Study group favours 10% royalty on iron ore

Study group favours 10% royalty on iron ore

A government report has recommended that royalty rates for iron ore be fixed at 10% of the market value to boost the states’ share of revenues, as international prices of the commodity soar.

If adopted, the proposal of the study group on royalty for major minerals will mark a fundamental shift in the calculations of iron ore royalties. The study is being coordinated by the mining ministry, with representation from several mineral-bearing states.

At present, India’s royalty rates on iron ore are the lowest in the world, following the archaic practice of prices based on every tonne extracted from the ground, a so-called tonnage system, instead of market value, known as an ad valorem rate. The group’s recommendations need cabinet approval.

As the report on royalty is completed this week, state officials met on Monday for final rounds of discussion.

They have suggested that the Indian Bureau of Mines prepare an iron ore price chart every month. States, which desperately need royalties to boost development, have also raised concerns about how royalties can be collected from steel companies with captive mines, such as Tata Steel Ltd, Steel Authority of India Ltd and Jindal Steel & Power Ltd.

At present, the arm of the mining ministry compiles the returns and sales filed by miners themselves, a process which has raised speculation of under-invoicing in the past.

States such as Chhattisgarh have demanded the sale price listed by the National Mineral Development Corp. Ltd, the country’s largest iron ore producer, be taken as a benchmark. “The rates for companies with captive mines must be fixed on the prevailing market price and not on its raising (production) cost," according to a state official who spoke on condition of anonymity.

Despite global prices of iron ore skyrocketing, states continue to get between Rs16 and Rs27 a tonne. For example, states such as Orissa produced 49 million tonnes of iron ore last year, but received a mere Rs130 crore as royalty.

The new mineral policy, awaiting the cabinet’s approval, has suggested a shift from tonnage-based royalty to market rates. It has recommended 7.5% as a benchmark, lower than the 10% suggested by the study group amid protests from miners, who want the tonnage-based royalty to continue, citing high export duty.

Jharkhand and Chhattisgarh have demanded a royalty hike of 20%; Orissa has claimed an even higher 22-25%. Karnataka put its demand at 10%, according to an official.

Several nations such as Canada, Chile and South Africa do not levy any royalty on their minerals. Some analysts, such as steel and mineral investment consultant Ahmad Shah Firoz, suggest doing away with the system altogether: “Mining needs to be treated as a full-fledged industry with a normal taxation regime."