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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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Saturday, 17 September 11
GVK ACQUIRES HANCOCK COAL AND INFRASTRUCTURE FOR US$ 1.26 BILLION
COALspot.com - GVK group, India’s leading infrastructure developer,confirmed arrangements for the acquisition of a strategic part of large, hi ...
Saturday, 17 September 11
INDIA'S GVK ACQUIRES HANCOCK COAL AND INFRASTRUCTURE PROJECTS IN AUSTRALIA
COALspot.com - GVK group, India’s leading infrastructure developer, today confirmed arrangements for the acquisition of a strategic part of la ...
Friday, 16 September 11
DELTA DUNIA MAKMUR REMOVED 30.9 MILLION BCM OVERBURDEN IN AUGUST 2011
COALspot.com - PT. Delta Dunia Makmur Tbk has removed 30.9 million bcm (+13.2% YoY) overburden in August 2011 while coal production was at 2.9 ...
Thursday, 15 September 11
RUSSIAN COAL EXPORTS UP 10.9% IN JAN-AUG TO 71.50 MILLION TONS - PORT NEWS / HELLENIC SHIPPING
Port News reported that, Coal exports from Russia in January-August 2011 grew by 10.9% compared with the same period last year, to 71.50 million ton ...
Thursday, 15 September 11
INDIAN GOVT PLANS TO DEVELOP 9 NEW MAJOR PORTS BY 2016 - INVEST MONEY / HELLENIC SHIPPING
The government has announced to make a investment of more than Rs 22,000 crore (approximately US$ 4,623,791,331) to develop nine new major ...
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- GVK Power & Infra Limited - India
- GMR Energy Limited - India
- Rio Tinto Coal - Australia
- Marubeni Corporation - India
- Alfred C Toepfer International GmbH - Germany
- Global Business Power Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Kumho Petrochemical, South Korea
- Siam City Cement - Thailand
- Coalindo Energy - Indonesia
- OPG Power Generation Pvt Ltd - India
- Indogreen Group - Indonesia
- Electricity Generating Authority of Thailand
- Gujarat Electricity Regulatory Commission - India
- Commonwealth Bank - Australia
- AsiaOL BioFuels Corp., Philippines
- The Treasury - Australian Government
- Sakthi Sugars Limited - India
- Salva Resources Pvt Ltd - India
- Coastal Gujarat Power Limited - India
- McConnell Dowell - Australia
- Bhatia International Limited - India
- Sindya Power Generating Company Private Ltd
- Manunggal Multi Energi - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- India Bulls Power Limited - India
- Bukit Makmur.PT - Indonesia
- Toyota Tsusho Corporation, Japan
- Attock Cement Pakistan Limited
- Australian Commodity Traders Exchange
- Kaltim Prima Coal - Indonesia
- Carbofer General Trading SA - India
- ICICI Bank Limited - India
- Minerals Council of Australia
- Parliament of New Zealand
- Pipit Mutiara Jaya. PT, Indonesia
- Chettinad Cement Corporation Ltd - India
- ASAPP Information Group - India
- MS Steel International - UAE
- Kideco Jaya Agung - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- GAC Shipping (India) Pvt Ltd
- SMC Global Power, Philippines
- SN Aboitiz Power Inc, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Jindal Steel & Power Ltd - India
- Parry Sugars Refinery, India
- Gujarat Mineral Development Corp Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Essar Steel Hazira Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Oldendorff Carriers - Singapore
- Latin American Coal - Colombia
- IHS Mccloskey Coal Group - USA
- Edison Trading Spa - Italy
- Georgia Ports Authority, United States
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bahari Cakrawala Sebuku - Indonesia
- Straits Asia Resources Limited - Singapore
- Holcim Trading Pte Ltd - Singapore
- Bangladesh Power Developement Board
- LBH Netherlands Bv - Netherlands
- Ambuja Cements Ltd - India
- Rashtriya Ispat Nigam Limited - India
- PowerSource Philippines DevCo
- Star Paper Mills Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Goldman Sachs - Singapore
- CNBM International Corporation - China
- Coal and Oil Company - UAE
- Meralco Power Generation, Philippines
- The State Trading Corporation of India Ltd
- Cigading International Bulk Terminal - Indonesia
- Bayan Resources Tbk. - Indonesia
- Vizag Seaport Private Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Videocon Industries ltd - India
- TeaM Sual Corporation - Philippines
- Bulk Trading Sa - Switzerland
- SMG Consultants - Indonesia
- Planning Commission, India
- Global Coal Blending Company Limited - Australia
- Central Electricity Authority - India
- Port Waratah Coal Services - Australia
- Kalimantan Lumbung Energi - Indonesia
- Wood Mackenzie - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- Eastern Coal Council - USA
- Borneo Indobara - Indonesia
- South Luzon Thermal Energy Corporation
- Standard Chartered Bank - UAE
- Petrochimia International Co. Ltd.- Taiwan
- Therma Luzon, Inc, Philippines
- Aboitiz Power Corporation - Philippines
- Mercator Lines Limited - India
- Sical Logistics Limited - India
- Thai Mozambique Logistica
- Energy Link Ltd, New Zealand
- Posco Energy - South Korea
- Antam Resourcindo - Indonesia
- Indonesian Coal Mining Association
- Anglo American - United Kingdom
- Binh Thuan Hamico - Vietnam
- Makarim & Taira - Indonesia
- Jaiprakash Power Ventures ltd
- Baramulti Group, Indonesia
- Eastern Energy - Thailand
- Bukit Baiduri Energy - Indonesia
- Medco Energi Mining Internasional
- Trasteel International SA, Italy
- Chamber of Mines of South Africa
- Madhucon Powers Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Orica Australia Pty. Ltd.
- Romanian Commodities Exchange
- Mintek Dendrill Indonesia
- Africa Commodities Group - South Africa
- Indika Energy - Indonesia
- Merrill Lynch Commodities Europe
- Heidelberg Cement - Germany
- Cement Manufacturers Association - India
- Mercuria Energy - Indonesia
- Indian Oil Corporation Limited
- Vedanta Resources Plc - India
- Thiess Contractors Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Aditya Birla Group - India
- Ind-Barath Power Infra Limited - India
- Sree Jayajothi Cements Limited - India
- Electricity Authority, New Zealand
- Karaikal Port Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Barasentosa Lestari - Indonesia
- International Coal Ventures Pvt Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Ministry of Mines - Canada
- Price Waterhouse Coopers - Russia
- Dalmia Cement Bharat India
- Maharashtra Electricity Regulatory Commission - India
- Ceylon Electricity Board - Sri Lanka
- Tamil Nadu electricity Board
- Global Green Power PLC Corporation, Philippines
- Independent Power Producers Association of India
- Kepco SPC Power Corporation, Philippines
- Renaissance Capital - South Africa
- Formosa Plastics Group - Taiwan
- Savvy Resources Ltd - HongKong
- Gujarat Sidhee Cement - India
- Directorate Of Revenue Intelligence - India
- Mjunction Services Limited - India
- Tata Chemicals Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- London Commodity Brokers - England
- PNOC Exploration Corporation - Philippines
- Wilmar Investment Holdings
- Billiton Holdings Pty Ltd - Australia
- Petron Corporation, Philippines
- Samtan Co., Ltd - South Korea
- Kobexindo Tractors - Indoneisa
- Deloitte Consulting - India
- Globalindo Alam Lestari - Indonesia
- Energy Development Corp, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Ministry of Finance - Indonesia
- Maheswari Brothers Coal Limited - India
- Indian Energy Exchange, India
- Ministry of Transport, Egypt
- Iligan Light & Power Inc, Philippines
- Power Finance Corporation Ltd., India
- European Bulk Services B.V. - Netherlands
- Riau Bara Harum - Indonesia
- The University of Queensland
- Larsen & Toubro Limited - India
- Kartika Selabumi Mining - Indonesia
- San Jose City I Power Corp, Philippines
- Grasim Industreis Ltd - India
- Uttam Galva Steels Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Interocean Group of Companies - India
- Xindia Steels Limited - India
- Metalloyd Limited - United Kingdom
- VISA Power Limited - India
- Meenaskhi Energy Private Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bhoruka Overseas - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- New Zealand Coal & Carbon
- Banpu Public Company Limited - Thailand
- Sojitz Corporation - Japan
- Economic Council, Georgia
- Bharathi Cement Corporation - India
- Timah Investasi Mineral - Indoneisa
- IEA Clean Coal Centre - UK
- Siam City Cement PLC, Thailand
- Leighton Contractors Pty Ltd - Australia
- Pendopo Energi Batubara - Indonesia
- Sarangani Energy Corporation, Philippines
- Central Java Power - Indonesia
- Simpson Spence & Young - Indonesia
- Lanco Infratech Ltd - India
- White Energy Company Limited
- PetroVietnam Power Coal Import and Supply Company
- Australian Coal Association
- Singapore Mercantile Exchange
- Orica Mining Services - Indonesia
- Altura Mining Limited, Indonesia
- Semirara Mining and Power Corporation, Philippines
- Bhushan Steel Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Semirara Mining Corp, Philippines
- Agrawal Coal Company - India
- Indo Tambangraya Megah - Indonesia
- PTC India Limited - India
- Intertek Mineral Services - Indonesia
- CIMB Investment Bank - Malaysia
- Malabar Cements Ltd - India
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