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  • AUGUST 2, 2011

The new proposed mining bill - Impact on Indian Metal Sector

The Group of ministers (GOM) headed by the Finance Minister has approved the draft Mines and Mineral (Development & Regulation) bill. The Bill seeks to speed up the grant of mineral concessions in a transparent manner and attract big-ticket investment in the sector. The new bill also aims to curb illegal mining. The new approved draft makes a distinction between companies mining coal and other minerals. The bill is expected to be introduced in the monsoon session of parliament.

What the bill says

  1. It will be mandatory for companies to share profits with the people affected by various projects.
  2. Coal miners to share 26 % of their profit after tax with project-affected people.
  3. For non-coal mining companies, the bill proposes an amount equal to 100% of the royalty to be shared with locals.
  4. In case a mine is non-functional or making losses, the firm should compensate the people whose land was acquired by paying them an amount equal to the royalty given to state governments.
  5. The Bill also proposes to allocate mining blocks on an auction basis and rationalize royalty rates.

Impact on the Metal Sector

The bill is likely to have a negative impact on the metal sector.  Coal and iron ore are two main raw materials used for making steel.  The new bill would increase the price of coal and iron ore, thus increasing the cost of production for steel making companies. This would lead to lower profits. Steel producers with captive mines like SAIL and Tata Steel will be most affected compared to others. Hindustan Zinc would be most severely affected because of its exposure to zinc, lead and silver where royalty rates are on a higher side.

Clarification needed

The proposed bill still leaves some questions unanswered. It remains silent on whether expenses which company's incur on corporate social responsibilities (CSR) activities will be allowed as deductions. Also, there is no specific mention about the captive coal blocks and the methodology to calculate the profits.

Conclusion

The bill has come under severe criticism from industry members as well from steel ministry. Although the passage of the bill will take some more time, it could lead to lower profits for all the companies in the metal sector once implemented. The government is going to meet with industry representatives to hear their view. Hope industries'concerns are taken into account before passing the bill.

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