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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, 20 September 11
MTD INAUGURATES ITS COAL TERMINAL IN JAVA ISLAND
Press Release – MTD Group of Malaysia, one of prominent key players in the development of infrastructure in Malaysia, today inaugurated their ...
Tuesday, 20 September 11
DRY BULK MARKET LOSING ITS EDGE, RETREATING AT THE START OF THE WEEK - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
After a surge during the past couple of weeks, which saw Capesize earnings boosted and the BDI (Baltic Dry Index) reaching levels of year high and c ...
Monday, 19 September 11
CHINA IMPORTS MORE THAN 10 MMT INDO COAL IN AUGUST 2011
COALspot.com - Indonesian coal exports dropped 1.642 million tons in August compared to July exports. Indonesia exports 29.662 million tons of coal ...
Monday, 19 September 11
INDOMOBIL ENTERING INTO COAL MINING BUSINESS
COALspot.Com- PT Indomobil Sukses Internasional Tbk, part of, one of Indonesia's largest conglomerates, to enter into mining industry ac ...
Sunday, 18 September 11
THE COAL IMPORTS TO INDIA, OUT OF INDONESIA LIKELY TO PICK UP - CAPT. REDDY
COALspot.com - The freight market continued the upward trend until midweek almost touching 2,000 points, however towards second half of the week the ...
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- Cement Manufacturers Association - India
- Indonesian Coal Mining Association
- VISA Power Limited - India
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- Australian Commodity Traders Exchange
- Kohat Cement Company Ltd. - Pakistan
- Meralco Power Generation, Philippines
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- PTC India Limited - India
- LBH Netherlands Bv - Netherlands
- Deloitte Consulting - India
- Barasentosa Lestari - Indonesia
- Medco Energi Mining Internasional
- Straits Asia Resources Limited - Singapore
- Kideco Jaya Agung - Indonesia
- CIMB Investment Bank - Malaysia
- Indo Tambangraya Megah - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Madhucon Powers Ltd - India
- Kaltim Prima Coal - Indonesia
- Semirara Mining Corp, Philippines
- Port Waratah Coal Services - Australia
- Mintek Dendrill Indonesia
- Bhatia International Limited - India
- Indika Energy - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Central Electricity Authority - India
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- Iligan Light & Power Inc, Philippines
- Coal and Oil Company - UAE
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- Ministry of Mines - Canada
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- Bangladesh Power Developement Board
- Thai Mozambique Logistica
- Edison Trading Spa - Italy
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- Eastern Energy - Thailand
- Indogreen Group - Indonesia
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- Global Business Power Corporation, Philippines
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- Grasim Industreis Ltd - India
- Therma Luzon, Inc, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Bank of Tokyo Mitsubishi UFJ Ltd
- Coalindo Energy - Indonesia
- Billiton Holdings Pty Ltd - Australia
- London Commodity Brokers - England
- Miang Besar Coal Terminal - Indonesia
- Georgia Ports Authority, United States
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- Ministry of Transport, Egypt
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- Pendopo Energi Batubara - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- ICICI Bank Limited - India
- Mercuria Energy - Indonesia
- Attock Cement Pakistan Limited
- Tata Chemicals Ltd - India
- Metalloyd Limited - United Kingdom
- Coastal Gujarat Power Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Sarangani Energy Corporation, Philippines
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- Formosa Plastics Group - Taiwan
- Siam City Cement PLC, Thailand
- Xindia Steels Limited - India
- Rashtriya Ispat Nigam Limited - India
- SMG Consultants - Indonesia
- The Treasury - Australian Government
- Ind-Barath Power Infra Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Africa Commodities Group - South Africa
- Singapore Mercantile Exchange
- Ceylon Electricity Board - Sri Lanka
- Wilmar Investment Holdings
- Videocon Industries ltd - India
- Bhoruka Overseas - Indonesia
- SN Aboitiz Power Inc, Philippines
- Bharathi Cement Corporation - India
- Ambuja Cements Ltd - India
- Savvy Resources Ltd - HongKong
- Bayan Resources Tbk. - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Aditya Birla Group - India
- IHS Mccloskey Coal Group - USA
- Holcim Trading Pte Ltd - Singapore
- Merrill Lynch Commodities Europe
- Electricity Generating Authority of Thailand
- Uttam Galva Steels Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Semirara Mining and Power Corporation, Philippines
- Marubeni Corporation - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Mjunction Services Limited - India
- Binh Thuan Hamico - Vietnam
- Jindal Steel & Power Ltd - India
- Ministry of Finance - Indonesia
- India Bulls Power Limited - India
- Krishnapatnam Port Company Ltd. - India
- Wood Mackenzie - Singapore
- Petron Corporation, Philippines
- Standard Chartered Bank - UAE
- Makarim & Taira - Indonesia
- Orica Mining Services - Indonesia
- Agrawal Coal Company - India
- Electricity Authority, New Zealand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Latin American Coal - Colombia
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- Interocean Group of Companies - India
- Kepco SPC Power Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Jaiprakash Power Ventures ltd
- Global Coal Blending Company Limited - Australia
- Neyveli Lignite Corporation Ltd, - India
- Central Java Power - Indonesia
- GVK Power & Infra Limited - India
- Tamil Nadu electricity Board
- Goldman Sachs - Singapore
- South Luzon Thermal Energy Corporation
- Bhushan Steel Limited - India
- Eastern Coal Council - USA
- Borneo Indobara - Indonesia
- Thiess Contractors Indonesia
- PetroVietnam Power Coal Import and Supply Company
- MS Steel International - UAE
- Alfred C Toepfer International GmbH - Germany
- Lanco Infratech Ltd - India
- Salva Resources Pvt Ltd - India
- Minerals Council of Australia
- Altura Mining Limited, Indonesia
- Simpson Spence & Young - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- New Zealand Coal & Carbon
- Siam City Cement - Thailand
- Chamber of Mines of South Africa
- Global Green Power PLC Corporation, Philippines
- Energy Link Ltd, New Zealand
- PowerSource Philippines DevCo
- Riau Bara Harum - Indonesia
- Malabar Cements Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Price Waterhouse Coopers - Russia
- Bulk Trading Sa - Switzerland
- Directorate Of Revenue Intelligence - India
- Bukit Asam (Persero) Tbk - Indonesia
- Chettinad Cement Corporation Ltd - India
- Dalmia Cement Bharat India
- Economic Council, Georgia
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- Mercator Lines Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Timah Investasi Mineral - Indoneisa
- Energy Development Corp, Philippines
- Intertek Mineral Services - Indonesia
- Star Paper Mills Limited - India
- TeaM Sual Corporation - Philippines
- Kapuas Tunggal Persada - Indonesia
- Rio Tinto Coal - Australia
- Gujarat Electricity Regulatory Commission - India
- Independent Power Producers Association of India
- SMC Global Power, Philippines
- Bukit Baiduri Energy - Indonesia
- The State Trading Corporation of India Ltd
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Planning Commission, India
- Heidelberg Cement - Germany
- Commonwealth Bank - Australia
- Larsen & Toubro Limited - India
- International Coal Ventures Pvt Ltd - India
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- Sindya Power Generating Company Private Ltd
- Toyota Tsusho Corporation, Japan
- Anglo American - United Kingdom
- Power Finance Corporation Ltd., India
- CNBM International Corporation - China
- Parry Sugars Refinery, India
- Samtan Co., Ltd - South Korea
- Renaissance Capital - South Africa
- Jorong Barutama Greston.PT - Indonesia
- White Energy Company Limited
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- Gujarat Sidhee Cement - India
- The University of Queensland
- Leighton Contractors Pty Ltd - Australia
- Orica Australia Pty. Ltd.
- Globalindo Alam Lestari - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sical Logistics Limited - India
- Kalimantan Lumbung Energi - Indonesia
- European Bulk Services B.V. - Netherlands
- IEA Clean Coal Centre - UK
- GMR Energy Limited - India
- Sojitz Corporation - Japan
- Parliament of New Zealand
- Trasteel International SA, Italy
- PNOC Exploration Corporation - Philippines
- Aboitiz Power Corporation - Philippines
- Banpu Public Company Limited - Thailand
- Indian Oil Corporation Limited
- Vedanta Resources Plc - India
- Vizag Seaport Private Limited - India
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- Kobexindo Tractors - Indoneisa
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- Australian Coal Association
- Meenaskhi Energy Private Limited - India
- Romanian Commodities Exchange
- Indian Energy Exchange, India
- Kumho Petrochemical, South Korea
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