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Lanka Mineral Sands Ltd.: Digging into the ilmenite deal 

04 Apr 2021

  • COPE notes irregularities and calls for report 

  • Ministry commences probe; report being prepared 

  An investigation on the controversial tender awarded by Lanka Mineral Sands Ltd. for the sale of 85,000 metric tonnes of ilmenite which had allegedly caused a massive loss to the company, is currently being conducted by the Ministry of Industries, Secretary to the Ministry Anusha Palpita said on Friday (2).  Speaking to The Sunday Morning, he said that he had instructed Lanka Mineral Sands Ltd. to submit a comprehensive report on the alleged tender.  “Once the report is submitted to the Ministry, we will submit it to the Committee on Public Enterprises (COPE),” Palpita said.  The controversial tender deal was revealed at the recent COPE meeting to review the performance of Lanka Mineral Sands Ltd. chaired by Prof. Charitha Herath.  Questions were raised by the COPE members as to the reasons for awarding the controversial tender at $ 147 per tonne to the third-placed bidder instead of the buyer who had offered the highest price of $ 165 per tonne of ilmenite.  It was also revealed that the current price of a metric tonne of ilmenite is close to $ 240. The committee focused its attention on the decline in sales in 2020 compared to the total sales in 2018 and 2019.  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 minimising the space available for the institution to store further minerals.  Furthermore, after Lanka Sands lost the use of the Cod Bay jetty, which was used for the direct export of mineral sand products, the Valuation Department has given an estimate of Rs. 32.3 million to sell all the assets including the tugboats and barges. During the bidding process held in 2013, although a high bid of Rs. 65 million was received, the assets were not sold.  The committee drew attention to the abandonment of a project in 2013 for mineral sand exploration in the vicinity of Kokkilai Lagoon even before the project started, due to not receiving permission from the Coast Guard, although 117 workers had been recruited and machinery had been purchased at a cost of Rs. 39 million.  COPE Chairman requested the Secretary to the Ministry of Industries Anusha Palpita to immediately investigate and submit a report on the officials of Lanka Mineral Sands within a month, and also instructed to remove the stock of ilmenite as soon as possible and recover the arrears.  The COPE members said it is observed that the officials of the Mineral Sands Institute have taken steps to mislead even the Cabinet of Ministers. 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.  In their response at the meeting, the officials of Lanka Mineral Sands Ltd. 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 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.  The COPE informed the Secretary to the Ministry of Industries that an immediate inquiry should be held into the failure to sell these depreciating assets even though they received a bid for double the estimated value.  The Committee strongly disapproved of the recruitment of staff and the expenditure of Rs. 39 million before obtaining permission form the Coast Guard.  The Chairman of the Committee instructed the Secretary to the Ministry to immediately investigate the matter and recommended to direct the Attorney General (AG) to take further legal action against the relevant officials according to the findings and the recommendations of the COPE Committee.  Meanwhile, Palpita said: “The investigation is focused on finding whether the tender procedures had properly been followed. It is clear that there were issues with regard to the bidders, as some have not submitted proper bidding documents while some others have submitted bids only for 5,000 metric tonnes of ilmenite.”  However, when contacted, Lanka Mineral Sands Company Marketing Manager Vijaya Bandara told The Sunday Morning that a complete report on the questions raised by COPE had already been prepared and was awaiting Chairman Muditha Wijesinghe’s approval.  All attempts made to contact Wijesinghe were futile.  The Lanka Mineral Sand Corporation was established under the Industrial Corporation Ordinance No. 49 of 1957 and the construction of the plant located near the Pulmoddai coastal belt commenced in 1958. As the initial exportation, 2,800 tonnes of Ilmenite had been exported to Japan in the year 1961 and thereafter, export had gradually increased annually. Subsequently, it had been decided to extract rutile and zircon from the mineral sand and the Yan Oya pump house was constructed in order to obtain pure water required for that purpose.  With the objective of harnessing the Pulmoddai deposit at its maximum level, this was established as a public company in 1992 under the name of Lanka Mineral Sand Ltd. under the Conversion of Public Corporations or Government Owned Business Undertakings into Public Companies Act No. 23 of 1987. Subsequently, this industry is maintained as a fully government-owned company under the Companies Act, No. 7 of 2007 with a share capital of Rs. 8, 000 million.  Lanka Mineral Sands has become an institute earning profits sufficient enough to pay annual dividends of Rs. 500,000,000, Rs. 1,700,000,000, Rs. 43,000,000, Rs. 14,000,000, and Rs. 158,000,000 to the Treasury during the years 2011, 2012, 2013, 2014, and 2015 respectively.  Meanwhile, a recent audit conducted by the National Audit Office (NAO) in 2016 on the performance of Lanka Mineral Sands highlighted mismanagement of the company which had resulted in a decline in the production since 2014 due to the issues found out by the auditors as to the obtaining of mining licenses, use of limited area of the deposit despite the lapse of a long period, and the minimum efficiency level of the extremely obsolete machineries. Nevertheless, the overall contribution made by the company to the national economy remained at a significant level.  The NAO had concluded that minerals with a high market value cannot be separated as expected due to use of outdated machinery. As such, by-products had been sold in an unprofitable manner to the company. It is concluded that modern technology and machinery should be used in the process of mineral sands for obtaining products of high quality by minimising wastage.  Further, the company had been unable to export mineral sands directly due to matters such as failure in carrying out proper market research and preparing a market plan, following an effective methodology for finding new buyers, and the loss of opportunity in shipping products of mineral sands by the company.


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