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Jul 08, 2011 03:43 pm


By Ruma Dubey

“What is mine is mine and what is yours is also mine” is probably all set to change!

A ministerial panel approved a draft bill for the mining sector – the draft Mines and Mineral Development and Regulation (MMDR) Bill, 2011, proposes to make it mandatory for coal miners to share 26% of their net profits with project-affected people. Non-coal miners ( iron, bauxite, manganese, copper, aluminium, gold, silver) will be required to pay 100% of the royalty on their production to those who were displaced due to the project. This rule applies to metal companies too, which also have their own mines.

This is Corporate Social Responsibility (CSR), only in India, it needs to be forced. As a lay man, for someone who does not own the stocks of any mining company, this is very good news. Maybe a reaction spurred on by Posco, this is a good move from a pure community or social point of view.

For eg: Coal India, in FY11 posted a consolidated net profit of Rs.10,867 crore and 26% of this would mean Rs.2825 crore which will have to be distributed to the local community directly affected or displaced by its mines.

This sounds good that the displaced people, will continue to get annually a payment of Rs.2000 crore or more ( or even less) depending on the net profit earned by Coal India. But the moot question is – who will audit whether or not the money does get to those affected? Giving money is dicey in a corrupt country like India, One can argue that being a corporate not the Govt, the money will reach the people. But that is where the issue is – this disbursal of money to the locals will happen the District Mineral Foundation, where the companies will deposit the money and beneficiaries be paid from it. If the disbursal right rests with a Govt organization, run by politicians, then one cannot say with any certainty that the money will indeed reach those affected.

On a social level, maybe asking companies to directly plough back the money to build schools and hospitals, building infrastructure for the community would have been a much better option. Or even providing employment to some of the displaced locals would empower them for life, instead of making them dependent on annual handouts. Thus without an audit, it is not sure whether the money will reach where it is stipulated to reach. Right now, it sounds utopian without a proper implementation plan, and corruption raising its ugly head with a smirk.

The market, which obviously gives two hoots to social needs, on a pure capitalist note, expectedly is not happy. This would naturally mean lesser profits for companies. The major research houses, Indian and foreign have stated that unless the mining companies hike their prices, the hit on their bottomlines and EPS would average anywhere between 8 to 15%.  Coal India’s NPM for FY11 was at 22%, which in FY12, assuming it parts with a 26% share in net profit, is expected to come down to around 16% if the same growth rate is taken. But given the high prices of coal, profit growth is expected to be much stronger and though there will be a fall in margins, it may not be too acute. NMDC has a NPM of over 55% and after this, it may come down to around levels of 45%. Yet, isn’t that good enough? Thus to say that this new Bill will dissuade other private sector investors from making investment in this sector is truly erroneous. It is only because there is so much money in mining that so many stick around, despite so many rules and regulations. The growth of the Karnataka Bellary brothers is notorious enough to remove any doubts of the sector not being lucrative.


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