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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, 25 November 20
DRY BULK SHIPPING: CHINA REMAINS THE DRIVING FACTOR, BUT COAL POLICY IS DISRUPTING THE MARKET - PETER SAND, BIMCO
The second half of the year has provided some cheer for the dry bulk market, with all ships in the spot market averaging earnings above the break-e ...
Wednesday, 25 November 20
CHINA KICKS AN OWN GOAL WITH AUSTRALIAN COAL - FORBES
China’s annoyance at Australia’s hardline stance on political interference and demands for an independent inquiry into the root cause o ...
Wednesday, 25 November 20
MINISTER - INDONESIA JAN-OCT COAL OUTPUT AT 459 MILLION TONNES - REUTERS
Indonesia coal output in the January to October period was 459 million tonnes, the country’s energy minister told parliament on Monday.
& ...
Wednesday, 25 November 20
INDIA: MORE STEPS NEEDED TO MAKE COMMERCIAL COAL MINING ATTRACTIVE TO GLOBAL PLAYERS - LIVEMINT
India concluded its first commercial coal mine auctions earlier this month. A total of 19 coal mines spread across Madhya Pradesh, Jharkhand, Odish ...
Wednesday, 25 November 20
CHINA TAIYUAN COAL TRANSACTION PRICE INDEX UP 0.38 PCT - XINHUA
China Taiyuan coal transaction price index stood at 129.21 points Monday, up 0.38 percent week on week.
The index, released by China ...
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- Barasentosa Lestari - Indonesia
- TeaM Sual Corporation - Philippines
- Gujarat Sidhee Cement - India
- Interocean Group of Companies - India
- CNBM International Corporation - China
- San Jose City I Power Corp, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Kumho Petrochemical, South Korea
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Kapuas Tunggal Persada - Indonesia
- Metalloyd Limited - United Kingdom
- Renaissance Capital - South Africa
- Uttam Galva Steels Limited - India
- PNOC Exploration Corporation - Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Trasteel International SA, Italy
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Thai Mozambique Logistica
- Banpu Public Company Limited - Thailand
- Power Finance Corporation Ltd., India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Maharashtra Electricity Regulatory Commission - India
- Makarim & Taira - Indonesia
- Straits Asia Resources Limited - Singapore
- Jindal Steel & Power Ltd - India
- SMC Global Power, Philippines
- Bangladesh Power Developement Board
- Commonwealth Bank - Australia
- Ambuja Cements Ltd - India
- Sindya Power Generating Company Private Ltd
- Coastal Gujarat Power Limited - India
- Anglo American - United Kingdom
- Bhushan Steel Limited - India
- GMR Energy Limited - India
- White Energy Company Limited
- Samtan Co., Ltd - South Korea
- Vedanta Resources Plc - India
- Alfred C Toepfer International GmbH - Germany
- Bulk Trading Sa - Switzerland
- Global Green Power PLC Corporation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Iligan Light & Power Inc, Philippines
- PTC India Limited - India
- Latin American Coal - Colombia
- LBH Netherlands Bv - Netherlands
- Orica Mining Services - Indonesia
- The University of Queensland
- IEA Clean Coal Centre - UK
- Leighton Contractors Pty Ltd - Australia
- ASAPP Information Group - India
- Economic Council, Georgia
- Formosa Plastics Group - Taiwan
- Essar Steel Hazira Ltd - India
- Goldman Sachs - Singapore
- Ind-Barath Power Infra Limited - India
- Riau Bara Harum - Indonesia
- Rio Tinto Coal - Australia
- Mercuria Energy - Indonesia
- South Luzon Thermal Energy Corporation
- Larsen & Toubro Limited - India
- Central Java Power - Indonesia
- GVK Power & Infra Limited - India
- Electricity Authority, New Zealand
- Grasim Industreis Ltd - India
- Meralco Power Generation, Philippines
- Indian Oil Corporation Limited
- Toyota Tsusho Corporation, Japan
- SMG Consultants - Indonesia
- Medco Energi Mining Internasional
- New Zealand Coal & Carbon
- Siam City Cement PLC, Thailand
- Coal and Oil Company - UAE
- Pipit Mutiara Jaya. PT, Indonesia
- Romanian Commodities Exchange
- Manunggal Multi Energi - Indonesia
- Baramulti Group, Indonesia
- Indika Energy - Indonesia
- Electricity Generating Authority of Thailand
- Independent Power Producers Association of India
- Posco Energy - South Korea
- Wilmar Investment Holdings
- Ceylon Electricity Board - Sri Lanka
- The Treasury - Australian Government
- Indogreen Group - Indonesia
- Karaikal Port Pvt Ltd - India
- Sical Logistics Limited - India
- Jaiprakash Power Ventures ltd
- Central Electricity Authority - India
- Sinarmas Energy and Mining - Indonesia
- Lanco Infratech Ltd - India
- SN Aboitiz Power Inc, Philippines
- Madhucon Powers Ltd - India
- Therma Luzon, Inc, Philippines
- Chamber of Mines of South Africa
- Antam Resourcindo - Indonesia
- OPG Power Generation Pvt Ltd - India
- Parliament of New Zealand
- Indonesian Coal Mining Association
- Ministry of Transport, Egypt
- Mintek Dendrill Indonesia
- Binh Thuan Hamico - Vietnam
- Krishnapatnam Port Company Ltd. - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Aditya Birla Group - India
- Sojitz Corporation - Japan
- Bahari Cakrawala Sebuku - Indonesia
- Kepco SPC Power Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Merrill Lynch Commodities Europe
- Xindia Steels Limited - India
- India Bulls Power Limited - India
- Sarangani Energy Corporation, Philippines
- Savvy Resources Ltd - HongKong
- Thiess Contractors Indonesia
- Indian Energy Exchange, India
- Semirara Mining Corp, Philippines
- Mjunction Services Limited - India
- Attock Cement Pakistan Limited
- Directorate Of Revenue Intelligence - India
- Altura Mining Limited, Indonesia
- Maheswari Brothers Coal Limited - India
- Energy Link Ltd, New Zealand
- MS Steel International - UAE
- Star Paper Mills Limited - India
- Kobexindo Tractors - Indoneisa
- London Commodity Brokers - England
- Kaltim Prima Coal - Indonesia
- Bayan Resources Tbk. - Indonesia
- Ministry of Mines - Canada
- Bukit Makmur.PT - Indonesia
- Standard Chartered Bank - UAE
- PowerSource Philippines DevCo
- Parry Sugars Refinery, India
- Bhatia International Limited - India
- Holcim Trading Pte Ltd - Singapore
- Wood Mackenzie - Singapore
- Petron Corporation, Philippines
- Mercator Lines Limited - India
- Chettinad Cement Corporation Ltd - India
- Planning Commission, India
- International Coal Ventures Pvt Ltd - India
- Timah Investasi Mineral - Indoneisa
- Africa Commodities Group - South Africa
- Tamil Nadu electricity Board
- Georgia Ports Authority, United States
- Directorate General of MIneral and Coal - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Asmin Koalindo Tuhup - Indonesia
- Dalmia Cement Bharat India
- Marubeni Corporation - India
- VISA Power Limited - India
- The State Trading Corporation of India Ltd
- AsiaOL BioFuels Corp., Philippines
- Tata Chemicals Ltd - India
- Minerals Council of Australia
- GAC Shipping (India) Pvt Ltd
- Orica Australia Pty. Ltd.
- Bukit Baiduri Energy - Indonesia
- Simpson Spence & Young - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Pendopo Energi Batubara - Indonesia
- European Bulk Services B.V. - Netherlands
- Ministry of Finance - Indonesia
- Singapore Mercantile Exchange
- Indo Tambangraya Megah - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Global Coal Blending Company Limited - Australia
- Intertek Mineral Services - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Global Business Power Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Bharathi Cement Corporation - India
- Petrochimia International Co. Ltd.- Taiwan
- Australian Coal Association
- Bukit Asam (Persero) Tbk - Indonesia
- Bhoruka Overseas - Indonesia
- Meenaskhi Energy Private Limited - India
- Port Waratah Coal Services - Australia
- Siam City Cement - Thailand
- Agrawal Coal Company - India
- CIMB Investment Bank - Malaysia
- Billiton Holdings Pty Ltd - Australia
- GN Power Mariveles Coal Plant, Philippines
- Edison Trading Spa - Italy
- Australian Commodity Traders Exchange
- Videocon Industries ltd - India
- Energy Development Corp, Philippines
- Sakthi Sugars Limited - India
- Eastern Coal Council - USA
- Sree Jayajothi Cements Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- ICICI Bank Limited - India
- Deloitte Consulting - India
- Eastern Energy - Thailand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Oldendorff Carriers - Singapore
- Coalindo Energy - Indonesia
- Borneo Indobara - Indonesia
- Carbofer General Trading SA - India
- McConnell Dowell - Australia
- Malabar Cements Ltd - India
- Kideco Jaya Agung - Indonesia
- Price Waterhouse Coopers - Russia
- Heidelberg Cement - Germany
- Jorong Barutama Greston.PT - Indonesia
- Aboitiz Power Corporation - Philippines
- Vizag Seaport Private Limited - India
- Kartika Selabumi Mining - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Cement Manufacturers Association - India
- IHS Mccloskey Coal Group - USA
- Salva Resources Pvt Ltd - India
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