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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, 18 October 11
INDONESIAN PRESIDENT APPOINTS JERO WACIK AS NEW MINISTER OF ENERGY & MINERAL RESOURCES
COALspot.com - Jero Wacik has been appointed as minister of energy and mineral resources of Indonesia replacing Darwin Saleh and Prof. Widjajono Par ...
Tuesday, 18 October 11
DELTA DUNIA MAKMUR HAS PRODUCED 3.0 MILLION TONS OF COAL LAST MONTH
COALspot.com - PT. Delta Dunia Makmur, wholly owned subsidiary, PT Bukit Makmur Mandiri Utama (BUMA), Delta Dunia Makmur has removed 1.4 million bcm ...
Monday, 17 October 11
KOWEPO TO BUY 260,000 MT BITUMINOUS COAL
COALspot.com - KOWEPO has issued a spot tender for 260,000MT of minimum 5,600kcal/kg NAR Bituminous Coal.
The tender document also mentioned tha ...
Monday, 17 October 11
CAPESIZE SHIPPING COSTS CLIMB TO 10-MONTH HIGH ON ORE IMPORTS
The cost to hire capesize vessels climbed to a 10-month high as rising imports of iron ore to China boosted demand for the ships.Monthly iron-ore sh ...
Saturday, 15 October 11
BUNKER PRICES AND DEMANDS PUSHED FREIGHT RATES UP - VISTAAR
COALspot.com - The market continued to be firm with all segments moving up with biggest gain in Handy size segment up by 15 pct. The BDI was u ...
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- Xindia Steels Limited - India
- Economic Council, Georgia
- South Luzon Thermal Energy Corporation
- Chettinad Cement Corporation Ltd - India
- Simpson Spence & Young - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- Samtan Co., Ltd - South Korea
- Anglo American - United Kingdom
- Semirara Mining Corp, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Ind-Barath Power Infra Limited - India
- Billiton Holdings Pty Ltd - Australia
- Karbindo Abesyapradhi - Indoneisa
- Therma Luzon, Inc, Philippines
- CNBM International Corporation - China
- Electricity Authority, New Zealand
- Eastern Energy - Thailand
- GVK Power & Infra Limited - India
- Banpu Public Company Limited - Thailand
- Singapore Mercantile Exchange
- Kideco Jaya Agung - Indonesia
- Jaiprakash Power Ventures ltd
- Goldman Sachs - Singapore
- Latin American Coal - Colombia
- Wilmar Investment Holdings
- TeaM Sual Corporation - Philippines
- Kaltim Prima Coal - Indonesia
- Siam City Cement - Thailand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Gujarat Mineral Development Corp Ltd - India
- Meenaskhi Energy Private Limited - India
- Pendopo Energi Batubara - Indonesia
- Tata Chemicals Ltd - India
- Intertek Mineral Services - Indonesia
- Bhatia International Limited - India
- Thiess Contractors Indonesia
- Mintek Dendrill Indonesia
- Meralco Power Generation, Philippines
- Deloitte Consulting - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Siam City Cement PLC, Thailand
- Petron Corporation, Philippines
- Ministry of Mines - Canada
- Gujarat Electricity Regulatory Commission - India
- Cigading International Bulk Terminal - Indonesia
- The University of Queensland
- Larsen & Toubro Limited - India
- Borneo Indobara - Indonesia
- Cement Manufacturers Association - India
- Global Coal Blending Company Limited - Australia
- Standard Chartered Bank - UAE
- Dalmia Cement Bharat India
- ICICI Bank Limited - India
- Indian Oil Corporation Limited
- Coastal Gujarat Power Limited - India
- Salva Resources Pvt Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Metalloyd Limited - United Kingdom
- Central Java Power - Indonesia
- Global Business Power Corporation, Philippines
- Sical Logistics Limited - India
- India Bulls Power Limited - India
- Grasim Industreis Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Ministry of Transport, Egypt
- SMG Consultants - Indonesia
- Ambuja Cements Ltd - India
- Global Green Power PLC Corporation, Philippines
- Posco Energy - South Korea
- Orica Mining Services - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Mjunction Services Limited - India
- Eastern Coal Council - USA
- Maheswari Brothers Coal Limited - India
- PTC India Limited - India
- Kalimantan Lumbung Energi - Indonesia
- IHS Mccloskey Coal Group - USA
- Ministry of Finance - Indonesia
- OPG Power Generation Pvt Ltd - India
- Parry Sugars Refinery, India
- Maharashtra Electricity Regulatory Commission - India
- Iligan Light & Power Inc, Philippines
- SN Aboitiz Power Inc, Philippines
- Energy Development Corp, Philippines
- Bharathi Cement Corporation - India
- Port Waratah Coal Services - Australia
- Ceylon Electricity Board - Sri Lanka
- Jorong Barutama Greston.PT - Indonesia
- Bulk Trading Sa - Switzerland
- IEA Clean Coal Centre - UK
- AsiaOL BioFuels Corp., Philippines
- Sojitz Corporation - Japan
- Edison Trading Spa - Italy
- Bukit Makmur.PT - Indonesia
- Kumho Petrochemical, South Korea
- Rio Tinto Coal - Australia
- Vizag Seaport Private Limited - India
- LBH Netherlands Bv - Netherlands
- Indo Tambangraya Megah - Indonesia
- Sarangani Energy Corporation, Philippines
- Carbofer General Trading SA - India
- MS Steel International - UAE
- Binh Thuan Hamico - Vietnam
- Coal and Oil Company - UAE
- Offshore Bulk Terminal Pte Ltd, Singapore
- San Jose City I Power Corp, Philippines
- Indian Energy Exchange, India
- PetroVietnam Power Coal Import and Supply Company
- Makarim & Taira - Indonesia
- Thai Mozambique Logistica
- GMR Energy Limited - India
- New Zealand Coal & Carbon
- Australian Commodity Traders Exchange
- Chamber of Mines of South Africa
- Toyota Tsusho Corporation, Japan
- Aboitiz Power Corporation - Philippines
- Straits Asia Resources Limited - Singapore
- Vedanta Resources Plc - India
- Essar Steel Hazira Ltd - India
- Wood Mackenzie - Singapore
- Agrawal Coal Company - India
- Barasentosa Lestari - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- PowerSource Philippines DevCo
- Rashtriya Ispat Nigam Limited - India
- Medco Energi Mining Internasional
- VISA Power Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Aditya Birla Group - India
- Kapuas Tunggal Persada - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Tamil Nadu electricity Board
- Kobexindo Tractors - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- Bhoruka Overseas - Indonesia
- Renaissance Capital - South Africa
- Interocean Group of Companies - India
- Globalindo Alam Lestari - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Uttam Galva Steels Limited - India
- Sinarmas Energy and Mining - Indonesia
- Parliament of New Zealand
- Riau Bara Harum - Indonesia
- Timah Investasi Mineral - Indoneisa
- Trasteel International SA, Italy
- Price Waterhouse Coopers - Russia
- Manunggal Multi Energi - Indonesia
- The State Trading Corporation of India Ltd
- Indika Energy - Indonesia
- Malabar Cements Ltd - India
- Independent Power Producers Association of India
- ASAPP Information Group - India
- Kepco SPC Power Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Mercator Lines Limited - India
- Indonesian Coal Mining Association
- Bayan Resources Tbk. - Indonesia
- Electricity Generating Authority of Thailand
- White Energy Company Limited
- Heidelberg Cement - Germany
- Bangladesh Power Developement Board
- PNOC Exploration Corporation - Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Indogreen Group - Indonesia
- Central Electricity Authority - India
- Bhushan Steel Limited - India
- Altura Mining Limited, Indonesia
- The Treasury - Australian Government
- Georgia Ports Authority, United States
- Karaikal Port Pvt Ltd - India
- Marubeni Corporation - India
- Mercuria Energy - Indonesia
- Merrill Lynch Commodities Europe
- Planning Commission, India
- Krishnapatnam Port Company Ltd. - India
- Romanian Commodities Exchange
- Gujarat Sidhee Cement - India
- International Coal Ventures Pvt Ltd - India
- Lanco Infratech Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Minerals Council of Australia
- Star Paper Mills Limited - India
- Jindal Steel & Power Ltd - India
- Madhucon Powers Ltd - India
- Directorate Of Revenue Intelligence - India
- Bukit Baiduri Energy - Indonesia
- Sree Jayajothi Cements Limited - India
- Power Finance Corporation Ltd., India
- Orica Australia Pty. Ltd.
- Savvy Resources Ltd - HongKong
- Videocon Industries ltd - India
- Antam Resourcindo - Indonesia
- Leighton Contractors Pty Ltd - Australia
- SMC Global Power, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Baramulti Group, Indonesia
- Africa Commodities Group - South Africa
- Sakthi Sugars Limited - India
- CIMB Investment Bank - Malaysia
- Commonwealth Bank - Australia
- London Commodity Brokers - England
- Formosa Plastics Group - Taiwan
- Attock Cement Pakistan Limited
- GAC Shipping (India) Pvt Ltd
- Bahari Cakrawala Sebuku - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Energy Link Ltd, New Zealand
- Kartika Selabumi Mining - Indonesia
- Oldendorff Carriers - Singapore
- Petrochimia International Co. Ltd.- Taiwan
- Australian Coal Association
- European Bulk Services B.V. - Netherlands
- Coalindo Energy - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- McConnell Dowell - Australia
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