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Mining royalties set for significant hikes

NEW DELHI: A study group of the mines ministry has recommended significant increases in royalties on production of key minerals, which if approved can lead to 50% increase in royalty collections for mineral rich states such as Odisha. However Odisha is unhappy, as is the mineral industry.

Reviewing royalty on major minerals - an exercise carried out by the central government every three years - the study group recommended a 50% increase in royalties on iron ore to 15% of ad valorem prices, as miners were making "substantial profits". The report, with dissent notes from both Odisha as well as the Federation of Indian Mineral Industries (FIMI), was submitted to the mines ministry by outgoing additional secretary Gauri Kumar said a senior ministry official. 

It suggested a similar 50% increase in royalty on chromite, a 20% increase in royalty on bauxite and doubling of royalty on 
gold even though Indian only has one operating gold mine mining just 2.19 tonnes(2011-12). It also advised a steep hike in dead rent - a fee a lessees are charged to retain mines that they are not operating. Iron ore has been upgraded to a more valuable set of minerals drawing higher rents.

Reviewing royalty on major minerals - an exercise carried out by the central government every three years - the study group recommended a 50% increase in royalties on iron ore.

FIMI says the recommendations do not take into account the local area development tax (an amount equal to royalty) proposed in the new bill, and the "adverse" duties and taxes recently imposed by states such as Odisha that adds to its tax burdens. The state, which owns a chunk of mineral deposits, also proposes to tax an amount equal to royalty towards a tribal welfare fund.

In May, Odisha increased stamp duty, to be paid upfront when a lease is being executed or renewed, by 18.75 times to 300% of annual royalty over the life of the lease. This, says FIMI, works out to a liability of 140 crore for a million tonnes mine at current royalty rates. Royalty rates were last revised in August 2009. Prices of iron ore, copper, lead, zinc, and aluminium have since shot to record highs before beginning to slide. The years since have also seen allegations of irregularities in mining that's brought business to a halt in states like Karnataka and Goa. Odisha hasn't escaped the scrutiny.

Chief minister Naveen Patnaik has blamed it all on the supernormal profits that iron ore miners, in particularly, made from a Chinese demand-driven boom. He also blamed the central government's reluctance to check this "incentive" by hiking royalties or imposing a 'supernormal' tax that he proposed. 

According to the draft report, Jharkhand,
Chhattisgarh, and Andhra Pradesh had agreed with Odisha's demand for royalty rates on iron ore to be doubled. Goa, primarily an exporter of low-grade ores, was happy with the current rate of 10%. 

While the report hasn't satisfied their expectation, it has accepted Odisha's demand that calibrated lump ore (lumps made from looser ore) be included as a separate grade. It sought to address the state's complaint that Indian Bureau of Mines' current method of discovering regional averages from 10 largest mines led to under-pricing. Henceforth prices of all non-captive miners in arriving at the average; in places like Karnataka where auctions are being held, royalty is to be based auction prices. Odisha though wanted export prices to be considered for calculation of royalty. 

Royalty on manganese ore, and chrome, used to make alloy steel is also be increased. Royalty on bauxite, since aluminium producers enjoyed considerable profit margin but the prices of aluminium itself was down, will go up 20%. Odisha and 
Jharkhand had sought a three-fold increase. Similar hikes have been suggested for lead and zinc, which will impact Hindustan Zinc, the primary producer of the metal. HZL's mines showed wide variation in profit margins notes the report. Silver produced as a by-product has been spared. 

State-owned Hindustan Copper, the sole copper miner in the country, will also see higher outflow from the proposed hike at a time when it is expanding capacity. 

Production of cement grade limestone has seen a 75% increase during the FY 07-08 and FY 11-12, encouraging the group to recommend higher royalties. 

Dead rents have also been upped by more than four times. A non-operating mine has to pay 400 a hectare from its second idle year, 1,000 the third and fourth, 2,000 from the fifth onwards. Twice the same has to be paid by chrome manganese, rock phosphate, and now iron ore miners. Semi precious stones, copper, led, zinc, mica producer will pay three the same, and 
gold, ruby, sapphire, emerald miners four times as much.