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Monday, July 11, 2011, New Delhi

INTERVIEW: S VIJAY KUMAR
M I N E S S E C R E T A R Y

26% of profit would work out to be less than royalty amount
HE Mines & Minerals Development and Regulation (MMDR) Billwasclearedbyagroupof ministersheadedbyfinance ministerPranabMukherjee last week. The Bill seeks to make it mandatory for coal mining firms to share 26% of miningprofitswiththelocal population. As for other minerals, the local people will have to be paid an amount equal to the royalty paid in the previous year to the respective state government. The GoM-approved Bill, designed to replace an over a half a century old law (MMDR Act, 1957), will now go to the Cabinet for its nod for introduction of the epochal draft legislation in Parliament. Mines secretary S Vijay Kumar spoke to Himani Kaushik over the weekend on the GoM decision on the new draft Min-

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ing Bill, which seeks to ensure that not just the nation, but the owners of land-bearing minerals directly benefit from its economic value. Excerpts: Could you define the word ‘profit’ for the coal mining companies in this profitsharing mechanism? Profit in this context will be profit from mining operations only, as per the standardaccountingprocedures and nomenclatures. The GoM has provided certainty to the non-coal mining companies through the royalty clause, but for coal miners, a 26% profit sharing is seen as steep and the industry fears that this will impact the downstream users as the cost will be passed on to the con-

sumers. What is your assessment of the situation? I cannot confirm your assertion that for coal it is 26% since the matter has to go to the Cabinet. But for the sake of argument, I can say that the coal ministry calculated that 26% is less than the royalty paid for coal. This is because the coal prices are administeredprices.Thereisa separate push to rationalise coal prices. I think there is a Planning Commission suggestion in this regard. So there is a move to push the increased price onto consumer anyway . The revenue sharing may be a trigger for this. Will the profit be calculated after tax, or before? Again, would you clarify on the tax treatment of this profit sharing. I think the phrase being

I cannot reply to such hypothetical situations. Which company are you referring to? Isn’t it also related to administered prices? Earlier, in an interview to us, you had talked about differential treatment to different minerals based on their profitability and consumption cycle. How does this new draft address the needs of different minerals requiring different treatment? If, as you say, the amount is equal to royalty for metallic minerals, that already has the inbuilt mechanism to takecareof theeconomicsof different minerals. How will be the profit sharing formula applicable in case of a company with divergent businesses and in case of a company

with many subsidiaries? In your hypothetical example, it would be in respect to coal operations? I suppose the administered price would be a basis for calculating the profit at the mine level. These can be detailed out in sub-legislation. You have been an advocate of promoting exploration activity in the mining sector for which you have been asking for first come first serve basis licence to ensure exploration activity in case of unknown mineral deposits. How has this issue been tackled in the new draft and how will the bidding process be structured for all the mining licences of different stages? The basis of this is that if an areaisknownformineralisation,abiddingprocesscanbe

structured based on the quality of the data. But if we are starting at the stage of reconnaissance, or the economics do not particularly favour makingtheefforttogoforbidding, then first-in-time is the default option. So, for the Reconnaissance Licence and the High Technology ExplorationLicence,bothof which target unknown areas, the Chawla Committee has actually said that first-in-time is therightmethodology . How has the new draft accommodated the recommendations of the Ashok Chawla panel, especially on the profit sharing and bidding process? The Chawla Committee has favoured the flowback of funds for local area development and bidding in areas of known mineralisation ... so, I guess, we are in sync.

bandied about was ‘an amount equal to 26 % of PAT of the previous year’. So, the tax treatment is clear. It’s an expense which can be budgeted. But this is not to say I am confirming the precise formulation, since the matter has to go to the Cabinet. How will this formula work for coal mining

firms which are not making any profit. For example, there are some mines of Coal India which are not making any profit. In such a scenario, how will the local population be compensated? In a broader context, how will this profit sharing mechanism work in times when firms are suffering losses?

Aggressive bidding to beat govt target for FM-III
Ashish Sinha New Delhi, July 10: With the government’s nod to FM-III policy and the permission to own more than one radio channel within a city , the first batch of 40 vacant stations in top 30 towns (already exposed to private FM radioservices)couldfetchaminimum of R1,000 crore, according to initial calculations made by existing operators. If realised, this would not only exceed the government’sexpectationsbyalmost 150% but would virtually double the cost of FM licences in key cities, including Delhi, Mumbai, Hyderabad, Bangalore, Nagpur and Pune. Sources say the 40 channels in these top 30 towns will go for eauctions in the first batch along with the 33 stations in Jammu and Kashmir and the North-East states in next three-four months. Mumbai, Delhi, Chennai, Hyderabad, Pune, Lucknow, Patna and Nagpur, among others, are thetownsthatareexpectedtosee aggressive bidding by all existing operators like ENIL (Radio Mirchi), RBNL (Big FM), MBPL (Radio City) and Red FM (Sun Network) as each of them wants to own a second channel in the same city , sources said. The ministry of information and broadcasting (I&B) has already made its own estimates on the revenue expected from the auctioning of 839 stations across 294 towns. According to its calculations, the first 40 stations in metros, A and B category towns will fetch a minimum of R405.4 crore. These estimates are based on the minimum reserve price fixedforthevacantstationsinthe third phase as determined by the formula provided by the Group of Ministersonspectrumallocation. “Every existing FM operator wants another station in Mumbai and Delhi among A+ towns and Bangalore, Hyderabad, LucknowandPuneintheAcategory towns. Therefore, they will go all outwhichcouldvirtuallydouble the licence cost in these cities. Even in phase-two auctions in 2006, these cities went for very high rates,” says a senior media consultant who is advising some of the leading FM operators on FM-III bidding. In 2006, the highest bid for a stations in Mumbai was R35.20 crore and for Delhi was R31.42 crore. As per the GoM’s formula, the highest successful bids of FM-IIauctionsineverycity(held in 2006) would become the minimum reserve price for any vacant stations under FM-III. As a result, the bidding for the two vacant stations in Mumbai will begin at R35.20 crore. In Delhi and Chennai, there is only one available station each and therefore all operators are eying it. Similarly, Hyderabad with four vacant stations and Lucknow, Kanpur with three each would attract the top suitors, sources said. Among the B category towns, Patna has three vacant stations (unsold in FM-II auctions) and with a minimum reserve price of R5.1 crore it has the potential to attract the big players in the business. “We want to be present in those towns where the business fundamentals are strong. Owning another channel in a major town is what most of the oldoperatorswillgofor,”Apurva Purohit, CEO of Radio City , told FE recently . Basedontheresultsof thelast auctions held in 2006, the I&B ministry expects the FM-III auctions to generate at least R1,531.92 crore with R545.45 crore coming from the auctions of 132 channels in existing 86 towns while the balance R986.47 crore coming from 707 channels in 227 new cities.

MUSIC TO EARS
Top cities expected to witness aggressive bidding in FM-III auctions
Company Numer of Minimum Minimum channels reserve price revenue available for (R crore) price phase III (R crore) auctions 2 1 1 4 3 2 2 3 2 2 35.20 31.42 12.27 18 14 14 5.1 5.1 2.56 7 70.40 31.42 12.27 72 42 28 10.2 15.3 5.12 14

Category A+ (Metros) Mumbai Delhi Chennai Category A Hyderabad Lucknow Pune Nagpur Category B Patna Agra Vijayawada

PM to review coal, power projects after GoM meet
New Delhi, July 10: Prime Minister Manmohan Singhwillholdameetingtoresolveinter-ministerial differences relating to environment clearances for coal and power projects after the Group of Ministers meet on July 14. “The Group of Ministers meeting is scheduled on July 14. So, depending upon the outcome of that, the PM’s review meeting will be held,” a senior coal ministry official said. The official added that the dates were yet to be decided for the meeting, which has been postponed four times since May . Besides reviewing the performances of key sectors like coal and power, the PM’s meeting is likely to deliberate upon solutions to resolve the tussle between environment, coal and power ministeries on the contentious issue of green clearances for infrastructure projects. Earlier, softening its stance, the Jairam Ramesh-led ministry had cleared in June six coal blocks, which included five coal blocks falling in ‘no-go’ mining areas for three major power plants in Orissa. PTI

FE Trade winds
D E C I P H E R I N G B I L AT E R A L T R A D E

GERMANY
Year EXPORT % growth India’s total export % growth % share IMPORT % growth India’s total import % growth % share TOTAL TRADE % growth India’s total trade % growth % share TRADE BALANCE India’s trade balance -46,075.20 -59,321.19 -88,521.83 -118,400.95 3.81 252,256.26 4.04 9,609.75 149,165.73 3.48 6,023.63 103,090.53 2005-2006 3,586.12 2006-2007 3,984.81 11.12 126,414.05 22.62 3.15 7,552.64 25.38 185,735.24 24.52 4.07 11,537.45 20.06 312,149.29 23.74 3.7 2007-2008 5,121.53 28.53 163,132.18 29.05 3.14 9,884.83 30.88 251,654.01 35.49 3.93 15,006.36 30.07 414,786.19 32.88 3.62 2008-2009 6,388.54 24.74 185,295.36 13.59 3.45 12,006.02 21.46 303,696.31 20.68 3.95 18,394.56 22.58 488,991.67 17.89 3.76

In $ million

Q&A: THOMAS MATUSSEK

2009-2010 5,412.89 -15.27 178,751.43 -3.53 3.03 10,318.18 -14.06 288,372.88 -5.05 3.58 15,731.07 -14.48 467,124.31 -4.47 3.37 -109,621.45

Germany’s trade with India crosses 15 bn euros
HE relationship between Germany, the financial pillar of Europe, and India, the rising Asian giant, has reached a new high with trade volumes crossing the 15-billion-euro mark. According to figures released by the German Federal Statistics Office, the total volume of bilateral trade between January and December 2010 increased by an outstanding 17.1% compared with a negative percentage in 2009. Talking to FE after Chancellor Angela Merkel’s visit to India, the German ambassador in New Delhi, Thomas Matussek, said: “Both Chancellor Merkel and Prime Minister Manmohan Singh have set a bilateral trade target of of €20 billion by 2012. With the trade figures achieving a new milestone of €15.4 billion in 2010 and both sides keen on intensifying trade relations, this target looks achievable.” “The target is realistic and we can achieve the numbers. India has a huge potential. The EU-India FTA will give further boost to the trade. Germany has strong interest as we feel that the FTA is the way to the future. Both countries economically complement each other,” Matussek added. Even during Merkel’s recent visit to India, both the Chancellor and Prime Minister Singh had expressed cautious optimism that the agreement will be signed in the next couple of months, he said. Bilateral trade picked up tremendous momentum in the post-liberalisation era. The trade volume has increased nearly four times since 1991 — with exports to Germany increasing three times and imports from Germany jumping almost six times. The new century heralded even stronger growth in bilateral trade, which has grown by an average of 16% per annum since 2003. A new milestone was reached in 2006, when the total volume of trade crossed the €10-billion threshold, three years earlier than expected. Bilateral trade numbers continued on an upward swing in 2007 and 2008, with volume of trade reaching €12.07 billion and €13.47 billion, respectively. The global downturn affected the growth momentum in 2009, but only marginally, with the figures declining to €13.19 billion. The extent to which German companies are

Germany is like window to Europe for Indian cos
ThomasMatussek,ambassador of Germany to India, talks about tax incentives and visa issues in an exclusive interview with Huma Siddiqui. Excerpts: What kind of tax incentives does Germany offer to foreign investors? Thereareincentivestoinvestlikeinthe so called new Bundeslander. We have GermanyTradeandInvest,aspecialisedagency ,toadvisepotentialinvestors.MyexperienceisthatmoreandmoreIndianfirmsgo abroad and Germany is a preferred destination, a window to Europe so to say . How difficult is to get visas? The embassy issues both tourist and business visa under Schengen Regulations. Due to the vast number of visa applicationstheembassyreceiveseveryday we are obliged to use the services of VFS, an appointment system provider. However, regrettably , there are still waiting lists depending on different visa categories. But there is no waiting list for frequent travellers, their visa are usually issued within two to three working days. What joint venture or MoUs are in the pipeline in the defence sector? The most important issue for us currently is the MMRCA (Medium Multi Role Combat Aircraft), produced by Eurofighter Typhoon, EADS with Germany as leading nation. Another project is the possible modernisation of Indian submarines. Germany would appreciate the intended procurement of the submarines by India.

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Note:Since 2006-07, Petroleum figures are being computed from Import Daily Trade Returns to generate country-wise/ port-wise tables. Up to 2005-06, consolidated petroleum import figures were being received from the petroleum ministry

The 120 largest German companies in India employ 173,000. Over and above, they have created about 300,000 jobs through exclusive agents, dealers, vendors, franchisees and suppliers
already involved in India is revealed in a new statistical report which states: “Taken together, the 120 largest German companies in India currently employ 173,000 staff. Over and above, they give employment through exclusive agents, dealers, vendors, franchisees and suppliers in the range of 300,000 jobs. This means the German companies are a major employment generator in India.” More than half of the companies expect sales to surge by over 20% in 2011-12, while about 30% of them anticipate an increase of 10-20%. According to the envoy, the two countries complement each other: India has in abundance of what Germany needs, for example, young, highly skilled and creative IT people. Germany can provide state-of-the-art technologies and longstanding experience in providing solutions to complex problems and processes. Both countries have identified certain areas for cooperation which include post-harvest infrastructure, good quality seed and planting material, cooperation in animal science, agricultural machinery and the entire food processing sector. In 2008, Germany and India had established a bilateral working group on agriculture, covering the whole production line from agriculture to food processing and consumer protection. “The next meeting of the group is provisionally planned for November this year where the Indian delegation will also have an opportunity to visit ‘Agritechnica 2011’ the world’s largest agricultural machinery and equipment exhibition,” said Matussek. Several interesting projects, including the Siemens railway locomotive project in India that has been deferred four times, are in the pipeline. The R1,300-crore plant, to be set up at Madhepura in Bihar, is crucial for global locomotive suppliers as it comes with a 10-year offtake assurance, giving an instant foothold to bidders in the lucrative Indian market. Germany accounts for close to 10 % of total foreign collaborations approved in India with more and more Indian companies acquiring highquality German technology to meet their growing needs. It is also one of the most-preferred investment destinations for Indian companies, especially in sectors like automotive, pharmaceuticals and electrical equipment. Speaking on the potential for cooperation in the infrastructure sector, the envoy said, “Germany can help India in fulfilling its infrastructure needs.” Maharashtra, with a 57 % share of German investments, remains the most attractive trade destination of the country in India. Pune has lately become the hotbed for investments, followed closely by Karnataka and Gujarat. Delhi and Andhra Pradesh have experienced a drop in German investments, whereas Tamil Nadu and Karnataka are gaining popularity due to the conducive investment environment.

FROM THE FRONT PAGE

Tower firms struggle ...
Its core model looks alright but its tower sharing pact with Etisalat DB, which would have enhanced its revenues hasn't really worked since Etisalathasbarelyrolledoutservices.Anattempt to merge the company with GTL Infrastructure last year failed. Some tower company executives said that with low per-user revenues, rental payments from several mobile operators have been delayed. So, is the future bleak for tower firms? Not really ,if thelong-termfundamentalsaretakenintoaccount. According to the Telecom Regulatory Authority of India, India will need 1 lakh more towers by 2014, 25% more than the existing 4 lakh. Further, once 3G and broadband wireless access services are fully rolled out, demand would grow. In the meantime, the possibility of tower companies looking out for diversification to broaden their revenue stream can also not be ruled out. “One may probably see tower firms use their real estate to sell other merchandise, or offer other kinds of services,” Shetty of KPMG said. But in the immediate future, it is more of pain and less of gain for telecom tower companies.

STATFACTS
(2010 est)

GDP - purchasing power parity GDP - real growth rate GDP - per capita (PPP) Exports Imports

$2.94 trillion 3.5% $35,700 $1.337 trillion $1.12 trillion

— Huma Siddiqui