Supreme Court Ruling May Increase Costs for Indian Mining Companies, Says Fitch Ratings
New Delhi [India], August 19: Operating costs for Indian mining companies are expected to rise significantly if states impose additional mining taxes, according to Fitch Ratings. This follows a recent Supreme Court judgment allowing mineral-rich states to collect past dues on royalty and taxes from April 1, 2005.
On August 14, the Supreme Court ruled that these dues could be collected from both the Centre and mining lease holders. A nine-judge Constitution bench directed that the past dues be paid in a staggered manner over the next 12 years, starting from April 1, 2026.
Fitch Ratings noted, “We see increased risks from a sustained weakening of the companies’ EBITDA margins due to the prospective levies.” However, the agency expects limited financial impact from the payment of past dues due to the extended timeframe for payment.
Fitch believes that steel and mining sector companies are more at risk from state-imposed taxes than sectors such as power and cement. Metal and mining companies have limited ability to pass on the potential increase in operating costs, as their products track global prices.
“We believe additional state taxes on coal will lead to an increase in electricity prices, as fuel cost changes are passed through to consumers under the power purchase agreements of most of the domestic coal-based power plants,” Fitch added. More than two-thirds of India’s power generation remains coal-based.
Fitch also argued that higher prices should quicken the pace of investments and growth in renewable power generation. The impact of the court ruling will become clearer in the next few quarters, with a key unknown being whether individual states will raise demands for past dues or impose additional taxes.
Doubts Revealed
Supreme Court -: The Supreme Court is the highest court in India. It makes important decisions that can affect the whole country.
Fitch Ratings -: Fitch Ratings is a company that gives opinions on how safe it is to invest in different businesses and countries. They help people understand financial risks.
mining companies -: Mining companies are businesses that dig up minerals like coal, iron, and gold from the earth. These minerals are used to make many things we use every day.
operating costs -: Operating costs are the money that companies spend to run their business. This includes things like paying workers, buying equipment, and paying for electricity.
mining taxes -: Mining taxes are money that mining companies have to pay to the government for the right to dig up minerals. This money helps the government provide services to people.
royalty -: Royalty is a payment that mining companies make to the government for the minerals they take from the ground. It’s like a fee for using natural resources.
steel sector -: The steel sector includes companies that make steel, which is a strong metal used in buildings, cars, and many other things.
power sector -: The power sector includes companies that produce electricity. They make sure we have power to light our homes and run our appliances.
cement sector -: The cement sector includes companies that make cement, a material used in construction to build houses, roads, and bridges.
electricity prices -: Electricity prices are the amount of money people and businesses have to pay for using electricity. Higher prices mean it costs more to use lights, fans, and other electric devices.
renewable energy -: Renewable energy comes from natural sources that can be used again and again, like sunlight, wind, and water. It’s better for the environment than using coal or oil.