Govt addresses concerns on profit sharing in draft mining Bill

Days before the controversial new mining legislation is introduced in Parliament for approval, Mines Minister B K Handique has assured Indian industry that concerns over profit sharing by miners with tribals have been addressed by the government.

While replying to a question asked in the lower house of Parliament today, the minister listed at least three issues raised by the domestic industry over the controversial proposal of a mandatory 26 per cent profit sharing with the local populace in the Mines and Minerals (Development and Regulation) Bill, 2010.

The issues included considering profits earned only from mining operations for compensation and not those earned from downstream activities, administrative difficulties and disparities that might arise due to distribution of profits. “The government has considered these concerns and suitably modified the provisions in the draft Act,” Handique said.

The original draft of the mining Bill had proposed 26 per cent profit sharing by miners in case of individual lease holders and grant of 26 per cent free equity in case of mining companies, thereby granting ownership to locals in mining projects. However, a 10-member Group of Ministers (GoM) headed by Finance Minister Pranab Mukherjee, after discussions spanning over the past six months, has finally decided in favour of the 26 per cent profit-sharing clause.

“The holder of a mining lease shall pay annually to the District Mineral Foundation an amount equal to 26 per cent of the profit (after deduction of the tax paid) of the previous year from mining-related operations or a sum equivalent to the royalty paid during the previous financial year, whichever is more,” the finally revised draft of the Bill states.

Primary reasons for the need to put in place a profit-sharing regime in the mining sector are stiff resistance from locals and the prevalence of Naxalism in the mining belt. Companies like Posco, Vedanta and ArcelorMittal have been facing protests against land acquisition in mineral-rich states like Jharkhand, Chhattisgarh and Orissa.

While private sector mining companies are opposing the 26 per cent profit-sharing provision, at least two state-owned public sector undertakings (PSUs) which are likely to announce their public offers shortly — Hindustan Copper Ltd (HCL) and MOIL Ltd — have listed the Bill as one of the internal risk factors mentioned in their draft offer documents filed with the Securities and Exchange Board of India.

“The MMDR Bill, 2010, has been proposed, which will amend the MMDR Act of 1957. If approved in its current form, the Bill may have a material impact on our business and financial conditions and future acquisition of mines,” HCL has said in its draft red herring prospectus (DRHP). MOIL’s DRHP, too, states, “The MMDR Bill 2010 has been proposed to replace the MMDR Act, 1957, which may adversely affect our results of operations and financial position.”

Tatas, which run the private sector giant Tata Steel, had recently stated that the government should not charge the profit shared as separate tax, as social obligation forms a part of the operating cost of the company. In a recent letter to the finance minister, Federation of Indian Chamber of Commerce and Industry Secretary General Amit Mitra, too, cautioned against mining projects becoming unviable in case the proposal was implemented, as it would put “very heavy financial burden on mining companies”.

After it is introduced in the winter session of Parliament, the Bill is likely to go to the standing committee for further deliberations.