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The Internal Audit Division (IAD) of the Ministry of Environment and Renewable Energy has recommended that mining exploration licences be granted on tender and not on the “first come, first served” basis now followed.  A Sunday Times ‘Insight’ recently revealed that some business entities were setting up front companies expressly to acquire large numbers of exploration licences from the Geological Survey and Mines Bureau. These persons were anxious to keep such dealings secret, pointing to questionable motives.

They were subsequently transferring the licences by selling their shares to foreign companies for colossal sums of money. Some experts called this “outright illegal” because exploration licences are non-transferable. Others say these groups are operating in a grey area as it is not unlawful to sell company shares. They urged the Government to seek the Attorney General’s opinion on the matter.

“It is clear to me that some racketeers are getting licences from the GSMB for a meagre sum of Rs. 5,000 per permit, flipping their value and earning a pretty packet from it,” said one mining industry expert.  The Sunday Times investigated one such case in which a Canadian company called Torch River Resources Ltd., had entered into an agreement with a Sri Lankan company, ostensibly to acquire its exclusive exploration licences for a reported 113 graphite mining grids. A grid is one square kilometre in extent.

Torch River said it would pay Han Tal Graphite (Pvt) Ltd Rs. 37.5 million as a first instalment and Rs. 94 million at the start of full production. The amounts cited prove that there is lucrative business in peddling exploration licences.

The Sunday Times found that Han Tal, which was set up just five months ago, had only one mining licence for five square kilometres. But, interestingly, the same agent who represented Han Tal at the GSMB also represented at least three other companies. These are Supreme Solutions (Pvt) Ltd, Graphon Mining Resources (Pvt) Ltd and M.R.L. Graphite (Pvt) Ltd.
Supreme Solutions and M.R.L. Graphite are registered to the same address at the World Trade Centre while Graphon and Han Tal are registered to a residence in Boralesgamuwa. Supreme Solutions is the parent company of SupremeSat which purports to have launched Sri Lanka’s first satellite into space.

Environment and Renewable Energy Minister Susil Premajayantha ordered the IAD to inquire. Its report made further revelations about this group of companies. Of the 100 exploration licences granted by the GSMB that remain valid today, 24 —a full quarter—are together held by Supreme Solutions, Graphon Mining, M.R.L. Graphite and Han Tal.
“Some people are clearly piling up licences,” said the expert earlier quoted. “The law expressly states that no licence to explore for minerals shall be issued in respect f any area exceeding 100 square kilometres.”

But this is another grey area. GMSB officials who handed out these licences at will—thereby ensuring that single entities have exploration rights over vast areas of land—insist the law doesn’t set a limit on the number of permits than can be granted.
Minister Premajayantha last week instructed the IAD to check how many square kilometres these four companies had reserved for exploration. It was not clear whether any exploration activity had ever been done within any of these grids, as required by law.Similar deals are being entered into between foreign companies and other unknown local entities, bypassing the Board of Investment and the Ministry. For instance, a company called Elcora Resources Corporation announced on November 5 that it has signed a binding letter of intent (LOI) to acquire all of the issued and outstanding common shares of a Sri Lankan company called Graphene Corp. (Pvt) Ltd.

A statement from Elcora claimed this Sri Lankan company is the owner of exploration application licences for 100 metric grid units here, covering approximately 100sq kms. Under the terms of the LOI, Elcora will pay Graphene a sum of US$ 2,250,000 (more than Rs. 295 million) for the transaction.

Graphene Corporation is reportedly registered to an address in School Lane, Colombo 3. There are no details available publicly of its directors, history or activities in the mining industry.

Serious questions arise about the integrity of these deals and the people furtively making money off the country’s mineral exploration licensing system.

Probe ordered on questionable activity in industry 

Following media reports and after being questioned in Parliament about shady activity in Sri Lanka’s minerals and mining industry, Environment and Renewable Energy Minister Susil Premajayatha instructed the Ministry’s Internal Audit Division (IAD) to hold an inquiry.

The report was handed over to him on Monday. The IAD looked at the granting of exploration licences, their dates of issue, expiry and, where applicable, extension. It also checked whether mining licences have subsequently been granted; what the criteria were for issuing of exploration and mining licences; the payment of royalties; and progress.

A total of 268 exploration licences were issued after 1993. Each is valid for two years but may be extended four times up to ten years. Only 100 of these licences remain valid today. Just five organisations have been granted mining licences. They are Bogala Graphite Lanka Ltd, Kahatagaha Graphite Lanka Ltd, Lanka Phosphate Ltd, Holcim Ltd., (formerly Puttalam Cement) and Lanka Mineral Sands Ltd.

When issuing exploration licences, the GSMB is expected to take into consideration the extent of land required (minimum 1sq km and maximum 100sq km, as specified by law). A permit may be issued for a single mineral.

A company can request any number of licences,” the Minister said, quoting the report. “The basis for granting licences is first come, first served.” He stressed, however, that the minimum 1sq km and maximum 100sq km rule must be observed. The GSMB is also expected to check company registration, the final accounts, bank statements and the technical committee report.

Mining licences must be renewed every year. If mining is stopped halfway, the licences must be returned to the GSMB. Mining or exploration licences are non-transferrable. The minister said it is illegal to form private companies and to transfer permits by selling the shares to foreign entities. “They do the same thing in the mini-hydropower sector,” he said. “I cancelled all these things.”

The royalty payable on mineral resources is 7% for high value minerals and 4% for building materials. A holder of an exploration licence must submit an activity report every six months and the GSMB must evaluate it. The IAD report has recommended the setting up of a Technical Evaluation Committee (that includes a Ministry representative) to evaluate an application before a mining licence is issued. Once granted, there must be a competent officer to monitor mining in a particular area.

Exploration licences are issued on a first come, first served basis. “The report recommends that we must call for tenders so that the process is open,” the Minister said. “Right now, we don’t know who is coming.” Three stages must be strictly followed: Exploration, evaluation and award of mining licence. The royalty for high-value minerals must be increased, the report says, while maintaining nominal fees for building materials.

The Minister has advised the Ministry’s legal officer to consult the GSMB legal officer, the Attorney General and the Legal Draftsman to see how the relevant gazette could be amended to increase royalties for high-value minerals. “Failing which, I will set up an evaluation committee to fix market prices for high value minerals so that the State can get the maximum income,” he said. “Or investors would be encouraged to start factories here to add value.”

The Minister said he will soon submit a Cabinet memorandum to take a decision about the exportation of high value minerals. He will also set up an advisory committee to advise the Government on the minerals sector.