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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, 06 October 11
SOUTH EAST ASIAS AGGRESSIVE POWER DEMAND GROWTH WILL REQUIRE INVESTMENT OF US$125 BN BY 2020 - WOOD MACKENZIE
COALspot.com - Wood Mackenzie says that South East Asia’s demand growth for new power generation is so aggressive that new power generation in ...
Thursday, 06 October 11
CHINESE DEMAND FOR COAL IMPORTS TO MODERATE IN 2012 - MISWIN MAHESH
COALspot.com - We expect Chinese demand growth for imported steam coal to moderate over the next year. Steam coal imports into China will modera ...
Wednesday, 05 October 11
MINISTRY STICKING TO RAW COMMODITY EXPORT BAN DESPITE INDUSTRY FEARS - JG
The Jakarta Globe, the one of the leading English news paper in Indonesia, reported that, the details of a controversial new regulation that would b ...
Wednesday, 05 October 11
ATLANTIC AND PACIFIC BASINS BECAME TIGHTER FOR PANAMAX LAST WEEK - BRS
A slump for both the Capes and Panamaxes sent the BDI down 1% this week, falling to 1,899 points.
The Capes saw the greatest movement, sliding - ...
Wednesday, 05 October 11
WITH CHINA ON HOLIDAY, DRY BULK MARKET REMAINS STAGNANT - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market has remained to healthy levels after last month’s rally, but with China going on holiday this week, things are looking sta ...
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- TNB Fuel Sdn Bhd - Malaysia
- Banpu Public Company Limited - Thailand
- Merrill Lynch Commodities Europe
- Altura Mining Limited, Indonesia
- PowerSource Philippines DevCo
- Bukit Asam (Persero) Tbk - Indonesia
- GAC Shipping (India) Pvt Ltd
- Bulk Trading Sa - Switzerland
- Indian Energy Exchange, India
- Maheswari Brothers Coal Limited - India
- Central Electricity Authority - India
- Tamil Nadu electricity Board
- GMR Energy Limited - India
- South Luzon Thermal Energy Corporation
- Aboitiz Power Corporation - Philippines
- Attock Cement Pakistan Limited
- Planning Commission, India
- VISA Power Limited - India
- IHS Mccloskey Coal Group - USA
- CNBM International Corporation - China
- The University of Queensland
- Energy Development Corp, Philippines
- Dalmia Cement Bharat India
- PetroVietnam Power Coal Import and Supply Company
- Bhatia International Limited - India
- Indo Tambangraya Megah - Indonesia
- Mercuria Energy - Indonesia
- Oldendorff Carriers - Singapore
- Wilmar Investment Holdings
- SN Aboitiz Power Inc, Philippines
- Coastal Gujarat Power Limited - India
- Cement Manufacturers Association - India
- Kartika Selabumi Mining - Indonesia
- Siam City Cement PLC, Thailand
- Jindal Steel & Power Ltd - India
- Sarangani Energy Corporation, Philippines
- LBH Netherlands Bv - Netherlands
- Latin American Coal - Colombia
- Siam City Cement - Thailand
- Jorong Barutama Greston.PT - Indonesia
- Georgia Ports Authority, United States
- Mercator Lines Limited - India
- Iligan Light & Power Inc, Philippines
- Ind-Barath Power Infra Limited - India
- Sakthi Sugars Limited - India
- Eastern Coal Council - USA
- Indogreen Group - Indonesia
- Heidelberg Cement - Germany
- Directorate General of MIneral and Coal - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Marubeni Corporation - India
- Bukit Baiduri Energy - Indonesia
- Semirara Mining Corp, Philippines
- London Commodity Brokers - England
- PTC India Limited - India
- Salva Resources Pvt Ltd - India
- Electricity Authority, New Zealand
- Meralco Power Generation, Philippines
- Africa Commodities Group - South Africa
- Electricity Generating Authority of Thailand
- Borneo Indobara - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Ministry of Mines - Canada
- Mjunction Services Limited - India
- Intertek Mineral Services - Indonesia
- Meenaskhi Energy Private Limited - India
- Agrawal Coal Company - India
- Parliament of New Zealand
- Jaiprakash Power Ventures ltd
- Alfred C Toepfer International GmbH - Germany
- Larsen & Toubro Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Posco Energy - South Korea
- Makarim & Taira - Indonesia
- Bukit Makmur.PT - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Kobexindo Tractors - Indoneisa
- White Energy Company Limited
- Barasentosa Lestari - Indonesia
- ICICI Bank Limited - India
- Holcim Trading Pte Ltd - Singapore
- Deloitte Consulting - India
- Thai Mozambique Logistica
- PNOC Exploration Corporation - Philippines
- Bangladesh Power Developement Board
- Billiton Holdings Pty Ltd - Australia
- Tata Chemicals Ltd - India
- Samtan Co., Ltd - South Korea
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Port Waratah Coal Services - Australia
- Chamber of Mines of South Africa
- Madhucon Powers Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Anglo American - United Kingdom
- Sinarmas Energy and Mining - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Minerals Council of Australia
- SMC Global Power, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Carbofer General Trading SA - India
- Toyota Tsusho Corporation, Japan
- The Treasury - Australian Government
- TeaM Sual Corporation - Philippines
- AsiaOL BioFuels Corp., Philippines
- Savvy Resources Ltd - HongKong
- Interocean Group of Companies - India
- Lanco Infratech Ltd - India
- Uttam Galva Steels Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Vizag Seaport Private Limited - India
- Karaikal Port Pvt Ltd - India
- Global Coal Blending Company Limited - Australia
- Sree Jayajothi Cements Limited - India
- Medco Energi Mining Internasional
- GVK Power & Infra Limited - India
- Goldman Sachs - Singapore
- Orica Mining Services - Indonesia
- Videocon Industries ltd - India
- Economic Council, Georgia
- Standard Chartered Bank - UAE
- San Jose City I Power Corp, Philippines
- Kideco Jaya Agung - Indonesia
- Indonesian Coal Mining Association
- Energy Link Ltd, New Zealand
- Krishnapatnam Port Company Ltd. - India
- Bhoruka Overseas - Indonesia
- Kepco SPC Power Corporation, Philippines
- Global Green Power PLC Corporation, Philippines
- Renaissance Capital - South Africa
- Vedanta Resources Plc - India
- Malabar Cements Ltd - India
- Baramulti Group, Indonesia
- Neyveli Lignite Corporation Ltd, - India
- OPG Power Generation Pvt Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Trasteel International SA, Italy
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ministry of Transport, Egypt
- Edison Trading Spa - Italy
- Straits Asia Resources Limited - Singapore
- Central Java Power - Indonesia
- Manunggal Multi Energi - Indonesia
- India Bulls Power Limited - India
- Therma Luzon, Inc, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Binh Thuan Hamico - Vietnam
- Australian Commodity Traders Exchange
- Pipit Mutiara Jaya. PT, Indonesia
- Singapore Mercantile Exchange
- Sical Logistics Limited - India
- Star Paper Mills Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Pendopo Energi Batubara - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Coalindo Energy - Indonesia
- Coal and Oil Company - UAE
- Kumho Petrochemical, South Korea
- MS Steel International - UAE
- Riau Bara Harum - Indonesia
- Timah Investasi Mineral - Indoneisa
- New Zealand Coal & Carbon
- Rio Tinto Coal - Australia
- SMG Consultants - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Antam Resourcindo - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Ambuja Cements Ltd - India
- Sindya Power Generating Company Private Ltd
- Power Finance Corporation Ltd., India
- IEA Clean Coal Centre - UK
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Xindia Steels Limited - India
- Sojitz Corporation - Japan
- Australian Coal Association
- Karbindo Abesyapradhi - Indoneisa
- ASAPP Information Group - India
- Wood Mackenzie - Singapore
- European Bulk Services B.V. - Netherlands
- Independent Power Producers Association of India
- Indika Energy - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Bhushan Steel Limited - India
- Essar Steel Hazira Ltd - India
- Parry Sugars Refinery, India
- Indian Oil Corporation Limited
- Chettinad Cement Corporation Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Eastern Energy - Thailand
- Grasim Industreis Ltd - India
- Formosa Plastics Group - Taiwan
- Gujarat Sidhee Cement - India
- Metalloyd Limited - United Kingdom
- Petron Corporation, Philippines
- Global Business Power Corporation, Philippines
- Romanian Commodities Exchange
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Thiess Contractors Indonesia
- The State Trading Corporation of India Ltd
- Orica Australia Pty. Ltd.
- Asmin Koalindo Tuhup - Indonesia
- CIMB Investment Bank - Malaysia
- International Coal Ventures Pvt Ltd - India
- Commonwealth Bank - Australia
- Price Waterhouse Coopers - Russia
- Directorate Of Revenue Intelligence - India
- Kaltim Prima Coal - Indonesia
- Bayan Resources Tbk. - Indonesia
- Bharathi Cement Corporation - India
- Simpson Spence & Young - Indonesia
- Mintek Dendrill Indonesia
- Ministry of Finance - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Globalindo Alam Lestari - Indonesia
- McConnell Dowell - Australia
- Aditya Birla Group - India
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