Politicians and bureaucrats bend mineral sands tender

*The continuing corruption and mismanagement of LMSL.

*LMSL bad practices and non patriotic policies help overseas mining companies depriving locals from securing a share of the 7 million tonne global ilmenite market.

*LMSL's shocking 1.4% global market share continues to fall annually.

*A clear example as to why governments should not be in business.

*Are Sri Lankan politicians and officials paid by interested foreign corporations to suppress the most valuable industry?

Sri Lanka’s latest sale of mineral sands in a flawed tender process conceals more than it reveals depriving the state of millions of rupees in revenue benefiting middlemen and racketeers, informed sources said.

Lanka Mineral Sands Limited has called for bids from prospective foreign and local bidders for the sale of heavy mineral sands including ilmenite with a security bond of LKR 57 million or USD 306.000 in June last year.

Whilst the global best practice for any tender is to receive bank guarantees as bid bonds from registered suppliers, this state-owned company was in the practice of requesting cash bid bonds from the bidders.

This creates a firm entry barrier for credible foreign buyers since the process to remit cash for a tender and then to take it back if they fail to win the tender is very tedious, time consuming and LMSL has made it a habit in the past to delay the re-funding of the money.

This practice, whilst not allowing credible foreign bidders to apply for the tender with a bank guarantee effectively entertains a few favourite bidders of some corrupt officials, industry sources alleged.

They noted that top foreign companies will never apply for such tenders and this move of the Lanka Mineral Sands Limited has neither benefitted the government nor the company during the past several years.

The bids for the sale of heavy minerals including ilmenite were being called in the latter part of every year coinciding with the Chinese New Year, an industry official said, adding that during this period, the ilmenite price will go down due to less demand.

At the time of calling bids for the sale of ilmenite, the price was around USD 145-147 per tonne.

Lanka Mineral Sands Limited has awarded the tender of 85,000 metric tonnes of ilmenite at USD 147 per ton to the third-placed bidder rejecting the prospective bidder who had quoted the highest price of USD 165 per tonne, a COPE report revealed recently.

It was also revealed that the current price of a metric tonne of ilmenite is close to USD 260. The committee focused its attention on the decline in sales in 2020 compared to the total sales in 2018 and 2019.

According to sources, the state is likely to be deprived of USD 1,530,000 from the auction and it has allowed the selected bidder to earn USD 20,825,000. However, the real loss for the state is over USD 8 million. The reason being, if not for the malpractices and bad governance, the tender should have been called after the Chinese New Year and any credible buyer would have bought the entire lot for over USD 260 per metric tonne.

It was revealed that as a result of still storing the 85,000 metric tonnes of ilmenite sold to a buyer in October 2020 in the Pulmoddai deposit, the company is incurring losses due to the loss of space available for the institution to store further minerals.

Officials of Lanka Mineral Sands Limited said that the deadline for the removal of the consignment has been extended due to the prevailing Covid-19 situation.

It was revealed that payments had been made only for 65,000 metric tonnes from this stock and payment for another 20,000 metric tonnes is to be recovered. The COPE Chairman directed the Secretary to the Ministry of Industry, Anusha Palpita, to inquire into the matter immediately and submit a report within a month. He also instructed to remove the stock of ilmenite as soon as possible and recover the arrears.

Although the tenders were awarded by a subcommittee appointed by the Cabinet of Ministers, the Chairman stressed that in such cases, matters should be looked into more responsibly. The COPE Chairman stated this at the committee meeting held last month to review the performance of Lanka Mineral Sands Limited.

The committee also pointed out the importance of formulating a specific policy for the sale of mineral sands and instructed the Secretary to the Ministry to formulate a specific policy in this regard.

LMSL has been a state monopoly in the Mineral Sands industry of Sri Lanka and this industry has been one which never saw any development for over 70 years now.

The global ilmenite market share is 7 million tonnes out of which LMSL exports only 90,000 tonnes. Therefore, the global market share of Sri Lanka has been less than 1.5% and is continuing to fall every year.

It is noteworthy to mention that LMSL continues to block private mining companies from entering the industry and creating employment, foreign exchange and foreign direct investment.

This has only helped the other countries of the world who have multiple plants and mining projects catering to the 7 million tonne ilmenite market.

It is time the government and relevant decision makers immediately open up the industry and allow private companies to commence mining operations.

When that happens, Sri Lanka can get a bigger chunk of this huge market. LMSL’s current reserves are good enough for the company to export for the next 1000 years.

Sri Lanka’s total proven ilmenite reserves are nearly 100 million tonnes. Under this scenario, the country can export over 500,000 metric tonnes for the next 200 years or more if private companies are allowed to mine and export.

However, LMSL keeps blocking the private companies. Minister Weerawansa’s hurried trip to Kirinda to take over an ilmenite reserve and prevent the people from establishing an ilmenite venture raises serious concerns and suspicion at this prevalent background.

Unfortunately, there is no global price index for ilmenite. Hence there are no checks and balances.

If there were private companies, the country would understand that LMSL is underselling and planning the sales whenever the global market prices are down just to benefit a few politicians and middlemen.

For example, if a private company which exports ilmenite achieves an average price of 'X' and LMSL achieves 'X-', then the nation will understand the level of corruption and mismanagement at LMSL. It is now anybody’s guess as to why LMSL is against private companies mining ilmenite.