THE steel industry can rejoice. The government is planning to put further restrictions on iron ore export by introducing a system of royalty for minerals. Under this, royalty rates on iron ore are proposed to be calculated on freight on board (FOB) values in case of exports and on gross sales value in case of domestic sales. The move is aimed at discouraging exports and increase states’ royalty earnings. The Centre has already imposed an export duty of Rs 300 per tonne on high grade iron ore to discourage exports.
At present royalty on iron ore is calculated on a fixed rate basis with states getting between Rs 10 and Rs 27 per tonne of ore. Once the new formula (ad valorem) is implemented, states’ royalty earnings are expected to increase manifolds as royalty rates would be higher for ore compared to other minerals or metals. “The proposal has been endorsed by the interstate council chaired by the home ministry. It would now be taken up by the Cabinet,” a source said.
He said changes may be included in the new mineral policy that has failed to get the centre’s approval due to sharp differences with the mineral bearing states. As the new royalty formula has been endorsed by the council, its implementation may also pave the way for smooth passage of the policy.
The proposed royalty formula could push up royalty rates on iron ore exports (FOB value) by up to Rs 400 per tone considering ad valorem rate of 10% and ore export rate of about $100 per tonne. Alongwith the Centre’s export duty, the total duty on iron ore meant for exports may constitute about 25% of its value. “This would be big disincentive to export iron ore that needs to be conserved for the growing steel industry in the country,” said a steel company official.
As per the inter-state council’s recommendations, there should be unit-based royalties for lower value bulk minerals and ad valorem for higher value commodities. Where exploration and production of minerals and metals needs a boost (gold, copper, diamond), it has been suggested that that royalty rates should be low ad valorem or unit based. Higher royalty rates has been recommended on raw material (ore) than on products and it has been suggested that states could consider deferment of royalty or a reduction as per the prevailing situation.
In return for higher royalty rates, the Centre may ask states to create a fund and set aside about 15% of royalty earnings for development of human capital in the mineral area