Mines GoM to consider royalty for profit sharing

The latest proposal by Mines Minister Dinsha Patel to replace the provision for 26 per cent profit sharing by miners in the new mining Bill with provision for 26 per cent of royalty, if implemented, would reduce the overall impact of the benefit sharing regime under the new law to Rs 2,600 crore annually. Under the profit sharing model, the outgo would have come to Rs 9,000 crore.

Overall royalty collection in India stood at Rs 10,000 crore in the last financial year, including coal and excluding minor minerals. The amount earmarked for benefit sharing would be over and above the royalty payment.

A final call over the contentious issue of benefit sharing is expected to be taken by a 10-member Group of Ministers (GoM), headed by Finance Minister Pranab Mukherjee in its fourth meeting on Thursday.

The minister’s view, a complete departure from the view of his predecessor B K Handique, is a fresh twist to the already controversy-ridden attempts by the government to evolve a consensus over the Mines and Minerals Development and Regulation (MMDR) Bill, 2010.

Interestingly, Patel’s view is in absolute sync with the demand of the domestic mining industry. In a presentation to the mines ministry on April 23, mining industry body Federation of Indian Mining Industries (FIMI) had said, “FIMI suggests the holder of a mining lease should be liable to allocate a sum not exceeding 26 per cent of royalty in respect of any mineral raised and transfer the same to an institution constituted by the state government and designated as the District Mineral Development Trust.”

The new Act proposes to set up district-level bodies called District Mineral Foundation (DMF) and non-profit corporate bodies to oversee disbursal of compensation to local families affected by mining projects. Patel’s proposal is bound to cheer the mining companies' profit base that has risen sharply on the back of a spurt in mineral prices in recent years.

Iron ore prices, for instance, have risen from Rs 2,500 per tonne to Rs 8,000 per tonne. While a miner’s profit in this cost could be over Rs 4,000 per tonne, his royalty payment is as low as Rs 300 per tonne at the current royalty rate of 10 per cent of sale price at pit mouth on ad valorem basis.

Patel has also flagged the difficulty over calculating profits in case of steel companies with captive mines. The issue is, however, expected to leave the ministerial panel divided. In the last meeting of the GoM in December, Planning Commission Deputy Chairman Montek Singh Ahluwalia and Steel Minister Beni Prasad Verma had opposed the 26 per cent profit sharing proposal while most of the other members, including Environment Minister Jairam Ramesh and Home Minister P Chidambaram, had supported it.

Apart from profit sharing by miners, the other issue of reservation for Public Sector Undertakings (PSUs) in allocation of mines is likely to come up for discussion in the GoM’s meeting.