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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, 12 October 11
CAPESIZE - A SURPRISE JUMP IN RATES - BRS
There was a surge across all sizes last week, resulting in the BDI gaining 101 points to end the week at 2,000 points (+5.3%). The BCI reached 3,218 ...
Wednesday, 12 October 11
CAPESIZE FREIGHT RATES BOUND TO RETREAT FROM 2011 HIGHS ON THE BACK OF TONNAGE OVERSUPPLY SAYS BIMCO
According to Nikos Roussanoglou, Hellenic Shipping, with the BDI (Baltic Dry Index) breaking yet another 2011 high yesterday and ending the se ...
Tuesday, 11 October 11
GLENCORE, SUITOR FOR BUMI PLC? - INSIDER STORIES
Insider Stories reported that, the largest commodities trader in the world, Glencore International Plc, is considering an opportunity to acquire a m ...
Tuesday, 11 October 11
RENUKA COALINDO BUYS JAMBI COAL
PT Renuka Coalindo Tbk, formerly PT Allbond Makmur Usaha Tbk plans to acquire PT Jambi Prima Coal holder of mining concession in Pauh, Sa ...
Monday, 10 October 11
MOZAMBIQUE CHANNEL TO BE THE NEW PIRACY HOTSPOT FOR THIS YEAR SAYS MARITIME SECURITY EXPERT - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The Mozambique Channel, as well as the entrance to the Persian Gulf, are expected to become some of the new pirate hotspots for piracy, says Richard ...
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- Latin American Coal - Colombia
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- Bhoruka Overseas - Indonesia
- Singapore Mercantile Exchange
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- Electricity Generating Authority of Thailand
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- India Bulls Power Limited - India
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- Medco Energi Mining Internasional
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- Directorate General of MIneral and Coal - Indonesia
- Xindia Steels Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Orica Australia Pty. Ltd.
- ICICI Bank Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Bayan Resources Tbk. - Indonesia
- Global Coal Blending Company Limited - Australia
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- Electricity Authority, New Zealand
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- Trasteel International SA, Italy
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- Madhucon Powers Ltd - India
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- Tamil Nadu electricity Board
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- Mercator Lines Limited - India
- Bukit Baiduri Energy - Indonesia
- TeaM Sual Corporation - Philippines
- International Coal Ventures Pvt Ltd - India
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- ASAPP Information Group - India
- Binh Thuan Hamico - Vietnam
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- Globalindo Alam Lestari - Indonesia
- Kideco Jaya Agung - Indonesia
- SN Aboitiz Power Inc, Philippines
- McConnell Dowell - Australia
- The University of Queensland
- Petrochimia International Co. Ltd.- Taiwan
- London Commodity Brokers - England
- PowerSource Philippines DevCo
- Banpu Public Company Limited - Thailand
- Sree Jayajothi Cements Limited - India
- Edison Trading Spa - Italy
- Cement Manufacturers Association - India
- Mintek Dendrill Indonesia
- Australian Coal Association
- New Zealand Coal & Carbon
- Chettinad Cement Corporation Ltd - India
- Oldendorff Carriers - Singapore
- IEA Clean Coal Centre - UK
- Meralco Power Generation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Holcim Trading Pte Ltd - Singapore
- Maheswari Brothers Coal Limited - India
- Cigading International Bulk Terminal - Indonesia
- Gujarat Sidhee Cement - India
- GMR Energy Limited - India
- Metalloyd Limited - United Kingdom
- Sakthi Sugars Limited - India
- Toyota Tsusho Corporation, Japan
- Goldman Sachs - Singapore
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- Central Electricity Authority - India
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- Global Business Power Corporation, Philippines
- Agrawal Coal Company - India
- MS Steel International - UAE
- Sinarmas Energy and Mining - Indonesia
- GN Power Mariveles Coal Plant, Philippines
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- Rio Tinto Coal - Australia
- Formosa Plastics Group - Taiwan
- Jindal Steel & Power Ltd - India
- Carbofer General Trading SA - India
- Jaiprakash Power Ventures ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Gujarat Mineral Development Corp Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- SMC Global Power, Philippines
- Therma Luzon, Inc, Philippines
- Ministry of Finance - Indonesia
- White Energy Company Limited
- Coastal Gujarat Power Limited - India
- Kepco SPC Power Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Port Waratah Coal Services - Australia
- Parliament of New Zealand
- Bukit Makmur.PT - Indonesia
- Videocon Industries ltd - India
- Price Waterhouse Coopers - Russia
- Kaltim Prima Coal - Indonesia
- San Jose City I Power Corp, Philippines
- Australian Commodity Traders Exchange
- Semirara Mining and Power Corporation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Heidelberg Cement - Germany
- Sojitz Corporation - Japan
- Kumho Petrochemical, South Korea
- Global Green Power PLC Corporation, Philippines
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- Barasentosa Lestari - Indonesia
- Romanian Commodities Exchange
- Georgia Ports Authority, United States
- Bulk Trading Sa - Switzerland
- Bangladesh Power Developement Board
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Africa Commodities Group - South Africa
- Ministry of Transport, Egypt
- Ceylon Electricity Board - Sri Lanka
- Orica Mining Services - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Energy Link Ltd, New Zealand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indonesian Coal Mining Association
- GVK Power & Infra Limited - India
- Semirara Mining Corp, Philippines
- Energy Development Corp, Philippines
- Directorate Of Revenue Intelligence - India
- Independent Power Producers Association of India
- Renaissance Capital - South Africa
- Wood Mackenzie - Singapore
- Economic Council, Georgia
- Indogreen Group - Indonesia
- Merrill Lynch Commodities Europe
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- Grasim Industreis Ltd - India
- CNBM International Corporation - China
- Star Paper Mills Limited - India
- Samtan Co., Ltd - South Korea
- The State Trading Corporation of India Ltd
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- Asmin Koalindo Tuhup - Indonesia
- Bhushan Steel Limited - India
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- Parry Sugars Refinery, India
- Kohat Cement Company Ltd. - Pakistan
- AsiaOL BioFuels Corp., Philippines
- Altura Mining Limited, Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Minerals Council of Australia
- GAC Shipping (India) Pvt Ltd
- Simpson Spence & Young - Indonesia
- CIMB Investment Bank - Malaysia
- VISA Power Limited - India
- Eastern Energy - Thailand
- Mercuria Energy - Indonesia
- Chamber of Mines of South Africa
- Indian Oil Corporation Limited
- Karaikal Port Pvt Ltd - India
- Intertek Mineral Services - Indonesia
- IHS Mccloskey Coal Group - USA
- Standard Chartered Bank - UAE
- Indian Energy Exchange, India
- Siam City Cement - Thailand
- Salva Resources Pvt Ltd - India
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- European Bulk Services B.V. - Netherlands
- Wilmar Investment Holdings
- Deloitte Consulting - India
- Aditya Birla Group - India
- Manunggal Multi Energi - Indonesia
- Coalindo Energy - Indonesia
- Antam Resourcindo - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Mjunction Services Limited - India
- Ministry of Mines - Canada
- Coal and Oil Company - UAE
- Attock Cement Pakistan Limited
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