Infrastructure status to coal mining may not help companies

Pratim Ranjan Bose Kolkata | Updated on July 25, 2014

The Union Coal Ministry has revived a decade-old proposal for granting infrastructure status to coal mining.

Infrastructure status helps the companies to enjoy a 10-year tax holiday, which helps them survive the long gestation period and low returns on investment.

Currently such benefits are offered to nearly 30 industry segments in transport, energy, water sanitation, communication and, social commercial infrastructure sectors. While details of the proposal are not yet available, Debasish Mishra, Senior Director, Deloitte Touche Tohmatsu India, is doubtful if it would benefit the coal mining sector.

In the captive segment, most of the projects are developed through mine developer and operators (MDO). The MDOs mine coal and sell it to the user company.

Naturally, allottees of captive blocks cannot claim tax benefit as they have no investments in mining and the asset was available free of cost.

In the commercial segment, the national miner Coal India is a cash-rich company and a major contributor to the State exchequer through taxes and dividends. So the Government may not want to take a hit on its revenues.

Coal production is lagging behind due to issues relating to land acquisition and environment clearances. And infrastructure status doesn’t guarantee a solution to these tangles, as is evident in the slow progress of the road sector, says Mishra.

The Union Transport Minister Nitin Gadkari recently said a whopping ₹1,80,000 crore is locked up in 189 incomplete road projects.

The background

The proposal for extending the benefits to coal miners surfaced during 2006-2008 period, at the peak of the captive block distribution programme undertaken by the former UPA Government.

After much discussion, the Government narrowed down the scope of the benefits to mines catering the regulated electricity generation sector. The idea was to ensure that the benefits are passed on to the final consumer. However, the proposal was found too complicated and was abandoned.

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Published on July 25, 2014
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