Profit share bill pinches mine, metal stocks hard

BSE metal index falls to 14,963.75; user industry remains a worried lot.

Metal and mining companies were hammered in the stock markets on Friday, a day after a Group of Ministers (GoM) approved a benefit-sharing regime for those affected by mining projects.

The Coal India (CIL) stock was the worst hit. It fell more than 8 per cent to Rs 362. NMDC, India's largest iron ore miner, fell 2.55 per cent to Rs 258.15. Sesa Goa, part of the Vedanta Group and the country's leading private sector iron ore miner, fell 4.17 per cent to Rs 12.25.

The draft of the Mines and Minerals Development & Regulation (MMDR) Bill, 2010, says coal companies should pay 26 per cent net profit to those affected by their projects. Other mining companies should pay 100 per cent of the royalty paid in the previous year, it says. This will cover captive users as well. The outgo in case of profit-sharing would be Rs 9,000 crore a year.

The Bombay Stock Exchange metal index fell 2.99 per cent to 14,963.75. Steel Authority of India (SAIL) led the fall in the steel space. It was down 3.66 per cent. JSW Steel fell 3.09 per cent to Rs 882.25. Tata Steel, which gets its entire ore from captive mines, fell Rs 11.95, or 1.97 per cent, to Rs 594.45.

Like the markets, firms too were in a state of shock. CIL, which produces 80 per cent of the country’s coal output would be most affected by the move. Accepting that the rule might have an impact on the company, a top company official said, “We have not received any official confirmation on this. The bill seems too much complicated to be implemented. There is no clarity on what to share and with whom we should share. On top of that, for all the projects, land was already acquired and enough compensation were already given.” He added that, "If at all, any profit is made by Coal India, it is going to the nation only and therefore a clarity is needed on why it should go to individual who have already benefitted."

In the financial year ended March 2011, CIL’s net profit was Rs 10,867 crore. Going by this, it may have to pay more than Rs 2,800 crore to the affected people. At present, CIL is sharing Rs 5 per tonne of coal produced or five per cent of the the retained profit — whichever is higher — with the locals as part of its corporate social responsibility initiative.

Singareni Collieries Company (SCCL) responded strongly to the move. “At present, we are sharing 16 per cent net profit with employees, while 33 per cent is given as corporate tax. With the addition of another 26 per cent, 75 per cent of our profit will be gone. Though this may not be difficult for the government companies, the private companies will be hit badly,” said S Vivekanand, director (finance), SCCL. He said the government should also consider employees and traders in mining areas as project-affected

Non-coal companies said they were better off. “Paying an amount equal to royalty is better than sharing net profit. But in bad times, the move will hurt the company's bottom line,” said NMDC Chairman and Managing Director Rana Som

The industry believes the move will be counter-productive as far as taming inflation is concerned. “The cost of coal will increase. There is also an apprehension that with export duty and freight charges, export of non-coal products may become unviable,” said Federation of Indian Mineral Industries Secretary General R K Sharma.

Representatives from user industries said the move would affect funding. “All companies will be affected and we will also be affected.We will start mining from our captive blocks in two years. It could affect our future investments,” said Bhushan Steel MD Neeraj Singal.