After Nearly two years of Discussions and Delays, The revised MMDR Bill is likely to be placed in The Parliament. Will the protesting locals and industry elements finally find peace? Doubts remain.
After several rounds of deliberations, discussions and interactions, a Group of Ministers (GoM) headed by Finance Minister Pranab Mukherjee on July 7, 2011, cleared the draft Mines & Minerals (Development & Regulation) Bill. As per government sources privy to the development, the Mines ministry plans to introduce the bill in the Winter session of Parliament. If passed, the new Mines & Mineral Development & Regulation (MMDR) Act will replace the existing MMDR Act, 1957.
As per the Bill recently cleared by the GoM, the Centre and states can levy cess on all minerals – 2.5% of the royalty in case of the Centre and 10% in case of the states. In addition, mining companies will now have to pay four times the money they presently pay to the states as contribution towards sustainable mine closure plans. The 10-member ministerial panel has said that coal miners should pay 26% of their profits, while other mineral mining firms should give an equivalent of 100% of the royalty they pay the government to compensate people displaced by these projects. However, the mining firms want a royalty-based sharing formula wherein they will have to pay only 26% of the royalty equivalent to the displaced. Sources say the proposal will be discussed further.
Miners in India, who have recently come out of a commodity slump have always been wary that the provisions of the new MMDR Bill, if legislated into an act, will spell doom for the Indian mineral resource industry. If it was any indication, shares of mining firms fell sharply after the panel approved the draft mining Bill, indicating a negative sentiment that the proposed provision for profit-sharing would have a negative impact on the companies’ profits. While Coal India fell 8.2%, Jindal Steel and Power declined by 2.5%, Hindustan Zinc and Sesa Goa by 4.2% each, NMDC by 2.5%, SAIL by 3.7% and Tata Steel by 2%, soon after the GoM paved way for the Bill to be put before the Cabinet.
In an important development, the GoM which vetted the draft Bill, has also given its nod for authorising and incentivising state governments to take up “prospecting and exploration, so that adequately prospected ore bodies can be put on bid.” The new Mining bill will empower state governments to hand out leases, take up prospecting and exploration activities before mines and call for bids for commercial utilisation of mineral deposits such as coal and iron ore. If the proposals become law, companies would need to make an annual cash contribution of Rs.100,000 per hectare to the state government over the life of a mine. This amount would go as contribution for implementing the mine closure plan, key for environmental rehabilitation and in providing succour to workers and communities dependent on mining activity for sustenance. Additionally, the Bill also proposes to give the states a free hand to levy cess on both major and minor minerals by a sum not exceeding 10% of the amount of royalty paid by companies for a particular mineral. Several states including West Bengal were already levying cess and local taxes on minerals at differential rates. The Centre had initially challenged the West Bengal’s move to levy state-specific taxes on coal produced in the state, but a few years ago, a Supreme Court ruling had gone in favour of the state. The Centre therefore, does not share coal royalty proceeds with Bengal. It is pertinent to note here that although the royalty on minerals are levied and collected under the central law, the process of appropriation is actually carried out by the states. As per the GoM, the proposed central cess on minerals would be used for better administration of mining activities.
However, if industry analysts are to be believed, the implementation of the proposals of the MMDR Bill could erode profits of metal companies by 4-10% and the impact would be more on companies with more captive coal content. “The MMDR Bill is unfavourable to the metals and mining sector as miners will have to share 26% of their profits. If this happens, miners will lose around Rs.80 billion annually. In the short-to-medium term, the sector’s performance will become bleak due to the monsoons,” says SMC analyst Saurabh Jain. One more factor troubling the sector is the fear of an impending fall in Chinese zinc prices. “It is said that between June and August, smelters will sell stocks and cut output due to a lukewarm demand, which will reduce imports of concentrates,” adds Jain.
While most of the analysts contacted by B&E agreed on this, some also believed that it was too premature to forecast the exact impact on the companies. This line of thought is backed by the fact that there are many changes that are likely to happen after the draft Bill is presented before the Cabinet and Parliament. Also, given the discussions that are likely to be taken up while legislating this Bill, further delay cannot be ruled out.
However, there is a sentiment that in whatever form the Bill eventually becomes a law, the broad impact would eventually be negative for the companies. The passage of the new Bill has been delayed by close to two years now for want of consensus.
Miners, who are still unsure about the quantum of impact the new regulations would have, are scared, as their discussions suggest. They contest that the Indian mining industry is the most heavily taxed industry in the world consisting of various charges/levies under the old MMDR Act, Forest (Conservation) Act 1980, Environment (Protection) Act 1986, Labour Welfare Fund Act / Labour Welfare Cess, Income Tax Act 1961 (direct and indirect taxes) and other local tax as applicable. The present scenario suggests that there is an attempt in the draft MMDR Act, 2010, to make the levies heavier and make the sector appear unattractive to private investors, domestic or foreign. Agrees R.K.Sharma, Secretary General of the Federation of Indian Mineral Industries. “The proposals in the draft Bill will prevent much needed investments from flowing into the mining sector. Overseas companies will not be interested to invest in a highly-regulated and a highly-taxed sector,” he says. Also, the current government regulations permit 100% foreign direct investment (FDI) in most mining activities under the automatic route. However, the actual FDI flows (as per industry reports) have been a meagre $150-200 million. But this has not deterred the government from setting the ambitious target of increasing FDI in the sector to over $20 billion over the next few years. India has 85 billion tonne of mineral reserves, which are yet to be exploited. Encouraging FDI, many feel, can be important for the development of the Indian mining and minerals industry.
Mining and construction equipment industry volume is around 40,000 to 45,000 units per annum, amounting to a turnover of $2.6 billion to $3.1 billion, proving how the Indian industry is still at a nascent stage as compared to the $75 billion global market. Moreover, as per official estimates, out of the 5.75 lakh sq. km available in India with minerals, only 75,000 sq. km have been explored so far.
The government and the Mines ministry are today trying to send encouraging messages to the industry. While speaking to B&E, S.Vijay Kumar, Secretary, Department of Mines, said that mining in India was set to grow in a very different direction from the present times, where there is too much focus on iron ore and bauxite. “We really need to go deeper for rarer minerals. Focus will shift to base metals, non-ferrous metals and diamonds, uranium, nickel et al,” he said, while adding that the ministry also wants to try out the latest in technology with an equally high appetite for risk, while mooting for a scenario free of regulatory hurdles. “It’s my job to help the industry and we will do all we can. We have put in place a regulatory authority for a level playing field. There are time-frames for state governments to dispose applications. We have tried to make everything as efficient as possible, but the industry will have to pay,” he adds.
Battles fought between miners and the people displaced are responsible for the poor scenario of mining in India. While neither the existing government mechanism nor the mining industry has been able to provide any relief to the lives of those affected by earlier projects, there are questions that still remain. Will the new bill be able to resolve these battles? More importantly, looking at the long list of Bills that are set to hit the approaching Parliament session (including the Lokpal), will anything concrete surface?
After several rounds of deliberations, discussions and interactions, a Group of Ministers (GoM) headed by Finance Minister Pranab Mukherjee on July 7, 2011, cleared the draft Mines & Minerals (Development & Regulation) Bill. As per government sources privy to the development, the Mines ministry plans to introduce the bill in the Winter session of Parliament. If passed, the new Mines & Mineral Development & Regulation (MMDR) Act will replace the existing MMDR Act, 1957.
As per the Bill recently cleared by the GoM, the Centre and states can levy cess on all minerals – 2.5% of the royalty in case of the Centre and 10% in case of the states. In addition, mining companies will now have to pay four times the money they presently pay to the states as contribution towards sustainable mine closure plans. The 10-member ministerial panel has said that coal miners should pay 26% of their profits, while other mineral mining firms should give an equivalent of 100% of the royalty they pay the government to compensate people displaced by these projects. However, the mining firms want a royalty-based sharing formula wherein they will have to pay only 26% of the royalty equivalent to the displaced. Sources say the proposal will be discussed further.
Miners in India, who have recently come out of a commodity slump have always been wary that the provisions of the new MMDR Bill, if legislated into an act, will spell doom for the Indian mineral resource industry. If it was any indication, shares of mining firms fell sharply after the panel approved the draft mining Bill, indicating a negative sentiment that the proposed provision for profit-sharing would have a negative impact on the companies’ profits. While Coal India fell 8.2%, Jindal Steel and Power declined by 2.5%, Hindustan Zinc and Sesa Goa by 4.2% each, NMDC by 2.5%, SAIL by 3.7% and Tata Steel by 2%, soon after the GoM paved way for the Bill to be put before the Cabinet.
In an important development, the GoM which vetted the draft Bill, has also given its nod for authorising and incentivising state governments to take up “prospecting and exploration, so that adequately prospected ore bodies can be put on bid.” The new Mining bill will empower state governments to hand out leases, take up prospecting and exploration activities before mines and call for bids for commercial utilisation of mineral deposits such as coal and iron ore. If the proposals become law, companies would need to make an annual cash contribution of Rs.100,000 per hectare to the state government over the life of a mine. This amount would go as contribution for implementing the mine closure plan, key for environmental rehabilitation and in providing succour to workers and communities dependent on mining activity for sustenance. Additionally, the Bill also proposes to give the states a free hand to levy cess on both major and minor minerals by a sum not exceeding 10% of the amount of royalty paid by companies for a particular mineral. Several states including West Bengal were already levying cess and local taxes on minerals at differential rates. The Centre had initially challenged the West Bengal’s move to levy state-specific taxes on coal produced in the state, but a few years ago, a Supreme Court ruling had gone in favour of the state. The Centre therefore, does not share coal royalty proceeds with Bengal. It is pertinent to note here that although the royalty on minerals are levied and collected under the central law, the process of appropriation is actually carried out by the states. As per the GoM, the proposed central cess on minerals would be used for better administration of mining activities.
However, if industry analysts are to be believed, the implementation of the proposals of the MMDR Bill could erode profits of metal companies by 4-10% and the impact would be more on companies with more captive coal content. “The MMDR Bill is unfavourable to the metals and mining sector as miners will have to share 26% of their profits. If this happens, miners will lose around Rs.80 billion annually. In the short-to-medium term, the sector’s performance will become bleak due to the monsoons,” says SMC analyst Saurabh Jain. One more factor troubling the sector is the fear of an impending fall in Chinese zinc prices. “It is said that between June and August, smelters will sell stocks and cut output due to a lukewarm demand, which will reduce imports of concentrates,” adds Jain.
While most of the analysts contacted by B&E agreed on this, some also believed that it was too premature to forecast the exact impact on the companies. This line of thought is backed by the fact that there are many changes that are likely to happen after the draft Bill is presented before the Cabinet and Parliament. Also, given the discussions that are likely to be taken up while legislating this Bill, further delay cannot be ruled out.
However, there is a sentiment that in whatever form the Bill eventually becomes a law, the broad impact would eventually be negative for the companies. The passage of the new Bill has been delayed by close to two years now for want of consensus.
Miners, who are still unsure about the quantum of impact the new regulations would have, are scared, as their discussions suggest. They contest that the Indian mining industry is the most heavily taxed industry in the world consisting of various charges/levies under the old MMDR Act, Forest (Conservation) Act 1980, Environment (Protection) Act 1986, Labour Welfare Fund Act / Labour Welfare Cess, Income Tax Act 1961 (direct and indirect taxes) and other local tax as applicable. The present scenario suggests that there is an attempt in the draft MMDR Act, 2010, to make the levies heavier and make the sector appear unattractive to private investors, domestic or foreign. Agrees R.K.Sharma, Secretary General of the Federation of Indian Mineral Industries. “The proposals in the draft Bill will prevent much needed investments from flowing into the mining sector. Overseas companies will not be interested to invest in a highly-regulated and a highly-taxed sector,” he says. Also, the current government regulations permit 100% foreign direct investment (FDI) in most mining activities under the automatic route. However, the actual FDI flows (as per industry reports) have been a meagre $150-200 million. But this has not deterred the government from setting the ambitious target of increasing FDI in the sector to over $20 billion over the next few years. India has 85 billion tonne of mineral reserves, which are yet to be exploited. Encouraging FDI, many feel, can be important for the development of the Indian mining and minerals industry.
Mining and construction equipment industry volume is around 40,000 to 45,000 units per annum, amounting to a turnover of $2.6 billion to $3.1 billion, proving how the Indian industry is still at a nascent stage as compared to the $75 billion global market. Moreover, as per official estimates, out of the 5.75 lakh sq. km available in India with minerals, only 75,000 sq. km have been explored so far.
The government and the Mines ministry are today trying to send encouraging messages to the industry. While speaking to B&E, S.Vijay Kumar, Secretary, Department of Mines, said that mining in India was set to grow in a very different direction from the present times, where there is too much focus on iron ore and bauxite. “We really need to go deeper for rarer minerals. Focus will shift to base metals, non-ferrous metals and diamonds, uranium, nickel et al,” he said, while adding that the ministry also wants to try out the latest in technology with an equally high appetite for risk, while mooting for a scenario free of regulatory hurdles. “It’s my job to help the industry and we will do all we can. We have put in place a regulatory authority for a level playing field. There are time-frames for state governments to dispose applications. We have tried to make everything as efficient as possible, but the industry will have to pay,” he adds.
Battles fought between miners and the people displaced are responsible for the poor scenario of mining in India. While neither the existing government mechanism nor the mining industry has been able to provide any relief to the lives of those affected by earlier projects, there are questions that still remain. Will the new bill be able to resolve these battles? More importantly, looking at the long list of Bills that are set to hit the approaching Parliament session (including the Lokpal), will anything concrete surface?
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