Steel and cement makers who own captive coal blocks spend less on coal than those who have to buy it for their production process
The Union coal ministry is all set to propose a fixed levy on coal mined from captive coal blocks. The levy so collected will be paid directly to the affected communities in mining areas.
The idea is in line with the draft Mines and Minerals (Development and Regulation) (MMDR) Bill of 2011, which was recently cleared by the Union Cabinet. The coal ministry is proposing to include this fixed levy on captive coal users under the profit-sharing provision of MMDR Bill. This will clearly differentiate captive coal miners from stand-alone companies that sell coal and are required to share 26 per cent of their profits with project-affected people. The levy will be charged on every tonne of coal extracted and will be an average based on the 26 per cent of profits made by coal companies.
Captive coal miners are mostly those engaged in steel and cement manufature and power generation; they mine coal which is used only as an input for their final product. According to the ministry of coal, in 2010-2011, the annual coal consumption was 50.51 million tonnes (MT) for steel, 442 MT by power, 30 MT by cement and 133 MT by others. Captive coal miners do not show separate profits for coal as coal is used as an input for different end-products. The industry has long been claiming that the profit-sharing provision of the mining bill cannot be applied to captive coal block miners because profit figures from just mining operations are not available. At present, cost of using coal as an input for captive miners is lower in comparison to those companies that buy coal for their production process.
How to check companies concealing profits
The coal ministry considers fixing of levy as a solution to this problem. “We are proposing some strict guidelines for accounting at mine level, which captive coal block owners will have to strictly adhere to,” says an official in the ministry of coal who did not want to be identified. While the coal ministry wants this proposed levy included under the MMDR Bill, the ministry of mines does not want this. Although it is feared that companies may conceal profits to reduce the amount payable to affected communities under the 26 per cent profit-sharing provision, an official from the mines ministry says that mine-level accounting offices are being proposed which will help the government to keep records of captive miners.
Although there is no provision in MMDR that differentiates between captive coal miners and others, it does not exclude the captive coal miners from the purview of the bill. While it is clear that the stand-alone mining companies will have to share 26 per cent of their net profits with communities, there was confusion about how this method is to be applied to captive coal miners. Stand-alone coal mining companies are mostly public sector firms like Coal India Limited (CIL) and Singareni Collieries Company Ltd (SCCL). As per the coal ministry's proposal, the fixed levy will stand at about Rs 58 per tonne of coal if profit and production figures for only CIL are used. The levy rate is Rs 53 per tonne if average profits and production figures for both SCCL and CIL are taken into consideration. The fund collected as a result of this proposed levy from captive miners is proposed to be disbursed through the district-level mineral foundations, the disbursing body as per the MMDR Bill.
The ministry of coal official says, “The solution to overcome the problem of differentiating captive from non-captive users of coal will be imperative for early implementation of the MMDR Bill.” But the mines ministry says the captive coal miners are already under the purview of the MMDR Bill, wherein they need to pay 26 per cent of their profits, so there is no need for a levy. The disagreement between the two ministries may add to delays of the already postponed MMDR Bill.
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