A proposed amendment, awaiting Cabinet approval, to the mining act will soon address the incidence of ‘royalty on royalty’, a long-standing complaint of miners.
The Average Sale Price (ASP), the basis of royalty, premium, District Mineral Fund (DMF) and the National Mineral Exploration Trust (NMET) are currently arrived at from prices that include royalty. This leaves miners paying ‘royalty on royalty’ with a cascading effect has a greater impact on the bottomline of mines won through auctions whose committed revenue share to respective state governments is also based on the IBM published ASP, , to the respective state government.
The Ministry of Coal dealt with the issue vide a notification in 2012 itself. The Mines of Ministry has suggested a new provision, Section 9D, in the MMDR Act that will do away with this anomaly for non-coal minerals. This is one among several issues that the amendment, now expected in the winter session of Parliament, is likely to fix and following which the ASP of ex-mine ore for both, leases won in auctions and pre-auction era leases, will exclude GST, export duty, royalty, and other levies.
If the ASP currently is INR 1000, then revenue accruing to states from, royalty would be INR 150, DMF, INR 15 for auctioned mines and INR 45 for non-auctioned mines, and NMET, INR 3.
Under the new formula, ASP would be INR 856 for auctioned mine and INR 835 for a non-auctioned mine, royalty INR 128 for auctioned mines and INR 125 for non-auctioned mines, DMF, INR 12.8 for auctioned mines and INR 37.5 for non-auctioned mines.
And NMET, Rs 2.56 for auctioned mines and Rs 2.5 for non-auctioned mines.
‘Retrospective’ implication
A committee constituted by the Ministry had taken note of some state governments’ concerns that a retrospective change would adversely impact their projected revenues from auctions – in the committee’s estimates to an extent of 15% to 17% (explanation below). It also amounted to changing the conditions of auction post award of mineral blocks with financial benefits to the successful bidders.
The total projected revenues from premium of the 149 leases auctioned up until April 2022, for the entire reserve and over their 50 year lease lives, is INR 26.5 lakh crores, the Ministry discounts 30 per cent on account of non-mineable ore or mines being non-operational or surrendered ahead of their term, to arrive at INR 12.98 lakh crore as what the states may actually realise from premiums.
Thus it concludes, the revenue reduction from this amendment is INR 1.94 – 2.20 lakh crore over the next 50 years, around Rs 4000 crore per year. The cascading burden of ‘royalty on royalty’ in the current methodology of arriving at an ASP puts an unjustifiable financial burden, which if corrected, will boost mining activity and participation in auctions and ensure sustained raw material security for industries.
Presuming 50 more mines are auctioned in the next six months, and the number of working mines increases from 1037 to 1500 in the next 5-10 years, the “retrospective” implication would only be on 200 out of these 1500 mines. Any revenue loss will be offset by the long-term benefits of this change according to the government.
More room for captive miners
With this amendment, captive miners who were allowed to sell half their material in the open market will no longer have to first fulfil their own requirements. In the interest of optimal mining and sufficient supply of the raw material, the government is deleting the phrase ‘after meeting the requirement of the end use plant linked with the mine’.
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