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MMRDA draft approved by Group of Ministers (GOM): The Group of Ministers
has approved a draft bill for the mining sector making it mandatory for coal
miners to share 26% of their profit after tax with project-affected people.
Furthermore, the draft bill proposes that companies mining other resources
(such as limestone, iron ore, copper and bauxite) should pay amount equivalent
to 100% of the royalty on their production to the local population of the project
site. The bill will be taken up by the cabinet in the parliament’s monsoon session
for approval.
Other aspects of the bill: The bill also proposes to allocate mining blocks on an
auction basis and rationalise royalty rates. However, there is lack of clarity on
whether the additional tax burden will be tax deductible.
New bill broadly not as bad as the original draft: The original draft of MMRDA
had proposed sharing of 26% of profits with the local community. However,
the new draft makes a distinction between companies mining coal and companies
mining other minerals. With royalty rates on minerals other than coal at 7–10%,
the new draft would result in lower cash outflow for companies mining minerals
other than coal (compared to the original draft).
Likely impact on companies: As per our estimates, the EPS of mining companies
(other than coal mining) is expected to be lower by 8–13%, while for Coal India
the EPS could potentially decline by 17%. However, the extent of higher burden
could be lower (than the proposed 26% of net profits) for Coal India as it
(currently) spends a significant amount towards CSR activities. Also, we believe
Coal India has the cushion to pass on the additional burden to its customers as its
sells coal at a price lower than global benchmarks. For miners and steel makers,
the additional burden will have to be absorbed by them as they sell their products
at prices determined by global benchmarks. For steel companies, the impact on
EPS could be in the range of 2–8%
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