The sweeping reforms in the proposed amendments to the Mines and Minerals (Development and Regulation) Act of 1957, including allotment of equity in companies, is under a cloud, as miners are against the move.
The 350-member Federation of Indian Mineral Industries (FIMI) will take up the issue at its forthcoming meeting and will come up with a set of alternative proposals. Companies, on their own, are also working on their recommendations.
The MMDR amendment draft has proposed: Free shares equal to 26 per cent be given through the promoter’s quota (in case the holder of lease is a company), or, annuity equal to 26 per cent of the profit, after tax, (in case the holder of lease is a person), to be given to persons having traditional rights over the land on which the lease has been granted. This is over and above the cash compensation and employment.
“We are dead against this 26 per cent clause. There is bound to be shareholder resistance. Moreover, they are tribals and do not understand the concept of equity. They need to be rehabilitated,” said FIMI Secretary General R K Sharma.
FIMI also felt the 26 per cent appeared to be a move to block special resolutions. According to the Companies Act, 1956, special resolutions can be blocked by the holder of 26 per cent or more equity shares.
“Typically, we spend about 5 per cent of our net profit towards corporate social responsibility (CSR) vis-à-vis the government directive of 2 per cent, 26 per cent in the form of equity is way too much,” said a state-owned miner.
Even companies at the forefront of CSR activities are skeptical about the clause. Asked whether Tata Steel was okay with the concept, a spokesperson said,“We appreciate the concept of taking care of the rural and tribal folk, details and modalities are still being discussed and our recommendation will be put before the ministry.”
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The Sajjan Jindal-controlled company made headlines following the implementation of his model where land losers were made stakeholders in the projects. The company would be offering free shares equal to the compensation to land losers in Bengal, apart from employment opportunities.
“Sharing the value of the company is a good concept. We are doing it ourselves, but in the context of the proposed amendment, it has to be seen how the profits can be shared,” said Seshagiri Rao, joint managing director and group chief financial officer, JSW Steel.
The resistance is palpable. But if the Indian government does decide to implement the 26 per cent clause, it will certainly not be the first country to do so.
The Black Economic Empowerment policy of South Africa is a sector-wide generic scorecard which measures empowerment in four areas, including ownership and 26 per cent control of enterprises and assets.
This might just help to keep in mind that the Communist Party of India (Maoist) movement is coincidentally concentrated in areas that have overlays of mineral reserves, and high concentration of tribals. From Dandakaranya in Chhattisgarh to Jharkhand and Orissa, the backbone of the mineral industry is in the Red Corridor.