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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, 04 October 11
INDONESIA RAISES COAL BENCHMARK (HBA) FOR FIRST TIME IN 4 MONTHS
COALspot.com - Indonesia raised the monthly reference price for sales in October by 2.56 percent, the first increase since June.
The Ministry of ...
Tuesday, 04 October 11
COAL MINING GROUP WANTS EXPORT TAX, NOT EXCISE - JG
One of the leading English news paper in Indonesia, The Jakarta Globe reported that, the government shall reimpose a duty on coal exports, classifyi ...
Sunday, 02 October 11
INDIAN COAL IMPORTS PICKED UP - CAPT. REDDY
COALspot.com - The BDI dropped by 1 pct and Cape index dropped by 6 pct closing at 1,899 points and 3,136 points respectively. However all other seg ...
Saturday, 01 October 11
2012 TO BE ANOTHER CHALLENGING YEAR - CEO, REMI MARITIME
Shipowners are facing another challenging year in 2012 said Mr. Leonidas Polemis CEO of Remi Maritime Corporation, urging caution towards operating ...
Friday, 30 September 11
MINING BILL CLEARED, FIRMS TO SHARE 26% PROFITS WITH LOCALS - NDTV
NDTV reported that, The Union Cabinet cleared the draft mining bill aimed at regulating mining activities Friday. The bill proposes a profit-sharing ...
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- Africa Commodities Group - South Africa
- GMR Energy Limited - India
- Siam City Cement - Thailand
- Siam City Cement PLC, Thailand
- Kideco Jaya Agung - Indonesia
- Renaissance Capital - South Africa
- Kobexindo Tractors - Indoneisa
- Samtan Co., Ltd - South Korea
- Romanian Commodities Exchange
- Karaikal Port Pvt Ltd - India
- Coastal Gujarat Power Limited - India
- Leighton Contractors Pty Ltd - Australia
- India Bulls Power Limited - India
- Star Paper Mills Limited - India
- Wilmar Investment Holdings
- Alfred C Toepfer International GmbH - Germany
- Rashtriya Ispat Nigam Limited - India
- White Energy Company Limited
- Aboitiz Power Corporation - Philippines
- Xindia Steels Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indo Tambangraya Megah - Indonesia
- Videocon Industries ltd - India
- Semirara Mining Corp, Philippines
- Indian Oil Corporation Limited
- Energy Development Corp, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Australian Coal Association
- Singapore Mercantile Exchange
- Larsen & Toubro Limited - India
- Savvy Resources Ltd - HongKong
- Sical Logistics Limited - India
- Standard Chartered Bank - UAE
- Ambuja Cements Ltd - India
- Thiess Contractors Indonesia
- Antam Resourcindo - Indonesia
- IEA Clean Coal Centre - UK
- Sindya Power Generating Company Private Ltd
- Madhucon Powers Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Sree Jayajothi Cements Limited - India
- Chamber of Mines of South Africa
- Gujarat Mineral Development Corp Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Central Electricity Authority - India
- Binh Thuan Hamico - Vietnam
- Semirara Mining and Power Corporation, Philippines
- Borneo Indobara - Indonesia
- Mercator Lines Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Bukit Asam (Persero) Tbk - Indonesia
- Heidelberg Cement - Germany
- Gujarat Sidhee Cement - India
- Vedanta Resources Plc - India
- Electricity Authority, New Zealand
- Bhatia International Limited - India
- Barasentosa Lestari - Indonesia
- PTC India Limited - India
- Ind-Barath Power Infra Limited - India
- European Bulk Services B.V. - Netherlands
- Mjunction Services Limited - India
- Eastern Coal Council - USA
- Commonwealth Bank - Australia
- Sinarmas Energy and Mining - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Salva Resources Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Banpu Public Company Limited - Thailand
- Sarangani Energy Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Australian Commodity Traders Exchange
- Directorate General of MIneral and Coal - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Bayan Resources Tbk. - Indonesia
- Malabar Cements Ltd - India
- Eastern Energy - Thailand
- Kumho Petrochemical, South Korea
- The State Trading Corporation of India Ltd
- ASAPP Information Group - India
- Bhushan Steel Limited - India
- Uttam Galva Steels Limited - India
- Kalimantan Lumbung Energi - Indonesia
- PowerSource Philippines DevCo
- PetroVietnam Power Coal Import and Supply Company
- Deloitte Consulting - India
- Dalmia Cement Bharat India
- San Jose City I Power Corp, Philippines
- Meralco Power Generation, Philippines
- IHS Mccloskey Coal Group - USA
- Jindal Steel & Power Ltd - India
- Therma Luzon, Inc, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kepco SPC Power Corporation, Philippines
- Mercuria Energy - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Formosa Plastics Group - Taiwan
- Jorong Barutama Greston.PT - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Ceylon Electricity Board - Sri Lanka
- Planning Commission, India
- Globalindo Alam Lestari - Indonesia
- Mintek Dendrill Indonesia
- Oldendorff Carriers - Singapore
- Thai Mozambique Logistica
- Directorate Of Revenue Intelligence - India
- Miang Besar Coal Terminal - Indonesia
- CNBM International Corporation - China
- Electricity Generating Authority of Thailand
- The University of Queensland
- TeaM Sual Corporation - Philippines
- London Commodity Brokers - England
- Karbindo Abesyapradhi - Indoneisa
- GVK Power & Infra Limited - India
- Indogreen Group - Indonesia
- Economic Council, Georgia
- Merrill Lynch Commodities Europe
- Bangladesh Power Developement Board
- Sojitz Corporation - Japan
- South Luzon Thermal Energy Corporation
- McConnell Dowell - Australia
- SMG Consultants - Indonesia
- Grasim Industreis Ltd - India
- Manunggal Multi Energi - Indonesia
- Trasteel International SA, Italy
- Sakthi Sugars Limited - India
- Lanco Infratech Ltd - India
- Parry Sugars Refinery, India
- Energy Link Ltd, New Zealand
- New Zealand Coal & Carbon
- Central Java Power - Indonesia
- Meenaskhi Energy Private Limited - India
- Ministry of Transport, Egypt
- Chettinad Cement Corporation Ltd - India
- Interocean Group of Companies - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- OPG Power Generation Pvt Ltd - India
- Indika Energy - Indonesia
- SMC Global Power, Philippines
- Metalloyd Limited - United Kingdom
- Wood Mackenzie - Singapore
- Price Waterhouse Coopers - Russia
- Tamil Nadu electricity Board
- Krishnapatnam Port Company Ltd. - India
- Kaltim Prima Coal - Indonesia
- Global Business Power Corporation, Philippines
- Global Green Power PLC Corporation, Philippines
- MS Steel International - UAE
- Port Waratah Coal Services - Australia
- Cement Manufacturers Association - India
- Orica Australia Pty. Ltd.
- Maharashtra Electricity Regulatory Commission - India
- Aditya Birla Group - India
- Bulk Trading Sa - Switzerland
- Latin American Coal - Colombia
- Altura Mining Limited, Indonesia
- Petron Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- SN Aboitiz Power Inc, Philippines
- Bukit Makmur.PT - Indonesia
- Timah Investasi Mineral - Indoneisa
- CIMB Investment Bank - Malaysia
- Global Coal Blending Company Limited - Australia
- Attock Cement Pakistan Limited
- Georgia Ports Authority, United States
- Vijayanagar Sugar Pvt Ltd - India
- Orica Mining Services - Indonesia
- Independent Power Producers Association of India
- Maheswari Brothers Coal Limited - India
- Indonesian Coal Mining Association
- Ministry of Finance - Indonesia
- Simpson Spence & Young - Indonesia
- Ministry of Mines - Canada
- Straits Asia Resources Limited - Singapore
- Parliament of New Zealand
- GAC Shipping (India) Pvt Ltd
- Asmin Koalindo Tuhup - Indonesia
- Marubeni Corporation - India
- Agrawal Coal Company - India
- Bhoruka Overseas - Indonesia
- Bharathi Cement Corporation - India
- Kohat Cement Company Ltd. - Pakistan
- Power Finance Corporation Ltd., India
- Rio Tinto Coal - Australia
- VISA Power Limited - India
- Baramulti Group, Indonesia
- Holcim Trading Pte Ltd - Singapore
- Bukit Baiduri Energy - Indonesia
- LBH Netherlands Bv - Netherlands
- Essar Steel Hazira Ltd - India
- Carbofer General Trading SA - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Vizag Seaport Private Limited - India
- Coal and Oil Company - UAE
- Medco Energi Mining Internasional
- Indian Energy Exchange, India
- Toyota Tsusho Corporation, Japan
- Jaiprakash Power Ventures ltd
- ICICI Bank Limited - India
- Cigading International Bulk Terminal - Indonesia
- PNOC Exploration Corporation - Philippines
- International Coal Ventures Pvt Ltd - India
- Pendopo Energi Batubara - Indonesia
- Goldman Sachs - Singapore
- Intertek Mineral Services - Indonesia
- Makarim & Taira - Indonesia
- Coalindo Energy - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Tata Chemicals Ltd - India
- Edison Trading Spa - Italy
- The Treasury - Australian Government
- Minerals Council of Australia
- Riau Bara Harum - Indonesia
- Anglo American - United Kingdom
- Posco Energy - South Korea
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