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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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Wednesday, 26 October 11
PWCS GLOBAL SHIPPING BENCHMARKING ANALYSIS: RECOVERY IN 2010 BUT GREAT UNCERTAINLY FOR 2011
The recovery of global trade in 2010 to the same levels as 2008 led to an improvement in the overall performance of shipping companies in 2010 compa ...
Wednesday, 26 October 11
INDIAN MARKET WAS REMAINED TIGHT THE WHOLE LAST WEEK - BRS
The market once more seems to be at a crossroads. The indices last week remained fairly stable (except for the Panamax sector), ending the week as f ...
Tuesday, 25 October 11
DRY BULK MARKET STEADY, ANALYSTS LOOKING FOR ADDED PRESSURE ON THE MARKET - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market was unchanged on Monday, with the industry’s benchmark, the BDI (Baltic Dry Index) ending the session at 2,153 points, exa ...
Monday, 24 October 11
NEW HEAD OF INDONESIA'S MINING MINISTRY GETS RAKED OVER THE COALS - JOSEPH KIRSCHKE
COALspot.com - Following Indonesia’s presidential cabinet shakeup last week, many are questioning the qualifications of Energy and Mineral Res ...
Monday, 24 October 11
CHINA QINHUANGDAO COAL PRICE RISES TO HIGHEST IN THREE YEARS - BUSINESSWEEK
Business week reported that, China’s power-station coal price rose to the highest level in three years as power stations and central heating p ...
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- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Merrill Lynch Commodities Europe
- CIMB Investment Bank - Malaysia
- SN Aboitiz Power Inc, Philippines
- Intertek Mineral Services - Indonesia
- GAC Shipping (India) Pvt Ltd
- Leighton Contractors Pty Ltd - Australia
- Alfred C Toepfer International GmbH - Germany
- Latin American Coal - Colombia
- Antam Resourcindo - Indonesia
- Eastern Energy - Thailand
- Ministry of Finance - Indonesia
- Xindia Steels Limited - India
- Carbofer General Trading SA - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Economic Council, Georgia
- PNOC Exploration Corporation - Philippines
- Energy Link Ltd, New Zealand
- South Luzon Thermal Energy Corporation
- Africa Commodities Group - South Africa
- Mjunction Services Limited - India
- Straits Asia Resources Limited - Singapore
- Indian Oil Corporation Limited
- Global Coal Blending Company Limited - Australia
- Electricity Generating Authority of Thailand
- Essar Steel Hazira Ltd - India
- Kobexindo Tractors - Indoneisa
- Siam City Cement - Thailand
- McConnell Dowell - Australia
- Marubeni Corporation - India
- Parliament of New Zealand
- Romanian Commodities Exchange
- PetroVietnam Power Coal Import and Supply Company
- Binh Thuan Hamico - Vietnam
- Sarangani Energy Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Ministry of Mines - Canada
- Videocon Industries ltd - India
- Karaikal Port Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Manunggal Multi Energi - Indonesia
- Bhoruka Overseas - Indonesia
- Bukit Makmur.PT - Indonesia
- Larsen & Toubro Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Thai Mozambique Logistica
- International Coal Ventures Pvt Ltd - India
- Standard Chartered Bank - UAE
- GMR Energy Limited - India
- Banpu Public Company Limited - Thailand
- Petrochimia International Co. Ltd.- Taiwan
- Indian Energy Exchange, India
- Vizag Seaport Private Limited - India
- Dalmia Cement Bharat India
- Malabar Cements Ltd - India
- Posco Energy - South Korea
- Kaltim Prima Coal - Indonesia
- The State Trading Corporation of India Ltd
- Baramulti Group, Indonesia
- Coastal Gujarat Power Limited - India
- Therma Luzon, Inc, Philippines
- Wood Mackenzie - Singapore
- GVK Power & Infra Limited - India
- Rio Tinto Coal - Australia
- LBH Netherlands Bv - Netherlands
- Energy Development Corp, Philippines
- Cigading International Bulk Terminal - Indonesia
- Semirara Mining Corp, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Coal and Oil Company - UAE
- Globalindo Alam Lestari - Indonesia
- Electricity Authority, New Zealand
- CNBM International Corporation - China
- Star Paper Mills Limited - India
- ICICI Bank Limited - India
- Meralco Power Generation, Philippines
- SMG Consultants - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Gujarat Sidhee Cement - India
- India Bulls Power Limited - India
- Indogreen Group - Indonesia
- Jindal Steel & Power Ltd - India
- Meenaskhi Energy Private Limited - India
- New Zealand Coal & Carbon
- Orica Australia Pty. Ltd.
- Formosa Plastics Group - Taiwan
- ASAPP Information Group - India
- Salva Resources Pvt Ltd - India
- Bhatia International Limited - India
- Bangladesh Power Developement Board
- Neyveli Lignite Corporation Ltd, - India
- Karbindo Abesyapradhi - Indoneisa
- Deloitte Consulting - India
- Sree Jayajothi Cements Limited - India
- Sinarmas Energy and Mining - Indonesia
- OPG Power Generation Pvt Ltd - India
- Chamber of Mines of South Africa
- Kepco SPC Power Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Riau Bara Harum - Indonesia
- Planning Commission, India
- Toyota Tsusho Corporation, Japan
- Price Waterhouse Coopers - Russia
- Heidelberg Cement - Germany
- Power Finance Corporation Ltd., India
- Jaiprakash Power Ventures ltd
- VISA Power Limited - India
- Trasteel International SA, Italy
- Siam City Cement PLC, Thailand
- Timah Investasi Mineral - Indoneisa
- Ambuja Cements Ltd - India
- IEA Clean Coal Centre - UK
- Samtan Co., Ltd - South Korea
- Global Business Power Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Coalindo Energy - Indonesia
- Kideco Jaya Agung - Indonesia
- Mintek Dendrill Indonesia
- Directorate Of Revenue Intelligence - India
- Ministry of Transport, Egypt
- Medco Energi Mining Internasional
- Semirara Mining and Power Corporation, Philippines
- Madhucon Powers Ltd - India
- European Bulk Services B.V. - Netherlands
- GN Power Mariveles Coal Plant, Philippines
- Pendopo Energi Batubara - Indonesia
- Kumho Petrochemical, South Korea
- Lanco Infratech Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Indika Energy - Indonesia
- Tamil Nadu electricity Board
- Offshore Bulk Terminal Pte Ltd, Singapore
- Savvy Resources Ltd - HongKong
- Tata Chemicals Ltd - India
- Australian Commodity Traders Exchange
- Sojitz Corporation - Japan
- Bayan Resources Tbk. - Indonesia
- Thiess Contractors Indonesia
- Bharathi Cement Corporation - India
- Cement Manufacturers Association - India
- Barasentosa Lestari - Indonesia
- Altura Mining Limited, Indonesia
- Oldendorff Carriers - Singapore
- Krishnapatnam Port Company Ltd. - India
- Makarim & Taira - Indonesia
- Bukit Baiduri Energy - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Attock Cement Pakistan Limited
- White Energy Company Limited
- Independent Power Producers Association of India
- Edison Trading Spa - Italy
- Mercator Lines Limited - India
- MS Steel International - UAE
- Vijayanagar Sugar Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Borneo Indobara - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Maheswari Brothers Coal Limited - India
- Grasim Industreis Ltd - India
- Simpson Spence & Young - Indonesia
- Renaissance Capital - South Africa
- Billiton Holdings Pty Ltd - Australia
- Central Java Power - Indonesia
- Parry Sugars Refinery, India
- Eastern Coal Council - USA
- Vedanta Resources Plc - India
- Interocean Group of Companies - India
- Singapore Mercantile Exchange
- Petron Corporation, Philippines
- Australian Coal Association
- SMC Global Power, Philippines
- Kapuas Tunggal Persada - Indonesia
- Anglo American - United Kingdom
- IHS Mccloskey Coal Group - USA
- TNB Fuel Sdn Bhd - Malaysia
- Sical Logistics Limited - India
- Aditya Birla Group - India
- Mercuria Energy - Indonesia
- Commonwealth Bank - Australia
- Minerals Council of Australia
- Bulk Trading Sa - Switzerland
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bhushan Steel Limited - India
- Georgia Ports Authority, United States
- Wilmar Investment Holdings
- San Jose City I Power Corp, Philippines
- Iligan Light & Power Inc, Philippines
- Aboitiz Power Corporation - Philippines
- Kartika Selabumi Mining - Indonesia
- Central Electricity Authority - India
- Sindya Power Generating Company Private Ltd
- Kalimantan Lumbung Energi - Indonesia
- Indonesian Coal Mining Association
- Kohat Cement Company Ltd. - Pakistan
- Metalloyd Limited - United Kingdom
- London Commodity Brokers - England
- Uttam Galva Steels Limited - India
- Sakthi Sugars Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Chettinad Cement Corporation Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Port Waratah Coal Services - Australia
- Indo Tambangraya Megah - Indonesia
- PTC India Limited - India
- TeaM Sual Corporation - Philippines
- Orica Mining Services - Indonesia
- The Treasury - Australian Government
- Agrawal Coal Company - India
- PowerSource Philippines DevCo
- The University of Queensland
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Global Green Power PLC Corporation, Philippines
- Goldman Sachs - Singapore
- Gujarat Electricity Regulatory Commission - India
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