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Miners may’ve to share revenues with displaced by Subhash Narayan & Rohini Singh


The government is likely to make it mandatory for mining companies to hand over a part of their revenues and make annual payments to land losers, bringing compensation rules in this sector in line with a policy followed by the Haryana government which has won the backing of Congress president Sonia Gandhi.

But in a sop to companies, which have been unenthusiastic about earlier plans for profit-sharing, the ministry of mines is also actively considering scrapping rules under which state government-owned mining companies are favoured when mines are allocated. The revenue sharing model combined with annual payments is likely to find its way into a proposed legislation setting the rules for investment in minerals, according to a government official involved in the drafting process. The legislation, known as the Mines and Mineral (Development and Regulation) Bill is being written under the supervision of a group of senior ministers.

The bill, which has been in the works for a while, has become extremely high-profile in the wake of the government’s decision to deny permission to mine bauxite to Anil Agarwal’s Vedanta in Orissa’s Niyamgiri. While that decision was prompted by the project’s alleged impact on the environment, wider concerns about the impact of mining on local populations have come into the limelight.

An earlier version of the bill had suggested that miners should share profits and issue equity to those displaced by mining. But some ministers involved in the drafting process feel that companies may be economical with the truth as far as data on profit are concerned.

“Issuing shares and profit sharing are not foolproof and may result in a denial of benefits to project-affected persons. Sharing a certain percentage (that can be finalised later) of sales realisation will prevent misreporting of profit figures,” said a mines ministry official. Under rules that are currently in place, the state government collects royalty, which is a fixed percentage of sales.

Both profit and revenue sharing could be on offer with the beneficiaries receiving the higher of the two. “Affected people could get the higher of the 26% profit or the revenue share. The percentage (of revenue share) could be worked out later,” the official said.

Congress backing

The government’s proposal has also received the backing of the Congress party that has thrown its weight behind the drive to maximise benefits for project-affected families, especially in the mineral-rich but backward areas of the country. Many such areas are inhabited by the scheduled tribes (ST), which have the highest percentage of people living below the poverty line.

An influential Congress leader said compensation by issuing free shares alone was unrealistic because of the socio-economic profile of tribal communities.

No preferential treatment for state cos

“It will be very difficult for tribals to do valuation of shares offered to them as compensation. The idea behind profit sharing is good but the figures can be fudged by companies. The best solution is to part (with) a portion of market price that mining companies get on minerals to provide permanent livelihood support affected people,” Congress general secretary Digvijay Singh told ET.

The proposed changes in the bill will be in addition to the provision under which companies will also have to offer one free share to each member of projected-affected families, the official involved in the redrafting said.

The proposal will apply to all companies according to the government official involved in the redrafting. Large private companies with extensive mining interests include Tata Steel, Hindalco, Jindal Steel and JSW. State-owned companies like Steel Authority of India, or SAIL, and Nalco, the aluminium maker, also need to mine.

Private companies will benefit from the removal of preferential treatment for state-owned miners if that provision survives in the bill’s final version. Traditionally, companies such as Vedanta have been forced to tie up with bodies such as the Orissa Mining Corporation to access mines.

A body which lobbies for the mining industry was unenthusiastic about revenue sharing. “Mineral companies are already burdened by the shift of fixed royalty system with one based on value of minerals. Any additional burden by way of revenue sharing will spell death knell for companies besides (being) a big disincentive for foreign investment in the sector,” said an official from the Federation of Indian Mineral Industries.

FIMI has already made several representations on the draft bill and has termed several provisions detrimental for the growth of the mining sector in India. The MMDR bill has already gone through several iterations. The latest changes incorporating annual payments to land losers is in line with similar changes in another proposed legislation on land acquisition. After Mrs Gandhi touted the Haryana model in a recent speech, the government moved to incorporate provision for annual payments, often referred to as an annuity, in a bill intended to replace the 1894 land acquisition Act. The idea is that a person giving up land gets payments during his lifetime apart from the compensation paid at the time of acquisition.

In a previous interaction with ET, mines minister BK Handique had said that making land losers as stakeholders in mining projects was one of the prime goals of the new mining bill. “I will ensure that mining companies share adequate portion of their earnings with local people,” he said.