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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, 24 October 11
CAPESIZE RENTAL RATES RISE FOR THIRD DAY AS MORE SHIPS HIRED - HELLENIC SHIPPING
Rates to hire capesize vessels advanced for a third day on signs of increased demand to transport iron ore, used to make steel.Daily rates for the s ...
Sunday, 23 October 11
CHINA LOOKING TO RESELL INDONESIAN COAL CARGOES - BARCLAYS
Commodity Online reported that, Anecdotal evidence has suggested that China is even looking to resell Indonesian cargoes back into the seaborne coal ...
Saturday, 22 October 11
THE SHORT-PERIOD RATES FOR PANAMAX REMAINED FIRM - CAPT. REDDY
COALspot.com - "The market seemed to slow down a bit this week, and all sectors were down by about One to five percent", said Capt. Reddy, ...
Saturday, 22 October 11
INDONESIA'S GOLDEN ENERGY SLASHES ITS IPO PRICE - THE JAKARTA GLOBE
The Jakarta Globe reported that, Golden Energy Mines, a coal mining company affiliated with Sinar Mas Group, lowered its target in an initial public ...
Thursday, 20 October 11
CAPESIZE - TUBARAO /QINGDAO BEING FIXED AT STRONG US$ 29.75 PMT
Handy
The Atlantic market is quite steady, and market seems to be around the same levels as last week. Fewer fixtures reported though. ...
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- Bhushan Steel Limited - India
- San Jose City I Power Corp, Philippines
- SMG Consultants - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Bulk Trading Sa - Switzerland
- Merrill Lynch Commodities Europe
- Parliament of New Zealand
- SMC Global Power, Philippines
- Bangladesh Power Developement Board
- Bukit Makmur.PT - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- South Luzon Thermal Energy Corporation
- Kartika Selabumi Mining - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Meenaskhi Energy Private Limited - India
- Krishnapatnam Port Company Ltd. - India
- TNB Fuel Sdn Bhd - Malaysia
- Salva Resources Pvt Ltd - India
- Kumho Petrochemical, South Korea
- Borneo Indobara - Indonesia
- The Treasury - Australian Government
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sinarmas Energy and Mining - Indonesia
- OPG Power Generation Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Sindya Power Generating Company Private Ltd
- International Coal Ventures Pvt Ltd - India
- London Commodity Brokers - England
- Kobexindo Tractors - Indoneisa
- Samtan Co., Ltd - South Korea
- Singapore Mercantile Exchange
- Directorate General of MIneral and Coal - Indonesia
- Port Waratah Coal Services - Australia
- LBH Netherlands Bv - Netherlands
- Petron Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Goldman Sachs - Singapore
- Wood Mackenzie - Singapore
- Indonesian Coal Mining Association
- Jaiprakash Power Ventures ltd
- GMR Energy Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Parry Sugars Refinery, India
- White Energy Company Limited
- Rio Tinto Coal - Australia
- Kideco Jaya Agung - Indonesia
- Attock Cement Pakistan Limited
- Coal and Oil Company - UAE
- GVK Power & Infra Limited - India
- Indian Oil Corporation Limited
- India Bulls Power Limited - India
- Bayan Resources Tbk. - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Binh Thuan Hamico - Vietnam
- Maheswari Brothers Coal Limited - India
- Carbofer General Trading SA - India
- Bharathi Cement Corporation - India
- Vedanta Resources Plc - India
- Electricity Authority, New Zealand
- Marubeni Corporation - India
- Banpu Public Company Limited - Thailand
- Tamil Nadu electricity Board
- Timah Investasi Mineral - Indoneisa
- Ceylon Electricity Board - Sri Lanka
- AsiaOL BioFuels Corp., Philippines
- Bhatia International Limited - India
- Larsen & Toubro Limited - India
- Toyota Tsusho Corporation, Japan
- Dalmia Cement Bharat India
- Trasteel International SA, Italy
- Indo Tambangraya Megah - Indonesia
- Aboitiz Power Corporation - Philippines
- GN Power Mariveles Coal Plant, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ambuja Cements Ltd - India
- Indian Energy Exchange, India
- Formosa Plastics Group - Taiwan
- Bahari Cakrawala Sebuku - Indonesia
- Antam Resourcindo - Indonesia
- Ind-Barath Power Infra Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Latin American Coal - Colombia
- Altura Mining Limited, Indonesia
- Gujarat Electricity Regulatory Commission - India
- Vijayanagar Sugar Pvt Ltd - India
- Star Paper Mills Limited - India
- Kepco SPC Power Corporation, Philippines
- Agrawal Coal Company - India
- Alfred C Toepfer International GmbH - Germany
- Mjunction Services Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Maharashtra Electricity Regulatory Commission - India
- Medco Energi Mining Internasional
- Mercator Lines Limited - India
- Interocean Group of Companies - India
- PTC India Limited - India
- Sree Jayajothi Cements Limited - India
- Barasentosa Lestari - Indonesia
- Aditya Birla Group - India
- Pendopo Energi Batubara - Indonesia
- Heidelberg Cement - Germany
- Essar Steel Hazira Ltd - India
- Xindia Steels Limited - India
- European Bulk Services B.V. - Netherlands
- Vizag Seaport Private Limited - India
- Straits Asia Resources Limited - Singapore
- Madhucon Powers Ltd - India
- Renaissance Capital - South Africa
- Siam City Cement - Thailand
- CNBM International Corporation - China
- Lanco Infratech Ltd - India
- Coalindo Energy - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Minerals Council of Australia
- Makarim & Taira - Indonesia
- Grasim Industreis Ltd - India
- Commonwealth Bank - Australia
- Petrochimia International Co. Ltd.- Taiwan
- Kalimantan Lumbung Energi - Indonesia
- Therma Luzon, Inc, Philippines
- Eastern Energy - Thailand
- Electricity Generating Authority of Thailand
- Africa Commodities Group - South Africa
- Ministry of Transport, Egypt
- Miang Besar Coal Terminal - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Kaltim Prima Coal - Indonesia
- Sojitz Corporation - Japan
- The University of Queensland
- Kohat Cement Company Ltd. - Pakistan
- Power Finance Corporation Ltd., India
- Independent Power Producers Association of India
- TeaM Sual Corporation - Philippines
- Cigading International Bulk Terminal - Indonesia
- Eastern Coal Council - USA
- Chamber of Mines of South Africa
- Metalloyd Limited - United Kingdom
- Baramulti Group, Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Globalindo Alam Lestari - Indonesia
- Global Coal Blending Company Limited - Australia
- Karaikal Port Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Orica Australia Pty. Ltd.
- Iligan Light & Power Inc, Philippines
- Malabar Cements Ltd - India
- Intertek Mineral Services - Indonesia
- Indika Energy - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Semirara Mining Corp, Philippines
- Ministry of Finance - Indonesia
- Romanian Commodities Exchange
- Central Electricity Authority - India
- CIMB Investment Bank - Malaysia
- Oldendorff Carriers - Singapore
- IEA Clean Coal Centre - UK
- Semirara Mining and Power Corporation, Philippines
- Central Java Power - Indonesia
- New Zealand Coal & Carbon
- Siam City Cement PLC, Thailand
- Riau Bara Harum - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Chettinad Cement Corporation Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Mintek Dendrill Indonesia
- Sarangani Energy Corporation, Philippines
- Videocon Industries ltd - India
- Global Green Power PLC Corporation, Philippines
- ICICI Bank Limited - India
- Indogreen Group - Indonesia
- Cement Manufacturers Association - India
- Economic Council, Georgia
- Australian Coal Association
- MS Steel International - UAE
- Bhoruka Overseas - Indonesia
- Thai Mozambique Logistica
- Thiess Contractors Indonesia
- Sakthi Sugars Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Standard Chartered Bank - UAE
- Deloitte Consulting - India
- ASAPP Information Group - India
- Gujarat Sidhee Cement - India
- Australian Commodity Traders Exchange
- Edison Trading Spa - Italy
- Energy Link Ltd, New Zealand
- SN Aboitiz Power Inc, Philippines
- IHS Mccloskey Coal Group - USA
- Global Business Power Corporation, Philippines
- Mercuria Energy - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Georgia Ports Authority, United States
- Anglo American - United Kingdom
- Uttam Galva Steels Limited - India
- Coastal Gujarat Power Limited - India
- Orica Mining Services - Indonesia
- PNOC Exploration Corporation - Philippines
- Planning Commission, India
- The State Trading Corporation of India Ltd
- Sical Logistics Limited - India
- Bukit Baiduri Energy - Indonesia
- PowerSource Philippines DevCo
- Tata Chemicals Ltd - India
- Ministry of Mines - Canada
- Manunggal Multi Energi - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- VISA Power Limited - India
- Energy Development Corp, Philippines
- Directorate Of Revenue Intelligence - India
- Meralco Power Generation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Posco Energy - South Korea
- McConnell Dowell - Australia
- Wilmar Investment Holdings
- Jindal Steel & Power Ltd - India
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