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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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Monday, 28 September 20
NEW LNG PROJECTS - ALL DRESSED UP AND NO PLACE TO GO - WOOD MACKENZIE
It was meant to be another boom year. After a record 70 mmtpa of new LNG capacity was sanctioned in 2019, at least as much capacity was lined up fo ...
Thursday, 24 September 20
SUPRAMAX: INDO TO INDIA FIXING AROUND US$13,000 - FEARNLEYS
Cape
Over the last week the iron ore segment from Brazil to China has picked up, and we see freight rates up USD 2 (12%) week on week Fearnleys ...
Thursday, 24 September 20
KOREA MIDLAND POWER TO BUY 1.92 MILLION TONS OF 4,300-4,700 NCV COAL FOR THREE YEARS
COALspot.com: Korea Midland Power Co. Ltd, has issued an International tender for 640,000 MT 4,300-4,700 kcal/kg NCV coal per year.
...
Wednesday, 23 September 20
VIETNAM'S NEW POWER DEVELOPMENT PLAN MUST OPTIMIZE RENEWABLES AND AVOID FOSSIL FUEL LOCK-IN: IEEFA
EVN’s financial constraints leaves the utility with little room for error
Implementing Vietnam’s soon-to-be-launched next Power De ...
Wednesday, 23 September 20
MARKET INSIGHT - INTERMODAL
Undoubtedly, this year (ongoing) will never be forgotten because in a matter of months it has managed to severely affect and shape our day to day p ...
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- Thiess Contractors Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Madhucon Powers Ltd - India
- Semirara Mining Corp, Philippines
- Electricity Generating Authority of Thailand
- Banpu Public Company Limited - Thailand
- Simpson Spence & Young - Indonesia
- CNBM International Corporation - China
- MS Steel International - UAE
- Latin American Coal - Colombia
- Vedanta Resources Plc - India
- Standard Chartered Bank - UAE
- Directorate General of MIneral and Coal - Indonesia
- Attock Cement Pakistan Limited
- San Jose City I Power Corp, Philippines
- Cigading International Bulk Terminal - Indonesia
- Independent Power Producers Association of India
- Wilmar Investment Holdings
- Interocean Group of Companies - India
- South Luzon Thermal Energy Corporation
- Kumho Petrochemical, South Korea
- Toyota Tsusho Corporation, Japan
- IEA Clean Coal Centre - UK
- Coastal Gujarat Power Limited - India
- Formosa Plastics Group - Taiwan
- Indian Oil Corporation Limited
- Bhatia International Limited - India
- Rashtriya Ispat Nigam Limited - India
- Thai Mozambique Logistica
- Gujarat Electricity Regulatory Commission - India
- Carbofer General Trading SA - India
- Orica Mining Services - Indonesia
- GAC Shipping (India) Pvt Ltd
- Indo Tambangraya Megah - Indonesia
- Australian Commodity Traders Exchange
- Malabar Cements Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Indika Energy - Indonesia
- Bhoruka Overseas - Indonesia
- IHS Mccloskey Coal Group - USA
- Ceylon Electricity Board - Sri Lanka
- Eastern Energy - Thailand
- Baramulti Group, Indonesia
- Kepco SPC Power Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- Sakthi Sugars Limited - India
- The University of Queensland
- Makarim & Taira - Indonesia
- Bulk Trading Sa - Switzerland
- Neyveli Lignite Corporation Ltd, - India
- Singapore Mercantile Exchange
- Jaiprakash Power Ventures ltd
- LBH Netherlands Bv - Netherlands
- Uttam Galva Steels Limited - India
- Mercuria Energy - Indonesia
- Sree Jayajothi Cements Limited - India
- Power Finance Corporation Ltd., India
- Siam City Cement - Thailand
- CIMB Investment Bank - Malaysia
- Petrochimia International Co. Ltd.- Taiwan
- Petron Corporation, Philippines
- ICICI Bank Limited - India
- New Zealand Coal & Carbon
- Sojitz Corporation - Japan
- Binh Thuan Hamico - Vietnam
- Mjunction Services Limited - India
- Parry Sugars Refinery, India
- Minerals Council of Australia
- Maheswari Brothers Coal Limited - India
- Kaltim Prima Coal - Indonesia
- Bukit Baiduri Energy - Indonesia
- The Treasury - Australian Government
- Global Coal Blending Company Limited - Australia
- Gujarat Sidhee Cement - India
- Kapuas Tunggal Persada - Indonesia
- Bayan Resources Tbk. - Indonesia
- Antam Resourcindo - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Salva Resources Pvt Ltd - India
- Ind-Barath Power Infra Limited - India
- The State Trading Corporation of India Ltd
- Medco Energi Mining Internasional
- Star Paper Mills Limited - India
- VISA Power Limited - India
- Australian Coal Association
- Essar Steel Hazira Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Vizag Seaport Private Limited - India
- India Bulls Power Limited - India
- Indian Energy Exchange, India
- Eastern Coal Council - USA
- Chamber of Mines of South Africa
- Rio Tinto Coal - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Tamil Nadu electricity Board
- Therma Luzon, Inc, Philippines
- Bharathi Cement Corporation - India
- Billiton Holdings Pty Ltd - Australia
- Global Green Power PLC Corporation, Philippines
- Intertek Mineral Services - Indonesia
- GMR Energy Limited - India
- Miang Besar Coal Terminal - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Mercator Lines Limited - India
- SMG Consultants - Indonesia
- Indonesian Coal Mining Association
- Bahari Cakrawala Sebuku - Indonesia
- Global Business Power Corporation, Philippines
- Bangladesh Power Developement Board
- Mintek Dendrill Indonesia
- Bhushan Steel Limited - India
- Central Electricity Authority - India
- Videocon Industries ltd - India
- Ministry of Finance - Indonesia
- Grasim Industreis Ltd - India
- Pendopo Energi Batubara - Indonesia
- Larsen & Toubro Limited - India
- Cement Manufacturers Association - India
- Goldman Sachs - Singapore
- Coalindo Energy - Indonesia
- Savvy Resources Ltd - HongKong
- McConnell Dowell - Australia
- London Commodity Brokers - England
- Energy Development Corp, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Sical Logistics Limited - India
- Georgia Ports Authority, United States
- Aditya Birla Group - India
- TNB Fuel Sdn Bhd - Malaysia
- Kobexindo Tractors - Indoneisa
- ASAPP Information Group - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Agrawal Coal Company - India
- Semirara Mining and Power Corporation, Philippines
- Renaissance Capital - South Africa
- Holcim Trading Pte Ltd - Singapore
- Edison Trading Spa - Italy
- Orica Australia Pty. Ltd.
- Xindia Steels Limited - India
- Krishnapatnam Port Company Ltd. - India
- Kartika Selabumi Mining - Indonesia
- Indogreen Group - Indonesia
- Africa Commodities Group - South Africa
- Heidelberg Cement - Germany
- Siam City Cement PLC, Thailand
- Leighton Contractors Pty Ltd - Australia
- Manunggal Multi Energi - Indonesia
- Chettinad Cement Corporation Ltd - India
- Barasentosa Lestari - Indonesia
- Coal and Oil Company - UAE
- Posco Energy - South Korea
- PTC India Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Ministry of Transport, Egypt
- Metalloyd Limited - United Kingdom
- Karaikal Port Pvt Ltd - India
- SN Aboitiz Power Inc, Philippines
- Borneo Indobara - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Central Java Power - Indonesia
- Anglo American - United Kingdom
- Straits Asia Resources Limited - Singapore
- Parliament of New Zealand
- Kalimantan Lumbung Energi - Indonesia
- Commonwealth Bank - Australia
- Economic Council, Georgia
- Trasteel International SA, Italy
- Romanian Commodities Exchange
- Bank of Tokyo Mitsubishi UFJ Ltd
- GVK Power & Infra Limited - India
- Sinarmas Energy and Mining - Indonesia
- Bukit Makmur.PT - Indonesia
- Lanco Infratech Ltd - India
- Planning Commission, India
- Deloitte Consulting - India
- White Energy Company Limited
- Jindal Steel & Power Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Meenaskhi Energy Private Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ministry of Mines - Canada
- Merrill Lynch Commodities Europe
- Riau Bara Harum - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Sindya Power Generating Company Private Ltd
- OPG Power Generation Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- Marubeni Corporation - India
- Aboitiz Power Corporation - Philippines
- Dalmia Cement Bharat India
- Wood Mackenzie - Singapore
- Samtan Co., Ltd - South Korea
- Oldendorff Carriers - Singapore
- Tata Chemicals Ltd - India
- Meralco Power Generation, Philippines
- Price Waterhouse Coopers - Russia
- Timah Investasi Mineral - Indoneisa
- Sarangani Energy Corporation, Philippines
- International Coal Ventures Pvt Ltd - India
- Energy Link Ltd, New Zealand
- Kohat Cement Company Ltd. - Pakistan
- European Bulk Services B.V. - Netherlands
- PNOC Exploration Corporation - Philippines
- Port Waratah Coal Services - Australia
- Maharashtra Electricity Regulatory Commission - India
- PowerSource Philippines DevCo
- TeaM Sual Corporation - Philippines
- Jorong Barutama Greston.PT - Indonesia
- Globalindo Alam Lestari - Indonesia
- SMC Global Power, Philippines
- Ambuja Cements Ltd - India
- Iligan Light & Power Inc, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Altura Mining Limited, Indonesia
- Electricity Authority, New Zealand
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