Transferring 26% of mining profits to local populations

The Indian government is thinking about giving local people a stake in the resources mined from their area by offering them 26% equity or payout of profits. But will government implement profit-sharing any more effectively than it implements the rehabilitation of the displaced?

Last month, a 10-member Group of Ministers (GoM) met twice to discuss one of the most pressing issues regarding India’s development: How to best compensate members of tribes whose livelihoods are disrupted by industrial projects, especially mining?

The first meeting was held on July 22, 2010. One of the proposals discussed was to “allot free shares equal to 26%” of a project’s equity to the local population affected by mining projects as well as to provide employment opportunities. The GoM failed to arrive at a conclusion on this proposal

So, the GoM met again, on July 31, 2010. This time round the ministers agreed to make the local populace stakeholders in mining. “The proposal has been accepted in principle, whether it happens through 26% equity or 26% profit has to be decided,” Mining Secretary Santha Sheela Nair told the media, refusing to divulge more details.

“The affected local population can be given shares at par to make them owners in mines and making them shareholders. For example, every person of an affected family can be given a share,” Nair said, adding: “The 26% equity has to translate to some definite amount.”

One of the major debating points for the ministers was how any shares will be allocated and how the benefits of mining will reach impoverished tribal folk. It is learnt that some members of the GOM were of the view that the affected people should be given a part of the annual profits.

But the draft bill for a new mining legislation that may be called the Mines and Minerals (Development and Regulation) Act, 2010, provides for 26% equity participation in case of private companies.

“From the government’s perspective, giving local folk a stake in a project could be one way to win the hearts and minds of a large population of tribals in India’s mineral-rich states,” an official from the Ministry of Mines said. The mining industry, on the other hand, was concerned about how a share allotment will impact ownership and control.

Last month, the Indian government had formed the 10-member GoM headed by Finance Minister Pranab Mukherjee to debate the proposed legislation to govern the sector. “After the GoM’s deliberations, the Bill will be sent to the Cabinet for its approval and then to Parliament,” a senior official from the Ministry of Mines had said.

At the moment, the sector is governed by the Mines and Minerals (Development and Regulation) Act, 1957 which has been called an archaic law, with many things proving contradictory to each other.

The proposed legislation is more about attracting domestic as well as foreign investments in the mining sector by making the process of granting mining concessions transparent and expeditious for industry, as also other issues including powers of granting mining leases, reservation of mineral-bearing areas for public sector units (PSUs) and conservation of minerals among others.

The ten-member GoM comprises senior ministers, mainly Home Minister P Chidambaram, Law Minister Veerappa Moily, Commerce Minister Anand Sharma, Steel Minister Virbhadra Singh, Coal Minister Sriprakash Jaiswal, Mines Minister B K Handique, Planning Commission Deputy Chairman Montek Singh Ahluwalia, as also Environment Minister Jairam Ramesh and Tribal Affairs Minister Kantilal Bhuria.

At the core of the GoM discussions was how to eradicate problems arising from a lack of transparency, especially the growing disgruntlement and massive protests that have disrupted the development projects of several states, especially when it comes to mining projects such as Vedanta’s bauxite project in Orissa or Uranium Corporation of India’s uranium mining project in Meghalaya.

One of the proposals in the draft bill of course was to allot free shares equal to 26% of a project’s equity. In a letter dated July 23, 2010, addressed to Finance Minister Pranab Mukherjee, R K Sharma, Secretary General of the Federation of Indian Mineral Industries, called the draft legislation “negative” and said that “not a single dollar of private investment will come to India” if the proposal is implemented.

Minister for Mines B K Handique said that the Tatas were supportive of the idea of sharing 26% of the profit of mining companies from operations in a given area with the locals instead of equity, while the apex industry association FICCI opposed the move saying providing shareholdings to tribals in mining projects is complex.

The world’s largest steel producer ArcelorMittal, which is pursuing steel projects worth Rs 1.3 lakh crore in India, said it favoured a “fair settlement” to tribals for their land acquired, instead of a 26% equity proposed by the government.

H C Daga, senior president of Essel Mining and Industries Ltd, a unit of the Aditya Birla Group, said in a media interview that “such a move could hamper the growth of the mining industry considerably and thereby affect the growth of the country,” adding “this would be like a return to the times of the landlords and colonies, where we would have to give away a share of our profits.”

However, social activists have welcomed the proposal. Nandini Sundar, who has been working on tribal issues for two decades, said: “This proposal has been a demand for a long time and it will be great if it’s implemented. The tribals need to be trained and educated about the benefits of having this power so that it can be used correctly.”

A shift from receiving onetime compensation or a remuneration package to being shareholders in mining projects could certainly have a big impact on the tribals’ livelihoods, feels C P Chandrasekhar, a professor at the Centre for Economic Studies at Jawaharlal Nehru University.

And the impact may not be as detrimental to investment as some think. According to Chandrasekhar: “Compensation and profit-sharing agreements are important, and the overall impact on the economy is almost the same as the impact of taxation. The investors might be deterred for a while but in the long run nothing deters investors as long as there is a profit to be made, and thus this might not be such a bad decision for the economy.”

The key question is whether governments can implement profit-sharing more effectively than rehabilitation programmes in the past. The Union government may be considering making it mandatory for mining companies to share 26% of profits with local communities, but its own coal producing company spent just 0.5% of its profits on corporate social responsibility (CSR) projects in 2009, according to data collected by the Chhattisgarh government.

South Eastern Coalfields Limited (SECL), a subsidiary, mined nearly three-quarters of Coal India’s total output in the tribal districts of Koriya, Korba, Sarguja and Raigarh in north Chhattisgarh, helping itself to a profit of Rs 2117.21 crore last year, but  spent just Rs 7.43 crore — a minuscule 0.5% of its profits — on CSR.

This should embarrass the Indian government when it is trying to appear less rapacious and more humane by introducing a profit-sharing clause in the new mining bill. More so, since SECL is a ‘Mini Ratna’, and its parent company Coal India is a Navratna — a privileged status to India’s best-performing PSUs.

Another Navratna, National Mineral Development Corporation (NMDC), India’s largest iron ore producer, made a profit of Rs 3448 crore, but spent only Rs 85 crore or 2.46% of the profits on CSR, according to figures provided by the Chhattisgarh government. NMDC has been mining iron ore in the Bailadila hills of Dantewada since the 1960s. The district today is better known as a core base for Maoists rebels.

Officials in the Ministry of Mines backing the 26% equity/ profit proposal argue that this would bring development and prosperity to long-neglected areas and would help India meet the growing demand for minerals and energy from an economy growing at more than 8% a year.

In theory, India’s tribal communities, who together constitute around 8.4% of the population and are concentrated in the country’s mineral belt, are supposed to have special legal protection against forcible dispossession from their land. Much of the land under contention is deemed protected forest, to which tribal groups are supposed to have special rights.

PESA in the Red Corridor

The Gujarat-based Institute for Rural Management, Anand (IRMA), has documented the poor implementation of PESA, or Panchayat Extension to Scheduled Areas Act of 1996. None other than Manmohan Singh had commissioned the study to know the progress of Panchayati Raj. But when the prime minister released the report two months ago, to mark Panchayati Raj Day (the anniversary of the passing of the 93rd amendment to the Constitution), the two-volume report had a chapter missing: the crucial one on the implementation of PESA in what is known as the Red Corridor.

The chapter makes statements that are critical to the current policy in the region overrun by Maoists: “There is a veritable crisis in several PESA areas with despair, insecurity and a breakdown of the rule of law and access to justice within the constitutional framework.”  It further highlighted that 3/4th of the people (in PESA areas) have a low standard of living index, female literacy is below the national average, less than a quarter of the population lives in pucca houses and less than a third have an electricity connection.

The PESA chapter reportedly upset Home and Panchayat officials because it draws on the government’s own data and fieldwork to explain the ground reality. It reminded that PESA is meant to protect the tribals and emphasised the primacy of the Gram Sabha, stating that the state cannot acquire land without the permission of the Gram Sabha or issue ‘mining’ rights on tribal lands without the permission of the Gram Sabha. On both counts, the PESA chapter quoted government records to establish that the government has failed miserably. PESA is a new legislation and overrules all the land acquisition Acts. But the states overrule PESA and apply the central Land Acquisition Act of 1894 vintage to acquire tribal land at will!

On the mining industry, the chapter had this to say. “When it comes to acquiring mineral resources for industry, the stakes are similarly loaded against the functioning of the PESA Act… For example, in the past years, companies paid the state a royalty of Rs 26 per tonne of iron ore, selling it for over 100 times that, or an average of Rs 3,000. This means profits run into crores of rupees.’’

A former chief minister of Madhya Pradesh told IRMA: “Its (PESA) implementation would put an end to mining projects.”


Private companies are known to have manipulated the process of law to acquire more and more land for mining. For years governments turned a blind eye to illegal mining. According to a report in Frontline (July 16, 2010), there are about 15,000 illegal mines spread across the country as against 8,700 legal mines and, “in several parts of the country, the boundaries between legal and illegal mining merge seamlessly”.

An estimated 1.64 lakh hectares of forest land have already been diverted for mining in the country, according to the magazine, and “in the first four-and-a-half decades of independence, mining displaced about 2.5 crore people and not even 25% of them had been rehabilitated. Of the displaced people more than half were from tribal communities.”

According to the Ministry of Mines, India produces as many as 86 minerals and they include 13 major minerals, namely, iron ore, manganese ore, chrome ore, sulphur, gold, diamond, copper, lead, zinc, molybdenum, tungsten, nickel, and platinum. On July 14, 2010, Minister of Mines B K Handique, addressing the US-India Business Council organised by the Manhattan India Investment Round Table at the prestigious Harvard Club in New York, said 30% of the world’s titanium, 13% of high grade iron ore, 8% of coal, 7% of chromite and 4% of bauxite are found as resources in India.

However, the growth rate in India’s mineral sector has been pegged at a sluggish 2.8%. If it is to push the growth in mining to around 5%, officials in the ministry believe, India needs to deal with the Maoist insurgency raging through India’s tribal heartland. That much of India’s mineral potential exists in its poorest regions, where the Maoists are strongest, represents a direct threat to the country’s growth trajectory at a time when it struggles to meet demand for coal, iron ore, steel and other commodities.

Planning Commission data shows 41.8% of the rural population still lived below the poverty line in 2004-05, and here, Maoists find an abundance of potential recruits. In particular, remote tribal communities, lacking in basic government services, have become the core constituency for the Maoists.

Tribal protests against mining and industrial projects have gained international attention through global campaigning groups such as Amnesty International and Survival International.  Maoist violence killed 426 people from January to July this year, up nearly three times from a year ago, the South Asia Terrorism Portal shows, spotlighting the danger of mining in India’s mineral-rich eastern and central states and the challenge to the country’s ability to maintain law and order.

Business analysts say India must attract $7 billion in funds by 2013 to develop an additional 100 million tonnes of coal and 50 million tonnes of iron ore to meet estimated demand and maintain economic growth of more than 6%. But, they add, investors can only be won over by a concerted effort to negate the Maoist threat and speed reform.

The business analysts hope the GoM will consider these points while debating the draft bill for a new mining legislation, revise it accordingly, and perhaps water down the 26% profit-sharing figure, before it goes to parliament early next year prior to becoming law. Will government comply with the demands of the industrial sector?


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