Doomsday scenarios have been predicted for the Sri Lankan economy for some time.  Yet to descend from the high of the victory over terrorism to the ridiculous low of having to cut trees to pay EPF/ETF is a sorry indication of what the Government has climbed down to from 2009 to 2013. That the country [...]


Mining the family silver


Doomsday scenarios have been predicted for the Sri Lankan economy for some time.  Yet to descend from the high of the victory over terrorism to the ridiculous low of having to cut trees to pay EPF/ETF is a sorry indication of what the Government has climbed down to from 2009 to 2013.

That the country is living on borrowed money is a constant refrain from independent economic analysts, but surely the decision by the Cabinet to cut down trees to settle EPF and ETF dues of the state-run plantation sector is hitting the pits. Sometime ago, the Fisheries Ministry was preparing to sell sea-sand to the Maldives to settle its debts to a company that had done some work for it.

We see in and around Colombo, blocks of land being cleared and offered for lease to questionable foreign investors at questionable prices. The capital city is looking like a ‘land sales’ plot. The Government’s economic indicators and statistics are being questioned openly from within as a new meaning is being given to ‘selling one’s silver…’ with a developing scam in the country’s valuable mineral resources.

The mining industry anywhere in the world lends itself to massive corruption — and it is no different here. In recent months, a large number of foreign and local companies have shown interest in Sri Lanka’s mineral, particularly graphite, resources. Some of these entities are already profiteering on the fringes of the law.

The Government is actively promoting investment into mining but shows little awareness or knowledge of the shady practices now taking place. One of the most common is the hawking of exploration licences for millions of dollars by local companies that acquire them for Rs. 5,000 a piece from the Geological Survey and Mines Bureau.

The GSMB is solely responsible for the granting of exploration licences. It is also authorised to issue mining licences on the fulfilment of certain criteria. Insiders say a small coterie within the Bureau jealously controls the files.

Of 100 exploration licences granted by the GSMB that are still valid, a quarter is held by a business entity with political connections at the highest level. Either directly or through fronts, it has blocked off vast acres of land throughout the country. Its main interest is graphite.

Devious methods are used to mask the fact that a single entity is securing so many permits. So much secrecy is exercised that officials at the GSMB get nervous when questions are asked about these activities. Are bribes being paid? This bodes ill for the industry.

Things go further downhill from there. Investigations by the Sunday Times show that non-transferable exploration licences are then forked out to foreign firms through the sale of the front company. The relevant agreements cite astronomical sums for the transaction.
The Board of Investment is deliberately bypassed. No revenue is earned by the State. The benefits of the deal are secured entirely by the local company which is quietly hawking the permits granted to it cheaply by an unquestioning government agency – permits that give them rights over national resources. The entire transaction is entirely unmonitored by the State.

All this is indication that, if Sri Lanka is serious about opening out its mining sector, it is setting about it the wrong way. Worldwide, there is a strong call for increased scrutiny of the industry. Regulators are being given strict, new instructions. Sri Lanka has no dedicated regulator. As in the case of casinos, the country is barging into an area with potential for excessive fraud and corruption without a stitch of protection in place.

Some of the laws the global community is pushing for include requirements that petroleum and mining companies disclose what they pay to foreign governments and officials in terms of taxes and licensing fees. And developing countries may be required to declare the payments they receive in connection with natural resource deals.

The global thirst for graphite has risen in recent months and smart countries are stockpiling in anticipation of even bigger demand in the future. Sri Lankan graphite, with purity levels of 99.9% carbon, is the best in the world. There is potential for this industry to really take off.

But the pendulum can swing both ways. Although the demand for pure, natural graphite could spike in the immediate future, it is possible that methods are soon developed to produce cheaper, synthetic graphite. It is, therefore, vital that Sri Lanka takes advantage of prevailing interest. Looking too far into the future might prove counter-productive.

There is another facet to questionable manoeuvres in Sri Lanka’s mining and mineral sector. A media statement issued by a foreign company that recently forged a ‘deal’ with a local firm has vexed Sri Lanka’s scientific community.

It said their mining claims were located in close proximity to the Port of Colombo and that paved roads would provide easy access to and from the sites and the port.

Here, then, was yet another company angling to ship out Sri Lankan graphite in raw form without investing in local industries that would add value to the mineral before export. The Government has a vague policy of value addition that is fluidly applied. The scientific community wants it engraved in stone so that the country can move to higher levels.

Not only would value addition enable a transfer of knowledge and technology into Sri Lanka, it would create employment and fetch the country significantly more foreign exchange. Raw graphite currently earns around Rs. 200 a kilogram. Hi-tech products such as carbon nano tubes could sell for as much as Rs. 150,000 per gram. The Government must ask investors to put money into industries that enable this to happen.

Some Sri Lankan private sector companies have taken the initiative to invest in nanotechnology. More support is needed from the Government. There are costs involved. Certain value addition processes in the mineral industry require vast amounts of energy. It is not a low-cost industry. But it is possible and necessary for the country to move forward.

It is true that electricity, patents, technology and the setting up of factories are expensive. But so are Lamborghinis. It is all a question of where your priorities as a nation lie.

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