New Delhi mining disaster PDF Print E-mail
Monday, 11 July 2011 00:00
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Ten ministerial years (ten ministers for one year) were spent by the government to finalise a plan to help alleviate the problem caused by mining by awarding compensation to the local communities. The draft mining Bill, cleared by the Group of Ministers last week, has a plan to get mining firms to give around R9,000 crore to local communities in areas where they mine. Coal mining companies, basically Coal India, is to shell out 26% of its aggregate profit or about R2,500 crore; the others who are not mining coal will pay local communities the equivalent of whatever they pay the government as royalty right now. While the havoc the Bill will create for the mining industry is obvious, the benefits look elusive.


The biggest hit, ironically, will be taken by the government. Coal India has a price/earnings ratio of around 23, so the R2,500 crore hit on the bottom line means its market capitalisation will fall by R57,500 crore. Given that 90% of Coal India belongs to the government, its wealth will fall by around R52,000 crore! The government would probably have been better off giving out R2,500 crore from its Budget each year. Retail investors in Coal India will obviously take a huge hit, and may even consider approaching the courts for this breach of faith. The problems for other miners will be lesser only because they are smaller than Coal India, but the principle is the same and raises the larger issue of the viability of mining.

If all the money reached local communities, you could argue it might still be worth the effort. The problems here are manifold. For one, as mining firms have pointed out, they are in the business of mining, not of finding beneficiaries—if their job is restricted to handing over the money to a designated person (in the state or central government) that’s one thing. Right now, it seems the onus of finding the beneficiaries lies with the companies. There is then the problem of various Bills that need to be passed, a treacherous task, given the daggers drawn attitude of Opposition parties. Apart from the mining Bill itself, there is no provision in the law to allow companies to distribute their profit to non-shareholders. So the Companies Act needs to be changed to allow this. Presumably, the Income Tax Act has to recognise the amount distributed as an expense, else the companies will get doubly hit. Also, since mining and minerals are under the concurrent list, this will require an approval from the state governments as well. The entire exercise has created a huge level of uncertainty among the mining companies, both public and private, pushed back investment plans and has still left unresolved how the coal miners are supposed to develop each coal mine as a separate profit entity and then work out the percentages that need to be shared—oh yes, there will now be a host of allegations of under-reporting of profits!

Last Updated ( Friday, 25 November 2011 06:00 )

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