GoM meet on July 7 to decide on sharing of mining profits

The 10-member GoM on MMDR Bill set up last June has so far met thrice,in which it has agreed on broad ground rules for extending mineral concessions. Although the GoM has secured consensus of its member-ministers on a host of mining issues,it is yet to firm up its mind on the mechanism of sharing mining profits. The Mines Ministry expects that a 26 per cent share in net profits of companies will rake in Rs 18,000 crore annually.

The issue is a complex one. In a December 4 letter to Mukherjee,the Planning Commission Deputy Chairman said,“If we end up with too high a cumulative royalty burden compared with international standards,it will 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.”

Ahluwalia feared if the proposal was implemented after Parliament approved the Bill,then “there would be no Plan discipline on the use of these resources and the funds would be invested without reference to any development plan for the region”. “More importantly,there is no guarantee that this expenditure will be additional since states can divert resources they would have spent on the district to other areas,” he pointed out.

The industry too is completely opposed to this proposal and has been lobbying hard with the government for its dilution. In separate presentations to the Finance Minister,leading chambers CII and FICCI argued that upfront compensation to affected persons was the international norm and profit sharing or giving 26 per cent equity would make the mining business unviable. It is understood that the coal ministry also has opposed the said formula arguing that if this was implemented then its behemoth Coal India Limited’s revenue outgo could be to the tune of about Rs 5,000 crore.

There is a growing feeling within the Centre that possibly the 26 per cent profit sharing mechanism may not be practical as there was no foolproof methodology to ascertain the profits. “One way of ensuring sharing of profits is to link it to the royalty of iron ore or any mineral extracted on a per tonne basis. If this is done,then one can broadly fix some accountability,” a government official noted.

Leading PSUs such as SAIL,which have backward integration,could also be hit. However,the Ashok Chawla Committee on allocation of natural resources is understood to have endorsed the mines ministry’s proposal on setting up district mineral foundations to utilise the proceeds from the profit-sharing formula for improving the conditions of those living in the mining zones.