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Government firm on profit-sharing from mines

business Updated: Oct 18, 2010 01:03 IST
Sumant Banerji

While the industry has expressed deep reservations on the 26 per cent profit-sharing clause in the proposed mining law, the Centre is in no mood to relent.

Steel Minister Virbhadra Singh told Hindustan Times that there is complete consensus on profit-sharing with the displaced tribal populace within the GoM (group of ministers) and the clause will not be reviewed.

"There is absolutely no re-thinking over the profit-sharing clause. Whether steel companies like it or not is another matter, but this is the need of the hour."

A mechanism to facilitate sharing of profits is being worked upon for integrated companies where mining is not a standalone activity, Singh said. The country’s two largest steel makers Steel Authority of India Ltd and Tata Steel have voiced concerns over the clause in the new act, calling it unimplementable.

"In cases where mining is not carried out as a standalone activity, a mechanism is being worked out where profitability can be ascertained. Companies may look at forming separate entities for mining, or they may look into the accounts of other steel and mining companies to realise how much profits their mines are generating."

The industry has said that the clause will see investments from the mining sector as it will directly impact the profitability of the firms. Even though mining continues to be very heavily taxed, it remains a more profitable business than steelmaking.

Integrated steel companies such as SAIL and Tata Steel for example had an operating margin of only 28.7 per cent and 39.2 per cent in 2009-10. For non-captive steel firms such as JSW Steel, the figure drops to 26.24 per cent. Mining companies such as National Mineral Development Corporation and Sesa Goa on the other hand enjoyed operating margins of 84.7 per cent and 59.4 per cent respectively during the same period.

While most companies have welcomed the intention behind the insertion of the new clause, they do not want it to be a part of profit but of the overall cost. "Social cost must be a part of the cost of operations and not derived as a share of the profit," said Partha Sengupta, vice-president, raw materials, Tata Steel.