The Union coal ministry has demanded changes in a controversial provision in the new mining legislation which asks companies to share, with local residents affected or displaced by a project, an amount equal to the royalty paid if higher than 26 per cent of their profits.
The ministry is worried about this having an adverse impact on the profitability of coal companies, particularly government-owned Coal India, the bulk producer.
Section 43 of the draft Mines and Minerals (Development and Regulation) Bill states: “The holder of a mining lease shall pay annually to the District Mineral Foundation an amount equal to 26 per cent of the profit (after deduction of the tax paid) of the previous year from mining related operations or a sum equivalent to the royalty paid during the previous financial year, whichever is more.”
The coal ministry has written to the ministry of mines against this. “We have said in the letter that in the current form, the provisions in the Bill will hit us. Coal India’s outgo after paying the 26 per cent of profit would amount to around Rs 2,500 crore. But we pay royalty to the tune of Rs 7,000 crore annually. So if this condition is put in the Bill, we will always end up paying more than twice the due amount,” said a senior official from the coal ministry.
Adding: “We pay a significantly high amount of royalty, as we are the monopoly producer. The provision will impact our other companies also, many of which have just come out of the Board for Industrial and Financial Reconstruction’s clutches and have started making small profits. They will again (become) loss-making.”
The mines ministry’s says it has put in the clause to avoid cases where companies would intentionally show no profit to evade the compensation outgo. The coal ministry argues that Coal India “does not hide its profit or cook-up its balance sheet”.
Coal India alone accounts for 80 per cent of India’s annual production of 530 million tonnes. It produced 431 mt in 2009-10, registering a net profit of Rs 9,622 crore on gross turnover of Rs 52,187 crore.
A 10-member Group of Ministers (GoM) headed by Finance Minister Pranab Mukherjee is currently finalising the MMDR Bill, which is to provide for profit sharing by mining companies for land losers in mining projects. The GoM has met thrice since last July and the finally approved version is currently under legal vetting before going to the Cabinet.
Apart from Mukherjee, the GoM has the ministers for home, steel, law, mines, commerce, tribal affairs, coal, environment and the Deputy Chairman of the Planning Commission.
