Report supports proposal to share 26 per cent net profits of mining companies with local communities
Says the money generated from this will go a long way in reducing poverty and deprivation in the mining affected areas
Says mining industry’s opposition to the proposal has no basis -- statistics prove that sharing profits will not dent the industry’s profitability
Ranchi, August 5, 2011: Mining companies and industry in general have been opposing the government’s recent proposal to set aside 26 per cent of their net profits, to be shared with local communities. Their contention is that this provision, if passed by Parliament, would drastically dent their profitability. A recent analysis by New Delhi-based research and advocacy body, Centre for Science and Environment (CSE), proves them wrong.
The Central government has come out with a draft Mines and Minerals (Development and Regulation) Bill, 2011 (MMDR bill) to replace the 1957 Act. The draft bill which has been vetted by a Group of Ministers, includes this provision of sharing benefits. The provision says that all coal companies will have to share 26% of their net profits with the affected communities while non coal companies, mining major minerals like limestone and iron ore, will have to share an amount equal to royalty. For companies mining minor minerals like sandstone and marble, the profit/royalty sharing provision will be decided by state governments in consultation with the proposed National Mining Regulatory Authority. The CSE analysis comes out in strong support of this proposal, and clearly establishes how timely and necessary this provision is.
The CSE analysis was released here today in a Public Meeting chaired by Hemant Soren, minister-in-charge (mines and geology) and deputy chief minister of Jharkhand. Also present on the occasion were sudhir Prasad, principal secretary (drining water and sanitation – Jharkhand), Pankaj Satija, chief of ferrous raw materials, Tata Steel, and Chandra Bhushan, deputy director general, CSE.
Speaking on the occasion, Chandra Bhushan said: “It is now well recognised across the world – including in India -- that wealth generated by the mining sector comes at a substantial development cost, along with environmental damages and economic exclusion of the marginalised. In fact, the major mining districts of India are among its poorest and most polluted.”
He added: “The government’s proposal to share the benefits of mining with local people is an important step ahead in building an inclusive growth model. It is also in line with the best practices being followed in the world. The principles are not new and many mineral-rich countries have been following it for years without impacting the genuine profitability of mining companies.”
Profit sharing a global practice
To break this resource curse, a number of countries across the globe have incorporated the provision of benefit sharing in their mining legislations to enable local communities to benefit from mining activities in their region.
South Africa’s Mineral and Petroleum Resources Development Act, 2002 gives communities the opportunity to obtain a ‘preferential right’ to prospect or mine a mineral on land registered under the name of the community.
In Papua New Guinea, for instance, under its Mining Act 1992 the compensation is decided based on the negotiation between the community/landholders and companies. In Australia, the aboriginals have been given special rights in case mining happens on their land. Similarly, these profit sharing practices are global and are followed in Canada, Botswana, Norway, Peru, etc.
Companies will lose profits? Hogwash
The CSE analysis clearly shows that the Indian mining sector enjoys huge profits. An analysis of the annual reports of three major non-coal mining companies (Manganese Ores India Ltd, Sesa Goa and National Mineral Development Corporation or NMDC) indicates that in 2009-10, their average profit after tax (PAT) was about 50 per cent of their turnovers. In the case of Coal India Limited, this was about 18 per cent.
Assuming the MMDR bill becomes a law, the CSE analysis of companies shows that it will not make any material difference to the profitability of the company. After sharing 26 per cent of the net profit with the affected community, the PAT of National Mineral Development Corporation – for instance -- will still be 41 per cent of its turnover (from 55 per cent). In the case of Coal India Limited, PAT will become 14 per cent of its turnover from 18 percent.
Rich lands, poor people
Almost all the country's minerals are located in regions that also hold most of its forests, rivers and tribal populations. Mining and quarrying has destroyed large tracts of forest land in these areas, affecting the ecosystem and the livelihoods of the already impoverished tribals.
The top 50 mining districts of India, that account for more than 85 per cent of the value of minerals produced in the country (Rs. 85,00 crore), have close to 50 per cent of the total mine lease area in the country. These districts also have, on average more poverty, more forest cover and larger tribal population than rest of the country. According to CSE analysis, at least 2.5 million people are directly affected by mining in these districts which include those who have lost their land and livelihoods.
If the MMDR provision would have been implemented in the current year (2010-11), then the affected population of these districts could have got more than Rs 9,000 crore as share of profit from mining companies. The per capita figure for these districts could have been Rs. 38,000 in 2010-11 as share of profit from mining companies.
The mining affected people in Jharkhand would have got about Rs 1,150 crore as share of profit from mining companies. This could have been used to reduce hunger, provide better health and education infrastructure and to ultimately bring people out of poverty.
CSE has examined a few cases in the state: Dhanbad currently produces more than Rs 3,700 crore worth of minerals. Over 30 per cent of the district’s population is below poverty line (BPL). If the draft MMDR provisions would have been implemented for the present year, the affected people of the district would have money to the tune of Rs 400 crore as profit share (2010-11 figures).
Similarly, Hazaribagh produces minerals worth Rs 1,900 crore. The affected people of the district could get Rs 200 crore as share of profit from the mining companies. Every directly affected person from mining in Hazaribagh could get Rs 17,000 annually. Singhbum (West) producing close to Rs 1,200 crore worth of minerals, would have got Rs 126 crore for its mining-affected people had this provision become operational. With close to 60 per cent of its population as SC and ST, Singhbum (W) could have got more than Rs 18,000 annually for its mining affected people.
Says Chandra Bhushan: “This money should be used not only to reduce present impoverishment but also for future well being of the communities like investment in health and education. There is huge opposition to this bill and it may get axed. It is very important for the communities that this bill goes through.”
|[Date: August 5, 2011]
CSE releases its new report in Ranchi
|Report on Profit Sharing released in Odisha on June 24, 2011
Download full report (pdf)
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|CSE's strong support to set aside 26 percent of net profits from mining to be shared with local communities|
|'Profit sharing won't affect mining cost'|
|June 24, 2011 CSE releases its report on profit sharing in mining|
|Tentative programme schedule (pdf)|
|List of the documents|
|The Mines and Minerals (Development and Regulation) Act, 2010.|
|The bulletin of mining leases and prospecting licences 2009|
|Ministry of Mines: press release|
|International experience with benefit-sharing instruments for extractive resources|
|Towards sustainable mineral-intensive growth in Orissa|