Mines and Mineral Management System, DGM, MoEA

MINES AND MINERALS MANAGEMENT SYSTEM, DEPARTMENT OF GEOLOGY AND MINES, MINISTRY OF ECONOMIC AFFAIRS.

Based on the investigation of mining sector, ACC carried out a systems study on mines and minerals management in the country. The main objective of carrying out this study was to analyze the systemic flaws and provide corrective measures to prevent corruption in the mining industry from happening again. ACC reviewed the Mines and Minerals Management Act (MMMA) 1995 and Mines and Minerals Management Rules (MMMR) 2002 and provided several recommendations to improve the overall mines and minerals management system.
The following were the corrective measures recommended by Anti Corruption Commission to Department of Geology and Mines.

    • Legislative Considerations

MMA 1995 and MMMR 2002
It is recommended that the Department of Geology and Mines review the following legal provisions of the MMMR-2002.

Article 13, Chapter 5 of MMMR 2002 states- “Any Bhutanese individuals, licensed firm or a company shall be eligible to obtain a mining lease.”
While there is no problem with ‘licensed firms and a company being eligible to obtain mining lease and operate thereafter, any Bhutanese individuals being eligible to obtain a mining lease and operate out side the scope of the “Rules and Regulations for Establishment and Operation of Industrial and Commercial Ventures in Bhutan (1995)” is a big concern.
It is a big concern because- firstly, it allows unscrupulous people to obtain mining lease in fictitious names as there is no system of identifying or scrutinizing the authenticity of the applicants like passport size photographs and citizenship Identity Cards. It also provides immunity from national taxation system because; these individual applicants are not registered with any of the authority and thus can avoid taxation.
Most of the mining lease that ACC investigated into did not have trade license to export or sell their mine product. Because they did not have a trade license, they are out side the scope of Department of Trade, MoEA. Also, since DGM does not have a system of reporting their financial income with Department of Revenue and Customs, MoF, they are outside the purview of DRC, MoF and therefore, there is no mechanism, what so ever, to check on their business income and taxation thereof.
Therefore, it is recommended that individuals applying for mining lease be subjected to trade license. (There was a letter (no. MIT/DOT/--M-2-/2004/567 dated 9th July 2004) signed by Director Dept. of Trade to all regional Directors to follow certain procedures for issuance of licenses for mining/extraction of minerals, sand, boulders etc based on mining lease/permits executed/issued by the DGM. These has not be standardized and followed diligently.

Article 15, chapter 5 of MMMR 2002 states- “In case the Government decides to lease a pre-identified minerals deposit for commercial exploitation, it shall be done through public notification and sealed/open tendering process.”
The conditional phrase of “Incase the Government decides to lease….” Provides a great degree of discretion to the authority as to whether or not the particular mine be explored through public auction or not.
Although there were no major issues resulting from this provision at the moment, it is highly likely that this conditional phrase will create major problem in future as it provides huge opportunity for an authority to decide whether a particular mining sites should be auctioned or not. Therefore, there is a need to amendment the afore-mentioned article.

Article 23, Chapter 5 of MMMR 2002 states- “After acceptance of the applications, Director shall convene a technical committee, consisting of at least two mining engineers and on availability, a geologist of DGM, to assess and scrutinize application.”
While team did not encounter any collusion as such within the technical committee member while scrutinizing the application (because there was no committee as such), collusion within the committee appears to be at higher risk simply because of the fact that two mining engineers and one Geologist, on the basis of availability meets the quorum.
Therefore, there is an immediate need to increase the member of the technical committee member. It is recommended that the technical committee members be increased to at least three.

Need for additional provisions
It is recommended that the Department of Geology and Mines:

  • Either incorporates surface collection in their MMMR-2002 or have a separate rules and regulation for it.

Investigation revealed that the surface collection for minerals like quartzite had no set rules as it is not governed by the MMMA and MMMR-2002. As a result, surface collection had been poorly managed. Absence of proper rules and regulations has also enabled corruption to thrive in the allocation of the collection rights and operation of the surface collection.
Therefore, the DGM should either explore the possibility of incorporating surface collection of minerals to MMMR-2002 or draw up a separate rules and regulation for it in consultation with other concerned agencies.

Non Compliance to Application procedure
Adopt transparent and effective application registration system.
Article 16 of chapter 5 states “In other cases the application for mining lease shall be processed in the order in which it was received.” This article carries the provision to promote equality and justice in the process of processing application for mining lease in the system. This provision of equality and justice will make very little sense if we do not have a transparent system of registering mining application on as- and-when basis. 
During the course of investigation, it is discovered that there was no proper registration system as such and as a result, there were cases of not processing mining application on first-in-first out basis. (There were complaints and instances of some application being processed faster then those received earlier by the authority.)
It is therefore, recommended that the DGM establishes transparent and effective application registration system with appropriate check and balances so that individuals cannot manipulate the order of application to favor particular applicants.

Scrutiny of application
Establish/introduce a technical committee as required by Article 23 of chapter 5 of MMMR-2002.
It is observed that DGM did not have technical committee to scrutinize mining application as required by the MMMR-2002. The absence of technical committee to assess and scrutinize application has greatly undermined the conditions required for granting of mining lease as prescribed in article 21 of the MMMA 1995. (During the course of investigation, we have come across applicants who have barely any knowledge of mining industry, who have no reliable financial resources and who are totally incompetent technically.)
Therefore, DGM should constitute technical committee and comply as required by the MMMR 2002.

Final Mine Feasibility Study
DGM to make proper use of the Final Mine Feasibility Study as intended in the MMMA and MMMR.
The Final Mine Feasibility Study captured in Article 22 and 23 of the MMMA 1995 and consequently in article 28-31 of MMMR-2002 is very comprehensive in its provisions. This provision talks about the need to prepare and present a detailed study of the proposed mine and includes, inter-alias, market analysis, geology and reserve, Mine development planning, Mine design parameters, Mine production planning, waste disposal planning, man power, capital cost, production cost and financial analysis.
Although as comprehensive as it is, there were very little evidences to prove as to how this massive information is utilized by the authority after the granting of the mining lease. (During the course of investigation, it is discovered that very little or in some cases, no reference has been made to cross check as to how the mining operation was progressing visa-vis the FMIS.)
Therefore, it is recommended that the authority makes best use of the information provided through FMIS, especially during the operation and renewal time, or else, simplify the information requirement so that there is less administrative burden to both the proponent and the authority.

Transfer rule
DGM to enforce transfer rule enshrined in BCSR 2006 where in civil servant, after the completion of five years of service, may be transferred.
Unlike what is prescribed in BCSR 2006 on transfer of civil servants, it was found that some staffs in regional offices had never been transferred in their entire service life. Transfer of staff, especially for Regional Mine Coordinators and Mine Inspectors, is very much pertinent in the DGM given the nature of their job. Prolonged stay for any of these staff in particular place will definitely provide opportunity to profit from various corrupt means like collusion, favoritism and nepotism.
Thus, it is recommended that the DGM makes it mandatory for all regional mine coordinators and inspectors to be transferred after every three years of their service from a particular place of posting. The Management should also look into the possibility of figuring out potential or perceived conflict of interest when transferring mine coordinators and inspectors in the regions.

Inspection and Monitoring
DGM to step-up supervisory function and establish proper check and balance in the inspection and monitoring system.
Article 96, chapter 10 of the MMMR-2002 calls for inspection and monitoring from the authority to check whether the operation of mines are being carried out in accordance with the provisions of the MMMA and with the approved FMFS. However, there were strong evidences of total disregard of this function. (For instance, during the course of investigation, it is discovered that in some mining sites, restoration of the mined areas were not carried out in proper manner and in some cases, clear boundary pillars were missing leading to encroachment. There were cases of overburdens not being managed appropriately).
Therefore, it is recommended that DGM step up supervisory function with appropriate check and balance.

  • Makes proper use of the financial records that the Department is required to maintain as per Article 14(vii) of the MMMA 1995. (mostly appropriate while renewing the lease)
  • Notifies DRC, Ministry of Finance regarding fees, rents, royalties and other payments as reflected in article 14(viii), chapter 2 of the MMMA 1995. (tax evasions)

while Article 14(vii) of the MMMA 1995 calls for appropriate financial records to be maintained, section (viii) of the same article calls for the authority to periodically notify the Department of Revenue and Customs regarding fees, rents, royalties and other payments due to be paid by the mine operator.
However, during the investigation, in most of the cases examined, there were no evidences to show that any such records were maintained let alone the notification to DRC.
Therefore, the authority should either comply as required by the afore-mentioned provision or agree to delete the provisions from the Act.

Record Keeping
DGM to develop a comprehensive record-keeping policies and procedures.
This investigation revealed serious lapses with respect to record keeping in the Department. While Section 30 of MMMR-2002 requires DGM to have five copies of FMFS, the department did not have even a single copy for its record. There were also instances when the department could not locate and produce other important documents.
Therefore, the DGM should develop comprehensive record-keeping policy as good record keeping will reduce the risk of corruption and also supports accountability in an organization.

    • Other Preventive Measures

DGM to formulate and develop Code of Ethics for all employees.
Although all civil servants are governed by the Code of Conduct prescribed in the BCSR 2006, it is important that the DGM formulates their Code of Ethics in accordance with the nature of their job. ‘Code of ethics’ is a set of rules and values governing the behavior of members in the organization. Code of Ethics would not only help in reminding members of the organizational values and principles in their every day conduct, but also help the management in fixing accountability in the organization.
DGM to incorporate system of mandatory declaration of conflict of interest
Declaration of ‘Conflict of Interest’ should be an inherent part of the Code of Ethics. It should be made mandatory for all committee members to declare their conflict of interest whether positive or negative during important committee decision making process. Such a system can prevent members from assisting or favoring their close relatives.
DGM to thrash out the issue of monitoring and evaluation of the forestry related matters after the issuance of the forestry clearance for mining and surface collection.
Currently, no body assumes the responsibility of monitoring and evaluation of the forestry related matters after the clearance is issued. For instance, there was encroachment on government land in one of the mining sites in Samtse. Upon enquiry, it was found that no body, neither Department of Forestry nor Dzongkhags nor the DGM nor NEC was mandated to look after the forest area there.
Had there been a particular agency entrusted with this responsibility, the encroachment on government land and other forestry and environment related issues could have been prevented. NEC and Dzongkhags to thrash out the issues of monitoring of the forest in the mining area.
DGM to incorporate integrity pact in its process of granting mining lease to private business firms/individuals.
The Integrity Pact (IP) is a tool developed during the 1990s by Transparency International (TI) to help governments, business and civil society fight corruption in the field of public contracting. Likewise, the DGM should also come up with some sort of integrity pact wherein both lessor and lessee sign to endorse their commitment to refrain from all illegal and corrupt means in conducting their business. It should also contain adequate penalty provision in the event of any breach of the pact.
Such system should not only deter individuals from resorting to unfair and corrupt means in conducting their business but also promote level playing field in the industry.
DGM to seek environmental clearance from NEC at an early stage of the application process.
According to the MMMR-2002, the environmental clearance for the NEC is sought only after the presentation and approval of final mine feasibility study. From the start of the mining application to the time where FMFS is prepared and presented, so much of time and energy is spent. For example, the DGM has to come up with topography report, make mine feasibility study and the proponent has to get clearance from various agencies. Since environmental clearance is one of the key prerequisite in granting mining lease, any denial of clearance from NEC would result mining not being approved and thus result into huge loss to both the Government and the proponent.
Therefore, if there is not much of dependence of FMFS from NEC in issuing the clearance, (as there are separate criteria –section 18 of Environmental Assessment Act (EA Act 2000), it is recommended that the environmental clearance from the NEC is sought at an appropriate initial stage of the application process.

    • Policy Issues

DGM to adopt a clear cut policy on mineral prospecting, exploration and mining thereof.
The current practice of leasing mining rights to individuals and business firms based on the personal initiatives and knowledge about mining is ambiguous and biased. There is too much room for corruption and exploitation of natural resources by few individuals. As mentioned earlier, there is also no set policy as to what kind and to what quantity of minerals should be explored with open auction and what to be licensed out to individuals.
Therefore, the Ministry of Economic Affairs in collaboration with the Government should come out with a clear cut policy on the exploration and management of minerals in the country. The policy, among others, should emphasize on the trade off between economic feasibility and the environmental impacts. For instance, during the course of investigation, the commission came to know about the policy of ‘value addition’ in the talc mining. While the origin of policy itself was questionable as it did not pass through the normal process of Cabinet sitting, there seemed to have no effort, what so ever, put forward either by the Ministry or by the Department on its actual benefit vis-à-vis cost. The environmental and health aspect of the policy were totally neglected.
It is recommended that the DGM be only mandated to look into the mineral prospect in the country and the trade aspect be left to the Department of Trade or industries (who ever is appropriate) for leasing the mining right through competitive bidding.

    • Status of implementation

In line with the recommendations suggested by ACC the following table shows the status of implementation by Department of Geology and Mines.

Sl. No. Particulars
Recommendations
Status
1 Legislative Considerations 1.1 Article 13, Chapter 5 of MMMR 2002
• Individuals applying for mining lease be subjected to Trade License.
It has been made mandatory for all companies to obtain a valid trade license following the Royal Audit Observation Report..
1.2. Article 15, Chapter 5 of the MMMR 2002
• Need for amendment of this Article.
A pre-identified mineral deposit is being leased by the Royal Government through public notification and sealed/open tendering process.

1.3. Article 23, Chapter 5 of MMMR 2002
• Technical members be increased to at least three.

The minimum number of Technical Committee member has been increased to five and five permanent members, consisting of geologists and mining engineers, after the instruction of Hon'ble Minister, MoEA on 12th February 2009.
1.4. DGM to either incorporate surface collection in their MMMR-2002 or have a separate rules and regulations. DGM and Dept. of Forest held meeting and discussed on Drafting guidelines for surface collection of sand and stones. The guidelines are to be followed once it is approved.
2 Non-compliance to MMMA 1995 and MMMR 2002 2.1. DGM to adopt transparent and effective application registration system. The Mines Information and Lease Processing Section of the Dept. receive all mining applications and have been maintained in the computer.
2.2. DGM to establish/introduce technical committee as required by Article 23, Chapter 5 of MMMR-2002. Mine Leasing Technical Committee has been formed in June 2008 with a minimum of three members to have a transparent mine leasing procedure and now increased to five members.
2.3. DGM to make proper use of the Final Mine Feasibility Study as intended in the MMMA and MMMR. Department is in the process of drafting a Mineral Development Policy (MDP). In the mean time the mining companies were instructed to abide by the approved Mine Plan and Environment Management Plan, and the terms and conditions in the Lease Agreement.
2.4. DGM to enforce transfer rule enshrined in BCSR 2006 where in civil servant, after the completion of five years of service, may be transferred. The field staffs have been transferred on regular basis. During January and February 2009 field staffs posted in same regional office has been transferred to other regional offices. Henceforth they will be transferred in every five year basis which is in line with BCSR 2006.
3 Inspection and Monitoring 3.1. DGM to step-up supervisory functions and establishes proper check and balance in the inspection and monitoring system. Mines inspector has been inspecting and monitoring the mining activities regularly and has been submitting job done reports. The frequency of regular inspectors is to be increased as new engineers join the department.
3.2. DGM should either comply as required by the provision of Article 14, Section vii and viii or agree to delete the provisions from the Act. The provision of Article 14 (vii) of MMMA 1995 is yet to be deleted as the collection of payment of fees, rents, royalties and other payments were being done by the Regional Trade and Industry Offices. So DRC need not be notified.
4 Record Keeping 4.1. DGM to develop comprehensive record-keeping policies and procedures. Acute shortage of staff has led to the inability of keeping good record of official documents. However the set up of Mines Information and Lease Processing Section has improved the record keeping.
5 Other Preventive Measures 5.1. DGM to formulate and develop Code of Ethics for all employees. The department has plans to develop a set of dos and don'ts designed into a pocket-diary for all the employees of the DGM.
5.2. DGM to incorporate system of mandatory declaration of conflict of interest. The Mine Leasing Technical Committee is yet to be preparing a form for declaration of conflict of interest. Draft Form is yet to be submitted for the approval.
5.3. DGM to thrash out the issues of monitoring and evaluation of the forestry related matters after the issuance of the forestry clearance for mining and surface collection. The inspection and monitoring which includes inspection of demarcation pillars is in the process of improvement.
5.4. DGM to incorporate integrity pact in its process of granting mining lease to private business firms/individuals. DGM sees the Lease Agreement a Legal Document where both lessor and lessee commit to refrain from illegal and corrupt means. However, possibility of an Integrity Pact yet to be looked into by the department.
5.5. DGM to seek environmental clearance from the NEC at an early stage of the application process. DGM is considering the requirement of environmental clearance at the initial stage, however, subject to a detail environmental impact assessment is carried out and amendment of regulations and acts.
6 Policy Issues 6.1. Government to adopt a clear-cut policy on mineral prospecting, exploration and mining thereof. The Ministry is in the process of drafting a MDP.