The industry believes that the regulations will be a severe setback, and promoters will not accept the terms
The recommendations of a Group of Ministers asking mining companies to either share 26 per cent equity or profits (after tax) with the locals and tribals, has sent ripples through boardrooms.
The equity sharing proviso, which had already been opposed fiercely by the industry, especially chamber Ficci, had prompted the Centre to consider scrapping it.
Now, land rights groups are asking how the recommendations could possibly be rolled out and the industry believes that the regulations will be a severe setback.
“It will break the back of the mining industry. Neither 26 per cent profit after tax nor 26 per cent equity is acceptable,” said Siddharth Rungta, chairman, FICCI Steel Committee.
Rungta said an additional 10 to 15 per cent royalty on every tonne of mineral should be levied and that money should be used for local development through a committee or a Special Purpose Vehicle (SPV) with representations from all sides.
Ashok Kajaria, president PHD Chamber has another solution: Deduct all expenses incurred with regard to mining and developing mines, including royalty and lease payment to authorities, while calculating profit. But as an afterthought he agrees with Rungta, “The easy way would be to go for an increase in royalty credits.”
Secretary general of Federation of Indian Minerals Industry (FIMI), R K Sharma explained why he is opposed to the proposal. “The suggestion for a 26 per cent equity from the promoter’s quota is not possible because it would be difficult for the promoter to earmark the 26 per cent.”
“After giving away 26 per cent shares, what will remain to ensure a majority shareholding of the promoter? Just 25 per cent. The 26 per cent will over-ride the promoter and these shareholders could take decisions that are not necessarily in the company’s interest. No promoter will ever accept this,” said Sharma.
FIMI is concerned about the sinister side of the move. According to the Companies Act, 1956, special resolutions can be blocked by the owner of 26 per cent or more equity shares.
“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 of India Inc to the proposal is palpable.
By contrast, the civil society is cheering the fact that for the first time, rights of the land owners over mineral resources are being spelt out. But NGOs feel unlettered tribals might be short-changed again because of their unfamiliarity with board-room rules.
Chandra Bhooshan of the Centre for Science and Environment said it is a great beginning but feels that stock options are not desirable as these would not guarantee annual returns to land losers.
“In Indian, dividends mean little. Hence there should be a formula which ensures that land-losers get steady returns every year, whatever the market trend of the mineral. It could be 26 per cent of profits of the mining company or a part, say 10 per cent, of the turnover,” he said.
Bhooshan compares it to an existing practice by the government of Alaska where annual payouts are made to households from revenues earned from oil exploration.
This is, however, quite different from what the Act proposes to do. South Africa has put on its statute books a 26 per cent black ownership target for mining companies.
This was done six years ago as part of a charter that required companies to sell 15 per cent of their assets to black investors by the end of 2009 and 26 per cent by 2014. At the end of 2014, black investors will be given full shareholder rights in all transactions, with deals taking place within agreed timeframes and incorporating the “prevailing market conditions”.
Mining companies must ensure that at least 40 per cent of their board, executive committee, middle and junior management levels are occupied by previously disadvantaged people by 2014. In addition, firms will be required to increase their spending on training to 5 per cent of their annual payroll, representing a sizeable rise from the previous target of 3 per cent.
However, Indian analysts said that is not the ideal model because afflauent blacks have done better out of the law than the poor blacks who were the original owners of the land on which mining was done.
Sridhar of Mines, Minerals and People, which was consulted by the government on the MMDR, said, “Whatever the benefit sharing formula, there must be some element that would help individual land-losers gain from the land leased for mining.”However he is upbeat about the proposals. “Why not give shares to the villagers? You can track the shares if you have one of the villagers as a director in the board.”
He is dismissive about SPV saying that the model was tried in the Sterlite case and the board was packed with representatives from the government. “The community ultimately got nothing.”
Xaviur Dius of Birsa Mines Monitoring Centre of Jharkhand, said strong oversight is needed to ensure tribals get their due. “Who will ensure that tribals are not being cheated?”
Dius felt that the new law could have the effect of easing transfer of tribal lands to non tribals in Schedule V areas. Government can take special administrative measures in variance to general laws elsewhere in areas declared scheduled under Schedule V of the Constitution to protect tribal rights.
Areas declared under Schedule V have special regulations to protect tribal rights. Similar rights are bestowed on scheduled areas in the North Eastern states under Schedule VI. These include prohibition of transfer of tribal land besides many other provisions to protect tribal interests.
The Government is hoping to push the Bill in the ongoing monsoon session of the Parliament.
