Sharing the wealth of minerals – A report by Centre for Science and Environment on profit sharing with local communities

The Center for Science and Environment’s report on profit sharing in mining with local communities comes out in support of government’s recent proposal to share 26 per cent net profits

CoverThe report submits the idea that proposal will go a long way in reducing poverty and deprivation in the mining affected areas. It states that the mining industry’s opposition to the proposal has no basis - statistics prove that sharing profits will not dent the industry’s profitability.

The central government has come out with a draft Mines and Minerals (Development and Regulation) Bill, 2010 (MMDR Bill) to replace the 1957 Act. The draft bill which has been vetted by a GoM, includes this provision of sharing benefits. The CSE analysis comes out in strong support of this proposal, and clearly establishes how timely and necessary this provision is.

Mining companies and industry in general have been opposing the government’s recent proposal. Their contention is that this provision, if passed by Parliament, would drastically dent their profitability. 

The CSE analysis clearly shows that the Indian mining sector enjoys huge profits. An analysis of the annual reports of three major non-coal mining companies - Manganese Ores India Ltd, Sesa Goa and National Mineral Development Corporation (NMDC) indicates that in 2009-10, their average profit after tax (PAT) was about 50 per cent of their turnovers. In the case of Coal India Limited, this was about 18 per cent.

Assuming the draft MMDR Act, 2010 becomes a law, the CSE analysis of companies shows that it will not make any material difference to the profitability of the company. After sharing 26 per cent of the net profit with the affected community, the PAT of National Mineral Development Corporation – for instance will still be 41 per cent of its turnover (from 55 per cent). In the case of Coal India Limited, PAT will become 14 per cent of its turnover from 18 percent.

The top 50 mining districts of India, that account for more than 85 per cent of the value of minerals produced in the country (Rs. 85,00 crore), have close to 50 per cent of the total mine lease area in the country. These districts also have, on average more poverty, more forest cover and larger tribal population than rest of the country. According to CSE analysis, at least 2.5 million people are directly affected by mining in these districts which include those who have lost their land and livelihoods.

If the MMDR provision would have been implemented in the current year (2010-11), then the affected population of these districts could have got more than Rs 9,000 crore as share of profit from mining companies. The per capita figure for these districts could have been Rs. 38,000 in 2010-11 as share of profit from mining companies.  
 
The government’s proposal to share the benefits of mining with local people is an important step ahead in building an inclusive growth model. It is also in line with the best practices being followed in the world. The principles are not new and many mineral-rich countries have been following it for years without impacting the genuine profitability of mining companies. To break this resource curse, a number of countries across the globe have incorporated the provision of benefit sharing in their mining legislations to enable local communities to benefit from mining activities in their region -

  • South Africa’s Mineral and Petroleum Resources Development Act, 2002 gives communities the opportunity to obtain a ‘preferential right’ to prospect or mine a mineral on land registered under the name of the community.
  • In Canada, special mining regulations are in place to recognise the rights of the aboriginals. There are some treaties called land claim agreements (LCA) which establish defined area of land for aboriginals and cover issues of mineral rights. These agreements also give specific rights to aboriginals.
  • Papua New Guinea, for instance, has incorporated provisions under which the mine lease holder is to provide compensation to the landholders on whose land mining is to take place, under its Mining Act 1992.
  • In Australia, the aboriginals have been given special rights in case mining happens on their land. These rights are to be realised by mining agreements.

For downloading the CSE report, please click here    

 

To download a related report by World Bank "Towards Sustainable Mineral–Intensive Growth in Orissa" click here

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