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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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Thursday, 20 October 11
BRACKEN INTERNATIONAL MINING LISTS ON FRANKFURT STOCK EXCHANGE
Press Release - Bracken International Mining (Code:1BM) listed on the Deutsche Börse’s Frankfurt Stock Exchange today at €1.00 with ...
Thursday, 20 October 11
CAPESIZES, SUPRAMAXES LEAD GAINS FOR DRY BULK MARKET - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Struggling to find additional support, but still managing to post gains, the dry bulk market has stabilized itself on higher levels again yesterday, ...
Wednesday, 19 October 11
METALLURGICAL COAL PRICES TO DROP BELOW US$240/TONNE - WOOD MACKENZIE
Wood Mackenzie Says Metallurgical Coal Prices to Drop Below US$240/tonne by Q4 2012 But Long-term Demand Fundamentals Remain Robust
Wood Mackenzi ...
Wednesday, 19 October 11
SUPRAMAX MARKET WAS VERY FIRM LAST WEEK - BRS
With all sectors contributing positively, the BDI ended the week at 2,173 points (+8.6%), its highest level so far in 2011. The BCI stood at 3,587 ( ...
Wednesday, 19 October 11
ADARO ACQUIRES BUKIT ENIM ENERGI - INSIDER STORIES
Insider Stories reported that, Coal miner PT Adaro Energy Tbk, via its subsidiary dubbed PT Alam Tri Abadi, today revealed a 46% stake takeover of a ...
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- Makarim & Taira - Indonesia
- GVK Power & Infra Limited - India
- Minerals Council of Australia
- Indogreen Group - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- SN Aboitiz Power Inc, Philippines
- Maheswari Brothers Coal Limited - India
- CIMB Investment Bank - Malaysia
- Bukit Makmur.PT - Indonesia
- Anglo American - United Kingdom
- Semirara Mining Corp, Philippines
- Jaiprakash Power Ventures ltd
- Global Coal Blending Company Limited - Australia
- Cigading International Bulk Terminal - Indonesia
- Dalmia Cement Bharat India
- Central Java Power - Indonesia
- Kideco Jaya Agung - Indonesia
- Simpson Spence & Young - Indonesia
- New Zealand Coal & Carbon
- Borneo Indobara - Indonesia
- Indika Energy - Indonesia
- Binh Thuan Hamico - Vietnam
- South Luzon Thermal Energy Corporation
- SMC Global Power, Philippines
- Renaissance Capital - South Africa
- Agrawal Coal Company - India
- Siam City Cement PLC, Thailand
- Africa Commodities Group - South Africa
- Directorate General of MIneral and Coal - Indonesia
- European Bulk Services B.V. - Netherlands
- Orica Australia Pty. Ltd.
- Holcim Trading Pte Ltd - Singapore
- Singapore Mercantile Exchange
- Vijayanagar Sugar Pvt Ltd - India
- Larsen & Toubro Limited - India
- Siam City Cement - Thailand
- Banpu Public Company Limited - Thailand
- Ministry of Transport, Egypt
- Jorong Barutama Greston.PT - Indonesia
- Sakthi Sugars Limited - India
- Ambuja Cements Ltd - India
- Jindal Steel & Power Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Gujarat Sidhee Cement - India
- Mintek Dendrill Indonesia
- Ministry of Mines - Canada
- Indonesian Coal Mining Association
- IEA Clean Coal Centre - UK
- Billiton Holdings Pty Ltd - Australia
- Sree Jayajothi Cements Limited - India
- Chamber of Mines of South Africa
- Xindia Steels Limited - India
- Eastern Energy - Thailand
- Indo Tambangraya Megah - Indonesia
- Meralco Power Generation, Philippines
- Savvy Resources Ltd - HongKong
- SMG Consultants - Indonesia
- Electricity Generating Authority of Thailand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Star Paper Mills Limited - India
- White Energy Company Limited
- Bayan Resources Tbk. - Indonesia
- Power Finance Corporation Ltd., India
- Bukit Baiduri Energy - Indonesia
- Indian Energy Exchange, India
- Bukit Asam (Persero) Tbk - Indonesia
- Madhucon Powers Ltd - India
- PowerSource Philippines DevCo
- VISA Power Limited - India
- TeaM Sual Corporation - Philippines
- Economic Council, Georgia
- Salva Resources Pvt Ltd - India
- Planning Commission, India
- Price Waterhouse Coopers - Russia
- PNOC Exploration Corporation - Philippines
- Tamil Nadu electricity Board
- Independent Power Producers Association of India
- Altura Mining Limited, Indonesia
- ICICI Bank Limited - India
- IHS Mccloskey Coal Group - USA
- Globalindo Alam Lestari - Indonesia
- Central Electricity Authority - India
- The Treasury - Australian Government
- Pendopo Energi Batubara - Indonesia
- Petron Corporation, Philippines
- Commonwealth Bank - Australia
- Oldendorff Carriers - Singapore
- AsiaOL BioFuels Corp., Philippines
- Interocean Group of Companies - India
- Grasim Industreis Ltd - India
- Posco Energy - South Korea
- Essar Steel Hazira Ltd - India
- Medco Energi Mining Internasional
- Samtan Co., Ltd - South Korea
- Energy Link Ltd, New Zealand
- India Bulls Power Limited - India
- International Coal Ventures Pvt Ltd - India
- Timah Investasi Mineral - Indoneisa
- Parliament of New Zealand
- Eastern Coal Council - USA
- GMR Energy Limited - India
- Chettinad Cement Corporation Ltd - India
- Coastal Gujarat Power Limited - India
- Lanco Infratech Ltd - India
- The University of Queensland
- Mercator Lines Limited - India
- Kepco SPC Power Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- LBH Netherlands Bv - Netherlands
- McConnell Dowell - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Semirara Mining and Power Corporation, Philippines
- Cement Manufacturers Association - India
- San Jose City I Power Corp, Philippines
- Vedanta Resources Plc - India
- Manunggal Multi Energi - Indonesia
- Aditya Birla Group - India
- Directorate Of Revenue Intelligence - India
- Krishnapatnam Port Company Ltd. - India
- Thiess Contractors Indonesia
- Kaltim Prima Coal - Indonesia
- Australian Coal Association
- Global Green Power PLC Corporation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Sinarmas Energy and Mining - Indonesia
- Indian Oil Corporation Limited
- Global Business Power Corporation, Philippines
- MS Steel International - UAE
- Bangladesh Power Developement Board
- Heidelberg Cement - Germany
- Bulk Trading Sa - Switzerland
- Sindya Power Generating Company Private Ltd
- Aboitiz Power Corporation - Philippines
- Rio Tinto Coal - Australia
- Bhushan Steel Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Attock Cement Pakistan Limited
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Iligan Light & Power Inc, Philippines
- Riau Bara Harum - Indonesia
- Therma Luzon, Inc, Philippines
- Merrill Lynch Commodities Europe
- Thai Mozambique Logistica
- Kobexindo Tractors - Indoneisa
- PTC India Limited - India
- Wood Mackenzie - Singapore
- Bharathi Cement Corporation - India
- Electricity Authority, New Zealand
- Kalimantan Lumbung Energi - Indonesia
- Vizag Seaport Private Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Sarangani Energy Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Port Waratah Coal Services - Australia
- Kapuas Tunggal Persada - Indonesia
- Goldman Sachs - Singapore
- The State Trading Corporation of India Ltd
- Latin American Coal - Colombia
- Kumho Petrochemical, South Korea
- Kohat Cement Company Ltd. - Pakistan
- Ind-Barath Power Infra Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bhatia International Limited - India
- Sical Logistics Limited - India
- Tata Chemicals Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Intertek Mineral Services - Indonesia
- Parry Sugars Refinery, India
- Bhoruka Overseas - Indonesia
- Kartika Selabumi Mining - Indonesia
- Barasentosa Lestari - Indonesia
- Marubeni Corporation - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Standard Chartered Bank - UAE
- GAC Shipping (India) Pvt Ltd
- Energy Development Corp, Philippines
- Carbofer General Trading SA - India
- Uttam Galva Steels Limited - India
- Karaikal Port Pvt Ltd - India
- Orica Mining Services - Indonesia
- Toyota Tsusho Corporation, Japan
- Mjunction Services Limited - India
- Rashtriya Ispat Nigam Limited - India
- Edison Trading Spa - Italy
- Deloitte Consulting - India
- OPG Power Generation Pvt Ltd - India
- ASAPP Information Group - India
- Leighton Contractors Pty Ltd - Australia
- London Commodity Brokers - England
- Straits Asia Resources Limited - Singapore
- Gujarat Mineral Development Corp Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Sojitz Corporation - Japan
- Coal and Oil Company - UAE
- Trasteel International SA, Italy
- Georgia Ports Authority, United States
- Coalindo Energy - Indonesia
- Australian Commodity Traders Exchange
- Videocon Industries ltd - India
- Malabar Cements Ltd - India
- Formosa Plastics Group - Taiwan
- Miang Besar Coal Terminal - Indonesia
- Wilmar Investment Holdings
- Mercuria Energy - Indonesia
- Ministry of Finance - Indonesia
- Meenaskhi Energy Private Limited - India
- Gujarat Electricity Regulatory Commission - India
- Maharashtra Electricity Regulatory Commission - India
- Petrochimia International Co. Ltd.- Taiwan
- Bahari Cakrawala Sebuku - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- CNBM International Corporation - China
- Baramulti Group, Indonesia
- Romanian Commodities Exchange
- Antam Resourcindo - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
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