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India mulls price-based royalty for iron ore - sources

NEW DELHI (Reuters) - India may switch to charging royalties on minerals according to their value rather than at a flat rate, possibly eating into miners’ margins, industry and government sources said.

That could mean royalty payments by mining companies rise by as much as 125-150 rupees on a tonne of iron ore based on current prices, trimming miners’ margins, but adding to state coffers.

Currently, top grade iron ore attracts a royalty of 27 rupees a tonne while lower grades bring the government smaller amounts and as prices of commodities rise and fall, that rate remains static.

Industry and government sources said that the change to an ad valorem payment system may be implemented either before or in February’s federal budget.

“That (making the change) is Hoda Committee’s recommendation,” said a government official, referring to the findings of an expert panel looking into mining policy. “We want to gradually move towards it.”

In last year’s budget, India imposed a duty of 300 rupees ($7.65) per tonne on iron ore exports, but later cut that to 50 rupees for low-grade ores below 62 percent iron content.

Industry officials say the duty has largely been negated by higher international prices but added that changing the method of royalty payments would trim profits.

“Our export margins are going to reduce if ad valorem duty comes through,” said R.K. Sharma, secretary general of the Federation of Indian Mineral Industries.

Iron ore prices have doubled since March 2007 due to growing international demand, and Indian exports now fetch about $130-$135 per tonne. The landed cost in China is about $180 to $185, and higher freight costs have also weighed.

India’s iron ore exports in the April-Sept period of last year fell by 3.2 percent year-on-year to 37.03 million tonnes, from 38.24 million tonnes, industry figures show. Sales to China accounted for more than 32 million tonnes.

India exported 90 million tonnes of iron ore last year, most of which to wound up in China.

“The very fact that quantities have not increased shows that the exports have reached a plateau,” Sharma said.

State governments have been demanding higher royalties on mining of minerals, saying rates were rock bottom and short changed them.

India’s steel industry, which has been lobbying for restrictions on iron ore exports to ensure supplies for domestic firms, said they had not demanded any change in the royalty payment system.