Cement, Energy and Environment

paid) earned by the miner in case lease holder is a person or 26 percent of equity participation in case the lease holder is a company, resettlement and rehabilitation of the local population through employment and skill enhancement as outlined by the concerned state government. The current consultation version by the GoM is expected to have adopted the basis to 26 percent profit sharing with alternative of paying royalty in case of loss making entities. The current draft tenets resemble to the intent of Black Economic Empowerment (BEE) Act, 2003 of South Africa, which required holders of mining rights to achieve 26 percent ownership participation by historically disadvantaged South Africans in their mining operations by 30 April 2014, of which 15 percent needed to have been achieved by 30 April 2009 pursuant to the Mining Charter. This provision of draft MMDR Act, 2010 is aimed at increasing the inclusiveness of the host population in ensuring the success of the mining project. These new provisions are aimed at ensuring local participation as well as smooth development of the m1n1ng projects. The provisions are expected to build a sense of ownership to the host population, which may also result in curbing illegal mining due to constant watch of local. However at the same time, the impacts of such policy provisions on the financial health, cash flows and downstream/market pricing of mine outputs (non– value added or value added products) would need to be analysed. It would also need to be borne in mind that in a globalised economy, mineral businesses often represent a strategic input to other core industries providing key inputs for infrastructure development, for e.g., power, steel & cement, to name a few. Impact ofprofit sharing provisions The proposal of sharing profits with the locals seems to be a good move for inclusion of locals in the growth story and ensure income to improve their economic condition and living conditions. However, the overall impact of the profit sharing also need to be understood before coming to a conclusion or devising detailed framework for implementation of the Act. First and foremost visible impact is that profit sharing will provide a constant income source to the locals who lost their livelihood. This will also help in improving their living standard and economic condition, which means growing participation in economic activities and overall development of the mining area beyond the industrial limits. Though the provision will be beneficial to the immediate population being impacted due to mining activities, but adverse impacts of the proposal also need to be understood for proper implementation of the plan. 26 percent of the profits is a large sum and are expected to have significantly adverse impact on the mining projects. The major objective of profit sharing is to let the locals have their share in the benefits generated from the mining operations. At the same time , it is expected to reduce the resistance from locals to the mining projects. But this huge burden may make many of the mining projects unviable. Further compulsory sharing of large sum out of the profits will discourage miners form taking any social initiatives. Thus again adversely impacting the impression of mining activities among locals. Also, this prov1s1on will reduce the profits to the mining company, thus impacting its bottom line. In such scenario, to maintain the profitability level, i.e., profits for the company, mining companies are bound to increase commodity prices, which, in turn, will be reflected in the increased prices of end products like power, steel, etc. , which need to be borne by the consumers. Further, the implementation of the provision itself seems to be difficult proposition. Though recent discussions of GaM suggest that only the profits generated due to mm1ng activities will be shared and not from the downstream activities. However, on which basis will the government decide the profits generation from mining and beneficiation activities, as in many of the cases, washing and beneficiation activities are integrated with the mtntng operations? In India, captive m1ntng forms a significant proportion of mining activities, which is expected to increase in future. In case of captive mining, profits from mining activities will depend upon the cost accounts of the mining operations and the transfer price (if any) of commodity to consumer unit. This provides opportunity to recognise lower profits from the mining operations. The draft act also provides that the amount shared will be higher of the 26 percent of profits from mining operations or royalty. Thus, even if companies are not generating profits from the mining operations, they are bound to share amount equal t.o royalty, which, in turn, will only increase loss to equity owners. It needs- clarity on whether any such minimum payment can be 4