International Journal of Scientific & Engineering Research, Volume 3, Issue 2, February-2012 1
ISSN 2229-5518
Royalty on Iron ore -An overview with a special reference to India
Dr. P. K. Jain
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Iron is the fourth most abundant element in the earth's crust and the second most abundant and useful metal known after aluminum. It makes up about 6.2% of the crust by weight. Iron is a giant among metals. Iron ore is the basic raw material used for making pig iron, spong iron and finished steel. The iron ore is used mainly in blast furnaces, mini blast furnaces (MBF), direct reduced iron (DRI) and sintering and pelletisation plants. Industrial progress and military potential of a country can be judged by its per capita consumption of iron/steel.
As per Mineral Commodity Summaries, published by US Geological Survey in January 2010, the total ‘reserves’ of iron ore in the world are placed at 160 billion tonnes. By iron content this translated into 77 billion tonnes. These summaries show that Ukraine has the largest reserve of iron ore at 30 billion tonnes followed by Russia, China, Australia, Brazil, Kazakhstan, India and USA. In terms of iron content, the largest reserve is in Russia followed by, Australia, Ukraine, Brazil, China, India and Kazakhstan. ( In USGS nomenclature ‘Reserves’ refers to the part of the reserve base which could be economically extractable or produced at the time of determination).
As per statistics published by the US Geological Survey world production of iron ore in 2009 was 2300 million tonnes as against 2220 million tonnes in 2008. China was the largest producer of iron ore during 2009 (900 million tonnes), followed by Brazil (380 million tones), Australia (370 million tonnes) and India was the
fourth largest producer of iron ore during that year with 260 million
tonnes production. Historically western European countries have seen the steepest fall in iron ore production. Some note worthy aspects about world iron ore production is:
In 2008, China imported one half of the world’s total iron ore exports and produced about one half of the world’s pig iron. This clearly shows that iron ore consumption in China is the major factor upon which the expansion of the international iron ore industry depends.
Brazil and Australia have huge reserves, which are much in excess of their domestic requirements. They have promoted huge investments in expanding production of iron ore for exports. In the last 15 years these two countries have added
180 million tonnes of iron ore production capacity.
India, China, Brazil and Australia logged growth rates of over 10 % in iron ore production.
4 Royalty
Royalty rates are an important factor in making decisions about mining projects, including determining which country provides the best operating environment for new investments in resource projects. The table-1 below summarises the current royalty rate of iron ore in important countries.
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International Journal of Scientific & Engineering Research, Volume 3, Issue 2, February-2012
ISSN 2229-5518
New South Wales 4% Advalorem
Victoria 2.75% Advalorem
Western Australia Beneficiated ore 5% ad valorem fines ore 5.625% ad valorem Lump ore 7.5% ad valorem
South Australia 3.5% Advalorem
India 10% Advalorem
South Africa 3% Advalorem
1968 1) Ore lumps
a) More than 62% Fe Rs. 1.50 per tonne. b) Less than 62% Fe Rs. 1/- per tonne.
2) Fines Rs. 0.25 per tonne
3) Red Oxide Rs. 2/- per tonne
5 Indian Scenario
The major revenue accrual to the State Governments from the mining sector is by way of royalty on minerals extracted from mines within the state. Revenues from other sources are dead rent,
annual fee payable by mineral concession holder on the basis of the
d) Less than 60% Fe Rs. 1.50/- per tonne
2) Fines
a) 65% Fe and above Rs. 2.50/- per tonne b) 62-65% Fe Rs. 1.50/- per tonne
c) Less than 62% Fe Rs. 1/- per tonne
area held, surface rent, sales tax or VAT, local area tax (e.g.
d) Beneficiated ores containing 40% Fe
Rs. 0.50 per tonne
Panchayat tax) and stamp duty.
The royalty is a variable return and it varies with the quantity of minerals extracted or removed. Royalty in strict sense and in common parlance may not be tax and has been levied by Central Government and collected by respective state government. While Value Added Tax (VAT) and Sale Tax (ST) are basically the state subjects. The State Governments, through Taxation Department are carrying out the responsibility of levying and collecting VAT and ST.
Panchay at tax is a local tax which has been levied and
collected by local government called Panchayat. The mineral
3) Red Oxide Rs. 2/- per tonne
1981 1) Ore lumps
a) 65% Fe and above Rs. 4/- per tonne
b) 62-65% Fe Rs. 3/- per tonne c) 60-62% Fe Rs. 2/- per tonne d) Less than 60% Fe Rs. 1/- per tonne
2) Fines
A) Fine including natural fines produced incidental to mining and sizing of ore.
a) 65% Fe and above Rs. 2.50/- per tonne b) 62-65% Fe Rs. 1.50/- per tonne
c) Less than 62% Fe Rs. 1/- per tonne
concession holder has to pay various types of taxes including these as a lessee of a mining lease.
Conceptually, royalty is a payment made by the mining lessee to the State owner of the mineral as a consideration for the
B) Concentrate prepared by beneficiation and/ or concentrate of low grade ore, containing 40% Fe or less
1987 1) Ore lumps
Rs. 0.50/- per tonne
mineral which the lessee extracts and sells. The chronological
changes in rate of royalty on iron ore (grade-wise) since 1949 is given Table-2.
a) 65% Fe and above Rs. 6/- per tonne
b) 62-65% Fe Rs. 3.50/- per tonne c) 60-62% Fe Rs. 2.50/- per tonne d) Less than 60% Fe Rs. 2/- per tonne
2) Fines
A) Fine including natural fines produced incidental to mining and sizing of ore.
a) 65% Fe and above Rs. 3.50/- per tonne b) 62-65% Fe Rs. 2/- per tonne
c) Less than 62% Fe Rs. 1.50/- per tonne
(grade-wise)
B) Concentrate prepared by beneficiation and/ or
concentrate of low grade ore, containing 40% Fe or less
1992 1) Ore lumps
Rs. 0.50/- per tonne
a) 65% Fe and above Rs. 18/- per tonne
b) 62-65% Fe Rs. 10/- per tonne c) 60-62% Fe Rs. 7/- per tonne
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International Journal of Scientific & Engineering Research, Volume 3, Issue 2, February-2012
ISSN 2229-5518
2) Fines | ||
A) Fine including natural fines produced incidental to mining and sizing of ore. | ||
a) 65% Fe and above | Rs. 19/- per tonne | |
b) 62-65% Fe | Rs. 11/- per tonne | |
c) Less than 62% Fe | Rs. 8/- per tonne | |
B) Concentrate prepared by beneficiation and/ or concentrate of low grade ore, containing 40% Fe or less | Rs. 4/- per tonne | |
2009 | All grades | 10% of sale price on ad valorem basis |
*Anna is a smallest unit of Indian currency before the year 1950( 1
Rupees = 16 anna).
The rates over the years in term of fixed prices will be decided by a Study Group use to be setup by Ministry of Mines, Government of India as per Section 9(3) of Mines and Minerals (Development and Regulation) Act, 1957. The government of India has notified a new royalty regime on August, 2009 according to which currently the royalty on iron ore is levied at the rate of 10% on ad valorem basis on the sale price.
There are significant jumps in revenues of mineral bearing states such as Andhra Pradesh, Orissa, Jharkhand, Chhattisgarh, Karnataka and Goa due to new rate of iron ore royalty. The state- wise revenue accrual by way of royalty for iron ore for 2008-09 and
2009-10 is given Table-3.
State | Royalty Accrual (Rs. In million ) | |
State | 2008-09 | 2009-10 |
Andhra Pradesh | 165 | 299 |
Chhattisgarh | 612 | 3590 |
Jharkhand | 349 | 1154 |
Goa | 259 | 2553 |
Karnataka | 1044 | 3190 |
Orissa | 1495 | 6545 |
There is need to reasonably augment revenues of governments in lieu of sharing right of minerals, at the same time
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International Journal of Scientific & Engineering Research, Volume 3, Issue 2, February-2012
ISSN 2229-5518
devising a royalty regime that is stable and attractive to investors in the mining sector. Since 13th August 2009 the rate of royalty of iron ore been revised from Rupees per tonne basis (varying from Rs. 4 to Rs. 27 per tonne) to 10% of sale price on ad valorem basis (Table-2). Therefore the state wise royalty collection has been increased many fold as shown in Table-3. Simultaneously the price of iron ore has increased in India and international markets. The price increase is attributed to an increased demand for iron ore for steel production, which is showing tremendous growth in capacities in India and all over the world, especially in China. This has generally led to
windfall profits to the miners. Therefore the rate of royalty of iron ore on ad valorem basis translates proportionate revenue to the
Governments.
i) United State Geological Survey, Mineral
Commodities Summaries, 2010.
ii) Indian Bureau of Mines, Iron ore – A market
Survey, 2007.
iii) Indian Bureau of Mines, Mineral royalties 2006. iv) Jain, P.K. 2008 Mineral Royalty in India and its
comparison with selected countries. Minerals & Energy v. 23, No.3 P.119-126.
necessarily those of the organization for whom he is working.
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