National Mineral Policy 2006 - Department of Mines

value of different individual minerals as published by IBM in Monthly Statistics is consideredas the benchmark for the calculation of royalty by the concerned state government in respectof minerals produced during that month. For the purposes of computation of royalty, the stategovernments add 20 per cent to the benchmark value for domestic sales. This mark-up isintended to take into account the assessed difference between the sale price and the pit mouthvalue reported by the mine operator, as the study group set up in May 2002 had found adifference of 20–22 per cent between the sale price and pit mouth value. For captive mines,for minerals not sold to others a notional cost is computed on the basis of the cost ofproduction, which includes exploration costs, mining and beneficiation costs, overhead costs,depreciation, interest, research and development (R&D) charges, etc. In the case of captivemines, it is not clear if any mark-up is made on the reported price. For export consignments,the value is based on the FOB price less the sum of transportation cost from the pithead to theport and the loading and unloading charges at the port.6.18 The Committee would recommend that the method of fixation of rates of royaltyshould move forward decisively on the basis of ad valorem rates. For retaining specific ratesfor any mineral a very strong rationale should be required. The first step for the changeshould be conversion of the specific rates recommended by the study group set up in May2002 into ad valorem rates on the basis of the price data for the period taken intoconsideration by the study group, i.e. 2001–02 and 2002–03. In considering raising the advalorem rates further, the rates prevailing in Western Australia would be taken intoconsideration as a point of reference as the Committee feels that the rates prevailing inWestern Australia are a good benchmark for determining the competitiveness of royalty rates.If the Western Australian rates are higher than the rates applicable in India there should be nohesitation in raising the rates to that level, unless special factors are brought forward such asthe cost of mining operations. If the ad valorem rates work out to higher rates than thoseobtaining in Western Australia the existing rates should continue for the next three-yearperiod as well. In such cases, a lowering of rates could be considered only in those cases inwhich there is evidence to show that the royalty rates are inhibiting mining operations andmineral production is registering a downward trend. The rates that are already on ad valorembasis should be also revised on the basis of the same yardsticks—i.e. as a norm, considerraising the rates to the level in Western Australia unless there are factors justifying a lowerrate in India, and leave the rates unchanged if the rates are higher than those in WesternAustralia unless there are indications that the existing rates are inhibiting mining operations.129