Sri Lanka’s graphite sector, despite having unique vein graphite, faces several regulatory issues that impact its expansion potential and ability to attract investment and value addition. Stakeholders are urging for the prompt removal of procedural barriers and red tape to enable growth and easy access to minerals, allowing the country to compete in a challenging global market.
Competitive global market
The Government recently announced that Cabinet approval had been granted for the implementation of a value addition project under a public-private partnership for the Kahatagaha Graphite Mine.
According to stakeholders, the Kahatagaha Mine, the deepest graphite mine in Sri Lanka, which is capable of mining natural vein graphite with over 99% carbon in a fully crystallised form, has suffered due to mismanagement.
Speaking to The Sunday Morning Business, Bogala Graphite Lanka PLC CEO Amila Jayasinghe elaborated on value addition attempts possible in the industry and the nature of the global market. He noted that there was a lack of proper understanding regarding graphite value addition in the country, adding that the concept needed to be assessed accurately.
The global market indicates that pricing for graphene and battery-grade graphite is not favourable, and hence Jayasinghe noted that new pricing levels needed to be assessed properly.
He added that many mines in Sri Lanka were quite old. Operational mines, with Bogala being around 506 metres deep and Kahatagaha 600 metres deep, have high associated mining costs. He emphasised that unless new mines were opened, Sri Lanka would find it difficult to compete, especially with countries like China, where surface mining – which is an easier method – was used.
China’s graphite industry is the world’s largest, accounting for a dominant share of global production and processing, particularly for the battery and steel industries. It dominates the market, especially for synthetic graphite, leading to significant supply chain influence.
Meanwhile, Sri Lanka is known for producing the world’s purest vein graphite, also called lump graphite. Highly refined graphite powder can even achieve purities of 99.99995%. Sri Lanka, known for its high-purity natural vein graphite, typically has a carbon content of over 90%, often reaching higher levels.
However, Jayasinghe stated that purity could be easily achieved with flotation, where the carbon content can be brought up to 94% in China, which is also attempting to achieve higher levels of purity, such as 99.9%. Madagascar can achieve up to 98%. However, he noted that while Sri Lanka also had the ability to refine graphite up to 99.9%, the market for it was somewhat lacking.
Addressing the regulatory framework, Jayasinghe specifically highlighted issues with licensing. “Even for Bogala, an entity that is over 150 years old, the licence was issued for merely one year and a 10-year licence was only issued in 2018. With mines being expensive, given the heavy machinery, short-term licences are problematic. These strict rules and regulations do not encourage professional mining operations to come to Sri Lanka, so these regulations need to be fixed and clarified.”
Additionally, he addressed cost concerns in the industry, especially with cost factors like expensive electricity fares. The industry also requires imported acid, which has high costs that can drive business away from Sri Lanka to less costly countries. Jayasinghe highlighted these as key challenges when expanding the industry. He also noted that venturing into the graphene industry was difficult due to the lack of an industrial base.
Commenting on one key value-added product, he noted that while certain entities had conducted experiments on lithium-ion batteries in Sri Lanka, the technology was yet to be proven according to international standards. He also observed that Sri Lanka lacked sufficient quantities for this, requiring 10,000-12,000 tonnes of graphite per year to be notable, whereas Sri Lankan mines could not match these numbers.
Jayasinghe expressed the belief that good mining engineers and human resources were available in the country and that technology was not an issue. “The licensing, policy, and regulatory issues need to be fixed promptly to attract investors. The current process is extremely slow, requiring visits to 17 places to obtain a licence, which makes it very difficult.”
Need to prepare
The global demand for Electric Vehicles (EVs) is projected to reach 80 million units by 2050, potentially boosting the demand for both synthetic and natural graphite. Sri Lanka produces a graphite content of around 1.5 million tonnes.
Speaking to The Sunday Morning Business, Deputy Minister of Environment Anton Jayakody noted that going forward, several measures should be taken to improve the industry, as the global graphite industry was expected to expand significantly by 2030, becoming an approximately $ 30 billion industry, while highlighting the importance of Sri Lanka becoming part of it.
For this purpose, the country needs to prepare, since it currently lacks the capacity and must understand how to approach proper value addition.
“While graphite is used for several industries, graphene is commonly used in energy-saving batteries, especially those used in high-efficiency EVs. However, getting into the graphene market is challenging. We need to look at aspects such as getting into joint ventures with international companies or developing the industry to secure these markets.
“The final target should be to become a considerable part of the approximately $ 30 billion global graphite industry in the future,” Jayakody said.
Addressing regulatory concerns, the Deputy Minister noted the need to improve the regulatory framework, including for value addition.
Need for better R&D, accessibility
Explaining common issues in the mineral industry, Chamber of Mineral Exporters (CME) Chairman A.F.M. Farook highlighted that the mineral sourcing industry had several inherent issues and drawbacks that were holding it back. According to him, the main issue is access to raw materials, as the industry is dependent on such minerals.
“Issues related to access are many, with a lot of red tape and numerous regulatory procedures that people must undertake simply to receive a licence and subsequently maintain it yearly. These regulatory hurdles, as well as the lack of a single-window approval authority, despite being discussed for a long time, are the main issues that affect the progress of the entire industry,” he said.
Farook also emphasised the lack of Research and Development (R&D) related to minerals, as Sri Lanka was not a major mining country due to its limited landmass compared to countries like Australia, Brazil, India, and China. However, he noted that Sri Lanka did have fairly high-quality minerals.
“As of now, there is no proper, adequate, or updated survey of the country’s reserves, and therefore, no real understanding of them. In addition, despite the high quality, different industries require different quality levels. Hence, proper R&D, standardisation, grading, and surveys on minerals are essential to understand what supply chains the minerals can be integrated into in order to reach a high-value spectrum.”
Accordingly, Farook believes the two largest priorities to develop the industry are improving R&D while identifying reserves and providing easier access for industry stakeholders. He clarified that this did not mean indiscriminate access, but rather a smoother process with necessary standards and regulations.
Removing red tape a priority
Moreover, CME Secretary Dr. Sandun Dalpatadu also noted that the key priorities for the industry’s progress included removing red tape related to accessing minerals, since a potential miner must visit many Government institutions to obtain approval.
He highlighted that access to certain quantities was needed to justify investments in downstream value addition and that security of tenure was needed to ensure a guaranteed supply of raw materials.
“To create a competitive market for raw materials, the Government has a duty to ensure that anyone can enter the industry with minimum barriers. This doesn’t mean a total lack of regulation, but an easier process, especially in terms of reducing the time taken and the number of officers who need to be visited,” he said.
Resolving challenges
Sri Lanka is the only commercial source for supply of high-carbon natural crystalline vein graphite. High-purity natural vein graphite with over 99% carbon in fully crystallised form is found as needles, lumps, rosettes, and flakes with low ash content, and remains reputed globally as a unique product.
Meanwhile, Dr. Dalpatadu noted that Sri Lanka having the best minerals in the world was somewhat of a misconception, as there were other countries with similar or better-quality minerals, except for certain unique minerals such as vein graphite. However, while vein graphite is unique, he pointed out that supply chain security – whether Sri Lanka could supply the materials for a long period – was also a major factor that overseas customers considered.
Accordingly, he pointed to the need to employ a more cautious approach when stating that certain qualities were only found in Sri Lanka, unless they were high-end niche products, since it could otherwise risk certain customers choosing multiple suppliers rather than a single product supplier to mitigate supply chain risks.
Moreover, in attracting investments and developing value addition, he noted that royalties calculated based on the Free on Board (FOB) price of minerals when exporting could be concerning for foreign investors, as this calculation included all costs, besides the value of the mineral when extracted.
Accordingly, adding value to extracted minerals requires an additional 9% on the FOB rates, which can discourage foreign investors from engaging in value addition in Sri Lanka, as they might simply limit themselves to extracting the minerals without adding value.
Dr. Dalpatadu believes a scheme where royalties are reduced based on the amount of value addition done in Sri Lanka is necessary to encourage people to engage in internal value addition.
He also pointed to the need for longer licence durations, as short-period licences could also put entire investments at risk, especially those of foreign investors, once again discouraging them. He shared that the chamber had already informed the Government of these concerns and urged it to consider the implications of these conditions.
“Digitising the entire mineral licensing process would be one solution, as several easy systems are already available. We are still at a stage where signatures of various officers at the Geological Survey and Mines Bureau (GSMB) are required in licensing procedures. Implementing such a system would allow for the easy operation of existing companies as well as new investments,” he added.