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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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Friday, 28 October 11
RISING COAL PRICES TO WORSEN CHINA'S WINTER POWER CRUNCH - CRI ENGLISH
CRI English reported that, the rising price of coal is fueling concerns about a power crunch set to plague China this winter, analysts said.
The ...
Thursday, 27 October 11
CAPESIZE REACHING NEW HIGHS - FEARNLEYS
Handy
Pacific market has mixed sentiments with tonnages fixed at firm levels and some tonnages in feast failing on subs.For indo-india, large eco ...
Thursday, 27 October 11
DRY BULK MARKET EDGES DOWN AS CHINAS IRON ORE DEMAND LOSES GROUND - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
A plunge in Chinese iron ore demand, as a result of high steel inventories and a bleak outlook regarding steel prices, has prompted the dry bulk mar ...
Thursday, 27 October 11
BUKIT ASAM 3Q PROFIT SURGES 66.91%
Insider Stories reported that, the state-controlled coal miner PT Bukit Asam Tbk (PTBA) experienced a 66.91% increase in its net profit during a per ...
Wednesday, 26 October 11
MOODYS SEES MORE GROWTH FOR INDONESIAN COAL MINERS - THE JAKARTA GLOBE
The Jakarta Globe reported that, Indonesia’s coal mining industry looks set to grow despite an uncertain global economic outlook, according to ...
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- Attock Cement Pakistan Limited
- Ministry of Transport, Egypt
- Binh Thuan Hamico - Vietnam
- Economic Council, Georgia
- Tamil Nadu electricity Board
- Thiess Contractors Indonesia
- SMC Global Power, Philippines
- Coalindo Energy - Indonesia
- Electricity Generating Authority of Thailand
- Energy Development Corp, Philippines
- OPG Power Generation Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- Miang Besar Coal Terminal - Indonesia
- The Treasury - Australian Government
- Sindya Power Generating Company Private Ltd
- McConnell Dowell - Australia
- Ambuja Cements Ltd - India
- Thai Mozambique Logistica
- Kapuas Tunggal Persada - Indonesia
- Indonesian Coal Mining Association
- Simpson Spence & Young - Indonesia
- Karaikal Port Pvt Ltd - India
- Global Business Power Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Port Waratah Coal Services - Australia
- Orica Mining Services - Indonesia
- Globalindo Alam Lestari - Indonesia
- Anglo American - United Kingdom
- Vedanta Resources Plc - India
- Global Coal Blending Company Limited - Australia
- Banpu Public Company Limited - Thailand
- Bulk Trading Sa - Switzerland
- Trasteel International SA, Italy
- Cigading International Bulk Terminal - Indonesia
- Indogreen Group - Indonesia
- Heidelberg Cement - Germany
- TNB Fuel Sdn Bhd - Malaysia
- Orica Australia Pty. Ltd.
- Deloitte Consulting - India
- Pipit Mutiara Jaya. PT, Indonesia
- Borneo Indobara - Indonesia
- Petron Corporation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Timah Investasi Mineral - Indoneisa
- Rashtriya Ispat Nigam Limited - India
- Merrill Lynch Commodities Europe
- Alfred C Toepfer International GmbH - Germany
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sree Jayajothi Cements Limited - India
- PNOC Exploration Corporation - Philippines
- PTC India Limited - India
- Meralco Power Generation, Philippines
- Planning Commission, India
- Sinarmas Energy and Mining - Indonesia
- Parliament of New Zealand
- Coal and Oil Company - UAE
- Electricity Authority, New Zealand
- Georgia Ports Authority, United States
- Mintek Dendrill Indonesia
- Savvy Resources Ltd - HongKong
- Bangladesh Power Developement Board
- Kohat Cement Company Ltd. - Pakistan
- Kartika Selabumi Mining - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Bayan Resources Tbk. - Indonesia
- Minerals Council of Australia
- TeaM Sual Corporation - Philippines
- Jaiprakash Power Ventures ltd
- Edison Trading Spa - Italy
- Maheswari Brothers Coal Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Commonwealth Bank - Australia
- Power Finance Corporation Ltd., India
- Indian Energy Exchange, India
- Larsen & Toubro Limited - India
- Makarim & Taira - Indonesia
- Energy Link Ltd, New Zealand
- Krishnapatnam Port Company Ltd. - India
- Grasim Industreis Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Leighton Contractors Pty Ltd - Australia
- Kideco Jaya Agung - Indonesia
- Indika Energy - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Independent Power Producers Association of India
- Aditya Birla Group - India
- GMR Energy Limited - India
- Videocon Industries ltd - India
- Indian Oil Corporation Limited
- Essar Steel Hazira Ltd - India
- SN Aboitiz Power Inc, Philippines
- London Commodity Brokers - England
- Lanco Infratech Ltd - India
- Bhoruka Overseas - Indonesia
- Wilmar Investment Holdings
- Chettinad Cement Corporation Ltd - India
- Intertek Mineral Services - Indonesia
- Eastern Coal Council - USA
- Gujarat Electricity Regulatory Commission - India
- Romanian Commodities Exchange
- Mercator Lines Limited - India
- Billiton Holdings Pty Ltd - Australia
- Singapore Mercantile Exchange
- Xindia Steels Limited - India
- Tata Chemicals Ltd - India
- LBH Netherlands Bv - Netherlands
- European Bulk Services B.V. - Netherlands
- Sical Logistics Limited - India
- Siam City Cement PLC, Thailand
- GN Power Mariveles Coal Plant, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Directorate Of Revenue Intelligence - India
- Bhatia International Limited - India
- Ministry of Finance - Indonesia
- Sojitz Corporation - Japan
- Iligan Light & Power Inc, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Neyveli Lignite Corporation Ltd, - India
- Bukit Makmur.PT - Indonesia
- The University of Queensland
- Kalimantan Lumbung Energi - Indonesia
- Antam Resourcindo - Indonesia
- CIMB Investment Bank - Malaysia
- International Coal Ventures Pvt Ltd - India
- Australian Commodity Traders Exchange
- New Zealand Coal & Carbon
- Ministry of Mines - Canada
- Mjunction Services Limited - India
- The State Trading Corporation of India Ltd
- GAC Shipping (India) Pvt Ltd
- Offshore Bulk Terminal Pte Ltd, Singapore
- Carbofer General Trading SA - India
- Salva Resources Pvt Ltd - India
- PowerSource Philippines DevCo
- AsiaOL BioFuels Corp., Philippines
- Indo Tambangraya Megah - Indonesia
- Madhucon Powers Ltd - India
- Central Electricity Authority - India
- Ind-Barath Power Infra Limited - India
- VISA Power Limited - India
- Wood Mackenzie - Singapore
- Parry Sugars Refinery, India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Riau Bara Harum - Indonesia
- Kobexindo Tractors - Indoneisa
- Semirara Mining Corp, Philippines
- PetroVietnam Power Coal Import and Supply Company
- MS Steel International - UAE
- Latin American Coal - Colombia
- Interocean Group of Companies - India
- ICICI Bank Limited - India
- Posco Energy - South Korea
- Toyota Tsusho Corporation, Japan
- Sakthi Sugars Limited - India
- Therma Luzon, Inc, Philippines
- Holcim Trading Pte Ltd - Singapore
- Star Paper Mills Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Aboitiz Power Corporation - Philippines
- Manunggal Multi Energi - Indonesia
- Sarangani Energy Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Kepco SPC Power Corporation, Philippines
- Central Java Power - Indonesia
- Australian Coal Association
- Metalloyd Limited - United Kingdom
- Bhushan Steel Limited - India
- Rio Tinto Coal - Australia
- Mercuria Energy - Indonesia
- Formosa Plastics Group - Taiwan
- Baramulti Group, Indonesia
- Meenaskhi Energy Private Limited - India
- Bharathi Cement Corporation - India
- Kaltim Prima Coal - Indonesia
- South Luzon Thermal Energy Corporation
- White Energy Company Limited
- IHS Mccloskey Coal Group - USA
- Bukit Asam (Persero) Tbk - Indonesia
- Coastal Gujarat Power Limited - India
- India Bulls Power Limited - India
- Uttam Galva Steels Limited - India
- Siam City Cement - Thailand
- Africa Commodities Group - South Africa
- Malabar Cements Ltd - India
- Renaissance Capital - South Africa
- Goldman Sachs - Singapore
- CNBM International Corporation - China
- Petrochimia International Co. Ltd.- Taiwan
- Cement Manufacturers Association - India
- Chamber of Mines of South Africa
- IEA Clean Coal Centre - UK
- Dalmia Cement Bharat India
- Marubeni Corporation - India
- Semirara Mining and Power Corporation, Philippines
- Standard Chartered Bank - UAE
- ASAPP Information Group - India
- Vizag Seaport Private Limited - India
- Pendopo Energi Batubara - Indonesia
- Kumho Petrochemical, South Korea
- Medco Energi Mining Internasional
- Agrawal Coal Company - India
- Gujarat Sidhee Cement - India
- San Jose City I Power Corp, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Price Waterhouse Coopers - Russia
- GVK Power & Infra Limited - India
- Eastern Energy - Thailand
- Global Green Power PLC Corporation, Philippines
- Samtan Co., Ltd - South Korea
- SMG Consultants - Indonesia
- Altura Mining Limited, Indonesia
- Barasentosa Lestari - Indonesia
- Oldendorff Carriers - Singapore
- Bahari Cakrawala Sebuku - Indonesia
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