The government plans to link royalties paid on iron ore to market prices rather than a fixed rate, mines minister BK Handique said on Monday, a move likely to increase the cost of the commodity.
Handique didn’t give a level for the royalty, but RK Sharma, secretary-general of the Federation of Indian Mineral Industries (FIMI), said it was likely to be 10 per cent on the sale price before freight costs. He said at today’s sale price, an average of $15 a tonne without freight, a miner would have to pay about Rs 73 a tonne ($1.5) in royalty against Rs 27 under the current system.
Sharma was a part of a panel in 2007 that submitted recommendations on a new royalty system to the government. “I had suggested a lower rate, but the majority view of the panel was taken,” he said.
The panel’s recommendation was accepted last year, but the financial meltdown and weakness in iron ore sales and prices delayed its implementation, he said.
According to FIMI data, iron ore exports in 2008-09 year were at 105.764 million tonnes, up 1.4 per cent from a year earlier.
Prices are currently at $56-$58 a tonne FOB, which includes road and rail transportation costs, down sharply from the peak of $145 in April-May in 2008, FIMI data showed.
Royalty rates were last revised in 2004, before an expansion in mining activity and a rise in prices. State governments, to whom the revenue accrues, have been asking the Centre to set higher rates.
“This would increase the cost for iron ore miners and depress their margins if they don’t pass it on to the customers,” said Pawan Burde, senior analyst at Angel Broking in Mumbai.
The proposal would be taken up by a panel of ministers for final approval, Handique said.