Coal Ministry supports Merchant Miners against MMDR Bill

It seems that the opponents to the MMDR Bill are about to turn the table on the proponents. Now that serious differences have emerged within the Government over provisions of the MMDR Bill, the opponents comprising the private sector giants like Tata Steel and many merchant miners are waiting for a compromise to save themselves from the “harsh clause” of sharing profit with the locals.

Despite the Pranab Mukherjee-headed Group of Ministers' approval, the profit-making private companies have found a new ally in the newly anointed Union Minister of Coal. Coal Ministry has come forward as the latest opponent of the Mines & Minerals (Development & Regulation) Bill, 2010.

The main objection of the bill is the provision which mandates companies to share 26 per cent of their net profit, or 100 per cent of the royalty of the previous year, whichever is higher, with the local affected population in mining areas. The opponents, mostly the merchant miners known for their obscene wealth, felt that the same would hurt investment in the mining sector. They could master support from India's Planning Commission.

They argue that the Planning Commission has mentioned that, “It is not a good idea to compensate the land losers on the basis of profits. A company may not make profit or declare it. We have suggested the compensation they pay should be fixed on the basis of royalty. This way the issue of captive mines can also be addressed.”
The concern of the Planning Commission is logical given the non-transparent balance sheets of most privately owned unlisted mining companies. But this certainly cannot be viewed as an argument in favour of dropping the amendment.

Now reportedly the Coal Ministry has sent a note opposing the MMDR Bill. In a confidential note sent to Minister of Mines Dinsha J Patel, the Coal Ministry said the Bill would adversely impact all stakeholders — the Centre, States, industry and even the broader community.

According to the Ministry if implemented in the proposed form, annual compensation to the people would amount to a whopping Rs. 25,000 crore. This, it said, will substantially reduce employable funds, adversely impact growth of the companies and hit the Government's disinvestment plan and FDI in the mining sector.

However point to note is that when Coal India got listed in October-November 2010, the MMDR Bill was not viewed as a roadblock by investors. In fact Coal India IPO went on to receive a world record breaking US $56 billion against an offer of just US $3.5 billion worth of shares.

Curious what made Coal Ministry see the bill on a different light now! More so since Coal Ministry felt that the MMDR Bill would impact valuation of companies and the truth as seen in case of CIL listing is that the same did not affect at all!
Maintaining that it will also have a negative social impact, the note explained that mining activity is concentrated in a few States, like Odisha, Chhattisgarh, Jharkhand and Karnataka. Annual compensation of over Rs. 25,000 crore would be used only for a small number of affected people in these States. While this will create pockets of ‘super-rich' in the mining areas, people from other parts will start migrating here, causing social discrepancies. This has a curious similarity both in letter and spirit with a note in circulation by the private mining lobby in December last. Who said that lobbyists are not active in India's corridors of power?

There are more similarities in what Coal Ministry felt and the miners' lobby had been asking for. The Coal Ministry proposed that instead of 26 per cent profit or 100 per cent royalty, the companies should pay 10 per cent of royalty to the District Mineral Foundation, while the concerned State Government should also contribute an equivalent amount.

The aggregate can be utilised for development of people who have been affected. Additionally, companies may also be required to make a one-time payment — equal to 26 per cent of the market value of the land — at the time of grant of mining lease.
Since Coal Ministry has interest in the largest coal mining company in the world Coal India Ltd (CIL), one would have expected it to propose only those changes in the MMDR Bill which would have helped CIL. For instance Coal India spends large amount on various CSR projects for community development in its mining zone. If such expenditure is accepted as a part of the 26 per cent profit sharing of mineral companies CIL would have to contribute only marginally more to meet the proposed MMDR Bill obligation.

According to CIL sources this would have meant a marginal 6 per cent increase in coal prices. Coal Ministry was expected to ask for set off of CSR spending against the profit sharing target. Instead it merely has paraphrased the note of the mining lobby.

The important point the opponents of the bill winked at is investment and return on investment in pure play mining business. Globally commodity prices have been firming up with all major economies, including India, looking for resource rich properties.

Under such circumstances the principle of natural justice demands that a share of this profit must go for the benefit of those who would lose their habitat due to mining. Instead the lobbyists, who now have won over the Coal Ministry, want to pocket the windfall and use the same for their conspicuous consumption.

The other way of spending for the native is value addition in the resource rich region. For example NMDC has been developing a steel plant in the remote district of Dantewada, known for Maoist activities. There has been no untoward incidence on NMDC project. This illustrates what the local community want — they know having a steel plant will improve their livelihood. Individual states are aware of the need.
Orissa Steel and Mines Minister Raghunath Mohanty informed the State Assembly last year that the State Government had placed a proposal before the Union Government for introducing value addition system in the Mines and Minerals Development and Regulation (MMDR) Act. States felt this necessary for economic development of the underdeveloped regions of the State. There are ways and means to encourage investment and discourage indecent profit.

The 26 per cent profit sharing clause is an effort to bring in development from where resources are mined. Like it or not in a democratic set up people are more important than the profit-making corporations. Coal Ministry dissent is an effort to change the focus and assist those who should not receive any support.

These merchant mining companies have no gumption of enriching themselves and their cronies by exploiting the tribal land of these states but have objection is sharing the same with the people who suffer as a result. These companies have no initiative on corporate social responsibility — they do virtually nothing other than exploiting the natives of the mineral rich pockets of the country.

In contrast large PSUs like NMDC, Coal India have huge contribution for the health care, education and social-development of the mining zones.
A logical argument can be to allow the funds allocated for CSR in mining by the resource companies as part of the profit sharing. If this happens, which is logical also, companies like CIL, NMDC, SAIL, TISCO will not find the 26 per cent clause unduly burdensome. Only the merchant miners who dig and sell abroad our rich mineral resources will suffer.

The government may also consider if the MMDR Act should have a different set of rules for PSUs. The reason is PSUs operate according to the national agenda, not merely to maximize profit.

But so do some other responsible corporations. One cannot deny the positive impact of Jamshedpur for instance. One way of tackling this will be to allow CSR contribution of the corporations to be adjusted against the compulsory allocation to be made under the proposed amendment of MMDR Act.

The lobbyists also argue that nowhere in the world, such kind of Act is in existence. They had been economical on truth. In South Africa for providing economic opportunities for Previously Disadvantaged Individuals (PDI's), Black Economic Empowerment Act has been introduced.

Under this Act, 26 per cent equity is to be given to the Blacks. Failure to protect the natives has seen desperate elements in certain regions in India taking up arms against the state — a clear indication of exploitation and desperation on the part of the tribals. If the rich democracy in India fail to address the issue what is the point of having a civil society at all?

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