Sri Lanka, a nation blessed with abundant mineral resources, is yet to harness its full export potential from this valuable asset. While some may wonder why the country lags behind nations with fewer mineral resources, the answer is multifaceted.

A spokesperson from the Ministry of Industries who requested anonymity, emphasised the complexity of the mineral sector, stating: “From the point of view of the Ministry of Industries, we are just dealing with a few agencies which are working with minerals.” The official pointed to the complexities in the sector and the need for a more comprehensive approach to mineral management.

Exploring the reasons behind Sri Lanka’s underutilisation of its mineral wealth, he offered insights. “We are actually rich in some minerals,” he said, highlighting significant resources such as ilmenite, rutile, zircon, and graphite.

However, he admitted that a lack of a proper policy framework stood as a primary hindrance. “The reason why we lag behind other countries is that we don’t have a proper policy regarding these minerals.”

Policy and management reforms needed

In an encouraging development, the Government has recently taken steps to address this policy vacuum.

“On 31 July, the Government decided to seek approval from the Cabinet of Ministers to implement a mineral policy. A report was submitted to the Cabinet in this regard and it has been endorsed and accepted by the Cabinet. The report has made several recommendations.”

This comprehensive policy shift involves legal adjustments. “They are going to fundamentally change the existing regulations with the support of legal drafts,” the spokesperson explained.

While policy transformation is one facet of the solution, he also emphasised on the importance of improved management practices within the mineral sector. 

“Another issue is the poor management of these entities, whether they are operated by the Government or private parties. They have lacked development strategies or innovative ideas for advancing these resources.”

As an example, he pointed to the extraction of mineral sand that commenced in the 1950s. He referred to the Pulmoddai mineral sands company, a historical case that underscored the need for comprehensive development strategies within the industry.

Sri Lanka’s mineral industry, with a rich history spanning more than six decades, appears to be stuck in a time warp, persistently relying on outdated technologies and practices. This stagnation has significantly impeded the nation from fully capitalising on its abundant mineral wealth.

“It has operated for more than 60 years as a State company and we are still using the same technology and doing the same things. We extract the sand there and we export it as it is,” he added.

International hurdles 

While this conventional practice has, to some extent, sustained the nation, the imperative for innovation and value addition has grown increasingly apparent. 

He emphasised: “We need the technology for that and the capital required for such endeavours is lacking. That is another formidable challenge.”

One major hurdle in modernising the industry is the complex process of technology transfer. He elucidated: “Transferring technology is not as straightforward as one might assume. We cannot simply expect developed countries to readily share their technological advances with nations such as ours.”

Developed nations typically prioritise safeguarding their raw materials and conducting value addition within their own borders. This stance adds another layer of complexity to the task of modernising Sri Lanka’s mineral industry.

Yet another impediment to progress is the reluctance of international investors to engage with Sri Lanka’s mineral sector. 

The spokesperson lamented: “International investors, and this holds true for various sectors, are often hesitant to invest in Sri Lanka due to the myriad of obstacles they encounter.”

These obstacles are chiefly related to a labyrinthine web of regulatory measures, licensing requirements, and dealings with various State bodies. This challenging business environment has played a significant role in Sri Lanka’s lowly 99th place ranking on the Ease of Doing Business Index.

Furthermore, the spokesperson expressed concerns regarding the state of mineral exports: “We have not reached the desired standard. Once again, I must refer to mineral sands, particularly in Pulmoddai. The final product of Lanka Mineral Sands Ltd. does not meet the specifications expected by end-users.”

Interestingly, intermediaries often intervene to reprocess Sri Lanka’s mineral exports to align them with end-user requirements. This situation leads to missed opportunities and an overreliance on middlemen as buyers.

Despite these challenges, Sri Lanka possesses a trump card in the form of high-quality graphite. “For graphite, we boast the world’s finest with a carbon content of 99% – a distinction exclusive to Sri Lankan graphite,” he noted.

However, even this invaluable resource encounters hurdles due to evolving industrial demands. “Numerous alternatives have emerged and the utilisation of graphite in manufacturing industries is not as extensive as one might assume,” he added.

He underscored the historical practice of mineral sales, where intermediaries held sway. “There are a few intermediaries who coordinate with international buyers. The minerals and the company do not engage directly with the buyers. Instead, middlemen have entered the business, purchasing minerals and reselling them to others.”

Winds of change 

However, winds of change are blowing. “Last year, with the approval of the Cabinet, we were able to introduce a new system of online sales,” he revealed.

This approach involved the wide dissemination of international tender notices, leveraging both Sri Lankan and foreign missions to generate substantial publicity. Interested parties were mandated to submit bids through a dedicated email, with the final submission occurring at a specified time. 

For instance, in 2020, ilmenite salt was sold for $ 147 per MT. Just two years later, the same product fetched $ 295 per MT. The spokesperson attributed this impressive increase to the new system, which facilitated direct engagement with international buyers.

Despite this welcome transformation, it has faced resistance from certain quarters. “Now that it’s actually happening, we are having some issues as well. It’s a new system. The cartels are trying to disrupt the new system,” he disclosed.

He divulged that many of the previous buyers were Sri Lankan and were opposed to the new system. Some have even initiated legal actions against it. Nevertheless, despite these challenges, the new sales methodology continues to yield positive results.

Furthermore, the mineral industry has autonomously introduced the new sales system to address existing barriers. Despite the intricacies and opposition, the new methodology promises a more transparent and efficient mineral market.

Offering insights into the management of State-owned entities operating in the mineral sector, the spokesperson revealed a lack of long-term vision, with officials often holding short tenures and being primarily motivated by personal gain.

However, he was optimistic about open discussions involving various stakeholders, including ministers, policymakers, and industry officials. 

Challenges in fulfilling economic potential 

Meanwhile, speaking to The Sunday Morning, Export Development Board (EDB) Chairman Dr. Kingsley Bernard stated that although Sri Lanka had a wealth of non-metallic mineral resources, the true economic potential of these resources was focused on a select few industrial minerals, namely mineral sands, quartz, graphite, apatite, and dimension stone. He then pointed out that there were several reasons for Sri Lanka not having reached its full export potential for these minerals.

“There are only few economically viable minerals in Sri Lanka, such as mineral sands, quartz, graphite, and dimension stone. However, Sri Lanka lacks the infrastructure to transform these raw minerals into finished products. Also, Sri Lanka lacks foundational industries (e.g.: acid plants, metallurgical coal, etc.) which produce other necessary inputs cost effectively to add value to minerals in the country. Sri Lanka’s limited space and intensified environmental concerns affect the processing industries of mineral products.”

Another reason is administrative challenges in Sri Lanka which cause project delays.

He further noted that the expectation for mining companies in Sri Lanka was to manage the entire value chain from exploration to value addition, which was impractical and had not seen investment into the industry. Industrialists have also complained that the high production costs, compounded by a 9% royalty on FOB value, make it challenging to compete in the international market.

Aligning Govt. policies 

Recognising these challenges, the Government is taking measures to align its policies more closely with established mineral authorities in order to make the sector more attractive for investment, Bernard added. 

“Mineral exports are not just about quantity but also about quality, with each target industry having its specific standards. It’s not just about mining the resource but ensuring that it meets the required standard for the target industry. It is also important for credibility in the international market. A key challenge facing Sri Lanka is the lack of world-class accredited testing facilities for minerals. Therefore, addressing the absence of accredited laboratories is vital, with discussions taking place in various forums.”

According to Bernard, the vein graphite mined in Sri Lanka boasts such purity that it is graded extremely high with over 90% carbon. Vein graphite is in great demand today for numerous industrial applications thanks to its unique composition.

“The mineral market in Sri Lanka is not dominated by only a few entities as we can see several exporters for each mineral product. A diverse range of companies engage in processing quartz, ranging from quartz grits and high purity silica quartz powder for the semiconductor market to silica quartz slabs. Graphite’s potential has been tapped for innovations like water-based lubricants and is branching out towards exporting graphene.”

Bernard added that both private and State sector mines were currently operating in Sri Lanka and multiple players were driving the dimension stone sector, with granite exports also on the rise. Meanwhile, policies regarding mineral sands are being recalibrated to encourage more participation.

Calcite, dolomite, kaolin, and other minerals are only for local consumption and not allowed for exports. Many local industries extensively utilise minerals like silica sand, kaolin, calcite, and dolomite. These minerals are foundational for the local construction and ceramics industries.

Bernard added that however, barriers to entry into the industry may suggest such a perception that the mineral market was being controlled by only a few players. Acquiring land access for mineral exploration and development is a significant hurdle for newcomers. Also, as emphasised by the Chamber of Mineral Exporters recently, initiating a mineral resource project entails seeking approvals from at least eight State institutions, causing delays due to inefficient bureaucratic processes.

“Recognising these constraints, the Government is formulating a new mineral policy to simplify the entry process,” he stated.

Foreign investments in mineral sector

Meanwhile, speaking to a senior official from the Geological Survey and Mines Bureau (GSMB), The Sunday Morning inquired about the intricate complexities surrounding Sri Lanka’s mineral exports, scrutinising their conformity to international standards, and exploring the critical dimension of value addition. 

The official, speaking candidly but requesting anonymity, stated that one of the primary concerns was the common perception that some of Sri Lanka’s mineral exports failed to meet international standards due to a lack of value addition. 

He explained: “Value addition for certain mineral sands can be prohibitively expensive. The process of converting raw materials into finished products often demands substantial investments in machinery and technology. For some, the high cost of value addition may not always be justified.”

This perspective highlights a profound conundrum. Sri Lanka’s mineral resources are sometimes under the control of foreign entities and their investment in value addition plants may not necessarily translate into greater financial returns for the nation. The official underscored this issue, stating: “Foreign companies establish value addition plants, but we often don’t see commensurate benefits because the majority of profits flow back to foreign owners.”

This raises pertinent questions about the strategic alignment of foreign investments in Sri Lanka’s mineral sector. The official argued that encouraging foreign companies to invest in value addition may not always be the optimal solution. 

“By requiring hefty investments, we risk creating a monopoly in the industry,” he noted. The current requirement, which mandates companies to show $ 50,000 in their accounts for the benefit of the country, can inadvertently stifle competition and local entrepreneurship.

Instead, the official urged a thorough reevaluation of the actual costs involved in the mining and value addition processes. “For some minerals, the investment required is not as substantial as we might assume. Take the example of graphite; it’s a different scenario. But for mineral sand, where immediate returns are possible, we need to reevaluate our approach.”

When contacted, the Ministry of Environment declined to provide a comment on this matter, claiming a lack of knowledge on the subject.  

As Sri Lanka treads this challenging path of mineral exports, it is evident that a more holistic, flexible, and informed approach is warranted to ensure the sustainable and equitable development of this critical sector. Balancing the need for foreign investment with safeguarding national interests and fostering local entrepreneurship will be key to charting a successful course in this arena.