Mining Bill: A no-win proposition
By Ravi Shanker Kapoor
One of the many erroneous beliefs in which the United Progressive Alliance (UPA) government has abiding faith is that poverty can be removed by the legislative measures and executive fiats. The basic premise is that our netas and babus, aided and advised by sundry jholawallahs, can redeem the poor. The Mines & Mineral Development Regulation Bill, recently cleared by the Union Cabinet, is testimony to the deeply flawed notion going berserk.
In a bid to appear pro-tribal and pro-poor, the United Progressive Alliance (UPA) government wants mining companies to pay excessively more compensation to local communities in mineral-rich districts. To be introduced in the winter session of Parliament, the Bill stipulates that coal miners should share 26 per cent of the profits with the displaced people. For minerals such as iron ore and bauxite, the Bill seeks the setting up of a fund for the welfare of affected people displaced because of the project. The amount would be equal to the royalty the companies pay to the government.
The Bill comes against the backdrop of large projects by global steel majors Vedanta, ArcelorMittal, and Posco getting delayed because of protests.
The capital market gave a thumbs-down to the news, with state-run Coal India’s stock declining five per cent and Hindustan Zinc over 1.5 per cent.
“We will have to if the government asks us to share the profits,” said Coal India chairman N.C. Jha. “But on the positive side, it will make land acquisition easier since profits will be shared with the affected people. They will now have an assured regular income from the land they lose, in contrast to the current practice of offering a one-time payment and nothing thereafter.”
Jha is vainly trying to find something good in a move which is patently bad and anti-development. The proposed legislation is yet another instance of the UPA regime’s anti-business policies. The government, mired in various scams and facing flak over rising prices, wants to present itself as the champion of the poor. But the Bill, if cleared by Parliament, is unlikely to offer any succor to the people in mineral-rich regions.
For the new stipulation will badly hit investments in these areas; industry associations have already expressed such fears. In a statement, CII National Committee on Mining chairman Rana Som expressed concerns about execution. The proposed fund to compensate project-affected persons would be difficult to implement, he said.
Federation of Indian Chambers of Commerce and Industry secretary general Rajiv Kumar pointed out that the proposals regarding the contribution of 26 per cent profit in the case of coal and 100 per cent equivalent of royalty in the case of other minerals to the District Mineral Development Fund would make mining investment unattractive. “The current proposals of profit sharing and royalty contribution will create problems for existing mines where affected persons are not easily identifiable. Also, the mechanism for compensating the affected people is not clearly defined and has many limitations,” he said.
According to Macquarie, a global investment banking and diversified financial services group, the Bill, if enacted, is likely to decrease the profits of pure play mining companies like NDMC and Hindustan Zinc in the current fiscal by nine per cent. A pure play company is one whose shares are publicly traded and that either has, or is very close to having, a single business focus.
Coal India is expected to suffer more, with estimated erosion of its profits by about 12 per cent. The profits of Tata Steel could be down by nine per cent, SAIL by seven per cent, Jindal Steel three per cent, and JSW Steel one per cent.
Typically, the UPA government, steered by the pathologically anti-business National Advisory Council (NAC), has paid no heed to the views of business. In the name of checking illegal mining, the new Bill aims to tightly control the sector; it is like throwing the baby out with the bathwater.
Mining Secretary S Vijay Kumar said in an interview, “We have been working on this Bill now two years now. It has gone through an enormous amount of consultation with the state government, the industry, civil society, and Central ministries.” Evidently, the Central government has not paid heed to the concerns expressed by industry, while the views of civil society (read the NAC types) have been swallowed hook, line, and sinker.
Further, the new legislation will encourage sharp practice. Financial jugglery will be at a premium. The companies will have an incentive to show lower profits. The only people who are likely to benefit are unscrupulous miners, crafty accountants, and of course corrupt officials. The Bill will seriously hurt mining without bringing anything substantial for the intended beneficiaries.