The government is set to make it mandatory for coal mining companies to earmark an amount equivalent to the royalty they pay to the states for the well-being of people affected by their projects. Apart from public sector Coal India (CIL), the largest coal miner in the country, steel, power and cement companies with captive coal mines will also come under the rule. The move could further erode the profitability of these companies.
According to a Cabinet decision taken in October last year, coal mining companies were supposed to share 26% of their profits for the support of project-affected locals, instead of an amount equivalent to their total royalty payout as is the case with companies mining other minerals. It has now been decided to ask coal miners also to earmark an amount equal to the royalty paid for the rehabilitation of locals, because mining-related profits were difficult to be separated from other activities in case of companies with captive mines.
The proposal is also a part of the new Mines and Minerals (Development and Regulation) Bill, 2011, which was introduced in Parliament and is currently being vetted by a standing committee. For non-coal minerals, companies are required to keep aside an amount equivalent to the royalty they pay to the government for the well-being of the locals.
?The coal ministry has requested the standing committee for computing the amount payable to project-affected persons through District Mineral Development Fund on royalty basis,? said a mines ministry official, requesting anonymity.
?The committee is in favour of the change and once their report comes, we would make the necessary changes in the draft Bill,? the official added.
Once implemented, the changes would adversely impact CIL, which paid a total royalty of close to Rs 5,300 crore to states in 2011-12. The changed provisions would mean that an amount equivalent to this would have to be set aside annually by CIL for the benefit of project-affected people. This is much more than the Rs 3,845 crore that CIL would have paid (on a profit of Rs 14,788 in 2011-12) under the 26% profit-sharing formula.
?The royalty-based formula for calculating benefits accruing to project-affected persons is more transparent. Moreover, profit calculation would have become difficult in case of companies with captive coal mines as their mining operations are not standalone entities but part of their core business in steel, power and cement sectors,? said a coal ministry official.
Interestingly, the coal ministry had earlier supported a 26% profit-sharing by coal companies when provisions of the MMDR Bill were being discussed by a group of ministers (GoM). But it changed its stand after several representations from companies with captive coal mines. These companies expressed difficulties in converting their coal mining operations as separate business entities to calculate profit before 26% of it could be calculated for sharing with the project-affected people.
The Bill also has a provision for Mineral Development Fund that would be created in every district, in which profit and royalty shared by miners will be deposited and spent on the locals and for the area’s development.
Once the Bill becomes law, all mining companies will feel the pinch ? CIL, SAIL, Tata Steel, JSW, Sesa Goa, NMDC, Essar Steel, Hindustan Zinc, Hindustan Copper, Essel mining to name a few.
