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"8. The Committee considered two approaches:
(I) Approach 1: Direct Compensation based on the market value of extraction, adjusted for ecological damages.
(II) Approach 2: Computing a Simplified NPV for ecological damages.

9. In the first approach, the criteria adopted is:

 Exceedance Factor (EF).
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11. Approach 2 is demonstrated by following formula:

"Till such time as data and information for a comprehensive NPV is worked out in a site specific manner to account for all (or atleast the major) ecological damages, a simplified NPV, proxied on the market value of the illegally extracted amount may be computed. In this case the NPV approach would imply that the total benefits from the activity of sand mining (as represented by the market value of the extracted amount) be deducted from the total ecological costs imposed by the activity. In the absence of data on benefits and costs separately, we recommend a modification of the formula as shown below:
1) is applicable, the discount rate applicable would be the lowest (say 5% in this case)."

12. Final recommendation is as follows:

"Thus, it is recommended that the annual net present value (NPV) of the amount arrived at after taking the difference between the costs and the benefits through the use of the above approach, maybe calculated for a period of 5 years at a discount rate of 5% for mining which is in a severe ecological damage risk zone. The rationale for levying this NPV is based on expert opinion that reversal and/or restoration of the ecological damages is usually not possible within a short period of time and rarely is it feasible to achieve 100% restoration, even if the sand deposition in the river basin is restored through flooding in subsequent years.
material) - i.e., Total Compensation to be levied = NPV=PV-D = Rs. 66,58,953/-
Compensation Charge in above case:

                   Approach 1
                   (no explicit accounting of NPV)               Approach 2
                                                                 (explicit accounting of NPV)

                   D*(1+RF+DF)                                   @ 5% discount rate and over 5 years
                   Rs. 46,00,000/-                               Rs. 66,58,953/-                            "