Mining sector set for major changes as Policy finally heads to Cabinet

Royalty revision also proposed for 2016 budget

The much delayed and anticipated Mineral Development Policy (MDP) will soon be submitted to the cabinet after it was finalized by the Ministry of Economic Affairs this week.

The ministry also sent a related proposal for the increase of royalty rates and mineral rents to the Ministry of Finance, which is proposed to be introduced in the Budget year.

The final draft of the MDP, now in its sixth year has an array of important new ideas about mining in Bhutan. It also has changes from its earlier draft versions.

Making sure mines pay their due

A major issue with the mining sector, reflected even in a performance Audit report, is on the inadequate revenue drawn by the government from the mining sector, given’s its inability to efficiently assess and collect revenue.

To address this issue the policy says that the government shall institute a mineral fiscal regime and a progressive fiscal instrument that provides a fair share of the mining benefits to the nation where the average effective tax rate is fair to both the investor and the state.

It says the government shall build the capacity of the relevant institutions to be able to effectively assess, collect and audit the royalties, taxes, duties and fees paid by mining leaseholders.

The MoEA will be responsible for setting and reviewing the mineral royalty, levy and fee rates for different minerals.

The Mining Regulatory Authority (MRA) in collaboration with the Department of Revenue and Customs (DRC) shall be responsible for assessment and audit of royalties.

The Ministry of Finance (MoF) will be responsible for setting tax rates and duty rates on minerals.

The MoEA, in a proposal sent to the MoF, earlier this year has proposed a significant increase in the mining royalty and mineral rent saying that a revision is long overdue and would have a good impact on the nation’s finances.

The revision is recommended for approval for the next Parliament budget session next year in 2016. Once finalized the government stands to gain an additional Nu 177 mn every year, over and above the current annual mining revenue which was Nu 230.92 mn in 2013. This would mean a total of more than Nu 408 mn a year in total mining revenue. (See box for proposed revision).

Community Clearance

The final version says that no individual community member shall obstruct mining proposals and related activities for personal gain above and beyond the benefits being made to the community. It also says that an adequate penal provision shall be adopted to address such concerns.

A mining official said that this clause was put in especially for influential local people who tried extracting money for their personal gain from miners above what is already being given to the community.

One major complaint from miners has been that even when the majority of the community members gave clearance, a few would try to stop mining proposals to seek individual benefit.

However, this does not mean that miners can have things their way because in addition to the existing Environment Impact Assessment a Social Impact Assessment and Social Risk Management and Mitigation Plan will have to be put in place before getting a mine.

Procedures for public consultations shall be as per the Public Consultation Guidelines and operation of mines must take place in a manner that gives due consideration to the health and safety concerns of affected communities.

Encouraging broad based ownership

In order to ensure that ordinary people also have a chance to make some money on mines, the MDP says that all mining lease concerning strategic minerals, with the exception of strategic quarries shall include floating shares to general public to realize the principle of broad based ownership of minerals.

It also says that all mining rights of mineral deposits proven by DGM shall be auctioned through a competitive bidding process with bidding criteria that are pre-defined, clear and available publicly.

The successful bidder shall be required to float shares to the general public to again realize the principle of broad based ownership of minerals. The specific requirement on the percentage of shares to be floated shall be determined based on the projected value of the mineral and specified in the auction document.

Ensuring Local community benefits

The mining companies have to provide first preference for employment opportunities and priority for procurement of goods and services from the local communities.

It says a Community Development Agreement (CDA) shall be formulated outlining any benefits for the affected communities and shall be signed between the affected community, the leaseholder and the MRA.

A Community Development Fund shall be created to provide funding to fulfill activities within CDA.

The CDA shall be updated after every five years. The MRA may inform the need of revision based on the performance of the mine and in line with Mining Community Development Guidelines.

The Leaseholder shall be responsible for the maintenance of existing roads they use on a cost sharing basis, except national highways. The cost shall be determined by the MoEA in consultation with the mining operators.

Value Addition

The RGoB shall levy lower royalty for in-country value addition and use, and higher for unprocessed mineral export. The royalty for minerals shall be revised on a periodic basis.

Encouraging professional mining

The DGM has so far been following a policy of ‘first come first serve’ in the case of mines and especially so for stone quarries. This policy was criticized for leading to revenue loss, rat hole mining and also mines making losses due to poor management.

However, this will change as the MDP says though any Bhutanese national can apply for mines they have to now fulfill the required technical and financial eligibility criteria shall be set in accordance to the size and type of mineral deposit and mine.

The MDP talks of  a prospecting permit to do surface prospecting for mines, an exploration permit to do more detailed studies for intended minerals only, a surface collection permit and finally a mining lease.

The DGM will formulate financial and technical eligibility requirements for prospecting, exploration and mining.

Separating mine allocation and regulation

To ensure better regulation of mines the MDP has a provision for an autonomous Mining Regulatory Authority (MRA) whose operations are to be funded in part from mineral rent. The MRA will be tasked with solely monitoring the mines and ensuring that all mining, environmental and health issues are complied with. It will also be involved in assessment, collection and auditing of mining royalties, levies and fees.

The MRA is also responsible for oversight of and management of Environmental Restoration Fund set aside by leaseholders for mine closure and reclamation including release of the funds for the closure and reclamation work to be undertaken.

The draft proposes that the DGM, instead of going into monitoring, handles issues like formulating policies, issuing mine leases, undertaking mapping of minerals, classifying minerals, developing human resource in both public and private agencies, revising royalty rates and etc.

Defining Strategic minerals

The MDP says Strategic minerals shall be those minerals that have wider implications on the economy in terms of being required as input for infrastructure development of national importance, are scarce and essential for domestic industries, are of rare and high value minerals, and those minerals with security implication

The MoEA shall review and update the list of strategic minerals periodically. The policy says allocation of all strategic minerals shall be the prerogative of the RGoB.

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