New Delhi, July 6: The government today hammered out a new mineral policy under which states must auction iron ore mines without insisting on bidders setting up units within their boundaries.

Top officials said the group of ministers met here today to give shape to the policy.

A cabinet approval is necessary for the proposals.

Auctions mean global giants such as Posco and ArcelorMittal will not be allowed to negotiate for leases with Jharkhand and Orissa on the basis of plans for units in these states.

However, steel companies participating in auctions must use the ore in India.

At the meeting, it was decided to do away with preferences to PSUs, such as Steel Authority of India Limited and Rashtriya Ispat Nigam Limited, in allocating mines.

These PSUs will now have to bid for mines.

There are apprehensions among the officials over the acceptance of the proposals by the states. “Most state governments want steel makers to make promises to set up plants in their states before parting with iron ore reserves. The states may not agree to the new policy,” the officials said.

Besides, there will be problems if states are allowed to have a say in the location of mills.

For instance, in the future, a state rich in any other mineral, such as coal or manganese, may insist on a facility within its boundaries as a condition for a lease. “The policy in that sense is a way out of competitive chaos,” the officials said.

The policy also puts the PSUs at a disadvantage during bidding. Their boards do not have the flexibility in taking snap decisions which will be necessary during bidding.

“Unlike private players, PSUs can hardly spend on commercial intelligence,” the officials said.

The policy also decided against quantitative or qualitative caps on iron ore exports.

It accepted the Hooda committee recommendation on using differential tax rates to discourage export of good ore.

However, officials said this might be rejected by the cabinet in the face of protests by the steel lobby.

The Indian Steel Alliance has made it clear that it will lobby for a cap at last year’s export level.

In 2006, India exported 90 million tonnes of iron ore, with more than half of it going to China.

The Federation of Indian Mineral Industries, which represents ore exporters, claims there are enough reserves to meet the needs of both steel companies and exporters.

Besides, 80 per cent of the export comprises low-grade fines, which are not used by steel companies.

According to the minister of state for mines, T. Subbarami Reddy, the government expects $2 billion of foreign direct investment after the new policy is in place.

He said the sector would also generate five lakh more jobs in the next five years.

Earlier, the cabinet had referred the policy to a group of ministers headed by home minister Shivraj Patil, to address issues facing both the steel and mining industry and recommend a policy conducive for the overall growth of the two industries.

The group has broadly endorsed the recommendations of the Anwarul Hooda committee, sources said.

They had heard representatives of both industries, besides environment experts, to get a complete picture.