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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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Monday, 24 October 11
CAPESIZE RENTAL RATES RISE FOR THIRD DAY AS MORE SHIPS HIRED - HELLENIC SHIPPING
Rates to hire capesize vessels advanced for a third day on signs of increased demand to transport iron ore, used to make steel.Daily rates for the s ...
Sunday, 23 October 11
CHINA LOOKING TO RESELL INDONESIAN COAL CARGOES - BARCLAYS
Commodity Online reported that, Anecdotal evidence has suggested that China is even looking to resell Indonesian cargoes back into the seaborne coal ...
Saturday, 22 October 11
THE SHORT-PERIOD RATES FOR PANAMAX REMAINED FIRM - CAPT. REDDY
COALspot.com - "The market seemed to slow down a bit this week, and all sectors were down by about One to five percent", said Capt. Reddy, ...
Saturday, 22 October 11
INDONESIA'S GOLDEN ENERGY SLASHES ITS IPO PRICE - THE JAKARTA GLOBE
The Jakarta Globe reported that, Golden Energy Mines, a coal mining company affiliated with Sinar Mas Group, lowered its target in an initial public ...
Thursday, 20 October 11
CAPESIZE - TUBARAO /QINGDAO BEING FIXED AT STRONG US$ 29.75 PMT
Handy
The Atlantic market is quite steady, and market seems to be around the same levels as last week. Fewer fixtures reported though. ...
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- PetroVietnam Power Coal Import and Supply Company
- Attock Cement Pakistan Limited
- Aboitiz Power Corporation - Philippines
- Siam City Cement PLC, Thailand
- OPG Power Generation Pvt Ltd - India
- Planning Commission, India
- Deloitte Consulting - India
- London Commodity Brokers - England
- Energy Link Ltd, New Zealand
- Mercuria Energy - Indonesia
- Karaikal Port Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Asmin Koalindo Tuhup - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Coastal Gujarat Power Limited - India
- Electricity Authority, New Zealand
- Central Java Power - Indonesia
- Uttam Galva Steels Limited - India
- Minerals Council of Australia
- Siam City Cement - Thailand
- Eastern Coal Council - USA
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Wilmar Investment Holdings
- SMC Global Power, Philippines
- Merrill Lynch Commodities Europe
- India Bulls Power Limited - India
- Tamil Nadu electricity Board
- CNBM International Corporation - China
- Borneo Indobara - Indonesia
- Power Finance Corporation Ltd., India
- Indian Energy Exchange, India
- Makarim & Taira - Indonesia
- GVK Power & Infra Limited - India
- Posco Energy - South Korea
- Commonwealth Bank - Australia
- The Treasury - Australian Government
- Thai Mozambique Logistica
- Bhoruka Overseas - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Bangladesh Power Developement Board
- Kalimantan Lumbung Energi - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- PTC India Limited - India
- Sree Jayajothi Cements Limited - India
- Salva Resources Pvt Ltd - India
- Bhushan Steel Limited - India
- Eastern Energy - Thailand
- Kapuas Tunggal Persada - Indonesia
- Medco Energi Mining Internasional
- Bhatia International Limited - India
- Australian Coal Association
- GN Power Mariveles Coal Plant, Philippines
- Vizag Seaport Private Limited - India
- Sical Logistics Limited - India
- Interocean Group of Companies - India
- Trasteel International SA, Italy
- VISA Power Limited - India
- Binh Thuan Hamico - Vietnam
- CIMB Investment Bank - Malaysia
- Alfred C Toepfer International GmbH - Germany
- Meralco Power Generation, Philippines
- Indonesian Coal Mining Association
- PNOC Exploration Corporation - Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Ambuja Cements Ltd - India
- Singapore Mercantile Exchange
- Madhucon Powers Ltd - India
- Bharathi Cement Corporation - India
- Carbofer General Trading SA - India
- Krishnapatnam Port Company Ltd. - India
- Georgia Ports Authority, United States
- Ind-Barath Power Infra Limited - India
- Mercator Lines Limited - India
- Coal and Oil Company - UAE
- Sinarmas Energy and Mining - Indonesia
- Marubeni Corporation - India
- Iligan Light & Power Inc, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Thiess Contractors Indonesia
- Larsen & Toubro Limited - India
- Kumho Petrochemical, South Korea
- Ministry of Finance - Indonesia
- Kaltim Prima Coal - Indonesia
- Intertek Mineral Services - Indonesia
- Africa Commodities Group - South Africa
- GMR Energy Limited - India
- Kartika Selabumi Mining - Indonesia
- Kideco Jaya Agung - Indonesia
- Energy Development Corp, Philippines
- Vedanta Resources Plc - India
- Global Coal Blending Company Limited - Australia
- Samtan Co., Ltd - South Korea
- Rashtriya Ispat Nigam Limited - India
- Grasim Industreis Ltd - India
- IEA Clean Coal Centre - UK
- White Energy Company Limited
- Altura Mining Limited, Indonesia
- Bukit Makmur.PT - Indonesia
- Savvy Resources Ltd - HongKong
- Kobexindo Tractors - Indoneisa
- Semirara Mining Corp, Philippines
- Goldman Sachs - Singapore
- Riau Bara Harum - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Wood Mackenzie - Singapore
- Independent Power Producers Association of India
- TNB Fuel Sdn Bhd - Malaysia
- Romanian Commodities Exchange
- Latin American Coal - Colombia
- Karbindo Abesyapradhi - Indoneisa
- Antam Resourcindo - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Electricity Generating Authority of Thailand
- MS Steel International - UAE
- Bukit Baiduri Energy - Indonesia
- IHS Mccloskey Coal Group - USA
- Star Paper Mills Limited - India
- Coalindo Energy - Indonesia
- Directorate Of Revenue Intelligence - India
- Ministry of Mines - Canada
- Jindal Steel & Power Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Neyveli Lignite Corporation Ltd, - India
- Bayan Resources Tbk. - Indonesia
- Chettinad Cement Corporation Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Heidelberg Cement - Germany
- Price Waterhouse Coopers - Russia
- Mjunction Services Limited - India
- Kepco SPC Power Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Xindia Steels Limited - India
- Banpu Public Company Limited - Thailand
- AsiaOL BioFuels Corp., Philippines
- Rio Tinto Coal - Australia
- Vijayanagar Sugar Pvt Ltd - India
- Essar Steel Hazira Ltd - India
- Therma Luzon, Inc, Philippines
- Parliament of New Zealand
- Billiton Holdings Pty Ltd - Australia
- Globalindo Alam Lestari - Indonesia
- Global Business Power Corporation, Philippines
- Gujarat Sidhee Cement - India
- Orica Mining Services - Indonesia
- Barasentosa Lestari - Indonesia
- Maheswari Brothers Coal Limited - India
- Metalloyd Limited - United Kingdom
- Videocon Industries ltd - India
- The State Trading Corporation of India Ltd
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Chamber of Mines of South Africa
- TeaM Sual Corporation - Philippines
- Pendopo Energi Batubara - Indonesia
- Timah Investasi Mineral - Indoneisa
- Mintek Dendrill Indonesia
- Anglo American - United Kingdom
- Indika Energy - Indonesia
- Holcim Trading Pte Ltd - Singapore
- SN Aboitiz Power Inc, Philippines
- Oldendorff Carriers - Singapore
- Ministry of Transport, Egypt
- Gujarat Mineral Development Corp Ltd - India
- Bulk Trading Sa - Switzerland
- ASAPP Information Group - India
- New Zealand Coal & Carbon
- Leighton Contractors Pty Ltd - Australia
- Tata Chemicals Ltd - India
- Malabar Cements Ltd - India
- South Luzon Thermal Energy Corporation
- Jaiprakash Power Ventures ltd
- Petron Corporation, Philippines
- Orica Australia Pty. Ltd.
- Edison Trading Spa - Italy
- PowerSource Philippines DevCo
- International Coal Ventures Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Sakthi Sugars Limited - India
- Renaissance Capital - South Africa
- Standard Chartered Bank - UAE
- Semirara Mining and Power Corporation, Philippines
- Global Green Power PLC Corporation, Philippines
- Formosa Plastics Group - Taiwan
- Agrawal Coal Company - India
- Australian Commodity Traders Exchange
- Toyota Tsusho Corporation, Japan
- Port Waratah Coal Services - Australia
- San Jose City I Power Corp, Philippines
- Sarangani Energy Corporation, Philippines
- Parry Sugars Refinery, India
- Indian Oil Corporation Limited
- Dalmia Cement Bharat India
- Baramulti Group, Indonesia
- Sindya Power Generating Company Private Ltd
- McConnell Dowell - Australia
- Simpson Spence & Young - Indonesia
- Central Electricity Authority - India
- Sojitz Corporation - Japan
- Lanco Infratech Ltd - India
- Manunggal Multi Energi - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- SMG Consultants - Indonesia
- Meenaskhi Energy Private Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Indogreen Group - Indonesia
- Economic Council, Georgia
- Gujarat Electricity Regulatory Commission - India
- LBH Netherlands Bv - Netherlands
- Kohat Cement Company Ltd. - Pakistan
- GAC Shipping (India) Pvt Ltd
- European Bulk Services B.V. - Netherlands
- The University of Queensland
- Aditya Birla Group - India
- ICICI Bank Limited - India
- Cement Manufacturers Association - India
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