Ministry mulls 5% project profits for local area development.
Power, cement and steel companies may have to spend part of their profit for local area development near their captive coal mines. The ministry of coal is considering a proposal to commit at least 5 per cent of profits from a project for local area development under guidelines being finalised for competitive bidding of captive coal blocks.
The proposal, if finalised, would add to the storm that has already been brewing as a result of a different, but similar, proposal by the government asking mining companies to share 26 per cent of their profits with the local populace and make them stakeholders in mining projects.
An inter-ministerial committee is currently finalising detailed guidelines to introduce competitive bidding for coal mines, which is expected to bring transparency to the allocation of captive blocks to private companies in the power, steel and cement sectors. A Bill to introduce the new regime by amending the Mines and Minerals (Development and Regulation) Act, 1957, was passed by Parliament last month.
The current proposal stems from the fear of various state governments that the new system of auctioning coal blocks would dilute their rights over the natural resource.
States had, therefore, demanded that the guidelines provide for a financial commitment from a winning bidder towards compensation to local people.
A few states suggested that the commitment should be not be less than 5 per cent of net profits. A decision would be taken after consultations with stakeholders. The Andhra Pradesh government had suggested to the Union coal minister during discussions on the Bill that 5 per cent of profits be earmarked for community welfare and social causes.
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AP is not alone in demanding a financial package from companies. Maharashtra and West Bengal have demanded the creation of a separate mineral development fund. “One option could be to ask for a specific contribution by a successful bidder to such a fund, to be used in the local area,” the Maharashtra government stated in its response to the Union government.
Industry is keeping its fingers crossed on the proposal. “We have to wait and see what form the government makes it happen. If it is part of corporate social responsibility, then it will obviously be voluntary. But if it is put in the bid document as a condition, then it will have to be debated,” Amit Mitra, secretary-general, FICCI, told Business Standard.
| RESOURCE CRUNCH # Proposal will be under guidelines for competitive bidding of captive coal blocks # Govt already suggests mining firms share 26% of profits with the local populace # State govts fear new auction regime will dilute their rights over natural resource # Maharashtra and West Bengal demand creation of a mineral development fund # Ficci says such riders must be discussed before being put in the bid document |
Expressing his opposition, a senior official from a large private sector power firm said, “When states already collect royalty on minerals, why are we being asked to pay? And if we have to pay, why shouldn’t state governments pay an equal amount, too?”
In a bid to compensate mineral-rich states, the Centre has already decided that the entire revenue from the competitive bidding process would go to state government coffers. In addition, the government is considering a 5 per cent price preference to bidders agreeing to set up the end-use project in the host state. Another important proposal -- to carry out separate bidding for each of the three sectors of power, steel and cement -- is also being discussed.