Ministry of Mines has proposed that 26 per cent of profits of mining companies should be shared with local people. States like Jharkhand and Chhattisgarh are rich in minerals but poor because most profits from mining are captured by mining companies and remitted to the urban centers. Local people, in the main, bear the suffering of displacement and destruction of environment. Same situation prevails in Africa. The continent is rich in minerals but remains poor. Multinational companies extract the minerals and remit most profits to their headquarters located in developed countries. Naxalite activities are increasing in mineral rich states because locals see their wealth being taken away. Sharing of profits can help solve this vexed problem as well.
Many mineral-rich countries have similar arrangements in place already. According to a release by Delhi-based Center of Science and Environment, it is obligatory for mining companies in Papua New Guinea to enter into an agreement with local people. 20 per cent of the royalty is paid to local people. They are also entitled to a share of the profits and mining companies have to build local infrastructure such as roads and schools. In South Africa, landowners have the right to exploit the minerals lying below their lands or to sell mining rights to companies. They get a share in the ownership of the mining companies. They also get preference in employment.
Mining companies have to pay a Royalty Tax in Peru. This revenue is distributed as follows: 50 per cent to the Central Government, 20 per cent to the State Government, 15 per cent to Provincial Government, 10 per cent to District Government, 10 per cent to local administration and five per cent to local Universities. A ‘Mining Development Fund’ has been established in Ghana. Royalty is deposited in this fund. These revenues are distributed among affected households, local government and landowners. Local communities get a share of royalty in Canada. Xingyang Province of China has recently imposed a tax on oil, natural gas and minerals extraction companies. Beijing is planning to impose a similar tax across the country. Australia has imposed a 30 per cent ‘Mining Super Profit Tax’ on all mineral extraction companies. Petroleum companies already have to pay 30 per cent of their profits as extraction tax. The policy of taxing mineral extraction profits for local people seems to have international acceptance. Principle is that the bounty provided by nature in the form of minerals belongs to all the people-especially local people. Just as farmers have the right to extract the groundwater flowing below their lands, or fishermen have the right to fish in the sea adjoining their village, similarly local people have the right to extract the minerals lying below their lands.
The mining companies have, however, vociferously opposed the proposal. Federation of Indian Mineral Industries has suggested that an amount linked to royalty be provided to local people instead of imposing tax on profits. Note that royalty is generally paid on the amount of minerals extracted and has no relation to the price. Windfall gains obtained by mining companies due to increase in the price of minerals, therefore, remain outside the ambit of royalty. Profits, on the other hand, increase and decrease in tandem with price of minerals. Therefore, local people do not get share of the windfall gains through royalty. The Federation has expressed concern that mineral extraction will not remain profitable for investors if 26 per cent of the profits are taxed away. This appears more hype than reality. Similar concerns were expressed when Australia imposed tax on profits. But mining companies like Xastra resumed operations quickly. Mining companies are making such huge profits that slicing off 26 per cent will not make much difference.
Problem with linking local benefits to royalty is that rates of royalty are typically fixed very low. For example, the price of iron ore at present is about Rs 5,000 per tonne while royalty is a paltry Rs 300 per tonne. Thus local people will get only buttermilk through royalty. The cream will continue to be captured by the mining companies. Another problem is that rates of royalty remain unchanged for many years while prices of minerals increase. The Australian Labour Party tells on its website that few years ago Australia got $ one out of $ three of minerals exported. This has now declined to $ one out of $ seven because the prices of minerals have increased while rates of royalty have remained unchanged.
Tata Steel has suggested that local people should be provided with sustainable income generating opportunities instead of giving away share of profits. The suggestion is logical. Saying goes that it is better to teach a poor man how to fish instead of giving fish to him. But this is difficult to implement. Government of India already has made a National Relief and Rehabilitation Policy. The Policy is being wantonly violated by companies in all sectors-including mining. Local people are not provided land compensation as per prevailing market rates. Livelihood of many local peoples is affected by acquisition of forests and village commons. They are not compensated for the loss of fuel wood and grazing etc. from these lands. Local people are rarely given permanent employment. It is difficult to believe that mining companies will actually create sustainable income generating opportunities for local people since they are not able to implement the Rehabilitation Policy. It is better to make a somewhat inferior policy that is executable than to make a good policy that remains on paper.
Nitya Nanda of The Energy Research Institute has expressed concern that mining companies will manipulate their accounts and show less profits in order to escape paying such tax. He has suggested that local people may be given shares of mining companies instead. This suggestion is also generally acceptable. Only problem is that shares can be got transferred by unscrupulous operators who are able to hoodwink the less-literate local people. Also, the fear of manipulation is unfounded. Companies have to show high profits in order to attract investors. So they will not artificially lower the profits.
In fact, the principle of sharing profits should be made applicable to all developmental projects. It should not be restricted to mining companies. The objective of development is the welfare of the people of the country. Among people, the rights of local people take precedence. Vinoba had said that all development projects should be assessed on the criteria of how they affect the welfare of the poorest. This applies to all schemes. Therefore, local people should be given a share in the profits of highways, thermal and hydropower projects, special economic zones and other developmental projects as well.
(The writer can be contacted at bharatj@sancharnet.in)
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