The proposed benefit sharing mechanism in draft mining bill may prove to be a mixed bag for the mining industry.
“Mining firms will have to pay an additional Rs 10,000 crore to the state governments, when the new law is implemented,” said Mr R.K. Sharma, Secretary-General, Federation of Indian Mineral Industries.
The draft mining bill envisages that coal companies share 26 per cent of their net profits with the project affected people. It also has provisions for all other mining firms to provide an amount equivalent to their royalty for the welfare of the displaced people.
However, an equity analyst with a Mumbai brokerage said though the impact of doubled royalty will hit the mining firms' bottomlines in the short term, the concept of benefit sharing could ease the process of land acquisition for projects in the long run.
The process of acquiring land for various industrial and development projects has become a vexed issue in the recent years with land-owners vociferously resisting such attempts.
Shares of mining firms reacted negatively to the Government's proposal. Coal India shares lost 8 per cent to close at Rs 362, while Sesa Goa shed 4 per cent to close at Rs 281. NMDC lost about Rs 2.55 per cent to close at Rs 258 on the BSE on Friday.
“We welcome that the Government has agreed to a royalty-linked fund rather than profit-sharing mechanism. However, a 100 per cent royalty will be a huge burden on mining companies,” said Mr Sharma said.
FIMI had vehemently opposed the initial proposal of mandatory 26 per cent profit sharing. As an alternative, it had suggested a royalty linked fund, wherein companies would pay an additional 26 per cent over and above their annual royalty payments.
Further, Mr Sharma said the mining firms would pass on this additional burden of royalty to end users such as metal companies, resulting in increased raw material costs.
“The profit share clause for coal mining is likely to result in the increase of coal prices on an average of Rs 60-100 per tonne, which is expected to result in electricity being dearer by 8-10 paise per unit, if the mining and power generation companies are able to pass the additional burden to consumer,” said Mr Dipesh Dipu, Director-Consulting for Mining at Deloitte Touche Tohmatsu India Pvt Ltd.
Also, there may be an impact on investment in coal mining as returns are likely to be substantially impacted.
“Considering that coal mining requires investments to be able to keep pace with growing demand, this may be a cause of concern,” Mr Dipu added.