Dharmendra Pradhan hints at short-term ban on iron ore exports to boost construction

Financial Express | Nov 20, 2020
Domestic iron ore prices across grades has doubled from Rs 4,000 per tonne to Rs 8,000 per tonne on an average, causing a spike in the cost of steel production.

The Centre is considering imposing a short-term ban on exports of iron ore, since the steel sector is facing a raw material shortage, Union minister for steel, petroleum and natural gas Dharmendra Pradhan said on Thursday.

Domestic iron ore prices across grades has doubled from Rs 4,000 per tonne to Rs 8,000 per tonne on an average, causing a spike in the cost of steel production. Two tonne of ore are required for a single tonne of steel production.

Addressing the MCC Chamber’s annual general meeting here, Pradhan said, “India produces around 250 million tonne (mt) of iron ore per annum, whereas the requirement is around 180 mt. So the 70 mt will have to be exported,” Pradhan said, but acknowledged the present short supply situation. Higher prices of steel could be a dampener for the construction industry, which is looking up, after the cessation of activities due to the pandemic-induced lockdown.

“TMT bars, used for construction, are now being sold at Rs 50,000 per tonne. Hot roll coil prices have gone up from Rs 35,000 per tonne to Rs 42,000 per tonne during the past few weeks. There will be no buyers of iron and steel at such a high price and projects will get halted. Even the infrastructure projects will become unviable if prices of construction material go up at such a level,” said Lalit Beriwala, managing director, Shyam Steel.

West Bengal has 64 sponge iron and steel-making units and none of the units have more than 15 days of raw material stock. “ These units will close down in 15 to 30 days, if the government doesn’t take action to ensure iron ore supplies to the industry,” Beriwala said.

Pradhan made clear that pricing was a matter of market dynamics and the government had no intentions to regulate on the market forces, though supplies was its concern.

The ore supply problem has emanated from the auctioned merchant mines of Orissa, which during the first half of the fiscal has produced only 4.06 mt against a targeted 24.47 mt during the period. The government up to March this calendar year has auctioned 21 of the 24 mines but only seven mines have started production with the rest not yet starting to produce. The 11 mines of Orissa Mining Corporation (OMC) and a few other merchant mines, whose lease period are yet to expire, produce 4. 74 mt per month on an average but these mines have brought down production to 2.14 mt as of August this year, further escalating the short supplies.

The 21 operational mines, which were auctioned, after the earlier lease holders’ term expired, have the capacity to produce 90 mt per annum. But most of these mines, save that of the JSW’s and AMNS’ (earlier Essar Steel), didn’t start production. The little that JSW and AMNS produced, were carried for their own iron and steel units.

The operational mines were bid out at premiums ranging between 94 and 150% over the base price of ore as set by the Bureau of Indian Standards. Besides the winners of the bids agreed to pay a royalty of 15% on the base price, 30% of the royalty as District Mineral Fund Contribution and 2% of the royalty to the National Mineral Exploration Trust. All these put together, specially the high premiums, to be paid to the government, has made mining commercially unviable, for which most have not started production, though aggressively bade of them.

DMF funds to be utilised for welfare of people: Odisha CM

The New Indian Express | Nov 08, 2020

Chief Minister Naveen Patnaik on Saturday said funds from the District Mineral Foundation (DMF) will be utilised for welfare of the people.

BHUBANESWAR: Chief Minister Naveen Patnaik on Saturday said funds from the District Mineral Foundation (DMF) will be utilised for welfare of the people. Inaugurating the mini-hydro power project at Singhanali in Keonjhar district through video conference, the Chief Minister said the State grid will get 100 million units of power from this project.

Stating that the project is a milestone in green and renewable energy sector, the Chief Minister said such small energy projects will help the State tackle the environment that changes well. Implemented by the Hyderabad-based Baitarani Power Project Pvt Ltd, it will benefit the people of Anandapur.

Stating that Keonjhar has made immense contribution to the State as well as national economy, the Chief Minister said the government is taking steps for overall development of the district. Minister of State for Skill Development and Technical Education Premananda Nayak, Minister of State for Energy Dibya Shankar Mishra, Chief Secretary Asit Tripathy and 5T Secretary VK Pandian were present.

District Mineral Fund collections bounce back from lockdown lows

Business Line | Oct 13, 2020

Rebound reflects recovery in mineral production across the country
Monthly collections in District Mineral Funds (DMF) have recovered significantly from their lockdown lows, with the gap between collections during 2020 and 2019 narrowing by September-end.

According to data shared by the Ministry of Mines, country-wide DMF collections last month stood at ₹718.46 crore, up from ₹417.29 crore in May, when the country was in the throes of the Covid-19 lockdown.

But compared to the ₹770.99 crore accrued in September 2019, the collections trailed by 6.81 per cent year-on-year.

Under the Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY), mining companies have to make a contribution for the development of districts where mining activities take place, over and above their royalty payments.

These DMF collections, therefore, are directly linked to the country’s mineral output.

The amount is accumulated in funds controlled by individual District Mineral Foundations.

Arriving at the amount

For mining leases granted on or after January 12, 2015, an incremental amount equal to 10 per cent of the royalty needs to be parked by the mining companies towards DMF contributions.

For those granted before January 12, 2015, the contribution is equal to 30 per cent of the royalty.

Since the royalty is levied either on a per-tonne basis or ad valorem (linked to the sale price of minerals), across States, an increase in mineral output means higher royalties being collected. This also means more accruals in the DMF. With the lockdowns curtailing economic activity, mineral production also took a hit.

Problematic quest for tangible assets

The Indian Express | September 21, 2021

Proposal to use District Mineral Foundation funds for creating infrastructure goes against the purpose of such funds – they need to be used for welfare of mining-affected communities.

The Ministry of Mines has recently proposed “reforms” in the mining sector under the Atmanirbhar Bharat scheme to stimulate economic growth in the wake of the COVID-19 pandemic. A key proposition of the reform draft is to amend rules/guidelines for the use of District Mineral Foundation (DMF) funds to increase focus on creating “tangible assets”. The Ministry of Mines (MoM), it seems, wants to direct a large corpus of funds meant for mining-affected communities towards only creating infrastructure.

The proposal undermines the very law under which DMFs have been instituted. It also opens the floor for massive misdirection of funds. DMFs are non-profit trusts set up in all mining districts of the country under the Mines and Minerals (Development and Regulation) Amendment Act, 2015 to work for the “interest and benefit of people and areas affected by mining-related operations.” Mining companies contribute 10-30 per cent on the royalty amount that they pay to the government to DMF Trust in the district they are operating in. The idea behind the contribution is that local mining-affected communities, mostly tribal and among the poorest in the country, also have the right to benefit from natural resources extracted from where they live.

Currently, DMFs have been set-up in 572 districts of the country, with a cumulative accrual of more than Rs 40,000 crore so far as per MoM data. The corpus is only growing. To give a broad estimate, the big coal districts like Dhanbad, Ramgarh and Chatra in Jharkhand are likely to accrue Rs 250 crore each annually in DMF. So will many key coal and iron ore mining districts of Chhattisgarh and Odisha, with estimates ranging from Rs 100-400 crore annually for each.

The functioning of the DMF trusts and the fund use governed by states’ DMF Rules incorporate the mandates of a central guideline, Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY) that specifies high priority areas of investments.

Why shouldn’t the DMF fund use be tied to tangible assets?
First, DMF is a huge corpus available at the district level, it is not tied to any specific scheme, is non-lapsable, and comes with a mandate to improve the socio-economic well-being of the mining-affected communities. This gives scope as well as provision for decentralised planning for the use of funds. The law also underscores this.

At this critical time, when the effort is to bring the economy back on its feet, this is an opportunity to invest in building income security through local livelihoods, adequate healthcare and nutrition access to the most vulnerable group of people in mining districts. These areas are also considered high priority under PMKKKY on which districts are mandated to spend at least 60 per cent of their DMF funds.

Second, over the last five years, the biggest problem with the DMF investments across states has been a blind focus on construction of infrastructure. Analysis of data from states and key mining districts until March 2020 shows that investments in the physical infrastructure sector through DMF have been the highest, ranging from 30-40 per cent of the total investment. This is for roads and bridges alone. Parse through the investments in healthcare, nutrition, education and you will find largely construction works.

This has happened because investments have so far been ad hoc and unplanned. By putting the focus on creation of tangible assets, MoM would only end up diluting the very idea behind the institution of DMFs, reinforcing poor investments, quick to show on paper, but not of real value to the people it is meant to serve.

This is not to say that infrastructure isn’t needed. But most districts have departmental funds for this. Also, there is existing infrastructure which lies under-resourced. Often, “creating infrastructure” is the easiest and quickest way to show spending but making the infrastructure useful to people is the biggest challenge. Similarly, investing in local livelihoods is more challenging because it requires planning and shows results only after a few years. This is where DMF must step in to address the gaps, invest in human resources and local livelihoods, make existing schemes better, and innovate to build socio-economic equity and resilience. The fact that it is untied and non-lapsable allows for time to think and plan wisely.

Third, by tying DMFs to tangible assets the MoM would undo some small but meaningful strides made by states and districts to improve investments. Over the last couple of years, there has been growing evidence from districts that proves that DMF funds can be used to improve critical human development indicators and improve incomes and livelihood of mining-affected communities through better ways than just creating infrastructure.

Here are some examples. In June, the iron-ore rich Keonjhar district in Odisha topped up the wages paid under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA) to match the state minimum wages. The district is using DMF funds to fill the gap and ensure more cash to the workers during the COVID-19 pandemic. Parity of minimum wages with MGNREGA wages has been a long-pending demand nationally.

The district recently also used the fund to integrate locally and agronomically produced millets into the Integrated Child Development Scheme (ICDS), a move to improve dietary diversity, nutrition indicators and also incomes of local self-health groups involved in food preparation.
The remote tribal and forested district of Bijapur in Chhattisgarh, set-up a fully functional district hospital by converging DMF funds with health department and other available funds. From a dilapidated building with a doctor or two, the district now has a hospital compliant with most Indian Public Health Standards (IPHS) norms.

DMF funds were particularly used to incentivise doctors and pay them competitive salaries. This had a cascading effect, with districts in Jharkhand and Odisha also improving local health access by hiring doctors and even paramedics. Kabirdham (Chhattisgarh) used it to train local Baiga tribe youth to teach in primary schools, creating local livelihood and addressing teaching shortage in one move. There are many such examples of convergence of funds, new and innovative initiatives, or just simply topping up the existing government schemes for better reach or impacts.

State governments are also gradually showing more inclination towards better investments. Chhattisgarh amended state DMF rules in September 2019 and gave representation to mining-affected people in the DMF decision-making body, asking for better focus on livelihoods, particularly forest-based livelihoods; Odisha amended its DMF rules in 2018 to improve focus on local livelihoods. The MoM itself put out a recommendation in 2019, calling for a focus on soft resources, long-term planning and better accountability of DMFs. The new reform measure focusing on creating tangible infrastructure would mean that these gains, which can be consolidated further, will be offset.

The overarching PMKKKY guideline needs strengthening. However, tying it to tangible assets is not the solution. Instead, the mandate must be for participatory local planning to address long-term needs of mining-affected areas and people. It must also ensure that districts are equipped with required expertise to aid their staff with this planning and implementation.

States must be given clarity on how to clearly and scientifically identify mining-affected people and delineate their respective mining-affected areas so that investments can be targeted towards them. Focus must be on achieving better human development indicators and building economic resilience among local communities.

Investment in infrastructure should strictly be a means to an end, and not an end in itself. Given the potential of DMFs, spending on infrastructure, in fact, must be brought down, monitored closely and tightly capped.

CBDT notifies rules on tax exemption for District Mineral Foundation Trusts

The Economic Times | Sep 10, 2020

The Central Board of Direct Taxes has exempted from tax the income of District Mineral Foundation Trusts arising from contribution by leaseholder to the foundation, interest on late payment, penalties, interest on the funds, saving bank accounts and that received from excess funds invested in term deposit.

The Board has specified conditions for availing the exemption. The Trust cannot engage in any commercial activity and activities and nature of the specified income shall remain unchanged throughout the financial years. The Trust has to file income tax returns and audit reports, certified by a chartered accountant.

“In exercise of the powers conferred by clause (46) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies for the purposes of the said clause, ‘District Mineral Foundation Trust’ as specified in the schedule to this notification, constituted by Government in exercise of powers conferred under section 9(B) ofunchanged throughout the financial years. The Trust has to file income tax returns and audit reports, certified by a chartered accountant.

“In exercise of the powers conferred by clause (46) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies for the purposes of the said clause, ‘District Mineral Foundation Trust’ as specified in the schedule to this notification, constituted by Government in exercise of powers conferred under section 9(B) of the Mines and Minerals (Development and Regulation) Amendment Act, 2015 (10 of 2015) as a ‘class of Authority’,” the Board said in a notification issued on September 10.

The exemption will apply for the assessment years 2018-2019, 2019-2020, 2020-2021, 2021-2022 and 2022-2023.

The District Mineral Foundation has been created in each district under the provisions of Mines and Minerals (Development and Regulation) (MMDR) Amendment Act, 2015 and falls under the purview of the Ministry of Mines. DMFs are funded by statutory contributions from holders of mining leases.

Industry bodies have previously sought subsuming all levies like royalty and contributions to the DMF into one tax like goods and services tax to reduce the tax burden on the mining industry. They have argued that the mining sector is going through a tough time due to falling commodity prices and demand contraction.

Federation of Indian Chambers of Commerce and Industry had previously underlined multiple challenges coupled with disruptions due to coronavirus lockdown, and sought deferment of royalty and contributions to DMF and National Mineral Exploration Trust (NMET) by six months.

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