The Union government may make it mandatory for coal mining companies to spend a part of their net profit on the welfare of local people affected by the activities.
The move, a part of the competitive bidding guidelines being framed by the coal ministry, is in line with the ongoing wave of policy decisions aimed at integrating land losers in development projects within the broader “inclusive” economic agenda.
If it goes through, the move would add to the controversy brewing on the similar proposal to ask mining companies to share 26 per cent of their profits with the local populace and make them stakeholders in projects. “The policy on competitive bidding is getting framed. It is possible that we make spending on corporate social responsibility (CSR) by companies mandatory in the bidding policy,” coal minister Sriprakash Jaiswal told Business Standard. He did not elaborate on what percentage of profits would be shared.
Currently, CSR practices are dictated by guidelines notified by the ministry of corporate affairs in December 2009. These are, however, voluntary. Under these, business entities formulate their own CSR policy, approved by the company’s board. The guidelines state that companies “should” allocate specific amounts in their budgets for CSR activities. “This amount may be related to profits after tax, cost of planned CSR activities or any other suitable parameter,” the guidelines state.
The corporate affairs ministry is also reportedly planning to make the mandatory CSR a part of the amendments to the Companies Bill, 1956. The Bill is likely to be placed in the monsoon session of Parliament.
Coal India Ltd, the state-owned near-monopoly under the coal ministry and the largest producer of the dry fuel in the world, already spends around five per cent of its retained profits on CSR activities, Jaiswal claimed. The Bombay Stock Exchange-listed company registered a net profit of Rs 9,622 crore on a gross turnover of Rs 52,187 crore in 2009-10.
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Industry opposed
The current proposal by the coal ministry of asking miners for a firm financial commitment would cover major companies in the power, steel and cement sectors under its ambit. “If this proposal is implemented, no company will come for mining. This will make investments in the mining sector unattractive. Already, projects in the non-coal sector are unviable. With this proposal, projects in the coal sector, too, would be impacted,” said R K Sharma, secretary general, Federation of Indian Mineral Industries (Fimi). He said the worst sufferers would be consumers, as the impact of increased spending would be passed on to them.
A senior official from a large private sector power firm also expressed his discontent. “If the states are already collecting royalty on minerals, why are we being asked to pay? Even if the proposal does not impact our profits, it will definitely jack up costs and consumers will not be willing to pay,” he said.
The demand of obtaining a firm “financial package” from companies for CSR was mooted for the first time by several state governments during discussions with Jaiswal on the Mines and Minerals (Development and Regulation) Amendment Bill 2010. The Bill was passed by Parliament last year, paving the way for the auctioning regime for allocation of coal blocks. States fear that auctioning would dilute their rights over the natural resource.
Some like Andhra Pradesh suggested to Jaiswal that a commitment of not less than five per cent of net profits be earmarked for community welfare. Maharashtra and West Bengal demanded creation of a separate Mineral Development Fund for “specific contributions by a successful bidder”.