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The recent rise in royalty for iron ore, as well as other minerals, has put India at a competitive disadvantage, making imported ore more attractive and raising costs for domestic firms. The royalty rates for minerals in India are the highest. At about 30 per cent, the overall costs of India’s mining sector, including royalty and energy & transportation costs, are also the highest. Royalty is a tax levied by state government on miners in lieu of transfer of the ownership rights of mines. Though this is collected by states, the Centre has powers to revise it; the last revision was in 2009. In Australia, a major miner, royalty is 6.5-7.5 per cent, while in South Africa, it is about seven per cent. In the US, it is about five per cent and China about four per cent, says Kameshwara Rao, leader for energy, utilities and mining, PwC India’s.
He cautions the high royalty in India will put the domestic mining sector at a competitive disadvantage. Dhruv Goel, managing partner at consultancy firm SteelMint, says, “Raising the royalty on iron ore to 15 per cent will increase costs for miners by Rs 150-250 a tonne. But miners won’t be able to pass on these costs to steelmakers completely, as imports will be cheaper...Also, it will depend on the demand-and-supply situation in the country.”
The prices would rise nominally and it was likely the market would be able to absorb it, he added. In Karnataka, where royalty is paid by the steel sector, the impact could be much more. “The rise means we have to pay an additional Rs 150 a tonne. For us, the cost of production will rise by Rs 250 a tonne on account of the royalty rise. Overall, considering the rupee’s depreciation, as raw materials are dollar-linked, our production costs will rise by Rs 1,500 a tonne,” said Seshagiri Rao, joint MD and group CFO, JSW Steel.
