Impact of New Mining Levies on Consumer Power Bills and Industrial Margins: ICRA Analysis
- August 27, 2024
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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Impact of New Mining Levies on Consumer Power Bills and Industrial Margins: ICRA Analysis
Sub: Eco
Sec: Fiscal Policy
- Supreme Court Verdict and New Mining Levies:
- The Supreme Court has enabled States to impose new mining levies, which could significantly impact various industries, particularly coal-fired thermal power producers and steel and aluminum manufacturers.
- Potential Increase in Power Tariffs:
- Impact on Coal-Fired Thermal Power Producers:
- The new levies could lead to a 0.6% to 1.5% increase in costs for coal-fired thermal power producers.
- This cost increase is likely to be passed on to consumers, potentially raising power tariffs.
- Impact on Steel and Aluminum Industry Margins:
- Margin Shrinkage:
- The levies are expected to reduce the margins of domestic steel and aluminum producers.
- Specific Case of Odisha:
- In mineral-rich Odisha, a 2004 law permits a cess of up to 15% on iron ore and coal mining.
- If fully enforced, this could lead to an 11% rise in the landed cost of iron ore, reducing the competitiveness of steel firms.
- Case Study: Jharkhand’s Modest Levy:
- Minimal Impact from Jharkhand’s Levy:
- Jharkhand has imposed a modest rise of ₹100 per tonne on iron ore and coal.
- This increase is expected to have a minimal impact of 30-40 basis points (bps) on the operating margins of steel industries.
- Uncertainty from Potential Retrospective Application:
- Retrospective Cess:
- There is uncertainty regarding the possibility of States applying the cess retrospectively, which could burden firms with past tax liabilities.
- However, the Supreme Court has allowed staggered payments over 12 years starting April 1, 2026, with no interest and penalties for past dues.
Overview and Key Amendments: Mines and Minerals (Development and Regulation) Act, 1957
The Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) is a cornerstone legislation in India that governs the mining sector.
Primary Objectives of the MMDR Act:
- Development of the Mining Industry: To foster the growth and development of the mining sector in India.
- Mineral Conservation: To ensure the conservation of mineral resources for future generations.
- Transparency and Efficiency: To bring transparency and efficiency to the process of mineral exploitation.
Key Amendments to the MMDR Act:
2015 Amendment:
This comprehensive amendment introduced several key reforms to modernize the mining sector:
- Auction Method:
- Mandated the auctioning of mineral concessions to enhance transparency in the allocation process.
- District Mineral Foundation (DMF):
- Established the DMF to benefit areas and communities affected by mining activities.
- National Mineral Exploration Trust (NMET):
- Created the NMET to boost mineral exploration activities across the country.
- Penalties for Illegal Mining:
- Implemented stringent penalties to curb illegal mining activities and ensure compliance with regulations.
2016 and 2020 Amendments:
- These amendments addressed minor issues in the mining sector to ensure its smooth functioning.
2021 Amendment:
Introduced significant changes in the classification and management of mines:
- Distinction Between Captive and Merchant Mines:
- Captive Mines: Operated by companies to produce minerals exclusively for their own use. The amendment allowed captive mines to sell up to 50% of their annual mineral production in the open market after meeting the needs of the end-use plant for which the block was originally allocated.
- Merchant Mines: Operated to produce minerals for sale in the open market. The extracted minerals are sold to various buyers, including industries without their own mines.
- Auction-Only Concessions:
- Ensured that all private-sector mineral concessions were granted through auctions, promoting transparency and fairness in the allocation process.
2023 Amendment:
The 2023 amendment was focused on strengthening the exploration and extraction of critical minerals:
- Focus on Critical Minerals:
- Removed 6 minerals from the list of 12 atomic minerals previously limited to exploration by State agencies.
- Empowered the government to exclusively auction mineral concessions for critical minerals essential for India’s economic development and national security.
- Exploration Licenses:
- Introduced exploration licenses to attract foreign direct investment (FDI) and engage junior mining companies in exploring deep-seated and critical minerals.
- Aimed at reducing dependence on imports and encouraging private sector involvement in the exploration and mining of critical minerals.
- Recognition of Strategic Minerals:
- Recognized the importance of minerals like lithium, graphite, cobalt, titanium, and rare earth elements for future technologies and India’s commitment to energy transition and achieving net-zero emissions by 2070.