The Hindu Business Line : Ad valorem royalty for coal mining under study

THE Government is considering a proposal to overhaul the royalty structure on coal mined in the country. Plans are afoot to replace the existing weight-specific royalty system with an ad valorem rate of royalty.

To examine the specific issues linked with the transition from one system to another, the Government last week set up a study group headed by the Additional Secretary of the Ministry of Coal and other senior Government officials. The committee also included representatives from industry organisations like the Federation of Indian Chambers of Commerce and Industry and the Federation of Indian Mineral Industries.

The move follows a high-level meeting between the Prime Minister, Dr Manmohan Singh, and the Orissa Chief Minister, Mr Naveen Patnaik, last week when Mr Patnaik made a case for the revision of royalty rates and an ad valorem rate of royalty.

The group will look into the comparative advantages of the two systems of royalties and would accordingly make recommendations to the Coal Ministry and subsequently place them before the Cabinet, officials said.

As of now, there are six rates of royalty applicable to six grades of coal produced in India. For Grade I coking coal, it is Rs 250 per tonne; for Grade II, Rs 165 per tonne; for Grade III, Rs 115 per tonne; for Grade IV non-coking coal, Rs 85 per tonne; and for Grade V non-coking coal, Rs 65 per tonne. For coal produced in Andhra Pradesh, the applicable rate is Rs 90 per tonne. Earlier, too, there had been demands from the coal-producing States for the introduction of a value-based royalty system.

Highly placed sources in the Government told Business Line that the Planning Commission too had indicated that an ad valorem-based royalty structure on coal mining as compared to the present one would work in favour of the coal-producing States.

A study group set up in 1997 had also recommended ad valorem rates and an increase in royalty rates, but it was not accepted then because the economy was undergoing a recession.

However, when royalties were last increased in August 2002, the Government had preferred to stick to the then existing system of tonnage-based royalty and the recommendations for value-based royalty were not accepted.

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