Coal 4 India is a new online forum initiated to discuss and address key issues related to the Indian coal mining industry and more specifically Coal India Ltd (CIL). The objective is to increase the benefits for all stakeholders. CIL has a vast untapped resource base and India’s demand for good quality coal outstrips current supply. By increasing the availability of good quality coal, the people of India will benefit as it will improve the supply of electricity which in turn will result in a higher standard of living and economic growth in general. Responsible treatment of environmental issues are also critical to address.
There is a bill in the Indian Parliament to amend the Mines and Minerals Development and Regulation Act (MMDR) which proposes a dramatically higher taxation of coal mining profits. In theory to benefit people affected by the industry.
The Government of India is right to be concerned about the needs and aspirations of the Indian people, and therefore to identify ways in which additional resources can be channelled to best effect.
However, there are significant drawbacks in the current proposals to amend the MMDR, and there is a better way to achieve the Government’s aims.
Under the current proposed Mining Bill, the amount to be redistributed is based on the profits earned by the company, which are subject to influence and adjustment by each company, and has no connection with the amount of coal produced by each company.
It would be far better for the funds raised to be linked to a moderate production royalty. This way people living or working in loss making coal mines would also receive compensation.
In addition, the effective tax rate for the industry under the proposed bill becomes over 80% of pre-tax profits which is a strong disincentive to investment and production. CIL employs more than 200,000 people in loss making underground mines. These jobs are all put at risk from further closures due to this tax.
Letter to the Indian Minister of Finance
Currently, CIL has INR 54,000 crores net cash which should be used to make a large special dividend for all shareholders. We also believe that Coal India should raise its dividend payout ratio significantly as it is capable of funding all its growth from operational profits each year. This will be beneficial for the people of India in two ways; first, it reduces India’s budget deficit and second, it will boost CIL’s share price which will increase the value of the stake the Government of India holds in CIL. It will most likely increase the value of other listed PSU’s as the government will be seen as supportive to minority shareholders which provides support for IPO’s and FPO’s and free up more funds for the Government of India to create jobs.
Presentation on Coal Washing
Currently, 30-50% of CIL’s thermal coal is ash and dirt that should be washed. Coal washing only marginally increases the cost of electricity while the environmental benefits and benefits to the power companies are substantial. Coal India has significant strength in its argument for appropriate pricing of the better quality coal which it delivers from coal washeries. The power industry would benefit enormously, in terms of operational efficiency, saving of transportation cost, and above all by the appropriate management of ash disposal and environmental mitigations. The target should be to aim at immediate enforcement of the present policy of the Ministry of Environment, which is:
• to reduce the maximum permitted distance from 1,000 kilometres to 500;
• to oblige such power plants to use washed coal by 2015 at the latest; and
• beyond 2015, to impose a timetable over which all remaining power plants must use washed coal.
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