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India's draft mines law to be flexible on profit-sharing

business Updated: Jun 30, 2011 17:07 IST

Reuters
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India could allow foreign and domestic mining companies to share less than 26% of their profits with local communities under a draft law, a mining ministry source said, in a climbdown aimed at attracting badly needed investments to the sector.

The bill proposes the profit-sharing formula in a bid to smooth land acquisition, a touchy issue in the countryside, where many oppose natural resources being carted away by outsiders.

A part of government moves to expand social programmes for the poor, the bill seeks to simultaneously please its core support base, block flows of new recruits to the Maoists and balance modern lifestyles against traditional ways.

While industry bodies are reconciled to sharing some profits, they have baulked at 26%, saying that will raise business costs too much and deter investors, a fear the government appears to be recognising.

The ministry source said while the bill is likely to retain a reference to 26% as a ballpark figure, it would include a clause that would allow companies to approach the government for a concession.

"There is a realisation that you cannot have a blanket rate for all minerals because the cost of mining of each mineral is different," the source said on condition of anonymity because the bill has still to be presented before parliament.

"So what we are doing now is giving companies the option to come to the government and say a certain percentage is too high. We can then consider.

"For example if you are asking for 26% (of profit from a mine) from a diamond miner, will he come? He may say I'm willing to give 2-3%."

The mining ministry says that profit-sharing should make it easier for mining projects to win local approval and accelerate the pace of developments.

Years of protests, sometimes violent, have delayed many industrial projects, including South Korean steel maker Posco's plant in Orissa state, the biggest foreign direct investment in India at $12 billion.

Protests against big industrial projects are a phenomenon of the developing world from Brazil to Indonesia, and making investors plough back a portion of their income into development of local communities has been one way of dealing with resentment.

India's mining sector has only opened up fully to private investors in recent years and state-run companies have lacked the funds and expertise to probe deeper than the top 50 metres or so where its iron ore and coal reserves are found.

The mining bill should go to the government for approval after a possible final meeting of a group of ministers on July 7 and could be presented in parliament in August. The bill could take a year or so to make its way through parliament.