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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, 27 September 11
A STRONG REBOUND FOR THE CAPE MARKET - BRS
A strong rebound for the Cape market, as cargoes continued to flow into the market and tonnage remained tight in the Atlantic, according to Barry Ro ...
Tuesday, 27 September 11
INTRACO SEALS US$25.3 MIO ORDER - INSIDER STORIES
Insider Stories reported that, Heavy equipment distributor PT Intraco Penta Tbk (INTA) obtained a US$25.3 million order on hand of heavy equipments ...
Sunday, 25 September 11
THE CHARTER RATES FOR INDONESIA TO INDIA WAS FIRM - VISTAAR
COALspot.com - The freight market moved up sharply with the cape Index up by 11 pct pushing the BDI by almost 6 pct and closing at 1,920 point ...
Saturday, 24 September 11
GOVT PLANS TO RENEGOTIATE ALL CONTRACTS INCLUDING FREEPORT - JP
The Jakarta Post reported that, the Energy and Mineral Resources Ministry has confirmed plans to renegotiate all mining contracts including those wi ...
Friday, 23 September 11
ICMA TO BUILD UPGRADE FACILITIES TO ANTICIPATE BAN ON LOW-GRADE COAL EXPORT BY 2014
COALspot.com - January to August of this year, Indonesia’s coal production had already reached 235 million tons. Earlier estimates had targete ...
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- Asia Pacific Energy Resources Ventures Inc, Philippines
- Parry Sugars Refinery, India
- Bayan Resources Tbk. - Indonesia
- Deloitte Consulting - India
- Semirara Mining and Power Corporation, Philippines
- Petron Corporation, Philippines
- Chamber of Mines of South Africa
- London Commodity Brokers - England
- Indo Tambangraya Megah - Indonesia
- Indika Energy - Indonesia
- Electricity Generating Authority of Thailand
- Rio Tinto Coal - Australia
- Straits Asia Resources Limited - Singapore
- Coalindo Energy - Indonesia
- Port Waratah Coal Services - Australia
- Ind-Barath Power Infra Limited - India
- Toyota Tsusho Corporation, Japan
- Edison Trading Spa - Italy
- GN Power Mariveles Coal Plant, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Power Finance Corporation Ltd., India
- Tata Chemicals Ltd - India
- Bharathi Cement Corporation - India
- Commonwealth Bank - Australia
- Bulk Trading Sa - Switzerland
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Videocon Industries ltd - India
- Sindya Power Generating Company Private Ltd
- Bangladesh Power Developement Board
- Coastal Gujarat Power Limited - India
- CIMB Investment Bank - Malaysia
- Sical Logistics Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Economic Council, Georgia
- Mintek Dendrill Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Riau Bara Harum - Indonesia
- Intertek Mineral Services - Indonesia
- LBH Netherlands Bv - Netherlands
- Energy Link Ltd, New Zealand
- Pipit Mutiara Jaya. PT, Indonesia
- GVK Power & Infra Limited - India
- PTC India Limited - India
- Electricity Authority, New Zealand
- TNB Fuel Sdn Bhd - Malaysia
- Latin American Coal - Colombia
- Ministry of Finance - Indonesia
- Bhatia International Limited - India
- Global Business Power Corporation, Philippines
- White Energy Company Limited
- Barasentosa Lestari - Indonesia
- Simpson Spence & Young - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Samtan Co., Ltd - South Korea
- Independent Power Producers Association of India
- Bhushan Steel Limited - India
- Grasim Industreis Ltd - India
- Pendopo Energi Batubara - Indonesia
- Coal and Oil Company - UAE
- Billiton Holdings Pty Ltd - Australia
- Vizag Seaport Private Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Sojitz Corporation - Japan
- Anglo American - United Kingdom
- New Zealand Coal & Carbon
- Minerals Council of Australia
- Xindia Steels Limited - India
- Leighton Contractors Pty Ltd - Australia
- Chettinad Cement Corporation Ltd - India
- Bukit Baiduri Energy - Indonesia
- SMC Global Power, Philippines
- Therma Luzon, Inc, Philippines
- VISA Power Limited - India
- Metalloyd Limited - United Kingdom
- Malabar Cements Ltd - India
- ASAPP Information Group - India
- Maheswari Brothers Coal Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Africa Commodities Group - South Africa
- Miang Besar Coal Terminal - Indonesia
- Uttam Galva Steels Limited - India
- Aboitiz Power Corporation - Philippines
- Jaiprakash Power Ventures ltd
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- IEA Clean Coal Centre - UK
- Manunggal Multi Energi - Indonesia
- Orica Mining Services - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Globalindo Alam Lestari - Indonesia
- Iligan Light & Power Inc, Philippines
- Altura Mining Limited, Indonesia
- Oldendorff Carriers - Singapore
- ICICI Bank Limited - India
- Essar Steel Hazira Ltd - India
- Mercator Lines Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Interocean Group of Companies - India
- Singapore Mercantile Exchange
- Vedanta Resources Plc - India
- Sarangani Energy Corporation, Philippines
- Meralco Power Generation, Philippines
- Wood Mackenzie - Singapore
- Marubeni Corporation - India
- Posco Energy - South Korea
- Central Electricity Authority - India
- Tamil Nadu electricity Board
- TeaM Sual Corporation - Philippines
- Kumho Petrochemical, South Korea
- Holcim Trading Pte Ltd - Singapore
- Ministry of Transport, Egypt
- Bahari Cakrawala Sebuku - Indonesia
- Global Coal Blending Company Limited - Australia
- Ministry of Mines - Canada
- South Luzon Thermal Energy Corporation
- Rashtriya Ispat Nigam Limited - India
- Gujarat Electricity Regulatory Commission - India
- Petrochimia International Co. Ltd.- Taiwan
- Lanco Infratech Ltd - India
- Price Waterhouse Coopers - Russia
- Neyveli Lignite Corporation Ltd, - India
- Siam City Cement - Thailand
- Parliament of New Zealand
- Energy Development Corp, Philippines
- San Jose City I Power Corp, Philippines
- Salva Resources Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Kobexindo Tractors - Indoneisa
- Larsen & Toubro Limited - India
- The Treasury - Australian Government
- GMR Energy Limited - India
- Kartika Selabumi Mining - Indonesia
- Sakthi Sugars Limited - India
- Georgia Ports Authority, United States
- Australian Commodity Traders Exchange
- McConnell Dowell - Australia
- Kepco SPC Power Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- Thai Mozambique Logistica
- Bank of Tokyo Mitsubishi UFJ Ltd
- Antam Resourcindo - Indonesia
- MS Steel International - UAE
- Wilmar Investment Holdings
- Eastern Coal Council - USA
- IHS Mccloskey Coal Group - USA
- India Bulls Power Limited - India
- International Coal Ventures Pvt Ltd - India
- The State Trading Corporation of India Ltd
- Cigading International Bulk Terminal - Indonesia
- Meenaskhi Energy Private Limited - India
- PNOC Exploration Corporation - Philippines
- Sree Jayajothi Cements Limited - India
- Baramulti Group, Indonesia
- Alfred C Toepfer International GmbH - Germany
- Timah Investasi Mineral - Indoneisa
- Carbofer General Trading SA - India
- Aditya Birla Group - India
- Kalimantan Lumbung Energi - Indonesia
- Semirara Mining Corp, Philippines
- Planning Commission, India
- Karaikal Port Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Thiess Contractors Indonesia
- Indogreen Group - Indonesia
- GAC Shipping (India) Pvt Ltd
- Karbindo Abesyapradhi - Indoneisa
- Goldman Sachs - Singapore
- Banpu Public Company Limited - Thailand
- European Bulk Services B.V. - Netherlands
- Offshore Bulk Terminal Pte Ltd, Singapore
- Attock Cement Pakistan Limited
- Indonesian Coal Mining Association
- Gujarat Sidhee Cement - India
- Madhucon Powers Ltd - India
- Medco Energi Mining Internasional
- Krishnapatnam Port Company Ltd. - India
- Eastern Energy - Thailand
- Bhoruka Overseas - Indonesia
- Cement Manufacturers Association - India
- Dalmia Cement Bharat India
- Agrawal Coal Company - India
- SMG Consultants - Indonesia
- Siam City Cement PLC, Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- The University of Queensland
- PowerSource Philippines DevCo
- Romanian Commodities Exchange
- Jindal Steel & Power Ltd - India
- Indian Oil Corporation Limited
- Trasteel International SA, Italy
- Kaltim Prima Coal - Indonesia
- Mercuria Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Mjunction Services Limited - India
- Heidelberg Cement - Germany
- Makarim & Taira - Indonesia
- SN Aboitiz Power Inc, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Savvy Resources Ltd - HongKong
- Binh Thuan Hamico - Vietnam
- Kideco Jaya Agung - Indonesia
- Ambuja Cements Ltd - India
- Global Green Power PLC Corporation, Philippines
- Renaissance Capital - South Africa
- Bukit Makmur.PT - Indonesia
- Borneo Indobara - Indonesia
- Australian Coal Association
- Standard Chartered Bank - UAE
- Sinarmas Energy and Mining - Indonesia
- Indian Energy Exchange, India
- CNBM International Corporation - China
- Ceylon Electricity Board - Sri Lanka
- Merrill Lynch Commodities Europe
- Star Paper Mills Limited - India
- Central Java Power - Indonesia
- Kohat Cement Company Ltd. - Pakistan
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