights, mineral royalties are paid by mineral extractors to property owners.

  • The party that wants to extract the minerals will often pay the property owner an amount based on either revenue or units, such as barrels of oil or tons of coal.

Constituents of Royalty:

  • Royalty payments typically constitute a percentage of the gross or net revenues obtained from the use of property.
  • However, they can be negotiated on a case-by-case basis in accordance with the wishes of both parties involved in the transaction.
  • An inventor or original owner may choose to sell their product to a third party in exchange for royalties from the future revenues the product may generate.
  • For example, computer manufacturers pay Microsoft Corporation royalties for the right to use its Windows operating system in the computers they manufacture.

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