The Nationalization debate

There are two parties to blame for the issues in the mining industry.

One is the mine owner and how the owner or owners run the mine with a short-term view but the bigger flaw lies with the Department of Geology and Mines and their poor monitoring system that allows miners to get away with unethical mining practices, lax measurement impacting state revenue, and environmental impact.

Apart from DGM, the other agency that has not got a good handle on the mining sector is the Department of Revenue and Customs (DRC) who needs only do some additional research and make a few calls to earn more tax out of the mining sector.

However, the solution to the above problems is not letting these ineffective state regulators becoming the owners of the mines.

This is like your income tax officer running your business to get more revenue. It is madness and will not work.

The private sector mines, despite their controversial and poor ethical records, are geared to efficiency and make money which can never be matched by state operators.

Now, here, SMCL is brought up as an example given their recent and high profits in Gypsum and Coal.

However, people forget these profits are from the same mines already established by private players with a ready system and buyers and even staff handed over.

The true test of SMCL’s mettle will only be when it can start a new or greenfield project on its own and earn profit over the years.

Apart from SMCL, the experience of the government running or trying to run mines has been pretty disastrous so far to the extent of losing state money instead of earning revenue. This is true for Dolomite, Gypsum and stone quarries.

Apart from the above examples of state versus private efficiency those advocating for nationalization of mines should see the disastrous impact it has had on the economies of other countries.

For those arguing for state or public control of all mines; they are being disingenuous at four levels.

First, the mining Bill even before being put in the National Assembly was thoroughly discussed with all stakeholders and there were live and unprecedented public hearings conducted.

Secondly, in the NA discussions it was made clear that only strategic minerals would be the prerogative of the state like gold, silver, tungsten etc.

Now trying to nationalize everything means that no private company can trust even Parliamentary deliberations in the future. Such policy uncertainty is very bad for business and attracting foreign investments of any kind.

Thirdly, the mining bill increased the public shareholding from 30 to 49 percent which means any major mine has to float 49 percent of shares to the public.

The accusation made by some is that the Parliament has failed the people by not going for nationalization but all three elected governments so far have shown a strong bias towards state ownership of mines.

DPT government handed over several stone quarries to the NRDCL to compete with private players. This was where NRDCL lost Nu 400 mn.

During the time of PDP it created the SMCL to fund its education programs.

It was during PDP’s time that the royalty and mineral rent was revised upwards steeply for the mining industry.

The DNT government which passed the mining bill in the NA that gives a 49 percent public share in all major mines up from the current 30 percent.

The issue at the end of the day is not just about mines but about private sector development.

If the mentality is to own everything of value and leave the crumbs for the private sector, then Bhutan’s private sector will never take off.

What will instead happen is that the revenue from such state owned companies will primarily be used up in massive pay increases for public servants, further increasing an already wide wage gap between the public and private sectors.

Already, the moment a new hydro project comes online its revenue are already booked as pay hikes for civil servants and SOE employees.

If a private employee were to take a cynical look there is literally zero benefit out of hydro revenues for the private sector, but the debt for the projects are shared by all Bhutanese.

This maybe one of the reasons why the strongest voice or ‘lobby’ for state control of all such mines comes from those within the public sector itself. However, such voices should be aware that given the past experience there are higher chances of the state losing money on mining ventures.

There is also the other danger that while state companies earn some profit from mines, it would not be able to match the scale and efficiency of a group of private companies doing the same.

If the concern is that a few rich individuals or families are getting ‘too rich’ then bring in relevant taxation laws to ensure that wealth above a certain level attracts higher taxes.

In that sense the unofficial government policy to not allocate hydro projects to the private sector is a correct decision given the huge finances involved and how it would perpetuate inter-generational inequity in a big way.

If the concern is unethical practices, there is no guarantee in the long term that state companies and those in it will not resort to the same. There is no shortage of examples of such mismanagement of public resources and even companies by public officials in the past. The solution is to strengthen monitoring and accountability.

It is easy to take a populist stand and ask for all mines to be nationalized or throw unproven accusations at the NA of being influenced by a ‘mining lobby’, but what is difficult is to take a clear eyed view of the situation and advocate for systems and regulations that will ensure a better deal for the state and citizens and a healthier mining sector.

Bhutan cannot head down a socialist path where a private sector making money honestly and paying its taxes is frowned upon as being something wrong or undesirable.

The situation today is that the moment the private sector does or builds something of value the government is close behind to try and replicate it down to even owning chickens and producing eggs to compete with poultry farmers.

The decision and opinion makers in the public sector should learn lessons from history to see where such a path will lead.

The collapse of the Soviet Union in the 1990’s and the subsequent failure of states that adopted a ‘state owning and running everything model’ should give a clear historical example.

Even Communist China went from a famine that killed millions (The Great Leap), caused by the idea of collective ownership of farmlands, to abandoning this model and becoming the world’s second largest economy on the backs of the private enterprise and innovation of its citizens.

COVID-19 has hit the private sector in Bhutan hard, and as a result there is a huge reduction in tax revenues for the government which is having a tough time to balance the budget with a lot of cut backs. The only thing saving the day for now is foreign grants.

If the private sector is hit even harder the very salary and benefits for public servants paid in part out of taxes from the private sector could very well be hit.

Perhaps that, more than anything else, can finally drive home the value of the private sector.

If economic policy and decisions are dictated by a public official or agency based on their ‘feelings’ about driving a particular brand of car while a private sector person drives another brand of car, then even Buddha cannot help Bhutan’s economy.

“The first duty of a man is to think for himself”–Jose Marti