Study finds mining sector suffers from weak governance

Research: Investing in the geology and mines department and providing stronger legislative support will result in better returns for the country, a multi-agency study has revealed.

The study conducted by a team including Audencia Nantes School of Management, France, Professor Bertrand Venard, officials from the Anti-Corruption Commission, Royal Institute of Management, and Department of Geology and Mines (DGM) was launched yesterday.

The research found that at present the sector has weak governance with the geology and mines department challenged by serious issues of insufficient resources to carry out monitoring and the absence of a data mining strategy.

“Over the years, a vicious cycle of mining has developed that could further weaken the performance of the sector,” the study says.

Researchers estimated Nu 1,177.75 million (M) was lost in revenue to government from wrongdoings in the sector between 2008 and 2014, with the loss of revenue increasing annually from about Nu 102.87M in 2008 to Nu 277.41M in 2014.

The mining sector contributed 2.8 percent to the GDP in 2014, and a revenue of more than Nu 4 billion in 2013, earning Nu 199.6 million in royalties and mineral rent.

The sector today employs 1,386.

The report provided 10 recommendations to improve the sector, of which at least seven had to do with improving the geology and mines department of the economic affairs ministry.

To strengthen governance of the sector, the study recommended establishing a mining strategic plan, establishing an independent mining regulatory authority, strengthening guidelines for effective community involvement, increasing mining lease periods, better coordination among agencies, and creating wider advocacy about mining and related legislation.

Because most information is in paper format, access to information was another problem identified.

The study recommended developing a data mining policy to address the lack of a database and limited use of available information.

The industry is riddled with challenges, the study pointed out, corruption being one of them. The study identified corruption as one of the top constraints for the mining industry followed by electricity and access to finance.

Of the 22 mining companies, more than 31 percent said they have experienced at least one bribe payment request. There are also incidences of manipulation of bills.

Having to route through multiple stakeholders for processing the mine application, inconsistency in rules and regulations, and no clear service delivery standards or lengthy turn around time by the agencies involved were the main causes of corruption.

The National Environment Commission appears to strongly influence the decisions of the DGM, having higher standard requirements and penalties, among others, the study points out.

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The research team recommended having simple and clear roles and responsibilities of the agencies involved besides a service delivery standard for the DGM.

Lacking a strategic development plan, insufficient budget, limited staff capacity, and shortage of available mining engineers, the study says that DGM has been weak in monitoring.

The department is constrained on monitoring with officials having no computers, internet connection, training, insufficient financial means including travel and daily allowances.

The study points out that the inspectors left on their own, run the risk of colluding with mine owners.

It recommended that a financial disclosure programme be introduced for inspectors, mine owners, board members, mining managers and engineers.  The establishment of an online annual report by mines and a mining report by DGM is also recommended.

Unclear Dzongkhag Land Leasing Committee (DLLC) procedures have led to unclear public consultation processes which could develop potential unethical behaviours by the mine owners to win over a community or local authorities.

The study asked to review the guidelines of DLLC and public consultations, and it also calls for formulating corporate social responsibility in absence of which mine proponents could make false promises, resulting in minimum community development, and risk conflicts within the communities.

The 10-year lease period of mines was found too short, so the mining companies tried to cut corners to make profit, says the report. A longer lease, the researchers said, could also lead to investments on infrastructure building and protection of environment.

Raising royalty based on the sales value of the minerals and economic development of the country was another recommendation.

The study was carried out to ascertain the root causes, costs and risks of corruption, promote research competency and facilitate evidence-based decision-making which are vital for promotion of good governance.

Economic affairs minister Lekey Dorji said the mining sector accounts for 2.8 percent of the country’s GDP but it only measures the direct contribution and does not take into account the indirect contribution of the broader manufacturing capacity, jobs, wealth and ancillary business opportunities created by the mineral processing industries.

“These industries export in excess of Nu 10 billion every year. Our balance of trade would have even worsened had it not been for these manufacturing capabilities within the country,” Lyonpo said.

He added that Bhutan must use the mineral sector to build an industrial base that diversifies the economy and allows us to move up the value chain of industrial production.

“We are located strategically in a neighbourhood of a large, fast-growing economy, that continues to demand industrial products from us,” he said.

Officials said efforts to improve the system are underway.

The National Assembly approved the revision of royalties and mineral rent based on mineral values recently.

The ministry is also working on revising laws related to the mining sector.

Tshering Palden

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