Gary McMahon
Senior Mining Specialist
[email protected]
Prepared for MINEX CENTRAL ASIA-2014
Astana, Kazakhstan, April 1-2, 2014
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Since 2000 importance of mining increasing rapidly for many
countries
 Rise in mineral prices since early 2000s
 Success of many mining sector reforms in late 80s and 90s
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Reversal of mine nationalizations began at end of 1980s
 Part of move to market, structural adjustment
 Poor performance of the soes
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World Bank supported design of mining policies & laws to make
countries attractive to private investment
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Bank has supported 35 such projects of $1m+ in 24 countries
since initial ones, Ghana (1988) & Bolivia (1989)
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Priorities have changed & so has Bank’s approach to mining
sector reform
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Began in late 80s with emphasis on increasing private
investment, export earnings, tax revenues
By mid-90s environmental issues became essential
part of reform efforts
Since 2000 community & regional development
issues, impacts on women and other disadvantaged
groups all entered discussion
Since mid-2000s the role of the mining sector as
engine of sustainable growth
 Direct participation in the economy
 Large fiscal revenues it generates
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Since 2010 domestic procurement has moved to or near
the top of the agenda
 Reducing conflict
 Shared infrastructure
Link
#1
Award of
Contracts &
Licenses (Legal
frameworks)
#2
Regulation and
Monitoring of
Operations
#3
Collection of
Taxes and
Royalties
#4
Revenue
Distribution &
Management
#5
Implementatio
n of
Sustainable
Development
Policies &
Projects
Emerging Issue
1985-7
1991-94:
Institutional
capacity
1991-94:
Environment
1995-2001:
Social &
cultural
1987-94:
Mining sector
fiscal regimes
2005-6: ,
transparency
2008-10:
Political
economy
2005-10: More
focus from
sector
perspective
2007-10:
Decentralizatio
n of revenues,
earmarking
2001-05:
Community
development
2005-07:
Engine of
growth /
integrated
development
2008-10:
Local/regional
governance
Year when
became
mainstreamed
in Bank mining
sector work
1988
1995:
Institutional
capacity 1995:
Environment
2002: Social &
cultural
1995: Fiscal
regimes
2007:
transparency
(EITI)
From a macro
perspective
has always
been essential
part of work
done by parts
of Bank & IMF
2006: Local
community
development
2008: Engine of
growth /
integrated
development
2012: Domestic
procurement,
conflict reduction
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When mineral laws reformed, soon apparent that most client
countries lacked institutional capacity for M&E

Many Bank supported reforms included hands-on institutional
capacity development
 licensing regime, cadastre, geological survey
 engineering design, health and safety, environmental performance
 mainstreamed by 1995

Global trends and changing public opinion drove social and
cultural issues
 new sensibilities attached to indigenous peoples’ rights
 since 1970s technological change had reduced benefits to communities
(employment)
 for ‘social license’ to operate, companies had to provide other benefits
to communities
 mainstreamed in early 2000s
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Fiscal regimes for mining sector moved to center stage in 2003 for two reasons

First, large, sustained increase in mineral prices (which continues)
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Second, corruption as inhibitor of long-term development under greater
scrutiny
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existing mining fiscal regimes (often developed under Bank guidance) didn’t capture much of large
increase in rents
most adequate fiscal system still under debate
natural resource curse & EITI
More emphasis on revenue management and allocation, 4th link of value chain
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host communities and regions demanding greater share of mining sector revenues
decentralization & targeting of mining sector fiscal revenues is emerging issue
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Social license evolved in mid-2000s from ‘fair compensation’ to sustainable
long-term development of affected communities, including after closure
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Can mining sector be engine of growth, linkages and infrastructure
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Using mining fiscal revenues to develop rest of economy
Country
Year Reform Completed
Amount of Mining
Investment
2008: $2.4 billion; cumulative
increase from 2003-08 was
1014%
Argentina
1995
Liberia
Still ongoing; began in 2006
Mongolia
1997
Mozambique
2006
2008: $804 million
Papua New Guinea
2003 (approx)
Tanzania
2000
2004-09: approx $1 billion in
total; exploration investment
rose from $10 million in 1999
to $84m in 2009
2001-08: Averaged over $250
million per year
Approximately $7 billion of
investment agreements has
been signed
2003-09: $335 million per year
on average
Comments
Based on ongoing
developments, investment
expected to double again by
2015
Potential to reach $10 billion
of total investment by 2015
Oyu Tolgoi mine just
approved, entails $4 billion of
investment by itself from
2010-13
Only $24 million in 2002; $2$3 billion investment in coal
expected in next 3-4 years
Expect 3 new large scale and 2
new medium scale mines by
2015
From 1990-99, investment less
than $10 million per year
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Licensing, cadastre, geological survey, environment, social
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TA emphasizes hands-on assistance
 External experts, training
 Develop educational programs
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Mostly strong success in licensing, cadastral, and
geological survey
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Slower progress on M&E capacities
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‘Catch 22’ of mining sector reform’
 Mali & PNG earmark some mining revenues to sector institutions
 Created independent legal entities to overcome civil service restrictions
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In 1995 reform began; mining investment $56m, exports 1%
Investment was $2.4b in 2008
From 2003-2008, cumulative increases of mining: investment,
1014%; exports, 275%; production, 292%; employment, 259%—
256,000 jobs in 2008 excluding multiplier impacts; and
exploration, 907%.
Mineral rights provincially held in Argentina
Objectives of reform program: (i) revise and modernize the
mining legal and regulatory frameworks at the federal and
provincial levels, including environmental aspects; (ii)
institutional capacity development and training; (iii) development
of modern cadastre system with harmonization across provinces;
(iv) set up environmental protection system for mining activities
including training; (v) training and institution strengthening in
assessment of socio-economic impacts
2013 Fraser Institute Rankings on exploration (out of 112)
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Environmental concerns are biggest reason for low rankings
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◦ Salta-41; San Juan-54; Jujuy-61
◦ Neuquen-102; Mendoza-107; La Rioja-109
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Reform began in mid-1990s
Annual GDP growth of 7.8% from 2000-08
Mining sector accounted for 60% of private investment
(2003-9) & 30-40% of fiscal revenues (2005-9)
In 2009 mining directly accounted for 22% of GDP, 70% of
exports, and 31% of fiscal revenues
Exploration very successful with Oyu Tolgoi being ‘crown
jewel’
 Investment of $4 billion over 3½ years, GoM owns 34%
 In 2019 (peak) OT will provide 55% of fiscal revenues & 20% of
GDP
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Headcount poverty fell from 61% in 2003 to 35% in 2008
From 2000-08 under 5 infant mortality fell from 6.3% to
3.4% & life expectancy rose from 64 to 67
Currently, TA project supports institution building in
Mongolia’s mining sector
Other sector work focuses on education, financial markets,
environmental protection, and stabilization fund
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Mining sector reforms in 1990s & 2000s
often led to large increases in investment
When mineral prices rose in the early 2000s,
the return on these reforms rose substantially
Over time complexity of reform efforts
increased rapidly
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Objectives of most mining reforms now include:
 increase investment and exports
 increase the capacity to M&E sector regulations
 increase share and transparency of rents returning to
host countries as fiscal revenues
 increase capacity of national & sub-national governments
to manage and use rents
 ensure that host communities benefit from mining
operations; local procurement; reduced conflict
 maximize employment and income generated by mining
operations both directly and indirectly through linkages
 use mining sector and its rents & infrastructure to foster
industrialization through the development of clusters and
resource corridors
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Much progress has been and is being made
through efforts of governments, mining
companies, civil society organizations, donor
countries, and international institutions
Objective of these efforts is to strengthen each
link in the value chain but more so to
strengthen the ‘links across the links’
Outstanding challenge is to leverage the
various benefits brought by the mining sector
to achieve a sustainable development path on a
much higher secular trend and broadly shared
by the population