Indian Mining Costs to Soar with New State Taxes, Warns Fitch Ratings

Fitch Ratings predicts a significant rise in operating costs for Indian mining companies if states impose additional mining taxes as permitted by a recent Supreme Court ruling. The court allows states to collect past dues on royalty and taxes from April 1, 2005, potentially impacting EBITDA margins.

Operating costs for Indian mining companies are expected to surge significantly if state governments impose additional mining taxes, according to Fitch Ratings. This follows a recent Supreme Court judgment allowing states to collect past dues on royalty and mining taxes from April 1, 2005.

The Supreme Court's nine-judge Constitution bench has mandated that these past dues be paid in a staggered manner over the next 12 years, starting from April 1, 2026. Fitch expressed concerns about increased risks from a sustained weakening of companies' EBITDA margins due to the prospective levies.

Despite this, Fitch expects that the financial impact from the payment of past dues will be limited, given the extended timeframe set by the court for payments. The rating agency believes that steel and mining sector companies are more vulnerable to state-imposed taxes compared to other sectors like power and cement.

Fitch noted the limited ability of metal and mining companies to pass on the potential increase in operating costs to consumers, as their product prices align with global rates. The agency highlighted that additional state taxes on coal are likely to raise electricity prices, as fuel cost adjustments are typically transferred to consumers under power purchase agreements for coal-based power plants. Over two-thirds of India's power generation is coal-based.

Fitch argued that higher prices could accelerate investments in renewable energy generation. The impact of the court ruling is expected to become clearer in the upcoming quarters, with uncertainties remaining over whether individual states will demand past dues or impose extra taxes.

(With inputs from agencies.)