New Delhi: The operating expenses of Indian mining enterprises are poised to escalate significantly in the event that states implement further mining-related taxes, as permitted by the Supreme Court in a recent decision, according to Fitch Ratings.
On August 14, the Supreme Court authorized mineral-rich states to collect outstanding royalty and tax liabilities on mines and mineral-rich land from April 1, 2005, from both the federal government and the mining leaseholders.
A nine-judge Constitutional Bench mandated that these outstanding dues be settled in a phased manner over the ensuing 12 years, commencing on April 1, 2026.
"We perceive heightened risks associated with a prolonged erosion of the companies' earnings before interest, taxes, depreciation, and amortization (EBITDA) margins due to the anticipated levies," the rating agency noted in a statement on Monday.
However, Fitch anticipates minimal financial repercussions from the settlement of these past dues, given the extended timeframe of 12 years provided by the court for their resolution, starting from the financial year 2026-27.
"We maintain that the steel and mining sectors are more susceptible to the impact of state-imposed taxes compared to other sectors such as power and cement," Fitch stated.
Mining and metal companies possess limited capacity to offset the potential increase in operational costs, given that their products are subject to global market fluctuations.
"We are of the opinion that the introduction of additional state taxes on coal will lead to a rise in electricity prices, as the cost of fuel is reflected in the terms of power purchase agreements for the majority of the domestic coal-fired power plants, and over two-thirds of India's power generation is derived from coal," Fitch explained.
These increased costs are expected to accelerate the pace of investments and expansion in the renewable energy sector, according to Fitch.
"We believe that the ramifications of the Supreme Court's decision will become progressively evident in the forthcoming quarters. A critical uncertainty remains regarding whether individual states will seek additional demands for past dues or impose further taxes," Fitch concluded.
