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India Panel Said to Recommend 50% Increase in Iron Ore Royalty

An Indian government panel has recommended a 50 percent increase in royalty fees for iron ore miners, two officials familiar with the proposals said.

NMDC Ltd. and Sesa Goa Ltd., and steelmakers with their own mines such as Tata Steel Ltd. and Steel Authority of India Ltd., may have to pay 15 percent of sales to provincial governments, compared with 10 percent now, the people said, asking not to be identified as the matter is confidential. The panel’s report will be submitted to Mines Minister Dinsha J. Patel this month and later for Cabinet approval, they said.

Higher taxes threaten to further crimp earnings of iron ore miners and steelmakers as they grapple with falling prices of the alloy and its key raw material. A cost increase for miners will also erode their export competitiveness against bigger rivals, including Brazil’s Vale SA and Australia’s Rio Tinto Group and BHP Billiton Ltd.

“The biggest victims will be the steelmakers, which will find it difficult to pass on the burden because of a highly competitive market,” said Abhisar Jain, an analyst at Centrum Broking Pvt. Ltd. in Mumbai. “This isn’t a good environment to increase levies.”

Steel Authority’s average selling price fell 11 percent from a year ago to 34,489 rupees ($579) a ton in the three months ended March 31, Chairman C.S. Verma said in May.

The increase will precede the country’s new mining law, which will require miners to set aside an amount equal to royalty payments for social welfare programs. The law is awaiting parliament’s approval.

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