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The Union government's approval of a rise in royalty rates for minerals has come as a blow for the mining sector, which is struggling to revive after a series of court-directed bans on operations.
The impact could be more if the new government goes ahead with the benefit sharing clause in the draft mining law prepared during the earlier regime’s tenure.
For instance, a 15 per cent royalty on iron ore, coupled with the clause of paying an amount equivalent to royalty for the benefit of the local community, could mean a three-fold increase in the outgo for non-coal mining companies. Currently, iron ore attracts 10 per cent of the notified price as royalty payable to a state government.
The new government hasn't said what it plans to do with this clause, strongly opposed by the mining industry. It was estimated that the industry would have been impacted by about Rs 15,000 crore a year under the profit/royalty sharing regime. R K Sharma, secretary-general of the Federation of Indian Mineral Industries, says many investments were held back in the mining industry because of this clause.
“The industry has already been impacted by a ban and it will take few years before a full revival,” says PwC India's leader for energy, utilities and mining, Kameshwara Rao. "We expect the approach of the new government will be very different from profit sharing and there will be a significant revamp of the earlier mining Bill. There are very few countries across the world which follow the model of profit sharing — it is either based on unit produced or revenue sharing.”
The benefit sharing clause mandated 26 per cent profit sharing by coal mining companies and an amount equivalent to royalty by non-coal miners with local people affected. A Parliament committee had suggested moving to a model based on a certain percentage of royalty, rather than 26 per cent profit, for coal mines. For major minerals like iron ore and limestone, the provision remained as 100 per cent of royalty. For minor minerals, it proposed acertain percentage of royalty to be decided by the states in consultation withthe proposed National Mineral Regulatory Authority.
The new royaltyrates will put Indian mining industry at a competitive disadvantage when wealready have a higher cost structure, Rao said. The Supreme Courthad banned illegal mining in Karnataka in July 2011, but a partial relief wasgiven in last and April this year by partial resumption of mining operations,but it seems the industry will have to walk a long mile before things get backon track.
Besides procedural issues, mere restarting mining operations can takeover a year. Even Goa has been allowed by the SC to restart mining operationswith a cap on production of 20 million tonne/year.ends
