Cost for mining companies will rise with the implementation of MMDR bill

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MMDR bill will increase the cost for mining companies
Coal India: Quotes, News
BSE 307.20BSE Quote5 (1.63%)
NSE 306.45NSE Quote5.65 (1.84%)
There are reports that Group of Ministers (GoM) have unanimously passed the Mines & Minerals Development and Regulation. The same will be taken up by the cabinet in nearly three weeks time.

The draft of the new bill states that coal companies should share 26% of their profit with the local population. Also other companies dealing with minerals like iron ore, bauxite and limestone will share the amount paid as royalty in the previous year.

The GoM headed by Pranab Mukherjee, Finance Minister of India, has approved the draft the Mines & Minerals (Development & Regulation) Bill.

Had the MMDR bill been implemented last year, then a company like Coal India woul beliable ot pay Rs 1,200 crore, as it registered a net profit of over Rs 4,000 crore in FY11.

According to sources in mines ministry, non-coal companies paid royalty of Rs 4000 crore in FY11. Therefore, they would have to shell an additional Rs 4000 crore worth of money to the local population in FY12.

Naturally a buzz like this has hit the stock price of various mining companies -- coal india, sesa goa etc -- listed on the stock exchanges.

Coal Minister Prakash Jaiswal told a leading new channel, "Coal miners will now have to share 26% of net profit with locals affected by mining on all existing mines." He contended that this bill will empower the companies to acquire lands promptly. Hence making it benefecial in the long run.

View: From investors perspective all valuations will need to be adjusted for this additional cost. In our view the move has come late. This should have come earlier, it is important for inclusive growth that all parties are involved. 

It would also be important that the government defines how this amount will be shared. Because lack of clarity in this aspect will lead to a new phase of corruption and malpractice. 

For mining companies other than coal, sharing of amount equivalent to the royalty may be a bit high. A review on the front would be good idea.

OneIndia Money

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