Mines and Minerals resurface in National Assembly

Mines and Minerals resurface in National Assembly

To be reviewed during the next fiscal year; govt considering to allow private sector in this industry

While the question was not about the rights over the nation’s lucrative mines and minerals, the minister, the Ministry of Energy and Natural Resources (MoENR) was asked about the plans, priorities and strategies for the mines and mineral sector to enhance the mine production and increase export of minerals and mineral products in order to reap the benefits at the right time.

According to Gem Tshering, the Minister of the Ministry of Energy and Natural Resources (MoENR), the government will review the rules and regulations of the Mines and Minerals Act 1995 during the next fiscal year, 2024, for the convenience of implementation. The minister also said they are considering reviewing the policy to allow both private and public entities to participate.

This statement was shared by the minister during the question hour of the first session of the fourth parliament. Tashi Tenzin, the Member of Parliament from Radhi-Sakteng, asked the minister about the ministry’s plans, priorities, and strategies for the mines and minerals sectors to enhance mine production and increase exports of minerals and mineral products in order to reap the benefits at the right time.

The MP noted that Bhutan is abundantly endowed with industrial minerals such as dolomite, limestone, marble, quartzite, gypsum, and construction materials (stones and aggregates) projected to last for several hundreds of years. As our main markets, India and Bangladesh, accelerate economic growth, there is likely to be huge export potential for industrial minerals and construction materials to Bhutan in the coming decades.

The MP also pointed out that minerals should be extracted and sold now, as they may not be profitable later, potentially being replaced by alternatives like synthetic gypsum.

The minister said that the rules and regulations on mines and minerals were last reviewed in 1995, and since then, they have not been comprehensively reviewed. “But we have made changes whenever there were inconveniences to the policy and rules.”

Bhutan has been trading mines and minerals mostly with Bangladesh, Nepal, and India. The minister said that currently, the trading is carried out by State Mining Corporation Limited (SMCL), but they are also considering reviewing the policy to allow both private and public entities to participate.

The minister emphasized that it would be inappropriate to mine minerals randomly. “It has to align with environmental policy.” However, the minister also stated that there should be value addition.

Meanwhile, in the first quarter of this year, the country generated Nu 7.48 billion from the export of silicon, ferro-silico-manganese, dolomites (not calcined or sintered), chips, pebbles, gravel, broken or crushed stone, ordinary Portland cement, oranges, gypsum (anhydrite), Portland pozzolana cement, and dolomite (not calcined or sintered, lumps and slabs).

In 2023, Bhutan generated about Nu 8.66 billion in revenue during the third quarter from the export of the country’s top ten commodities, which is an increase of about Nu 1.93 billion compared to the same period in 2022.

Mines and Minerals ownership became the core of division between the National Assembly and the National Council members of the Third Parliament with NC members disagreeing privatization of mines and minerals.

The NC said it is committed to upholding the Constitution and ensuring that the wealth generated from the mining sector benefits all Bhutanese citizens and that it aims to align the Mines and Minerals Bill (MMB) 2020 with the Constitution, particularly Article 1.12, which assigns ownership of mineral resources to the State. Furthermore, the NC emphasized the importance of Article 9.7, which mandates the prevention of excessive wealth concentration and poverty, as these extremes threaten democracy, social justice, harmony, and national security. The NC said economic data indicates that both income and wealth disparities are increasing in Bhutan, highlighting the urgency of these efforts.

On the economic front the NC said that recent experiences demonstrated that state-owned enterprises (SOEs) achieved higher export prices and greater profits for Bhutan. For instance, the private company JMCL declared an export price of Nu 520 per metric ton (MT) for dolomite in 2019. After the government assigned these mines to SMCL in 2020, SMCL exported at Nu 1,150/MT, doubling the price.

It argued that SOEs generated greater profits. Contrary to the belief that private companies were more efficient, SMCL’s performance showed otherwise. In 2019/20, SMCL’s profit after tax per MT was Nu 802, compared to Nu 398/MT by Druk Satair Corporation Limited (DSCL) in 2018.

It said SOEs also paid higher taxes. Private mining companies paid 25% as Corporate Income Tax (CIT), whereas SOEs paid more than double. SMCL paid 30% CIT, and Druk Holding & Investments (DHI) paid another 30% CIT. Profits from SOE operations were also transferred to the Royal Government as dividends.

The NC also said that SOEs contributed more revenue to the government. Assuming both SMCL and a private company exported 3 million metric tons of dolomite annually at Nu 1,150/MT, with the private company paying an auction fee of Nu 6 billion and having an overhead cost of about 22%, SMCL would contribute approximately Nu 40 billion to the government over 15 years. In contrast, the private company would contribute Nu 16 billion in taxes and auction fees, retaining a net profit of Nu 24 billion.

Citing an example, it said the Nu 40 billion contribution from SMCL could have fully financed two Nikka Chu Hydro Projects or covered the grant allocation for 20 dzongkhags in the 12th Plan. The estimated annual profits after tax of Nu 1,618 million for the private company were equivalent to the annual revenues generated by the Dagachhu and Kurichhu Hydropower projects.

After a series of discussions, the issue was deferred by the Parliament. Meanwhile, the Ministry of Economic Affairs of the earlier government came up with the Mines and Minerals Management Regulations 2022.

By Nidup Lhamo, Thimphu