Nationalizing the mining sector?

Nationalizing the mining sector?

The debate is ongoing with the Mines and Minerals Bill deferred to the winter session of Parliament

Parliamentarians were divided on the nationalization of the mining sector spelt out in the Mines and Minerals Bill 2019, which has been deferred to the winter session of the parliament.

Minister for economic affairs Loknath Sharma introduced the bill to the Parliament on Wednesday.

Lyonpo Loknath Sharma said the main objective of the bill is to outline policy and regulatory functions, strengthen and ensure transparency and accountability in mines and minerals management, attract and promote investment, establish standard rules of conduct,

promote in-country value addition and value chain creation, strengthen regulatory and monitoring aspects of geotechnical and mining activities and provide responsible and sustainable mining.

The Ministry of Economic Affairs drafted the Mines and Minerals Bill of Bhutan 2020 considering the current situation, issues and challenges faced by the mining sector and realizing the importance of the sector and its potential to become an important source of revenue in the country.

Lyonpo mentioned that current issues and challenges faced by the mining sector was also observed by the watchdog agencies such as the Royal Audit Authority and Anti-Corruption Commission reports, which recommend the need to revise the existing Mines and Minerals Act 1995.

Lyonpo said the bill was drafted to harmonize the mining law with the objectives and provision of the Constitution of the kingdom of Bhutan.

The House, after thoroughly debating the principal objectives and background of the amendment of the Bill, decided to refer the Mines and Minerals Bill of Bhutan 2019 to the Economics and Finance Committee for further review to be submitted in the winter session.

A businessman said that the bill is largely a good one, professionalizing the mining sector which will enhance  investment in the mining sector and increase the revenue generation for the country while also allowing private sector investment.

“I feel the discussion has been deferred to the next session because lobbying is going on to change the bill,” he said.

Mines and Minerals Bill

The Bill states that the rights over mineral resources will rest with the state and that they are the properties of the state and except as provided under this act, no person will be permitted to carry out prospecting, exploration, mining, surface collection, fossicking and related activities.

The Bill also mentions that the mineral rights cadastre will maintain registries, files, documents, maps and procedure related to granting and management of the mineral rights and the state will have prerogative to promote and develop minerals whether they occur on private or state owned land, in consultation with the relevant agencies.

The Ministry of Economic Affairs will have the right to earmark and declare potential areas for future resources tapping and to guide infrastructure and development works.

On the management of mining lease, the Bill mentions all mineral reserve proven by the department will be allocated through public notification either through sealed or open competitive bidding process or to a state owned enterprise and the ministry will assess the socio-economic viability of strategic mineral or strategic reserve to be exploited and recommend the government on the method of allocation for approval.

The Bill also talks about short-term mining, surface collection, fossicking and artisanal mining and environmental and social risk management.

Affected community will be granted priority to buy equity stake in the mining company and the community will be compensated through benefit sharing schemes as prescribed.

It also states that the authority will formulate a community development agreement for leased mine prescribing the benefits sharing scheme for the communities and authority will create and manage community development fund maintained in a saving account with a financial institution for the lease to deposit fund to finance activities under the community development agreement.

Political parties outside the parliament

The former economic affairs minister, Lekey Dorji, told Business Bhutan that while the earlier draft Bill had provisions for auctioning of mines whose reserves are predetermined, the Bill now has provision for direct allocation to State Owned Enterprises (SOEs).

He said the Constitution specifically prohibits creation of monopolies and direct allocation of mines and minerals to SOEs does just that. “We can understand if the minerals are rare and has security implications, but to directly allocate all those minerals whose reserve and value is predetermined to SOEs, giving step-motherly treatment to private sector, would not be in the best interest of our economy,” said Lekey Dorji.

However, he said that they are happy that the Bill has retained the provisions for separation of regulatory and mining functions.

On the issue of nationalization, he said that the Mineral Development Policy 2016 classifies minerals into four categories. Strategic and rare minerals could be allotted to SOEs but all other minerals should be left open. Parliament should also see what comprises strategic minerals and ensure that public sector do not crowd out the private sector.

“Nationalization would mean going backwards, private sector is the key engine to economic growth and we would be stopping the engine midway if we nationalize all mines,” he said.

A major issue given the mining industry is that a few big players in the mining industry are benefiting out of the country’s national resources belonging to the people of Bhutan.

In this context, he said monitoring and periodic reporting should be made, and technology employed in the industry to usher in better practices. Allocation of mines must be transparent and fair, and the government must get reasonable amounts of royalty and taxes.

He said the People’s Democratic Party increased royalties and mineral rents after more than 10 years in 2016, and enhanced revenue from the industry. “We should continue to levy royalties and mineral rents while allowing private industrialists to make returns. Our mines and minerals should benefit all citizens but we strongly feel that allocating all strategic minerals to SOEs leaving out the private sector entirely would be detrimental to the growth of our economy,” he said.

He also added that allowing community ownership of certain percentage of mines is one way of distributing the national wealth and provisions in the Bill should be incorporated stating that certain funds from the mines be allocated to the local community by way of corporate social responsibility on top of the community ownership.

The Vice President of Bhutan Kuen-nyam Party (BKP), Sonam Tobgay, said the Bill has been postponed to the next Parliament session so BKP reserves the right to comment at a later stage.

He said that for now, state resources have to benefit the Bhutanese equitably.

During the presentation of the Bill in Parliament, Panbang MP Dorji Wangdi said that along with the Mines and Mineral Bill, Water Act and the Forest Act need to be amended. 

He said mines and minerals are national resources and belong to the states and all the people must benefit from them.

He said monopoly should not exist in the mining sector and they must discuss this in the winter session.

Drukjegang MP Jurmi Wangchuk said that government should not compete with the private sector. “Mining business should be handed to the private sector which pay taxes to the government,” he said, adding that there should be stringent rules for regulating the mining sector.

Prime Minister Dr. Lotay Tshering said that the Bill was presented in Parliament because it was long overdue and they feel that it should be amended. “The bill needs to be passed as soon as possible.”

Mining sector

The Joint Managing Director of a mining company, RSA Private Limited, Singye Namgyal said that the current mining act is outdated and new rules and regulations need to be put in place which will better monitor the entire sector and ensure that the nation as a whole benefits reducing environmental impact while contributing revenue.

“If the bill can achieve that, it will be a successful bill,” he said.

One of the mining companies who did not want to be named said that nationalizing the mining sector would not work as earlier the government did try to do it but they failed and ran into losses.

“In the Constitution there is mention of mines and minerals belonging to the people of Bhutan but it doesn’t state that the government can exploit it. It also clearly mentions that the monopoly should not tale place,” he said, adding that government should strictly regulate the sector.

Similarly, the Joint Managing Director of Jigme Mining Corporation Limited, Ugyen Kesang said that the revision of the existing Mines and Minerals Act is long overdue and it is good that it is finally being presented in Parliament.

“Mineral wealth is a national asset, a common heritage that belongs to the nation and the government is the custodian thereof. Therefore, the government must ensure the utilization of such wealth in a manner that promotes economic and social needs of the whole people of Bhutan,” he said.

Ugyen Kesang added that the objective must be to vest the ownership of all minerals in the State for the ultimate benefit of the people as a whole.

“To achieve the objective, the State need not necessarily nationalize the sector.”

Pic courtesy: Jigme Mining

Dechen Dolkar from Thimphu