The Dungsam Khothakpa lesson

The performance of the State Mining Corporation Ltd (SMCL) and its contribution to the government coffer provides a clear insight into the debate over nationalising natural resources.

Not only has it proved that state-owned enterprises can be as efficient or even better than private enterprises, but also natural resources can be managed better. SMCL broke all records and earned Nu 1.43 billion declaring a 108 percent dividend from its coal and gypsum mines, which will go straight to the government or the people of Bhutan.

Central to its achievement was the Khothakpa gypsum mine. In its first year of operation, the Khothakpa gypsum mines achieved a profit after tax of Nu 248 million (M). The previous year, the last year of mining contract, Druk Satair, the private miner, declared a profit of about Nu 201M. SMCL also surpassed the production and sale targets and passed the “litmus test” set by its parent company, the Druk Holding and investments.

Beyond the monetary gains, the benefits of mining are trickling down to the community who otherwise only complain about pollution and environment degradation. From outsourcing equipment hiring instead of creating sister companies for hiring to involving local people in the transportation business and creating hundreds of jobs, SMCL has set an example.  From our past experience, communities are at the receiving end of mining natural resources. Mining at the community is known only for damage to crops and properties, loss of water source and many more.

From the Khothakpa experience, members of the National Council, where the issue was discussed yesterday, were rueing that the government had not taken over mining a long time back. The feeling is it is better late than never. The Council had been pushing for the state to take over the mines. Their recommendations fell on deaf years to the extent that mining contracts were extended and amendment of the Act deferred.

Concerns of mineral resources being exploited by a few individuals is not new. Council members have argued in the past that when state resources are used in the interest of few people, it not only disregards the state policy of just society but also widens inequalities between the rich and poor.

SMCL performance and the way they are mining gives good reasons to convince doubters that the State should mine natural resources even if the provisions of the Constitution have failed to convince decision makers so far. The Constitution states that the rights over mineral resources, rivers, lakes and forests shall vest in the State and are the properties of the State, which shall be regulated by law. Further, it mandates the State to develop and execute policies to minimise inequalities of income, the concentration of wealth, and promote equitable distribution of public facilities among individuals and people living in different parts of the Kingdom.

The benefits of mining thus far had not gone beyond a few business houses. This is against the provisions of the Constitution. Experts have estimated that the inequality is so stark that one Bhutanese in the mining sector is earning as much as 16,824 other Bhutanese.

The government should also be encouraged from the improved revenue from state mining when domestic revenue is projected to decline. Domestic revenue is already on a decline even before the Covid-19 pandemic. The revenue base is getting narrower with tax reforms, mostly waivers, fiscal incentives and the excise duty coming to an end.

The State mining natural resources that belong to the people of Bhutan could help the government elected on the pledge of “narrowing the gap”.  Critics say our taxation policy is rich centric and development partners are urging us for more determined action to combat tax evasion and avoidance.  From the difference in revenue one mine generated, it is clear that there had been better prospects for more revenue from mining.

It is re-assuring that the government is paying attention to this issue and that SMCL can contribute better to the national exchequer besides benefiting communities around mining sites.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply