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New mining bill set to hit profits, stocks down

Stocks of metal and mining companies tumbled on Monday after the Cabinet approved last week the Mines and Minerals (Development and Regulation) (MMDR) Bill 2011 that provides for the first time, sharing of profit and royalty with project-affected people.

business Updated: Oct 03, 2011 22:51 IST
HT Correspondents

Stocks of metal and mining companies tumbled on Monday after the Cabinet approved last week the Mines and Minerals (Development and Regulation) (MMDR) Bill 2011 that provides for the first time, sharing of profit and royalty with project-affected people.

The profit sharing formula is expected to smoothen the process of land acquisition in the countryside and tribal areas, but triggered fears that it could erode industry’s income by about R10,000 crore.

While Jindal Steel closed at Rs 475 (-6%), Hindalco shed 5.5% to close at Rs 124, Tata Steel ended in the red at Rs 395 (-5 %), SAIL was down to Rs 100 (-4.7%) and Sterlite closed at Rs 109 (-4 %).

Broking and research firm Macquarie said the proposed legislation, if enacted, will likely shave off profits of pure mining companies such as NMDC and Hindustan Zinc in 2011-12 by about 9%. “The government collected $1 billion in terms of royalty in fiscal year 2010 (from minerals other than coal) and a 26% tax on mining profits for Coal India could add another $650 million to this fund,” it said.

The Bill is likely to be tabled in Parliament in the Winter Session, the last step in a 5-year long journey towards replacement of an over 50-year old policy. As per the Bill, coal mining companies will now have to share 26% of profits from their mines with people impacted and displaced by projects.

“The current proposals will create problems for existing mines where affected persons are not easily identifiable. Also, the mechanism for compensating the affected people is not very clearly defined and has many limitations,” said Rajiv Kumar, secretary general of industry chamber Ficci.