The Mines & Minerals Development and Regulation (MMDR) Bill was cleared by a group of ministers headed by finance minister Pranab Mukherjee last week. The Bill seeks to make it mandatory for coal mining firms to share 26% of mining profits with the local population. As for other minerals, the local people will have to be paid an amount equal to the royalty paid in the previous year to the respective state government. The GoM-approved Bill, designed to replace an over a half a century old law (MMDR Act, 1957), will now go to the Cabinet for its nod for introduction of the epochal draft legislation in Parliament. Mines secretary S Vijay Kumar spoke to Himani Kaushik over the weekend on the GoM decision on the new draft Mining Bill, which seeks to ensure that not just the nation, but the owners of land-bearing minerals directly benefit from its economic value. Excerpts:
Could you define the word ?profit? for the coal mining companies in this profit-sharing mechanism?
Profit in this context will be profit from mining operations only, as per the standard accounting procedures and nomenclatures.
The GoM has provided certainty to the non-coal mining companies through the royalty clause, but for coal miners, a 26% profit sharing is seen as steep and the industry fears that this will impact the downstream users as the cost will be passed on to the consumers. What is your assessment of the situation?
I cannot confirm your assertion that for coal it is 26% since the matter has to go to the Cabinet. But for the sake of argument, I can say that the coal ministry calculated that 26% is less than the royalty paid for coal. This is because the coal prices are administered prices. There is a separate push to rationalise coal prices. I think there is a Planning Commission suggestion in this regard.
So there is a move to push the increased price onto consumer anyway. The revenue sharing may be a trigger for this.
Will the profit be calculated after tax, or before? Again, would you clarify on the tax treatment of this profit sharing.
I think the phrase being bandied about was ?an amount equal to 26 % of PAT of the previous year?. So, the tax treatment is clear. It?s an expense which can be budgeted. But this is not to say I am confirming the precise formulation, since the matter has to go to the Cabinet.
How will this formula work for coal mining firms which are not making any profit. For example, there are some mines of Coal India which are not making any profit. In such a scenario, how will the local population be compensated? In a broader context, how will this profit sharing mechanism work in times when firms are suffering losses?
I cannot reply to such hypothetical situations. Which company are you referring to? Isn?t it also related to administered prices?
Earlier, in an interview to us, you had talked about differential treatment to different minerals based on their profitability and consumption cycle. How does this new draft address the needs of different minerals requiring different treatment?
If, as you say, the amount is equal to royalty for metallic minerals, that already has the inbuilt mechanism to take care of the economics of different minerals.
How will be the profit sharing formula applicable in case of a company with divergent businesses and in case of a company with many subsidiaries?
In your hypothetical example, it would be in respect to coal operations? I suppose the administered price would be a basis for calculating the profit at the mine level. These can be detailed out in sub-legislation.
You have been an advocate of promoting exploration activity in the mining sector for which you have been asking for first come first serve basis licence to ensure exploration activity in case of unknown mineral deposits. How has this issue been tackled in the new draft and how will the bidding process be structured for all the mining licences of different stages?
The basis of this is that if an area is known for mineralisation, a bidding process can be structured based on the quality of the data. But if we are starting at the stage of reconnaissance, or the economics do not particularly favour making the effort to go for bidding, then first-in-time is the default option. So, for the Reconnaissance Licence and the High Technology Exploration Licence, both of which target unknown areas, the Chawla Committee has actually said that first-in-time is the right methodology.
How has the new draft accommodated the recommendations of the Ashok Chawla panel, especially on the profit sharing and bidding process?
The Chawla Committee has favoured the flowback of funds for local area development and bidding in areas of known mineralisation … so, I guess, we are in sync.