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Issue 29
, 2010
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Mining Goodwill

Source: The Telegraph, Date: , 2010

Environment activists, rejoicing at the recent jolt to the Vedanta mining project in Orissa, seem to be on a collision course yet again with industry groups in the country. A storm seems to be brewing over the proposed Mines and Minerals (Development and Regulation) Bill, 2010, put forth by the Indian ministry of mines, which seeks to amend the MMDR Act, 1957.

The draft bill seeks to levy additional taxes and duties — in terms of excise and customs duties and security deposits — on mining operations. It also gives greater powers to state governments to impose taxes on mining activities. What’s more, the draft has included a provision whereby mining corporations are required to share 26 per cent of their equity or profits with indigenous people affected by their projects.

Furthermore, Section 42 (2) of the bill says the holder of a mining lease is required to provide employment and/or other assistance to affected families as per the “rehabilitation and resettlement” policies of the state governments. It also lays down that “the state government through the Gram Sabha or the District Council or the Panchayat... shall identify the families affected by the mining operations... before the commencement of such operations.”

The draft bill explains that the compensation will ensure that affected families won’t fall below the poverty line and that they receive an “income equal to at least the income earned by the family before the start of mining operation”. Moreover, the compensation prescribed under this section “shall be in addition to any other amount or compensation payable to the person holding occupation or... traditional rights of the surface of the land under any other law for the time being in force”.

Leading environmental organisations like the Delhi-based Centre for Science and Environment (CSE) have welcomed the profit-sharing provision in the bill. According to a CSE report, between 1950 and 1991, mining in India displaced about 2.6 million people and not even 25 per cent of them have been resettled. It further shows that for “every one per cent that mining contributes to India’s GDP, it displaces three to four times more people than all development projects put together”.

CSE director Sunita Narain maintains that the industry needs to “understand that unless the country can evolve an inclusive growth model, there will be no development at all”. However, associations like the Federation of Indian Chambers of Commerce and Industry (FICCI) and Federation of Indian Mineral Industries (FIMI) have come down heavily on the compensation provision of the bill. They are also opposing the additional duties and taxes that it proposes.

In a letter to finance minister Pranab Mukherjee, FICCI secretary general Amit Mitra says that the profit-sharing provision is “complex, difficult to implement, and will put a very high financial burden on mining companies.” He adds, “The provisions relating to compensation, along with numerous others already imposed on the mining sector, will discourage modernisation of the sector and make many mining projects unviable.”

Therefore, FICCI has recommended that the government opt for a “one-time fixed compensation” for the displaced or those affected by mining operations in any other way. FICCI is also of the view that the government should not impose any more cess or tax, other than royalty, on the mining industry.

“The government says it’s following some international models insofar as the 26 per cent profit-sharing provision is concerned. If 26 per cent is the magic figure, why not ask for 26 per cent of the royalty companies pay to the government for the benefit of project-affected people,” asks R.K. Sharma, secretary general, FIMI, a conglomeration of 350 mining operators and associations in India.

Sharma points out that shareholders who contribute financially will not accept the earmarking of 26 per cent of free shares or profits. “People who do not contribute financially will get away with 26 per cent of the profits, but will not share the losses. This will definitely drive away investors,” he says. Therefore, FIMI recommends a royalty-linked compensation plan.

Environment activists, however, do not agree to this. “Of course, they will opt for a royalty-linked compensation because in the case of some resources like iron ore, the royalty paid to governments is as low as 10 per cent,” says Chandra Bhushan, deputy director, CSE. “Indian mining companies make super profits. And some companies like Sesa Goa have cash reserves of about Rs 7,000 crore. So even after sharing 26 per cent of the profits, mining companies can keep a reasonable amount of profit.”

Bhushan adds that the profit-sharing system is an established international best practice. For instance, South Africa’s Mineral and Petroleum Resources Development Act includes provisions that give local communities powers to benefit from mining projects. Similar practices are also prevalent in mineral-rich countries like Peru, Chile and even Papua New Guinea.

However, some experts are of the view that even profit sharing may not be enough to protect the interests of those affected by mining operations. “Under international law, industrial projects cannot take place on tribal peoples’ land, and they cannot be removed from their land, without their free, prior and informed consent,” says Miriam Ross, spokesperson for the London-based non governmental organisation Survival International, which fought mining giant Vedanta on behalf of the Dongria Kondh tribe in Orissa where the company wanted to open bauxite and alumina mines. “While agreements to share the profits from mining with local people may in some cases be welcome, this is not a substitute for respecting indigenous peoples’ rights to their land.”

Ross feels that development for tribal people should not be the responsibility of mining companies alone. “If people get access to basic healthcare and education from a mining company, they will be under enormous pressure to accede to whatever it wants to do on their land,” she says. “Where projects do go ahead, it’s crucial that development assistance is used in the way the local people choose, rather than in the way someone else thinks is best for them.”

Others believe that a profit-linked compensation approach could be abused as companies can tamper with their balance sheets and may not show their actual profits. “Fudging of profits is not desirable. In that case, an equity-based approach may seem better,” says Nitya Nanda, senior research fellow, The Energy and Resources Institute, Delhi. “In fact, there is no perfect model. At the end of the day, a balance has to be struck keeping in mind the interests of all parties.”

An official with the Indian mining ministry, who doesn’t wish to be named, says the government is reconsidering the compensation and other provisions in the bill. “The bill is with the group of ministers concerned. Deliberations are on,” he says.

So in all probability the bill may be tabled in Parliament next year rather than during this year’s winter session, as many believe. Whatever the case may be, one hopes the government will stick to its new-found agenda of development with a human face.