As a 10-member ministerial panel met on Thursday for a final nod to the controversial new mining legislation, amid reports that the mines ministry has reversed its stance on profit sharing, the private sector is worried. Profit sharing will drive away investors, R K Sharma, secretary-general of the Federation of Indian Mineral Industries (Fimi) told Sudheer Pal Singh. Edited excerpts:
The mines minister has proposed replacing the profit sharing clause with a provision for royalty sharing. If implemented, it would reduce the compensation outgo of corporates. Are you happy?
While everything would be decided by the Group of Ministers, Fimi suggests that royalty-linked contribution is the best way to achieve the objectives of economic security and raise the standard of living of people losing land for mining. We would like the proposal for 26 per cent profit sharing to be replaced with 26 per cent royalty sharing.
What is the basis of your objection to the profit sharing proposal?
The most delicate point that touches a businessman’s nerve is parting with his profit. Profit is a reward for his capital employed and productivity. If 26 per cent of the profit is taken away, where would be the incentive to perform? And, this is levied after payment of compensation in other forms like cess and royalty. Also, one share at par has to be allotted to each family member of the affected populace. This is in addition to a security deposit of Rs 1 lakh per hectare. Which investor will come to this country after all this? Sharing profit for small-sized leases is even more difficult due to the less margin obtained. And, 80 per cent of our leases are 0-50 hectares in size.
We have made our concerns on profit sharing known at every level. The entire concept of profit sharing has come from South Africa and Namibia. There it is 26 per cent of equity that is shared with tribals. Here we are being asked to part with our net profit.
Do you not agree that bringing in auctioning will lead to transparency for the mineral sector?
Nowhere in the entire world does auctioning take places for minerals, except for Russia and Kyrgystan and there, too, only for coal. The Hoda committee report had said unless a mine was fully explored, it could not be put up for bidding. This is not happening, as per the new mining bill. This will lead to speculation. In auctioning, we are comparing mineral resources with oil. This is not the right approach. In the mineral sector, the value of a deposit is attached to different grades and these grades are different at different places within the deposit. The exact value of a deposit is difficult to estimate and this is the basis on which auctioning has to be based.
Commodities like steel, aluminum and cement will become costly in the auctioning regime as deposits of iron ore, bauxite and limestone are bid out. A company which wins an auction will mine the best grade first to recover his costs. This will also spoil deposits. While a developer mines the best grade first in a deposit, auctioning pre-supposes that the company has explored the entire deposit. This is not possible.
The Centre’s power to sanction prior approval for important mineral concessions is set to go in the new law. How would this impact the private industry?
We want the Centre’s power to be retained in the new law. We want some sort of central government control to remain in processing of leases. Otherwise, it leads to uncertainty, as many state governments do not renew leases. And, most important minerals like iron ore and bauxite are covered under this.
What are your other major areas of concern with the new bill’s provisions?
The new act will have provisions for penalties if an entrepreneur does not meet the conditions set by state governments. This penalty ranges from Rs 10,000 to Rs 25,000 per day, with special courts to try cases of violation. Most of these state government officials are not competent. Giving them such powers will only breed corruption.
