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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, 21 October 20
INDIA: THE COMMERCIALISATION OF COAL BLOCKS WILL BENEFIT THE ECONOMY - HINDU BUSINESS LINE
As the government of India receives 76 bids for 23 coal mines against the 38 up on auction, what does this commercialisation of coal block allocati ...
Wednesday, 21 October 20
MARKET INSIGHT - INTERMODAL
The second wave of COVID-19 is now a reality; offices are closing again, and stricter rules and regulations are being implemented in public spaces. ...
Tuesday, 20 October 20
CHINA TAIYUAN COAL TRANSACTION PRICE INDEX UP 0.82 PCT - XINHUA
China Taiyuan coal transaction price index stood at 127.49 points Monday, up 0.82 percent week on week.
The index, released by China ...
Tuesday, 20 October 20
BIMCO 'SHIPLEASE' TERM SHEET - WATSON FARLEY & WILLIAMS
KNOWLEDGE TO ELEVATE
The ever-growing importance of sale and leaseback transactions as an alternative to financing ships by way of loan, makes ...
Friday, 16 October 20
KOMIPO ON BEHALF OF K GENCO'S INVITED BIDS FOR TOTAL 715,000 MT MIN. 5,700 NAR COAL FOR DECEMBER
COALspot.com: Korea Midland Power Co., Ltd (KOMIPO) on behalf of EWP, KOSPO, KOSEP and KOWEPO has issued an international tender for total 715,000& ...
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- Kepco SPC Power Corporation, Philippines
- Semirara Mining Corp, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- TNB Fuel Sdn Bhd - Malaysia
- Indian Energy Exchange, India
- Posco Energy - South Korea
- Orica Mining Services - Indonesia
- Straits Asia Resources Limited - Singapore
- Power Finance Corporation Ltd., India
- MS Steel International - UAE
- PowerSource Philippines DevCo
- Bhoruka Overseas - Indonesia
- Malabar Cements Ltd - India
- European Bulk Services B.V. - Netherlands
- Samtan Co., Ltd - South Korea
- Manunggal Multi Energi - Indonesia
- The University of Queensland
- Energy Development Corp, Philippines
- Anglo American - United Kingdom
- Borneo Indobara - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Economic Council, Georgia
- ASAPP Information Group - India
- Simpson Spence & Young - Indonesia
- Central Java Power - Indonesia
- Cement Manufacturers Association - India
- Sree Jayajothi Cements Limited - India
- Rashtriya Ispat Nigam Limited - India
- Coastal Gujarat Power Limited - India
- PNOC Exploration Corporation - Philippines
- Banpu Public Company Limited - Thailand
- Kobexindo Tractors - Indoneisa
- TeaM Sual Corporation - Philippines
- Thai Mozambique Logistica
- Tamil Nadu electricity Board
- SMG Consultants - Indonesia
- Maheswari Brothers Coal Limited - India
- London Commodity Brokers - England
- Bukit Asam (Persero) Tbk - Indonesia
- Vedanta Resources Plc - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
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- Agrawal Coal Company - India
- Xindia Steels Limited - India
- Indian Oil Corporation Limited
- Electricity Generating Authority of Thailand
- Iligan Light & Power Inc, Philippines
- Ind-Barath Power Infra Limited - India
- India Bulls Power Limited - India
- Tata Chemicals Ltd - India
- The Treasury - Australian Government
- Formosa Plastics Group - Taiwan
- San Jose City I Power Corp, Philippines
- OPG Power Generation Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- New Zealand Coal & Carbon
- Rio Tinto Coal - Australia
- Mjunction Services Limited - India
- Sakthi Sugars Limited - India
- Miang Besar Coal Terminal - Indonesia
- Intertek Mineral Services - Indonesia
- Sarangani Energy Corporation, Philippines
- Thiess Contractors Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- SN Aboitiz Power Inc, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Parry Sugars Refinery, India
- Makarim & Taira - Indonesia
- Central Electricity Authority - India
- Commonwealth Bank - Australia
- Grasim Industreis Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Neyveli Lignite Corporation Ltd, - India
- Vijayanagar Sugar Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- IEA Clean Coal Centre - UK
- Minerals Council of Australia
- Ministry of Finance - Indonesia
- Medco Energi Mining Internasional
- Semirara Mining and Power Corporation, Philippines
- Meralco Power Generation, Philippines
- SMC Global Power, Philippines
- Sinarmas Energy and Mining - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Latin American Coal - Colombia
- Kideco Jaya Agung - Indonesia
- Heidelberg Cement - Germany
- Salva Resources Pvt Ltd - India
- Bhushan Steel Limited - India
- GAC Shipping (India) Pvt Ltd
- Australian Commodity Traders Exchange
- Toyota Tsusho Corporation, Japan
- Coalindo Energy - Indonesia
- Bukit Baiduri Energy - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Barasentosa Lestari - Indonesia
- Karaikal Port Pvt Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Ambuja Cements Ltd - India
- Aditya Birla Group - India
- Bulk Trading Sa - Switzerland
- Marubeni Corporation - India
- Aboitiz Power Corporation - Philippines
- Videocon Industries ltd - India
- AsiaOL BioFuels Corp., Philippines
- Chamber of Mines of South Africa
- Port Waratah Coal Services - Australia
- White Energy Company Limited
- Standard Chartered Bank - UAE
- International Coal Ventures Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Madhucon Powers Ltd - India
- Larsen & Toubro Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Star Paper Mills Limited - India
- Kartika Selabumi Mining - Indonesia
- Sical Logistics Limited - India
- Attock Cement Pakistan Limited
- Kumho Petrochemical, South Korea
- Deloitte Consulting - India
- Trasteel International SA, Italy
- Essar Steel Hazira Ltd - India
- Kaltim Prima Coal - Indonesia
- Coal and Oil Company - UAE
- South Luzon Thermal Energy Corporation
- Vizag Seaport Private Limited - India
- Petron Corporation, Philippines
- Savvy Resources Ltd - HongKong
- Eastern Coal Council - USA
- Binh Thuan Hamico - Vietnam
- Mercuria Energy - Indonesia
- Wilmar Investment Holdings
- Singapore Mercantile Exchange
- Parliament of New Zealand
- Mintek Dendrill Indonesia
- VISA Power Limited - India
- Timah Investasi Mineral - Indoneisa
- Oldendorff Carriers - Singapore
- Merrill Lynch Commodities Europe
- Electricity Authority, New Zealand
- Alfred C Toepfer International GmbH - Germany
- Global Business Power Corporation, Philippines
- Orica Australia Pty. Ltd.
- PetroVietnam Power Coal Import and Supply Company
- Bhatia International Limited - India
- Sojitz Corporation - Japan
- Directorate Of Revenue Intelligence - India
- Therma Luzon, Inc, Philippines
- Bayan Resources Tbk. - Indonesia
- Indogreen Group - Indonesia
- Planning Commission, India
- CIMB Investment Bank - Malaysia
- LBH Netherlands Bv - Netherlands
- Sindya Power Generating Company Private Ltd
- IHS Mccloskey Coal Group - USA
- Pendopo Energi Batubara - Indonesia
- Indika Energy - Indonesia
- Bharathi Cement Corporation - India
- PTC India Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Riau Bara Harum - Indonesia
- Gujarat Sidhee Cement - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Romanian Commodities Exchange
- Energy Link Ltd, New Zealand
- Wood Mackenzie - Singapore
- Renaissance Capital - South Africa
- Altura Mining Limited, Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Indonesian Coal Mining Association
- Mercator Lines Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Australian Coal Association
- Indo Tambangraya Megah - Indonesia
- Meenaskhi Energy Private Limited - India
- Siam City Cement - Thailand
- Kapuas Tunggal Persada - Indonesia
- Interocean Group of Companies - India
- Bukit Makmur.PT - Indonesia
- Antam Resourcindo - Indonesia
- Price Waterhouse Coopers - Russia
- ICICI Bank Limited - India
- GMR Energy Limited - India
- Holcim Trading Pte Ltd - Singapore
- Baramulti Group, Indonesia
- Leighton Contractors Pty Ltd - Australia
- Chettinad Cement Corporation Ltd - India
- McConnell Dowell - Australia
- Maharashtra Electricity Regulatory Commission - India
- GN Power Mariveles Coal Plant, Philippines
- CNBM International Corporation - China
- Metalloyd Limited - United Kingdom
- Jaiprakash Power Ventures ltd
- Global Green Power PLC Corporation, Philippines
- Africa Commodities Group - South Africa
- Goldman Sachs - Singapore
- Lanco Infratech Ltd - India
- Eastern Energy - Thailand
- GVK Power & Infra Limited - India
- Edison Trading Spa - Italy
- Dalmia Cement Bharat India
- Carbofer General Trading SA - India
- Ministry of Transport, Egypt
- Gujarat Mineral Development Corp Ltd - India
- Jindal Steel & Power Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Global Coal Blending Company Limited - Australia
- Bangladesh Power Developement Board
- Georgia Ports Authority, United States
- Independent Power Producers Association of India
- Krishnapatnam Port Company Ltd. - India
- Pipit Mutiara Jaya. PT, Indonesia
- Ministry of Mines - Canada
- Siam City Cement PLC, Thailand
- The State Trading Corporation of India Ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
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