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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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Friday, 06 November 20
CHINA'S BENCHMARK POWER COAL PRICE EDGES UP - XINHUA
China’s benchmark power coal price rose slightly during the past week.
The Bohai-Rim Steam-Coal Price Index (BSPI), a gauge of ...
Thursday, 05 November 20
THE INDONESIA COAL PRICE REFERENCE RISES FOR SECOND CONSECUTIVE MONTH
COALspot.com: The Indonesia Coal Price Reference rose for a 2nd month by 9.24% month on month. The Indonesia Coal Price Reference for the month of ...
Wednesday, 04 November 20
PHILIPPINES COAL MORATORIUM HIGHLIGHTS DRAMATIC PIVOT TO RENEWABLE ENERGY INVESTMENT FOR LOWER PRICES AND POWER SYSTEM RESILIENCE - IEEFA
Policymakers and industry leaders ready to embrace new energy technologies
The Department of Energy’s call for a moratorium on ...
Wednesday, 04 November 20
FOREIGN INVESTORS FACE TOUGH TIMES CLOSING VIETNAM’S REMAINING COAL POWER DEALS - IEEFA
Project bankability at risk as new regulations threaten usual contractual terms
Foreign investors will face higher-than-usual risks ...
Wednesday, 04 November 20
MARKET INSIGHT - INTERMODAL
As the end of the year approaches, one would definitely notice that the newbuilding orderbook for bulk carriers is significantly smaller compared t ...
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- Energy Link Ltd, New Zealand
- Bayan Resources Tbk. - Indonesia
- Salva Resources Pvt Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Jindal Steel & Power Ltd - India
- Timah Investasi Mineral - Indoneisa
- Iligan Light & Power Inc, Philippines
- New Zealand Coal & Carbon
- Gujarat Electricity Regulatory Commission - India
- TNB Fuel Sdn Bhd - Malaysia
- Kaltim Prima Coal - Indonesia
- Edison Trading Spa - Italy
- Sical Logistics Limited - India
- Straits Asia Resources Limited - Singapore
- Petron Corporation, Philippines
- SMC Global Power, Philippines
- Deloitte Consulting - India
- Central Java Power - Indonesia
- Kumho Petrochemical, South Korea
- Metalloyd Limited - United Kingdom
- Rio Tinto Coal - Australia
- Binh Thuan Hamico - Vietnam
- Offshore Bulk Terminal Pte Ltd, Singapore
- Latin American Coal - Colombia
- Trasteel International SA, Italy
- Global Business Power Corporation, Philippines
- Makarim & Taira - Indonesia
- Coal and Oil Company - UAE
- Tamil Nadu electricity Board
- Tata Chemicals Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Thai Mozambique Logistica
- IEA Clean Coal Centre - UK
- Africa Commodities Group - South Africa
- McConnell Dowell - Australia
- Indian Energy Exchange, India
- Antam Resourcindo - Indonesia
- TeaM Sual Corporation - Philippines
- Coastal Gujarat Power Limited - India
- Bhoruka Overseas - Indonesia
- Oldendorff Carriers - Singapore
- Marubeni Corporation - India
- Kepco SPC Power Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Mercator Lines Limited - India
- Ministry of Transport, Egypt
- Gujarat Sidhee Cement - India
- Uttam Galva Steels Limited - India
- Ambuja Cements Ltd - India
- Kartika Selabumi Mining - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Bank of Tokyo Mitsubishi UFJ Ltd
- Vedanta Resources Plc - India
- Siam City Cement - Thailand
- Intertek Mineral Services - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Economic Council, Georgia
- Georgia Ports Authority, United States
- Rashtriya Ispat Nigam Limited - India
- India Bulls Power Limited - India
- Global Coal Blending Company Limited - Australia
- Manunggal Multi Energi - Indonesia
- Heidelberg Cement - Germany
- The University of Queensland
- Maharashtra Electricity Regulatory Commission - India
- Sakthi Sugars Limited - India
- Singapore Mercantile Exchange
- Orica Australia Pty. Ltd.
- Borneo Indobara - Indonesia
- Bharathi Cement Corporation - India
- Coalindo Energy - Indonesia
- Agrawal Coal Company - India
- Thiess Contractors Indonesia
- IHS Mccloskey Coal Group - USA
- OPG Power Generation Pvt Ltd - India
- International Coal Ventures Pvt Ltd - India
- Toyota Tsusho Corporation, Japan
- Maheswari Brothers Coal Limited - India
- Cigading International Bulk Terminal - Indonesia
- Power Finance Corporation Ltd., India
- Commonwealth Bank - Australia
- Indogreen Group - Indonesia
- Indika Energy - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Renaissance Capital - South Africa
- Sarangani Energy Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Aboitiz Power Corporation - Philippines
- Kalimantan Lumbung Energi - Indonesia
- CNBM International Corporation - China
- Medco Energi Mining Internasional
- Bhatia International Limited - India
- SMG Consultants - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Essar Steel Hazira Ltd - India
- Port Waratah Coal Services - Australia
- GAC Shipping (India) Pvt Ltd
- Riau Bara Harum - Indonesia
- Malabar Cements Ltd - India
- Aditya Birla Group - India
- Mjunction Services Limited - India
- Miang Besar Coal Terminal - Indonesia
- Minerals Council of Australia
- MS Steel International - UAE
- PTC India Limited - India
- Cement Manufacturers Association - India
- Madhucon Powers Ltd - India
- Lanco Infratech Ltd - India
- Simpson Spence & Young - Indonesia
- Posco Energy - South Korea
- Videocon Industries ltd - India
- Billiton Holdings Pty Ltd - Australia
- Parry Sugars Refinery, India
- Sindya Power Generating Company Private Ltd
- Asmin Koalindo Tuhup - Indonesia
- Goldman Sachs - Singapore
- Meenaskhi Energy Private Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Wood Mackenzie - Singapore
- Baramulti Group, Indonesia
- Bulk Trading Sa - Switzerland
- LBH Netherlands Bv - Netherlands
- Central Electricity Authority - India
- Interocean Group of Companies - India
- PowerSource Philippines DevCo
- The State Trading Corporation of India Ltd
- Bhushan Steel Limited - India
- Electricity Generating Authority of Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Formosa Plastics Group - Taiwan
- Larsen & Toubro Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Bahari Cakrawala Sebuku - Indonesia
- Samtan Co., Ltd - South Korea
- Anglo American - United Kingdom
- Romanian Commodities Exchange
- Indian Oil Corporation Limited
- Energy Development Corp, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- GVK Power & Infra Limited - India
- Sojitz Corporation - Japan
- The Treasury - Australian Government
- Karaikal Port Pvt Ltd - India
- Semirara Mining Corp, Philippines
- Attock Cement Pakistan Limited
- Pendopo Energi Batubara - Indonesia
- Therma Luzon, Inc, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Electricity Authority, New Zealand
- Xindia Steels Limited - India
- Krishnapatnam Port Company Ltd. - India
- Grasim Industreis Ltd - India
- European Bulk Services B.V. - Netherlands
- Mercuria Energy - Indonesia
- GMR Energy Limited - India
- ASAPP Information Group - India
- Dalmia Cement Bharat India
- Vijayanagar Sugar Pvt Ltd - India
- Orica Mining Services - Indonesia
- Australian Commodity Traders Exchange
- ICICI Bank Limited - India
- Globalindo Alam Lestari - Indonesia
- Savvy Resources Ltd - HongKong
- SN Aboitiz Power Inc, Philippines
- Wilmar Investment Holdings
- Kobexindo Tractors - Indoneisa
- Petrochimia International Co. Ltd.- Taiwan
- White Energy Company Limited
- Carbofer General Trading SA - India
- Price Waterhouse Coopers - Russia
- Mintek Dendrill Indonesia
- Star Paper Mills Limited - India
- Chamber of Mines of South Africa
- Bukit Asam (Persero) Tbk - Indonesia
- Kideco Jaya Agung - Indonesia
- Sree Jayajothi Cements Limited - India
- Eastern Coal Council - USA
- PNOC Exploration Corporation - Philippines
- Siam City Cement PLC, Thailand
- Gujarat Mineral Development Corp Ltd - India
- Indonesian Coal Mining Association
- Parliament of New Zealand
- San Jose City I Power Corp, Philippines
- London Commodity Brokers - England
- Ind-Barath Power Infra Limited - India
- Sinarmas Energy and Mining - Indonesia
- Jaiprakash Power Ventures ltd
- Ministry of Mines - Canada
- Meralco Power Generation, Philippines
- Indo Tambangraya Megah - Indonesia
- Bangladesh Power Developement Board
- Holcim Trading Pte Ltd - Singapore
- Australian Coal Association
- Eastern Energy - Thailand
- Leighton Contractors Pty Ltd - Australia
- VISA Power Limited - India
- Merrill Lynch Commodities Europe
- Planning Commission, India
- Altura Mining Limited, Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Independent Power Producers Association of India
- Standard Chartered Bank - UAE
- Alfred C Toepfer International GmbH - Germany
- Kapuas Tunggal Persada - Indonesia
- CIMB Investment Bank - Malaysia
- Bukit Makmur.PT - Indonesia
- Ministry of Finance - Indonesia
- Global Green Power PLC Corporation, Philippines
- Banpu Public Company Limited - Thailand
- Chettinad Cement Corporation Ltd - India
- Directorate Of Revenue Intelligence - India
- Barasentosa Lestari - Indonesia
- Vizag Seaport Private Limited - India
- Bukit Baiduri Energy - Indonesia
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