Sesa Goa, part of Anil Agarwal’s London-based Vedanta group, faces a Rs 250-crore one-time hit on its books due to the recent enactment of a backdated levy in Goa, where most of its mining facilities are.
Approved by the state governor last week, it enforces a stamp duty on all mining companies, with effect from November 2007. The rate is 15 per cent of the total royalty paid by these entities for renewing their mining leases. The royalty rate levied on iron ore works out to 10 per cent of the average sales price as determined by the Indian Bureau of Mines (IBM) every month for every state.
For instance, IBM had fixed the average sales price of iron ore with 55-58 per cent of ferrous content in Goa at Rs 3,125 a tonne for April. Companies in Goa would, therefore, have to pay royalty at Rs 312.5 a tonne. With the new stamp duty of 15 per cent on this, miners would have to pay Rs 47 for every tonne of mineral mined in the state.
It appears a mining lease holder seeking a renewal for a 20-year period for a production capacity of 200,000 tonnes per annum would be required to pay Rs 18.75 crore towards stamp duty charges.
Sesa Goa has consistently been producing over 10 million tonnes of iron ore annually from its Goa facilities for the past five years. Output in 2011-12 was 12.7 mt, as against 14.4 mt in the previous year.
“We are a cash rich company and, hence, a one-time hit of Rs 250 crore due to the enactment would not make much of a difference for us,” said a company official.
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The Goan government had granted 337 mining leases to various parties and these expired in November 2007. Prior to the expiry date, the lessees applied for renewal or extension for a further 20 years. For various reasons, the government of Goa was not in a position to implement the renewal or extension of lease deeds, though the leases were to continue. This was the rationale for the new enactment.
“It would be difficult for small miners to pay such a large amount upfront for the purpose of producing minerals over the next 20 years. Of the total mining lessees, over 40 per cent comprised those producing less than 200,000 tonnes per annum of ore. All of them would go bankrupt,” said Haresh Melwani, chief executive of H L Nathurmal & Co, a Goa-based small miner.
The state produces around 90 mt of iron ore in a year, mainly of a lower grade of 55-58 per cent of ferrous content, largely exported to China. The stamp duty is expected to get revenue of Rs 2,500 crore for the government in this financial year.
“The stamp duty amount will be Rs 40-50 a tonne of iron ore resource in the lease area, though the upfront amount to be paid will be Rs 1,000-1,500 a tonne of annual mining capacity, which is very high and will increase the total cost of production. In the current mining cost and price scenario (for iron ore), while miners have enough head room to absorb this extra cost, this may still result in higher prices for ore from the region,” said Pukhraj Sethiya, manager, PricewaterhouseCoopers.
S Shridhar, president of the Goa Mineral Ore Exporters’ Association, said, “We are yet to assess the impact of the stamp duty Act on miners.”