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Saturday, 22 October 11
WILL THE PROPOSED 26 PERCENT PROFIT SHARING CLAUSE IN THE MINING BILL SPEED UP THE PRODUCTION OR SCARE AWAY INVESTORS? - DIPESH DIPU
.jpg) A draft law has been approved by a ministerial panel headed by Finance Minister Pranab Mukherjee of India which, if passed by the Cabinet, will make it mandatory for the coal producers to share 26 percent of their profits with the population affected by the project. The proposed law has raised objections from the mining industry, fearing that it would result in heavy taxation, which, in turn, would diminish the investments in the sector. However, there are many who are in favour of it, including the largest coal producer, Coal India Ltd.
The mining industry is unique in some sense because of the magnitude of the environmental and social problems associated with this industry. A number of specific characteristics of the mining industry contribute to these problems. Choices of locations are not flexible, so often mining takes place in ecologically and socially sensitive areas. Particularly in those cases, the damage tends to be irreversible. Another characteristic of the mining companies is that they tend to be seen as an economically strategic sector. These two parameters tend to imply a conflict and a risk in terms of corporate accountability. That said, the mining industry has been moving from being a voluntary and marginal contributor to the society—it is part of becoming a partner in social development and making a significant impact on the standard of life for the project affected people. The Mines and Minerals (Development & Regulation) Bill that stipulates that coal mining companies will have to share 26 percent of their net profit for the purpose of the social balancing act. While there cannot be two opinions about compensating the project affected people, the stipulation of 26 percent share of profit does appear steep.
It may have an impact on investment in coal mining sector. And investments in mining ventures should not be viewed in isolation. Any impact on the investment in such a mining venture must consider the micro-economic impact of the venture. It would be stating the obvious that minerals produced from mining ventures are typically consumed in manufacturing sector and the chain of value additions end with the ultimate consumer. In case of a coal mine, the investment in mine is likely to be coupled with investment in power generation, steel or cement. If we take the example of coal mining and power generation, for every Rupee invested in coal mine, typically, five-fold investment goes into power generation plant. This can be enlarged, if the project needs infrastructure investments as well. Similar is the multiplier effect on generation of employment and these projects also help create local business opportunities and employment in these ancillaries. The local business development occurs through the investment in a coal mine and addition of power project in the portfolio, which enhances levels of economic activities and improvement in purchasing power of people in the region.
There is a difference between tax and social contribution, but the mandatory nature of the social contribution can make it appear similar to tax. Currently, coal mining in India attracts following taxes and contributions: Corporate income tax – 33 percent; Royalty – depends on the coal quality/grade; Dead rents – lease rents for land; Corporate social responsibility commitments (percent on revenues) – largely voluntary; Education cess – two percent surcharge; Environment levies – for coal, it is Rupees 50 per tonne of raw coal mined; and Indirect taxes – on consumables. If the 26 percent mandatory profit share is implemented, the taxes and mandatory contributions will account for more than half of the cost of coal production. While costs per se may not be a concern as much as the capacity to pass these costs on to the final consumer, which is where, the industry concerns may lay.
It is observed that raising the level of taxation brings the cash flows forward to the present from its mineral sector, which otherwise is due over time. Reason for this being the observation that tax hike always raises government revenues over the first few years from its promulgation. This is likely to discourage exploration and mine development in the longer run, and so reduces tax revenues on a life cycle basis.
The provision for profit share is likely to have limited success in addressing long-term issues that confront the industry and its investment environment, as hence, the same project affected people. Considering the macro-economic parameters, in long run, the industry and the government, as also the other stakeholders, including project affected people are likely to witness lower realization from a higher imposed contribution required from the mining projects. The provision, as it stands, is likely to erode the attractiveness of coal mining operations and may even act as a deterrent to investments into the marginally profitable coal blocks. It may help that the proposed profit taxes should be dropped in favour of enhanced but fair compensation to project affected people. Fair compensation for the project affected people should be based on earning capacity from that land keeping in view the market conditions for requirement of land. It may be suggested that in addition to compensation for land, the displaced should get annuity for life of the lease period at a rate agreed by the mining company, project affected people and the government.
The above analysis was originally published on Infraline.
The views and opinions / conclusion expressed on this analysis is purely the writers’ own.
About Dipesh Dipu
Dipesh Dipu works as Director with Deloitte in the Energy and Resources consulting practice of the firm and anchors the Firm’s initiative in the mining and metals sectors. He is a mining engineering graduate from Indian School of Mines and is a Chartered Financial Analyst (CFA).
He has also done executive program in business management from Indian Institute of Management Calcutta. Dipesh has recently been awarded the Abheraj Baldota Gold Medal for the Young Mining Engineer of the Year 2007 by the Mining Engineers’ Association of India in recognition of his contributions in the improvement of mining industry in India.
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Tuesday, 01 November 11
ATLAS RESOURCES SETS IPO AT RP1,500 - INSIDER STORIES
Insider Stories reported that, coal miner PT Atlas Resources Tbk has set its initial public offering (IPO) at Rp1,500 (approximately US$ 0.169) per ...
Tuesday, 01 November 11
DRY BULK MARKETS CORRECTION SPILLS OVER ONTO NEW WEEK - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market is losing steam, as evidenced by the falls experienced last week, which were also apparent at the beginning of the new week. A l ...
Monday, 31 October 11
CHINAS HUNGER FOR INDONESIAN COAL AT THREE YEAR-HIGH AS WINTER NEARS - JOSEPH KIRSCHKE
COALspot.com - Chinese demand for power-station coal from Indonesia has soared to its highest level in three years, as central heating plants and po ...
Saturday, 29 October 11
ATLAS RESOURCES SEALS US$95 MIO LOAN - INSIDER STORIES
Insider Stories reported that, coal producer PT Atlas Resources Tbk, that is controlled by Indonesian businessman Andre Abdi, has secured US$95 mill ...
Saturday, 29 October 11
INDONESIA TO INDIA FREIGHT LIKELY TO REMAIN SOFT
COALspot.com - The market continued to slow down and all segment were down this week.
The biggest drop was in the Cape Index down by 8.19 pct&nbs ...
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- Medco Energi Mining Internasional
- Bank of Tokyo Mitsubishi UFJ Ltd
- Xindia Steels Limited - India
- MS Steel International - UAE
- Kaltim Prima Coal - Indonesia
- Iligan Light & Power Inc, Philippines
- Electricity Authority, New Zealand
- Barasentosa Lestari - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Uttam Galva Steels Limited - India
- Orica Mining Services - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Goldman Sachs - Singapore
- Maheswari Brothers Coal Limited - India
- CNBM International Corporation - China
- Independent Power Producers Association of India
- European Bulk Services B.V. - Netherlands
- Gujarat Electricity Regulatory Commission - India
- Planning Commission, India
- TNB Fuel Sdn Bhd - Malaysia
- Dalmia Cement Bharat India
- IHS Mccloskey Coal Group - USA
- Makarim & Taira - Indonesia
- Aditya Birla Group - India
- Bayan Resources Tbk. - Indonesia
- Kapuas Tunggal Persada - Indonesia
- GMR Energy Limited - India
- Ministry of Finance - Indonesia
- Merrill Lynch Commodities Europe
- Mercuria Energy - Indonesia
- Videocon Industries ltd - India
- Global Coal Blending Company Limited - Australia
- Indonesian Coal Mining Association
- Ind-Barath Power Infra Limited - India
- Indo Tambangraya Megah - Indonesia
- San Jose City I Power Corp, Philippines
- Economic Council, Georgia
- GAC Shipping (India) Pvt Ltd
- Agrawal Coal Company - India
- Ceylon Electricity Board - Sri Lanka
- ICICI Bank Limited - India
- Karbindo Abesyapradhi - Indoneisa
- South Luzon Thermal Energy Corporation
- Kideco Jaya Agung - Indonesia
- Binh Thuan Hamico - Vietnam
- Energy Link Ltd, New Zealand
- Aboitiz Power Corporation - Philippines
- Trasteel International SA, Italy
- Bhushan Steel Limited - India
- VISA Power Limited - India
- Meenaskhi Energy Private Limited - India
- LBH Netherlands Bv - Netherlands
- GN Power Mariveles Coal Plant, Philippines
- Price Waterhouse Coopers - Russia
- Bukit Baiduri Energy - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Georgia Ports Authority, United States
- Rashtriya Ispat Nigam Limited - India
- Singapore Mercantile Exchange
- Anglo American - United Kingdom
- Wilmar Investment Holdings
- Interocean Group of Companies - India
- Sinarmas Energy and Mining - Indonesia
- Borneo Indobara - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Malabar Cements Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Larsen & Toubro Limited - India
- Bulk Trading Sa - Switzerland
- SMC Global Power, Philippines
- Leighton Contractors Pty Ltd - Australia
- Wood Mackenzie - Singapore
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- Therma Luzon, Inc, Philippines
- Jorong Barutama Greston.PT - Indonesia
- OPG Power Generation Pvt Ltd - India
- Indogreen Group - Indonesia
- New Zealand Coal & Carbon
- International Coal Ventures Pvt Ltd - India
- Ambuja Cements Ltd - India
- IEA Clean Coal Centre - UK
- Australian Commodity Traders Exchange
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kobexindo Tractors - Indoneisa
- Sakthi Sugars Limited - India
- Bhoruka Overseas - Indonesia
- Essar Steel Hazira Ltd - India
- Metalloyd Limited - United Kingdom
- Samtan Co., Ltd - South Korea
- Siam City Cement - Thailand
- Electricity Generating Authority of Thailand
- India Bulls Power Limited - India
- Marubeni Corporation - India
- Banpu Public Company Limited - Thailand
- SN Aboitiz Power Inc, Philippines
- Kartika Selabumi Mining - Indonesia
- Sree Jayajothi Cements Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Port Waratah Coal Services - Australia
- Lanco Infratech Ltd - India
- Coastal Gujarat Power Limited - India
- TeaM Sual Corporation - Philippines
- Gujarat Mineral Development Corp Ltd - India
- Timah Investasi Mineral - Indoneisa
- The Treasury - Australian Government
- Power Finance Corporation Ltd., India
- White Energy Company Limited
- Central Java Power - Indonesia
- Kumho Petrochemical, South Korea
- Siam City Cement PLC, Thailand
- Kepco SPC Power Corporation, Philippines
- Orica Australia Pty. Ltd.
- Vedanta Resources Plc - India
- Formosa Plastics Group - Taiwan
- Mintek Dendrill Indonesia
- Semirara Mining Corp, Philippines
- SMG Consultants - Indonesia
- Jaiprakash Power Ventures ltd
- Africa Commodities Group - South Africa
- Karaikal Port Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Straits Asia Resources Limited - Singapore
- Bhatia International Limited - India
- Eastern Energy - Thailand
- Directorate Of Revenue Intelligence - India
- Simpson Spence & Young - Indonesia
- Billiton Holdings Pty Ltd - Australia
- CIMB Investment Bank - Malaysia
- Coal and Oil Company - UAE
- Intertek Mineral Services - Indonesia
- Posco Energy - South Korea
- Madhucon Powers Ltd - India
- Tamil Nadu electricity Board
- Savvy Resources Ltd - HongKong
- Ministry of Transport, Egypt
- Star Paper Mills Limited - India
- Minerals Council of Australia
- Bukit Makmur.PT - Indonesia
- Manunggal Multi Energi - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Riau Bara Harum - Indonesia
- Tata Chemicals Ltd - India
- Baramulti Group, Indonesia
- Antam Resourcindo - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Central Electricity Authority - India
- Australian Coal Association
- Petrochimia International Co. Ltd.- Taiwan
- Thiess Contractors Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Chamber of Mines of South Africa
- Oldendorff Carriers - Singapore
- Chettinad Cement Corporation Ltd - India
- Latin American Coal - Colombia
- Parry Sugars Refinery, India
- Sarangani Energy Corporation, Philippines
- ASAPP Information Group - India
- Sical Logistics Limited - India
- Grasim Industreis Ltd - India
- Meralco Power Generation, Philippines
- Thai Mozambique Logistica
- Carbofer General Trading SA - India
- Vizag Seaport Private Limited - India
- Bharathi Cement Corporation - India
- Alfred C Toepfer International GmbH - Germany
- Indian Oil Corporation Limited
- McConnell Dowell - Australia
- GVK Power & Infra Limited - India
- Salva Resources Pvt Ltd - India
- London Commodity Brokers - England
- Toyota Tsusho Corporation, Japan
- Attock Cement Pakistan Limited
- Rio Tinto Coal - Australia
- Renaissance Capital - South Africa
- Mercator Lines Limited - India
- Edison Trading Spa - Italy
- Romanian Commodities Exchange
- Standard Chartered Bank - UAE
- AsiaOL BioFuels Corp., Philippines
- Sojitz Corporation - Japan
- Global Business Power Corporation, Philippines
- Indika Energy - Indonesia
- Sindya Power Generating Company Private Ltd
- Asmin Koalindo Tuhup - Indonesia
- Global Green Power PLC Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Energy Development Corp, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Gujarat Sidhee Cement - India
- PowerSource Philippines DevCo
- Ministry of Mines - Canada
- PNOC Exploration Corporation - Philippines
- Mjunction Services Limited - India
- Bangladesh Power Developement Board
- Eastern Coal Council - USA
- The University of Queensland
- Cigading International Bulk Terminal - Indonesia
- Cement Manufacturers Association - India
- Krishnapatnam Port Company Ltd. - India
- Parliament of New Zealand
- PetroVietnam Power Coal Import and Supply Company
- Pendopo Energi Batubara - Indonesia
- Petron Corporation, Philippines
- Heidelberg Cement - Germany
- Coalindo Energy - Indonesia
- PTC India Limited - India
- Altura Mining Limited, Indonesia
- The State Trading Corporation of India Ltd
- Commonwealth Bank - Australia
- Jindal Steel & Power Ltd - India
- Deloitte Consulting - India
- Kalimantan Lumbung Energi - Indonesia
- Indian Energy Exchange, India
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