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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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Wednesday, 02 December 20
INDONESIA CONSIDERING CLOSING 3,400MW SURALAYA COAL PLANT - THE JAKARTA POST
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Thursday, 26 November 20
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Weak demand and low prices are likely creating steep losses for NTEC
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Thursday, 26 November 20
COAL FINANCING QUICKLY DRYING UP WORLDWIDE - ANALYSTS : REUTERS
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Wednesday, 25 November 20
LIBOR REPLACEMENT AND SHIP FINANCE - WHERE IS IT HEADING? - WFW
The likely replacement of the LIBOR at the end of 2021 creates difficult technical and practical issues for all sectors of business and finance. Th ...
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- PetroVietnam Power Coal Import and Supply Company
- Ministry of Finance - Indonesia
- Eastern Coal Council - USA
- Ambuja Cements Ltd - India
- Commonwealth Bank - Australia
- Straits Asia Resources Limited - Singapore
- Anglo American - United Kingdom
- GN Power Mariveles Coal Plant, Philippines
- London Commodity Brokers - England
- White Energy Company Limited
- Miang Besar Coal Terminal - Indonesia
- Makarim & Taira - Indonesia
- Latin American Coal - Colombia
- Sree Jayajothi Cements Limited - India
- Baramulti Group, Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Petron Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Antam Resourcindo - Indonesia
- Videocon Industries ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Electricity Generating Authority of Thailand
- MS Steel International - UAE
- Attock Cement Pakistan Limited
- Parliament of New Zealand
- Singapore Mercantile Exchange
- Bukit Baiduri Energy - Indonesia
- Central Electricity Authority - India
- ASAPP Information Group - India
- Lanco Infratech Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- International Coal Ventures Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Medco Energi Mining Internasional
- Mintek Dendrill Indonesia
- ICICI Bank Limited - India
- Thiess Contractors Indonesia
- Semirara Mining and Power Corporation, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Port Waratah Coal Services - Australia
- VISA Power Limited - India
- Karaikal Port Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Sical Logistics Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Jaiprakash Power Ventures ltd
- Metalloyd Limited - United Kingdom
- Manunggal Multi Energi - Indonesia
- San Jose City I Power Corp, Philippines
- Mercuria Energy - Indonesia
- Parry Sugars Refinery, India
- SN Aboitiz Power Inc, Philippines
- Bhatia International Limited - India
- Timah Investasi Mineral - Indoneisa
- Global Coal Blending Company Limited - Australia
- Dalmia Cement Bharat India
- Bukit Makmur.PT - Indonesia
- OPG Power Generation Pvt Ltd - India
- Siam City Cement PLC, Thailand
- Romanian Commodities Exchange
- Jorong Barutama Greston.PT - Indonesia
- Kartika Selabumi Mining - Indonesia
- Larsen & Toubro Limited - India
- Kapuas Tunggal Persada - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Toyota Tsusho Corporation, Japan
- Aboitiz Power Corporation - Philippines
- The Treasury - Australian Government
- Chamber of Mines of South Africa
- Gujarat Electricity Regulatory Commission - India
- Semirara Mining Corp, Philippines
- Kepco SPC Power Corporation, Philippines
- IEA Clean Coal Centre - UK
- Electricity Authority, New Zealand
- Sarangani Energy Corporation, Philippines
- Indika Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Merrill Lynch Commodities Europe
- Renaissance Capital - South Africa
- Eastern Energy - Thailand
- Sindya Power Generating Company Private Ltd
- Siam City Cement - Thailand
- Aditya Birla Group - India
- Samtan Co., Ltd - South Korea
- Kaltim Prima Coal - Indonesia
- Orica Mining Services - Indonesia
- Wood Mackenzie - Singapore
- Planning Commission, India
- Thai Mozambique Logistica
- Central Java Power - Indonesia
- Therma Luzon, Inc, Philippines
- Holcim Trading Pte Ltd - Singapore
- Indo Tambangraya Megah - Indonesia
- Wilmar Investment Holdings
- Bhoruka Overseas - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Global Green Power PLC Corporation, Philippines
- Minerals Council of Australia
- Meralco Power Generation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kumho Petrochemical, South Korea
- CIMB Investment Bank - Malaysia
- India Bulls Power Limited - India
- Coalindo Energy - Indonesia
- Marubeni Corporation - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Essar Steel Hazira Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Energy Link Ltd, New Zealand
- The State Trading Corporation of India Ltd
- Tamil Nadu electricity Board
- Star Paper Mills Limited - India
- Directorate Of Revenue Intelligence - India
- Riau Bara Harum - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Kalimantan Lumbung Energi - Indonesia
- Economic Council, Georgia
- Deloitte Consulting - India
- Ministry of Transport, Egypt
- GAC Shipping (India) Pvt Ltd
- Posco Energy - South Korea
- Australian Coal Association
- Carbofer General Trading SA - India
- Goldman Sachs - Singapore
- Coastal Gujarat Power Limited - India
- Bhushan Steel Limited - India
- IHS Mccloskey Coal Group - USA
- Interocean Group of Companies - India
- Indogreen Group - Indonesia
- Indian Energy Exchange, India
- Borneo Indobara - Indonesia
- Meenaskhi Energy Private Limited - India
- Billiton Holdings Pty Ltd - Australia
- Alfred C Toepfer International GmbH - Germany
- Vijayanagar Sugar Pvt Ltd - India
- CNBM International Corporation - China
- Binh Thuan Hamico - Vietnam
- Vizag Seaport Private Limited - India
- McConnell Dowell - Australia
- Global Business Power Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Sinarmas Energy and Mining - Indonesia
- Chettinad Cement Corporation Ltd - India
- Ministry of Mines - Canada
- Gujarat Mineral Development Corp Ltd - India
- Sojitz Corporation - Japan
- Orica Australia Pty. Ltd.
- GVK Power & Infra Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Pipit Mutiara Jaya. PT, Indonesia
- Leighton Contractors Pty Ltd - Australia
- Formosa Plastics Group - Taiwan
- The University of Queensland
- Petrochimia International Co. Ltd.- Taiwan
- European Bulk Services B.V. - Netherlands
- Vedanta Resources Plc - India
- Iligan Light & Power Inc, Philippines
- Georgia Ports Authority, United States
- Africa Commodities Group - South Africa
- Bangladesh Power Developement Board
- Globalindo Alam Lestari - Indonesia
- Bayan Resources Tbk. - Indonesia
- Power Finance Corporation Ltd., India
- Maheswari Brothers Coal Limited - India
- PowerSource Philippines DevCo
- Edison Trading Spa - Italy
- Rio Tinto Coal - Australia
- Sakthi Sugars Limited - India
- Indian Oil Corporation Limited
- Cement Manufacturers Association - India
- Trasteel International SA, Italy
- Banpu Public Company Limited - Thailand
- Gujarat Sidhee Cement - India
- Coal and Oil Company - UAE
- Altura Mining Limited, Indonesia
- Barasentosa Lestari - Indonesia
- Madhucon Powers Ltd - India
- Independent Power Producers Association of India
- AsiaOL BioFuels Corp., Philippines
- Kobexindo Tractors - Indoneisa
- Energy Development Corp, Philippines
- Oldendorff Carriers - Singapore
- Tata Chemicals Ltd - India
- Mjunction Services Limited - India
- TeaM Sual Corporation - Philippines
- Xindia Steels Limited - India
- SMG Consultants - Indonesia
- Pendopo Energi Batubara - Indonesia
- Agrawal Coal Company - India
- Ind-Barath Power Infra Limited - India
- Australian Commodity Traders Exchange
- GMR Energy Limited - India
- Kideco Jaya Agung - Indonesia
- Simpson Spence & Young - Indonesia
- PTC India Limited - India
- Intertek Mineral Services - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Grasim Industreis Ltd - India
- LBH Netherlands Bv - Netherlands
- Rashtriya Ispat Nigam Limited - India
- Uttam Galva Steels Limited - India
- Bharathi Cement Corporation - India
- Cigading International Bulk Terminal - Indonesia
- Salva Resources Pvt Ltd - India
- SMC Global Power, Philippines
- Standard Chartered Bank - UAE
- Mercator Lines Limited - India
- Heidelberg Cement - Germany
- Malabar Cements Ltd - India
- South Luzon Thermal Energy Corporation
- New Zealand Coal & Carbon
- Indonesian Coal Mining Association
- Savvy Resources Ltd - HongKong
- Asia Pacific Energy Resources Ventures Inc, Philippines
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