Iron ore royalty payment may shift to ad valorem system

The royalty on iron ore may soon be charged at ad valorem rates, breaking from the current practice of calculating the levy on the basis of tonnage and quality of ore raised by the miner.

This change in royalty fixation system, which will benefit the mineral rich states at the expense of the mining companies, is being given a final shape by the working group constituted by the Government of India (GoI) for this purpose.

"Four meetings of the working group have already taken place and a draft report enumerating the changes in the royalty fixation system is getting readied", said a highly placed official source here.

"The draft report will be sent to the GoI for approval after it is finalised within a week", he added.

Earlier, five mineral rich states of Orissa, Jharkhand, Rajasthan, Karnataka and Chhattisgarh had submitted a memorandum to the Prime Minister demanding 20-25 per cent ad valorem based royalty on iron ore instead of the current tonnage and quality based royalty from which the states revenue earning was very meager.

Subsequently the Centre had constituted a working group under the chairmanship of the special secretary in the Union mines ministry, Pradeep Kumar, to look into the issue.

It had the mines secretaries of the five states as members.

"There is no problem in switching to the ad valorem based royalty on iron ore as the Union government has given its in principle consent to the proposal", said the official.

He pointed out that there are some minor issues to be resolved, regarding at what percentage of the selling price of the ore, the royalty will be charged and at what time gap the market price of ore should be considered for revision of royalty from time to time.

"The government will have to balance between the interest of the mineral rich states and the mining industry lobby led by Federation of Indian Chamber of Commerce and Industry (FICCI)', he observed.

Iron ore royalty was last revised in October 2004.

The next revision was slated for October 2007.

The Union government was expected to come out with the new royalty formula then.

Bowing to the demands of coal bearing states, the Centre recently added a ad valorem component in royalty calculation for coal.