`Hike in iron ore royalty, export duty will hit mining hard'

The Hindu Business Line : `Hike in iron ore royalty, export duty will hit mining hard'
Phalguna Jandhyala
New Delhi, Feb 20
The Federation of Indian Mineral Industries (FIMI) has said that the proposed move by the Government to increase royalty and export duties on iron ore would adversely affect the mineral's mining industry. Sources in the Mines Ministry told Business Line that the Federation, in a recent memorandum to the Ministry, said that if the proposals were carried out, it would lead to the closure of several mines and in turn, would affect the domestic steel industry. "The members said if the proposals are implemented, then India will be the highest taxed country amongst major iron ore producing regions with the proposed royalty and duty rates and the additional tax burden on exporters will marginalise exports, resulting in the closure of many mines," a source close to the development said. As per estimates, Brazil, the largest iron ore producer with domestic steel production comparable to India, has a royalty of two per cent and no export duty. Similarly, Australia has a royalty of 3.5 to 7.5 per cent, with no export duty, while South Africa has a royalty of only three per cent and also does not impose any export duty. The source said that the Government has proposed a royalty of 10 per cent ad valorem on sales realisation and an export duty of 10 to 15 per cent. Demand projection "The FIMI members said that at the current rate, India should be able to sustain the projected domestic steel demand for close to 200 years and the current iron ore resources of about 25 billion tonnes would last for the next 85 years." He further said that FIMI in the memorandum, has said that with more exploration, development of technology to economically treat lower grade ore and increase use of scrap will further help sustain the need of the domestic steel industry. Government data show that in the last 25 years, while India has increased its iron ore resources by about 45 to 50 per cent, Australia and Brazil have grown their resources ten-fold. "If India were to increase spend on exploration, deploy best-in-class technology and explore new areas, it could add another 20 to 25 billion tonnes of resources," the official said. Currently, India spends only around $5 million on exploration predominantly on coal as compared to $500 million and $150 million in Australia and Brazil respectively. `Not for long' "The FIMI members had also stated that higher profitability of iron ore exporters in recent years is part of a normal industry cycle and in line with that experienced by other sectors. They also said that the current profitability levels will not hold for long as major players from Australia, Brazil and South Africa bring significant new capacity online in the coming years," the official pointed out. He also said that the members feel that the way forward would be to treat iron ore mining as a separate industry. "FIMI has said that by not doing so, a situation similar of what happened to thermal coal will be repeated. They said that despite having an approximate reserves of 80 billion tonnes, power companies would be forced to import around 25 per cent of their requirements by 2012 due to lack of adequate investments in exploration and infrastructure creation," the source said.