What is the cost of Bhutan’s mining boom?

The landlocked Himalayan nation counts on its mineral resources to develop, but environmental damage and corruption may be putting the country on the wrong path
<p>Image: Dawa Gyelmo &#038; <a href="https://gautierrebetez.com/">Gautier Rebetez</a> / The Third Pole</p>

Image: Dawa Gyelmo & Gautier Rebetez / The Third Pole

Thick forest covers most of Bhutan, making the tiny Himalayan nation famous for its pristine natural landscape. But increasingly, a stark sight is appearing amid the lush greenery: across the country, mines are springing up.

With the issuance of new licences, the past decade has ushered in a golden age for mining in Bhutan. As of 2013, the latest year for which official data is available, there were 27 mines and 46 quarries in operation, from just 17 mines and 10 quarries in 2006.

The sector has long been embroiled in controversies and criticised for putting corporate interests before people and the environment. Critics say that the current system benefits only a few rich individuals while burdening local communities with a host of environmental impacts, from air pollution to road and infrastructure destruction and poorly managed waste. Corruption allegations are rife. As the mining industry grows, Bhutan is struggling to reform it and its chronic issues are becoming more severe.

The government acknowledges that mining and quarrying have an impact on the environment, stripping vast swathes of land of their vegetation and affecting ground stability and water reserves. But it has also stated that taking advantage of the country’s rich mineral resources can help the economy.

The golden age of mining

Mineral deposits in Bhutan include a vast wealth of resources such as coal, dolomite, limestone, slate and copper. According to the 2017 Mineral Development Policy, 33% of the country has been geologically mapped on a scale detailed enough to enable exploration. Currently, only 0.04% of land is used for mining activities. Despite its relatively small size, the sector is due to play a significant role in Bhutan’s economic development, and the government is determined to tap into the potential of its unexplored resources. 

Loknath Sharma, the minister for economic affairs, told The Third Pole that there is a need for resource mapping of the country to enhance geological information, and create an environment for attracting investment and promoting the sustainable development of mineral reserves.

Sharma said that Bhutan’s mining sector accounted for 4.81% of gross domestic product in 2019, and supplies more than half of the top-10 export commodities. The sector also plays a vital role in revenue generation, he added. Mining is becoming increasingly strategic for Bhutan as it strives to diversify its revenue streams and reduce the gap between its imports and exports.

However, with the sector’s expansion many are starting to question whether the environmental trade-offs are worth it.

Environmental conservation remains a key principle at the heart of Bhutan’s development path, and one of the four pillars of its Gross National Happiness guiding philosophy.

The only existing assessment of the mining sector’s impact was released in 2013 by the upper house of Bhutan’s bicameral parliament, the National Council. It found that the non-renewable nature of the mining industry does not align with sustainable development. Despite controversies engulfing Bhutan’s growing extractive activities, no other studies have been carried out to date.

In Bhutan, all mines extract minerals from an open pit, a technique that has a particularly severe impact on landscapes, wildlife and water systems, which are often altered and polluted. Because mines are long-lasting infrastructure and involve activities such as extensive drilling, blasting, road construction and heavy machinery usage, experts warn the deep environmental damage they cause are difficult to repair after projects end. 

Risks on the ground

In light of what they perceive as government inaction, communities affected by mining are taking the matter into their own hands. Choney Dorji Tamang, a 30-year-old resident of the western district of Samtse, said: “We have lodged a complaint with the local government against the mining and quarrying operators in the locality for causing cracks in our homes and dust pollution.” He added that pollution from the activities of mining companies operating in the area is threatening his community’s health, crop production and water resources.

Prem Bdr Yakha, who also lives in Samtse district, said his community is surrounded by four mining sites. “With so many industrial activities being carried out on a daily basis, we are living in and breathing polluted air, and are exposed to all kinds of pollution including sound, water and environment more generally,” Yakha said. “We are worried about our future and also about our children’s future.” 

Video: Dawa Gyelmo / The Third Pole

He also complained that mining operators dump unwanted materials into nearby water bodies. This increases the risk of flooding during the monsoon season, posing a threat to local people’s homes, Yakha said.

The 2013 assessment report found that illegal dumping of soil in ravines and rivers was a common sight in the vicinity of mining and quarrying operations. It also highlighted damage caused by dust to crops such as oranges and chillies, as well as the impact of blasting on heritage sites such as monasteries. 

In another claim against mine operators, residents of Neygang, part of the broader Pugli village cluster in Samtse, have requested the local government find them alternative drinking water sources, because traditional water sources have dried up due to mining activities.

All complaints lodged so far are currently with the local authorities, but villagers are yet to receive an answer to their plight. 

mining activities
Image: Dawa Gyelmo & Gautier Rebetez / The Third Pole

The mining response

Mines and quarry operators need to obtain public clearance prior to seeking official approval. Rinzi, a local leader of the Mewang village block near the capital Thimphu, said that when seeking public clearance and approval, mining companies promise to rigorously comply with existing laws and also to contribute to the development of local communities. “But once they get hold of the contract, you can expect that most of these pledges will be all but forgotten,” he said.

In 2020, several villagers in Dewathang block, Samdrup Jongkhar district, filed an official complaint against a coal mining company for causing cracks in their houses. The coal mine covers a lease area of 27.5 hectares.

The Third Pole was able to carry out a rare interview with Bir Bdr Ghishing, the senior general manager of the operator responsible for the project involved in the complaint, SD Eastern Bhutan Coal Company. Ghishing discussed some of the controversies and allegations facing the mining sector in Bhutan. In response to the Dewathang residents’ allegations, he said that the nearest private house with cracks was not less than 150 metres away, and there was a buffer area between the village houses and the mining site. “If these houses are affected by mining there should be cracks developed in the buffer zone, but there were no such cracks noticed in that area.” 

Ghishing said that while mining disturbs the local environment, it also transforms difficult terrains into “proper landscapes”. Some of the mines his company has developed have been repopulated with greenery once the government lease expired, he added. 

Back in 2013, the environmental impact assessment report found that restoration efforts were minimal across most mining and quarry sites. Similarly, the Performance Audit Report on Mining and Quarrying 2014, the only study to have assessed the performance of Bhutan’s mines, flagged companies’ widespread failure to pay compensation for the environmental impacts of excavations and plan for sites’ restoration. 

Ghishing rejected the accusations, saying that “we wouldn’t have been allowed to operate a mine without an approved environmental restoration plan”. Local people say they still have not seen any restoration carried out at the site.

Video: Dawa Gyelmo / The Third Pole

Poor monitoring of mines

Lam Dorji, an environmentalist and chief executive at the Centre for Environment and Development, was also a lead researcher for the National Council’s 2013 report. Dorji told The Third Pole that the natural resources are currently exploited in the context of relaxed regulatory and monitoring mechanisms. He said that Bhutan needs stronger governance, “so that the probability of [rogue] mine operators being caught is high”. This would improve the condition of affected communities and reduce environmental impacts, as well as increasing the mining sector’s contribution to the country’s tax revenues.  

Video: Dawa Gyelmo / The Third Pole

A senior expert with direct knowledge of the mining sector agreed to speak with The Third Pole, on condition of anonymity, about how poor oversight is exacerbating the impacts of mining operations. They explained that the Department of Geology and Mines (DGM) is required to deploy an inspector at every mine and quarrying site, maintaining a record of the minerals extracted and transported across the country. 

These records, the expert said, are key to helping the government calculate royalties and other taxes based on the amount of minerals being extracted. However, “the mine inspectors routinely hand the record-keeping duty to the mine operators and their employees”. This enables a number of operators to manipulate extraction and sales figures, the expert said.

A lack of transparency also has serious environmental consequences, a former mine inspector, who asked to remain anonymous, said. On-site monitoring ensures that operators take the right steps to reduce dust and noise pollution, manage their waste appropriately and ensure that mine owners carry out the promised environmental restoration.

Choiten Wangchuk, the director-general at the Department of Geology and Mines, told The Third Pole that he could not categorically deny that such fraudulent episodes may have happened, but in the year since he joined the department he had not received any such complaints. 

Image: Dawa Gyelmo & Gautier Rebetez / The Third Pole

Who benefits from Bhutan’s mines?

In January 2020, the Economic and Finance Committee of the National Assembly, the elected lower house of Bhutan’s bicameral parliament, conducted a public hearing that brought together mine operators, affected communities and governing agencies. Residents of the affected areas said mine operators have not contributed to villages’ development and caused irreparable environmental damage.

During the hearing, the current opposition leader Dorji Wangdi stated that mines and minerals are national wealth, but hard evidence proves that only a few individuals are reaping the benefits.

At the time, Wangdi was one of the 13 members of the Economic and Finance Committee tasked with reviewing the Mines and Minerals Bill 2019. To ensure all voices were heard in the policymaking process, the committee organised a bipartisan field visit to mine sites across the country.

Mining is both a human and an environmental catastrophe
Dorji Wangdi, leader of the opposition

Talking to The Third Pole, Wangdi said his concerns are based on the shocking reality on the ground he and the committee members witnessed during their visit. 

“After personally assessing the impacts of mining on both the community and environment,” he said, “I can conclude that mining is both a human and an environmental catastrophe.”

He described the scale of destruction brought by the industrial development, with air, drinking water, homes and crops polluted, as well as damage to infrastructure and even roads.

The bipartisan committee agreed that despite suffering large-scale destruction, local communities have not reaped any benefits. The mining industry has brought some benefits in terms of jobs, but the experts agreed their prospects would have been much better without mining activities.

“Considering Bhutan’s emphasis on environmental conservation and the mining impacts on communities and environment, I am convinced that large-scale industrial mining should be avoided as much as possible, while smaller quarries and mines for cement production can be continued to meet local developmental needs,” the opposition leader concluded.

Video: Dawa Gyelmo / The Third Pole

Shady bookkeeping 

Mining and quarrying companies contribute to society through royalties, lease fees and corporate income tax, which constitutes the lion’s share of the government’s revenues from the sector. “However, a lot of substantial potential taxes are cut by adding various kinds of fake expenses,” said an official source, speaking on condition of anonymity. 

Dorji Wangdi, the opposition leader, confirmed that the 2019 bipartisan commission uncovered several instances of tax avoidance in the mining sector, mostly through accounting manipulation.

He recalled how a mining company he audited had created a long list of ghost employees, including the chief executive, who was supposedly paid a monthly salary of 500,000 Bhutanese ngultrums (approximately USD 6,700). “But when I asked the mine workers about the whereabouts of that CEO, the staff had no clue and told me the CEO had not visited the site for two years,” he said.

Corporate income tax is calculated based on net profits. Miners have been found to create a vast pool of fake roles, ranging from chief executives to various directors, including fictional expenses such as duty vehicles, fuel payments, housing and travel, all of which could be deducted from the taxes due.

Without conducting an inspection and audit, it becomes difficult for the government to unveil the truth, the anonymous officer said. The issue calls for a revision of royalty and lease fees as well as the annual auditing of all mines and related companies. 

Video: Dawa Gyelmo / The Third Pole

The future of Bhutan’s mines

Minister Loknath Sharma conceded that mining in Bhutan is still “a developing and dusty affair”, and without proper pollution-control technologies and modern extraction methods, affected people have a point when they complain they are not benefitting from the industry.

While the expansion of large-scale mining remains controversial, he said that most mining activities in Bhutan remain small-scale, with much lower impacts on the environment.

The government will discuss mining reforms during the next parliamentary session, which usually takes place between November and December. Whether to nationalise the mines to address some of the corruption issues plaguing the sector will be on the agenda.