No easy balance on mineral royalty

The newly formed group on mineral royalty rates is in a difficult situation on the proposed benefit sharing formula for mining. An upward revision would invite protests from industry, which is to bear the burden of benefit sharing with affected locals, in addition to the existing royalty payments to state governments. While a downward revision would dilute the entire compensation regime.

Experts believe that with the impact of the new mining law to be taken into account, evolving a consensus on new rates would be a tight-rope walk. “We are sure the study group, when deciding on new rates, would take a balanced view by looking at the totality of the miners’ outgo on both these accounts. We hope the group would consider the miners’ burden from all the tax incidences and the increased freight rates. At the same time, the locals have to be compensated adequately,” said a senior government official.

A 17-member group, headed by the additional secretary in the mines ministry, Sanjay Srivastava, was formed last week. Its members will include the secretary-general of the Federation of Indian Mineral Industries, the director-general of the Confederation of Indian Industry, the secretary-general of industry chambers Ficci and Assocham, and the controller-general of the Indian Bureau of Mines.

Mining companies pay royalties to state governments where projects are located as a compensation for the local damage, social and environmental, from their activity. These royalties have, however, not helped in curbing unrest among locals affected by mining projects and have traditionally only enriched state government coffers. The new mining Bill provides for benefit sharing.

The official said the basic principle behind asking miners to share with locals a royalty amount that is equal to the royalty paid to the state government is to put local population on an equal footing as the state government. “The message is that locals are as much entitled to benefits as the state government,” he said.

Experts believe it is possible that the government opts for a minimal or no hike in royalty rates, on the reasoning that the mining company is already burdened with benefit sharing. “The miners’ capital investments should not get hurt. The mining sector is in need of stimulus for a long time. Investments are required even for community development. But at the same time, the study group should ensure recommending rates which allow responsible mining, keeping in view the interests of the locals,” said Kalpana Jain, senior director, Deloitte Touche Tohmatsu.

A 10-member group of ministers headed by finance minister Pranab Mukherjee had, in July, recommended mandatory sharing of 26 per cent of their profits by coal mining companies. For companies in the non-coal sector, it recommended sharing an amount equal to the royalty paid in the previous financial year.

Royalty rates are revised every three years in India.

A study group, with members from the state governments, the industry and various central ministries, is constituted for making these recommendations. The rates were earlier revised in August 2009 and another is due next year. The study group, to give its report in six months, will also have the mining secretaries of Jharkhand, Karnataka, Orissa, Chhatisgarh and Rajasthan as members, apart from representatives of the ministries of finance, coal, steel and the department of atomic energy.