Export duty hike to hit profits: Sesa Goa

June 16, 2008

June 16th (Moneycontrol India) – Government has shifted to a uniform 15% ad valorem export duty on iron ore. The earlier duty was at Rs 300 per tonne on iron ore with 62% higher iron and Rs 50 per tonne on lower grade ore.

India’s iron ore prices have dropped 8-11%, due to rise in stockpile at Chinese ports and a slowdown in demand. PK Mukherjee, MD of Sesa Goa expects profits to be hit due to export duty hike. They will try and offset some losses by increasing volumes, he said.

Excerpts from CNBC-TV18’s exclusive interview with PK Mukherjee:

Q: Can you confirm for us what entirely the duty rates stand at for you adding the ad valorem and the kind of royalty rate you pay?

A: I think ad valorem rate for export duty is now very clear because it has been mentioned as 15% flat. So it will be on all exports of iron ore, 15% will be payable. On royalty we have been listening for a long time, but nothing has happened and no change has happened yet, but there is a talk of royalty to be converted from specific rate to ad valorem rate and different numbers are being talked about.

Q: How much would your profits and revenues be marked down by?

A: We are yet to do the calculation because we have got different types of materials for which we are paying export duty under the previous regime in any case; some export duty at Rs 50, some export duty at Rs 300. So one has to calculate and it all depends on which market we are supplying, whether lump sum market or spot market, and what sort of price realisation we are getting. But it will be very substantial.

Q: Where are spot rates ruling at right now and whatever the quantum might finally be, do you think you will be able to pass on the entire brunt of it to the consumer or the buyer?

A: Spot market at the moment is very subdued. In the last two and a half months, the spot market has come down by USD 15-20/tonne on higher grades and on lower grades it has come down much more. But with regards to passing on to consumers or buyers there is no export duty passing on. The market will bear the price it can absorb, that will totally be dependent on demand and supply and after that if the export price goes up, it’s not the consequence of the export duty, it is a consequence of tight supply situation and vice versa.

Q: Looking at the spot price situation and this export duty, would it be fair to say that Sesa Goa’s profits for this year would be substantially diminished from last year?

A: It will depend on volume; we are trying to increase our volumes from various sectors. So maybe through volume we will be able to recoup some of the loss in absolute numbers as compared to the last year. But one needs to also keep in mind royalty which is talked about; since April 1, post Railway Budget, railways have imposed revisions on ore which itself works out to 10% duty on all the materials which are going through railways.

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