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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, 14 October 20
CHINA COKING COAL FUTURES RALLY ON REPORTED BAN ON AUSTRALIA CARGOES - REUTERS
Dalian coking coal futures rallied for a sixth straight session on Tuesday after reports surfaced that China had stopped buying coal from Australia ...
Wednesday, 14 October 20
MARKET INSIGHT - INTERMODAL
The tanker market has experienced severe freight rate and asset value declines over the past 5 months. A potential market upturn may arise in the c ...
Friday, 09 October 20
INDIA'S COAL IMPORTS IMPROVE SOMEWHAT, BUT RECOVERY IS UNEVEN - REUTERS
India’s coal imports, depressed by the impact of coronavirus this year, regained ground in September, but in an uneven uptick – shipmen ...
Thursday, 08 October 20
CHINA'S COAL IMPORTS FROM INDONESIA DECLINED 16.4% Y-O-Y, TO 80.2 MLN TONNES IN THE FIRST 9 MONTHS OF 2020 - BANCHERO COSTA
China's coal imports boomed in 2019, surprising many who had expected the government would clamp down strictly on shipments.
...
Thursday, 08 October 20
GLIMMER OF LIGHT FOR COAL, BUT SHORT TERM - FNARENA
Is coal on the rebound? Demand appears stronger and supply reductions have underpinned a tightening market. Certainly, the Newcastle thermal coal p ...
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- Merrill Lynch Commodities Europe
- McConnell Dowell - Australia
- International Coal Ventures Pvt Ltd - India
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- Larsen & Toubro Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Alfred C Toepfer International GmbH - Germany
- MS Steel International - UAE
- Aditya Birla Group - India
- Energy Link Ltd, New Zealand
- San Jose City I Power Corp, Philippines
- Eastern Coal Council - USA
- IHS Mccloskey Coal Group - USA
- Kumho Petrochemical, South Korea
- GMR Energy Limited - India
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- Bulk Trading Sa - Switzerland
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- Meralco Power Generation, Philippines
- Wood Mackenzie - Singapore
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- Filglen & Citicon Mining (HK) Ltd - Hong Kong
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- Tata Chemicals Ltd - India
- Kideco Jaya Agung - Indonesia
- Ceylon Electricity Board - Sri Lanka
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- Trasteel International SA, Italy
- Indian Oil Corporation Limited
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- Bhushan Steel Limited - India
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- Wilmar Investment Holdings
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- LBH Netherlands Bv - Netherlands
- Romanian Commodities Exchange
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- Siam City Cement PLC, Thailand
- CNBM International Corporation - China
- Bhatia International Limited - India
- Coastal Gujarat Power Limited - India
- CIMB Investment Bank - Malaysia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- Formosa Plastics Group - Taiwan
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- Global Green Power PLC Corporation, Philippines
- Global Business Power Corporation, Philippines
- Rio Tinto Coal - Australia
- SN Aboitiz Power Inc, Philippines
- Leighton Contractors Pty Ltd - Australia
- Anglo American - United Kingdom
- SMC Global Power, Philippines
- PowerSource Philippines DevCo
- IEA Clean Coal Centre - UK
- Bharathi Cement Corporation - India
- Kalimantan Lumbung Energi - Indonesia
- Metalloyd Limited - United Kingdom
- Bayan Resources Tbk. - Indonesia
- Tamil Nadu electricity Board
- Africa Commodities Group - South Africa
- VISA Power Limited - India
- Holcim Trading Pte Ltd - Singapore
- Kapuas Tunggal Persada - Indonesia
- Central Electricity Authority - India
- Banpu Public Company Limited - Thailand
- Oldendorff Carriers - Singapore
- Maheswari Brothers Coal Limited - India
- Sojitz Corporation - Japan
- Orica Mining Services - Indonesia
- Mercator Lines Limited - India
- Xindia Steels Limited - India
- Bhoruka Overseas - Indonesia
- Eastern Energy - Thailand
- Rashtriya Ispat Nigam Limited - India
- Commonwealth Bank - Australia
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- Vizag Seaport Private Limited - India
- Sinarmas Energy and Mining - Indonesia
- Independent Power Producers Association of India
- Australian Coal Association
- Petron Corporation, Philippines
- Videocon Industries ltd - India
- White Energy Company Limited
- GN Power Mariveles Coal Plant, Philippines
- Timah Investasi Mineral - Indoneisa
- Makarim & Taira - Indonesia
- Goldman Sachs - Singapore
- Aboitiz Power Corporation - Philippines
- Antam Resourcindo - Indonesia
- Ministry of Mines - Canada
- Mjunction Services Limited - India
- Parliament of New Zealand
- Heidelberg Cement - Germany
- Gujarat Electricity Regulatory Commission - India
- European Bulk Services B.V. - Netherlands
- Kobexindo Tractors - Indoneisa
- Straits Asia Resources Limited - Singapore
- Jorong Barutama Greston.PT - Indonesia
- Manunggal Multi Energi - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Coal and Oil Company - UAE
- Jindal Steel & Power Ltd - India
- Planning Commission, India
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- Pendopo Energi Batubara - Indonesia
- Toyota Tsusho Corporation, Japan
- Thai Mozambique Logistica
- Electricity Authority, New Zealand
- Renaissance Capital - South Africa
- Electricity Generating Authority of Thailand
- Cement Manufacturers Association - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Karaikal Port Pvt Ltd - India
- Central Java Power - Indonesia
- Dalmia Cement Bharat India
- Singapore Mercantile Exchange
- Mintek Dendrill Indonesia
- Ind-Barath Power Infra Limited - India
- Bangladesh Power Developement Board
- Deloitte Consulting - India
- Sical Logistics Limited - India
- New Zealand Coal & Carbon
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- TNB Fuel Sdn Bhd - Malaysia
- Port Waratah Coal Services - Australia
- Asmin Koalindo Tuhup - Indonesia
- Economic Council, Georgia
- Chamber of Mines of South Africa
- SMG Consultants - Indonesia
- PTC India Limited - India
- Orica Australia Pty. Ltd.
- PetroVietnam Power Coal Import and Supply Company
- AsiaOL BioFuels Corp., Philippines
- Simpson Spence & Young - Indonesia
- Posco Energy - South Korea
- Agrawal Coal Company - India
- Semirara Mining Corp, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Samtan Co., Ltd - South Korea
- Billiton Holdings Pty Ltd - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- ICICI Bank Limited - India
- Coalindo Energy - Indonesia
- The University of Queensland
- TeaM Sual Corporation - Philippines
- Essar Steel Hazira Ltd - India
- London Commodity Brokers - England
- Riau Bara Harum - Indonesia
- Standard Chartered Bank - UAE
- Maharashtra Electricity Regulatory Commission - India
- PNOC Exploration Corporation - Philippines
- Uttam Galva Steels Limited - India
- Indogreen Group - Indonesia
- Parry Sugars Refinery, India
- Indo Tambangraya Megah - Indonesia
- Intertek Mineral Services - Indonesia
- South Luzon Thermal Energy Corporation
- Siam City Cement - Thailand
- Interocean Group of Companies - India
- Globalindo Alam Lestari - Indonesia
- Sree Jayajothi Cements Limited - India
- Directorate Of Revenue Intelligence - India
- Global Coal Blending Company Limited - Australia
- Sakthi Sugars Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Borneo Indobara - Indonesia
- The State Trading Corporation of India Ltd
- ASAPP Information Group - India
- Minerals Council of Australia
- Marubeni Corporation - India
- Lanco Infratech Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Edison Trading Spa - Italy
- Savvy Resources Ltd - HongKong
- Bahari Cakrawala Sebuku - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Altura Mining Limited, Indonesia
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- Price Waterhouse Coopers - Russia
- Baramulti Group, Indonesia
- Jaiprakash Power Ventures ltd
- Kohat Cement Company Ltd. - Pakistan
- OPG Power Generation Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Madhucon Powers Ltd - India
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