Mining GoM to go ahead with 26% profit sharing with land losers

The Group of Ministers (GoM) headed by finance minister Pranab Mukherjee on the draft mining Bill is set to approve the proposed 26 per cent profit sharing regime for the sector, shooting down industry’s demands for diluting the proposal. It is expected to have one final meeting.

The GoM’s recommendation would provide for profit sharing as annual compensation for land losers in mining projects. “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 draft Mines and Minerals (Development and Regulation) Bill, 2010, says after the GoM discussions.

Confirming the recommendation, Coal Minister Sri Prakash Jaiswal today said it would be the responsibility of state governments and district collectors to ensure payment of the 26 per cent of profit or additional royalty, whichever is higher, to those displaced.

The finalised text also takes care of the apprehension that a miner could deprive locals of the compensation by not declaring profits. “In case the company has not commenced production or discontinues production in a particular year, the company shall pay such amount, as may be prescribed, into the District Mineral Foundation,” it states.

The draft Bill has also made it mandatory for mining companies to “allot at least one share at par for consideration other than cash to each person of a family affected by mining operations of the company”. It also says mining companies will be liable to provide jobs and “other assistance” to persons having traditional rights over the land. Even after the termination of the mining lease, the companies will have to pay compensation to the affected families, in line with the ‘damage’ assessed by the state government concerned.

If the companies fail to so pay, their security deposit will be forfeited and the state government may declare them ineligible for mineral concessions, the draft states. “The amount (of compensation) shall be such as to ensure that the amount on an average daily basis for each member of the family shall not be less than the daily amount that a person shall be entitled under the Mahatma Gandhi National Rural Employment Guarantee Act, 2005.”

After its introduction in the winter session of the Parliament, the Bill is likely to go to a standing committee for further deliberations.

Private sector mining companies are opposing the 26 per cent profit sharing provision. In a recent letter to Mukherjee, the secretary general of the Federation of Indian Chambers of Commerce and Industry, Amit Mitra, said mining projects may become unviable, for the proposal would put “very heavy financial burden on mining companies”. The Tata Group had recently stated the government should not charge the profit shared as a separate tax, as social obligation forms a part of the operating cost of the company.

The new mining legislation also has provisions for setting up a central regulator for the sector, to check the rampant illegal mining practices.