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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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Sunday, 09 October 11
FREIGHT MARKET ENDED WITH A POSITIVE DIRECTION - VISTAAR
COALspot.com - The market ended with a positive note with all the segments up except for handy size. The biggest gainer was Panamax index up by 11 p ...
Saturday, 08 October 11
INDONESIAN MINER PLANS $167M IPO TO FUEL SUMATRA COAL BOOM - JG
The Jakarta Globe reported that, coal miner Atlas Resources aims to raise as much as Rp 1.5 trillion ($167 million) in an initial public offering to ...
Friday, 07 October 11
MINING REGULATIONS , OBSTACLES AND GROWTH : INDIA VS INDONESIA - SUNIL K KUMBHAT
COALspot.com - The Govt of India has passed long pending Mines & Minerals (Regulation and Development) Bill, 2011, which seeks to replace ...
Friday, 07 October 11
$100M FOR EXPANSION INTO KALIMANTAN MINING: AKR
The Jakarta Globe, one of the leading English news paper in Indonesia reported that, AKR Corporindo, a fuel and chemical distributor, has set aside ...
Thursday, 06 October 11
REALM SECURES 51% OF KATINGAN RIA COAL PROJECT IN CENTRAL KALIMANTAN
•Realm secures 51% of PT Katingan Ria Thermal Coal Project in Central Kalimantan
•Realm takes ownership of Kalres Limited
•Acquisit ...
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- Savvy Resources Ltd - HongKong
- Thai Mozambique Logistica
- Sarangani Energy Corporation, Philippines
- GVK Power & Infra Limited - India
- Petron Corporation, Philippines
- Romanian Commodities Exchange
- Samtan Co., Ltd - South Korea
- Merrill Lynch Commodities Europe
- Petrochimia International Co. Ltd.- Taiwan
- Chettinad Cement Corporation Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Riau Bara Harum - Indonesia
- Mercator Lines Limited - India
- Baramulti Group, Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Essar Steel Hazira Ltd - India
- Tamil Nadu electricity Board
- Electricity Authority, New Zealand
- Sinarmas Energy and Mining - Indonesia
- GAC Shipping (India) Pvt Ltd
- South Luzon Thermal Energy Corporation
- OPG Power Generation Pvt Ltd - India
- Indonesian Coal Mining Association
- International Coal Ventures Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Maheswari Brothers Coal Limited - India
- Bharathi Cement Corporation - India
- Ind-Barath Power Infra Limited - India
- Heidelberg Cement - Germany
- Cement Manufacturers Association - India
- Bhatia International Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Orica Mining Services - Indonesia
- Jaiprakash Power Ventures ltd
- Singapore Mercantile Exchange
- Kumho Petrochemical, South Korea
- Central Electricity Authority - India
- Madhucon Powers Ltd - India
- Sojitz Corporation - Japan
- Africa Commodities Group - South Africa
- ICICI Bank Limited - India
- The University of Queensland
- VISA Power Limited - India
- Wood Mackenzie - Singapore
- Xindia Steels Limited - India
- Price Waterhouse Coopers - Russia
- Global Green Power PLC Corporation, Philippines
- Energy Link Ltd, New Zealand
- Mercuria Energy - Indonesia
- Directorate Of Revenue Intelligence - India
- Makarim & Taira - Indonesia
- Therma Luzon, Inc, Philippines
- Central Java Power - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Australian Coal Association
- Gujarat Electricity Regulatory Commission - India
- Australian Commodity Traders Exchange
- Posco Energy - South Korea
- Global Coal Blending Company Limited - Australia
- Sical Logistics Limited - India
- Indika Energy - Indonesia
- Sakthi Sugars Limited - India
- Mjunction Services Limited - India
- Orica Australia Pty. Ltd.
- Rio Tinto Coal - Australia
- Salva Resources Pvt Ltd - India
- Deloitte Consulting - India
- Trasteel International SA, Italy
- PNOC Exploration Corporation - Philippines
- Grasim Industreis Ltd - India
- Coastal Gujarat Power Limited - India
- MS Steel International - UAE
- Renaissance Capital - South Africa
- Formosa Plastics Group - Taiwan
- Bulk Trading Sa - Switzerland
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Commonwealth Bank - Australia
- Gujarat Sidhee Cement - India
- Global Business Power Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- India Bulls Power Limited - India
- Chamber of Mines of South Africa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kohat Cement Company Ltd. - Pakistan
- Iligan Light & Power Inc, Philippines
- Economic Council, Georgia
- Metalloyd Limited - United Kingdom
- Kartika Selabumi Mining - Indonesia
- Kaltim Prima Coal - Indonesia
- Bhoruka Overseas - Indonesia
- Aditya Birla Group - India
- Miang Besar Coal Terminal - Indonesia
- SMG Consultants - Indonesia
- Pendopo Energi Batubara - Indonesia
- Bukit Baiduri Energy - Indonesia
- Indo Tambangraya Megah - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Holcim Trading Pte Ltd - Singapore
- Georgia Ports Authority, United States
- Globalindo Alam Lestari - Indonesia
- Jindal Steel & Power Ltd - India
- Karaikal Port Pvt Ltd - India
- Wilmar Investment Holdings
- Manunggal Multi Energi - Indonesia
- Carbofer General Trading SA - India
- Coalindo Energy - Indonesia
- Indogreen Group - Indonesia
- Attock Cement Pakistan Limited
- Kobexindo Tractors - Indoneisa
- Siam City Cement PLC, Thailand
- Barasentosa Lestari - Indonesia
- GMR Energy Limited - India
- European Bulk Services B.V. - Netherlands
- Parry Sugars Refinery, India
- AsiaOL BioFuels Corp., Philippines
- The State Trading Corporation of India Ltd
- Cigading International Bulk Terminal - Indonesia
- Marubeni Corporation - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Intertek Mineral Services - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Larsen & Toubro Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bhushan Steel Limited - India
- Ceylon Electricity Board - Sri Lanka
- Toyota Tsusho Corporation, Japan
- Parliament of New Zealand
- CIMB Investment Bank - Malaysia
- Power Finance Corporation Ltd., India
- Goldman Sachs - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- Aboitiz Power Corporation - Philippines
- Billiton Holdings Pty Ltd - Australia
- Banpu Public Company Limited - Thailand
- Maharashtra Electricity Regulatory Commission - India
- San Jose City I Power Corp, Philippines
- Lanco Infratech Ltd - India
- Ministry of Transport, Egypt
- Coal and Oil Company - UAE
- Simpson Spence & Young - Indonesia
- Bukit Makmur.PT - Indonesia
- TeaM Sual Corporation - Philippines
- Bayan Resources Tbk. - Indonesia
- Kideco Jaya Agung - Indonesia
- Meenaskhi Energy Private Limited - India
- Altura Mining Limited, Indonesia
- Leighton Contractors Pty Ltd - Australia
- Sree Jayajothi Cements Limited - India
- Interocean Group of Companies - India
- Thiess Contractors Indonesia
- Tata Chemicals Ltd - India
- Standard Chartered Bank - UAE
- Medco Energi Mining Internasional
- Borneo Indobara - Indonesia
- Kapuas Tunggal Persada - Indonesia
- McConnell Dowell - Australia
- PTC India Limited - India
- Energy Development Corp, Philippines
- Planning Commission, India
- PetroVietnam Power Coal Import and Supply Company
- Kalimantan Lumbung Energi - Indonesia
- IHS Mccloskey Coal Group - USA
- Indian Oil Corporation Limited
- Kepco SPC Power Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Semirara Mining and Power Corporation, Philippines
- Oldendorff Carriers - Singapore
- Straits Asia Resources Limited - Singapore
- Independent Power Producers Association of India
- Semirara Mining Corp, Philippines
- Ambuja Cements Ltd - India
- Bangladesh Power Developement Board
- Videocon Industries ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Dalmia Cement Bharat India
- Directorate General of MIneral and Coal - Indonesia
- Edison Trading Spa - Italy
- London Commodity Brokers - England
- Port Waratah Coal Services - Australia
- Vizag Seaport Private Limited - India
- Indian Energy Exchange, India
- Alfred C Toepfer International GmbH - Germany
- Pipit Mutiara Jaya. PT, Indonesia
- New Zealand Coal & Carbon
- Electricity Generating Authority of Thailand
- Gujarat Mineral Development Corp Ltd - India
- Ministry of Finance - Indonesia
- Meralco Power Generation, Philippines
- PowerSource Philippines DevCo
- LBH Netherlands Bv - Netherlands
- Binh Thuan Hamico - Vietnam
- Agrawal Coal Company - India
- Antam Resourcindo - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Mintek Dendrill Indonesia
- The Treasury - Australian Government
- White Energy Company Limited
- Vedanta Resources Plc - India
- Uttam Galva Steels Limited - India
- Malabar Cements Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- SMC Global Power, Philippines
- Latin American Coal - Colombia
- CNBM International Corporation - China
- Siam City Cement - Thailand
- Timah Investasi Mineral - Indoneisa
- Minerals Council of Australia
- ASAPP Information Group - India
- IEA Clean Coal Centre - UK
- Eastern Energy - Thailand
- Anglo American - United Kingdom
- Sindya Power Generating Company Private Ltd
- SN Aboitiz Power Inc, Philippines
- Ministry of Mines - Canada
- Star Paper Mills Limited - India
- Eastern Coal Council - USA
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