Faced with strident opposition from the Planning Commission and mining giants, a group of ministers (GoM) headed by finance minister Pranab Mukherjee is mulling a significant dilution of the contentious proposal for mandatory sharing of mining profits with the local people. Instead of imposing a flat rate as a fraction of the profits to be shared for all minerals, the relevant law would allow flexibilities in keeping with the economics of each mineral.
The Mines and Minerals (Development & Regulation) Bill that is being discussed by the GoM stipulates that mining companies will have to share 26% of their net profit or an amount equivalent to the royalty paid by them to the respective states, whichever is higher, with the local people displaced or affected by the mining activity. Planning Commission deputy chairman Montek Singh Ahluwalia had said this proposal would amount to a very high cumulative royalty burden on the companies and would discourage investments.
A senior government official told FE: ?It has been discussed (by the GoM) that the 26% profit-sharing norm will be looked at from the viewpoint of the economics of each mineral. If for some mineral 26% is too high, then (the proposed law) will enable it to be changed and bring it within reasonable limits.? He added that for minerals like iron ore, where the profit levels are high and risk capital is low, the figure of 26% might be appropriate but in regard to certain other minerals like copper, a more lenient view may have to be taken.
In a recent letter to Mukherjee, Ahluwalia said, ?If we end up with too high a cumulative royalty burden compared with international standards, this will only discourage future investments in the mining sector. We cannot assume that the additional burden can simply be passed on to the consumer, since these minerals are freely importable and users will switch to imports.?
In fact, the Plan panel is of the view that companies should only share 26% of the royalty with local people, instead of the same fraction of net profits.
In broader terms, government can reduce the profit-sharing ratio for rare metals like gold, while keeping it at 26% for widely-used minerals like iron ore and bauxite. The proposed legislation is aimed at bringing more investment from private players into the mining sector.
It is awaiting the vetting by the 10-member GoM before it can be tabled in Parliament. The Bill was earlier supposed to be introduced in the budget session that ended on Friday. Now, it is expected to be tabled in the upcoming monsoon session.