The many lessons of NRDCL

The spectacular failure of the Natural Resources Development and Corporation Limited’s (NRDCL) foray into the stone quarry business from 2011 onwards throws up many important lessons and issues.

The first major lesson is that even well intentioned political interference in the running of a commercial company can lead to major and unforeseen complications. The decision of forcing DHI and NRDCL to go into a business it was neither experienced nor equipped to handle came from the former cabinet based on some theoretical economic considerations. It turned out those considerations did not match the ground realities.

The results today are losses amounting to more than Nu 400 mn and the wasted time and efforts of a crucial corporation that plays a key role in supply of sand and timber.

The global failure of the socialist or left wing concept of governance where political governments try to run the economy is also due to this fundamental flaw.

While elected governments should definitely lay out the broad policy parameters for the economy but it should avoid getting into micro-managing the economy.

In the recent past there was some debate on the merits and demerits of letting DHI function semi-autonomously. The above case clearly shows the great wisdom of letting DHI functioning in a professional manner instead of being forced to blindly follow political diktats of political parties in power no matter how well intentioned.

This case also shows that Bhutan’s implementation problems are not just due to the issue of capacity but is also the result of policies that are not clearly thought out.

It also exposes the sheer extent of red tape in the system. Even though the cabinet created a high powered committee of all relevant stakeholders to push for the quick allocation of the quarries it still took between 18 months to three years to allot the quarries.

A major problem for the NRDCL was the lack of adequate market studies before going for the quarries. This once again shows the lack of adequate consultation and research before taking major decisions.

This is also one more proof of clear lack of coordination between various government agencies. The then cabinet while announcing that one of the main aims of the NRDCL quarries was to supply hydropower projects failed to prevent foreign contractors from opening their own quarries. This was even while the decision was circulated to all ministers, secretaries and Dzongkhags.

In Bhutan the government’s natural inclination is to take a condescending view of the private sector and even try and do things that are best left to the private sector. This is one clear example of what can happen when jobs best done by the private sector are taken up by the government.

The private sector has clear advantages over the government in terms of care in investing capital, work efficiency, productivity, work ethics and also keeping down costs.

It is incredible that after spending Nu 154 mn in buying equipment and investing Nu 215 mn in running costs the NRDCL quarries could only operate at a 15 percent capacity to produce stones that are not competitively priced.

This is while private companies with much lesser investment have much better efficiency and results at lower costs. The finding that the nine to five timing of government staff could not compete with the private quarries is also another indicator of the government work culture.

Finally the NRDCL experience should serve as an important lesson for the current government’s State Mining Corporation (SMC) initiative to mine for minerals and generate revenue. Here the investments are expected to eventually touch Nu 1 bn and even more. The government must do a clear study of the market, see if it is ready for such a company and how the best results can be ensured at the lowest prices.

Bhutan’s much maligned private mining sector has received a lot of brickbats in the recent years but in comparison they are a far better alternative to what happened with NRDCL.

“Concentrate all your thoughts upon the work in hand. The Sun’s rays do not burn until brought to a focus”   –― Alexander Graham Bell

 

 

 

 

 

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