GoM okays coal profit-share, ore royalty for mining areas

Jaideep Mishra A policy move can be both forward looking and woolly. The ten-member group of ministers (GoM), headed by finance minister Pranab Mukherjee, tasked with overhauling the central mining Act and make way for benefit sharing, has decided that coal companies will need to distribute 26% profit to the local population. And further that in the case of other minerals such as iron ore, bauxite and limestone, the mining companies will be required to share with the local inhabitants an amount equal to the royalty paid in the previous year.

We certainly need to specifically earmark mining revenues for development purposes, especially in the mining-prevalent areas. But 26% profit sharing in coal mining would be prone to misinterpretation, misuse and hugely problematic to implement. Instead, upfront development expenditure linked to mining turnover via ad valorem royalty, cess and other levies would be transparent and can set aside up to 20% of revenues.Now as many as 148 coal blocks have been identified for captive mining by corporates in sectors like power, steel and cement. And how would 26% profit be determined for captive operations? It may even be possible for special purpose vehicles to absorb profits not wholly or partly but very substantially! And such practices would defeat the very purpose of earmarking funds. Mandating 26% profit share for Coal India Ltd and its subsidiaries would also be open to question.

Note that while the latest annual results show CIL’s bottom line at just over Rs 10,000 crore, implying that its 26% profit share for development purposes would be Rs 2,600 crore, the public sector major’s expenditure on what it terms ‘social overhead’ is already for a similar amount. So would the new requirement be over and above CIL’s social commitment? If yes, the total earmarking of funds would be much more than 26% profit share for CIL. And if not, the whole idea of 26% profit sharing for coal companies would weaken.

There would be other problems on the ground, including the actual mechanics of implementation of the profit-share policy. Under the circumstances, the absorptive capacity of different mining areas and attendant expenditure requirement would differ widely across the board.Courtesy:TheEconomicTimes. 

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Author: madhubaganiar

Madhubaganiar loves to write on social issues especially for downtrodden segment of Indian society.

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