The Upper House quizzed the Minister of Economic Affairs on the State Mining Corporation (SMC) not taking up the primary mining and quarrying activities, on taxation and existing mining lease during the question and answer session last week.
Earlier in the 14th session of National Council (NC), the house recommended the government set up SMC as a state-owned company. An audit report found out an existence of widespread violation of laws, rules and regulations by those involved in the sector, which lead to concentration of benefits from national resources going to a few people. SMC was set up under Druk Holding and Investment in December 31, last year as a result.
Minister of Economic Affairs (MoEA) Lyonpo Norbu Wangchuk said, “The establishment of SMC is not to compete with the existing private mining companies but to complement the efforts of the private sector. In doing so SMC will lead the way for the scientific and responsible mining, develop and operate captive mines to support local industries, support the efforts of the Royal Government in mineral prospecting, optimize economic returns from the mining sector towards achieving economic self reliance and set the standards for socially responsible mining.”
He said, the main objective of establishing SMC is to promote the social and economic equity in the country and to ensure that benefits derived from state-owned resources are not captured by a few people, which results in greater income and wealth concentration as well as further socio-economic disparities. The house also resolved that SMC should be mandated to conduct all primary mining activities and extraction of minerals in the country and that the private sector must be engaged only in activities that involve value addition to the primary mineral resources.
With regard to terminating the mining leases of defaulting companies, the issue pertained mainly to quarries not registered with the Department of Revenue and Customs, and hence required the intervention of the Ministry of Finance. Pemagatshel NC member, Jigme Rinzin, asked why the government had not mandated SMC to conduct all primary mining activities in the country.
He added that the house called on the Government to immediately terminate the existing mining lease on the terms and condition of the lease, the articles of incorporation (if applicable, and as per section 32 of the Mines and Minerals Management Act 1995). “The government should also terminate the licenses of those quarries that have not registered with the Department of Revenue and Custom (DRC) and suspend the licenses of those who have not maintained books of accounts.”
He continued that the MoEA had provided an unsatisfactory response stating inability to terminate the lease of those who have violated laws and rules due to the absence of budgetary provisions to compensate those license holders, as the audit report clearly shows that some of license holders have violated provisions of the Income Tax Act 2001 and Mines and Mineral Management Act (MMMA) 1995.
Section 32 of MMMA 1995 states that ministry has an authority to suspend and terminate a mining lease if the lease fails to pay and due on mineral levies and any other government levy, contravene any provision of this act or any condition of his lease, contravene any other law of the Kingdom related to maintaining provisions specified by this act, considering the Audit observations that indicate violation of laws.
Lyonpo Norbu Wangchuk, said that NC’s recommendation meant nationalization of mining activities and making it state-owned. “We can’t endorse NC’s recommendation to take over all the mining and quarrying activities and make SMC take full responsibility.” The Minister said that taking such responsibility would not benefit the country’s economy as pointed out by economists. He said the work of the government is to facilitate and regulate, and not get into business. He cited examples on the failure of the government’s owning mining and quarrying sector from all over the world. He also said that it would be in accordance to the law of the country, he added.
The Minister’s justification was that the article 1 of section (12) of the Constitution states “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”. As per the article 9 of section (9), “The State shall endeavor to achieve economic self-reliance and promote open and progressive economy.” Secondly, the article 9 of section (10) states, “The State shall encourage and foster private sector development through fair market competition and prevent commercial monopolies.” Likewise, as per the article 14 section (16), “Parliament shall not enact laws that allow monopoly except to safeguard national security.”
He also pointed out the Public Finance Act (PFA) section (74) stated “The Government may establish a state enterprise to undertake significant commercial activities which (a) are not catered for by the private sector, or (c) fall in areas of natural monopoly.” Additionally, the section (79) says “A state enterprise may be dissolved or privatized by divesting the governments share once there are enough manufacturers and providers of the same goods and services in the market”.
Lastly, Minister pointed out that when it comes to legality, The Section (17) of Mining and Quarrying Management Act 1995 states that “Even though it s individual, business they have the right to seek for permission to carry out mining and quarrying activities.”
Reacting to the Economic Minister’s response, Eminent NC member, Tashi Wangyal, emphasized that the mining and quarrying sector should benefit all nationals of the country, not just a few individuals. He questioned whether it would benefit the nation if it is left in the current state and whether taking mining and quarrying activities by the government would compromise the equity and justice. Regarding the constitutionality of the government’s takeover, the section (74) (b) of PFA 2007 states “(b) are required to be undertaken solely or partly by the Government for reasons of social policy or security,” he added.
The Minister warned if the national wealth is kept in hands of few people it would affect the security of the economy resulting in affecting the national security. On the NC member’s statement on nation’s wealth for all, he said that the constitution also focused on minimizing the income inequality.
“The present Mining and Quarrying companies were selected through auction, where at least 30% of the share is given to public,” the minister pointed out. The government has also auctioned major mines in the past.
Meanwhile Samtse NC member, Sangay Khandu, expressed his dissatisfaction with the earlier response by MoEA. He said the government had the authority to do so, as the MMMA, 1995 section (32) that states, “The Ministry may by order to the lessee, by giving sufficient notice, suspend or terminate a mining lease, if the lessee;
- Fails to pay any due on mineral levies and any other government levy.
- contravenes any provision of this Act, or any condition of his lease.
- Contravenes any other law of the Kingdom related to maintaining provisions specified by this Act.” The minister also said that government had to come up with clear legal framework on the taxation, royalty and rent in the sector.