WORLD LEGISLATION REFORMS IN SUBSOIL USE AND ANALYSIS OF THE RESULTS

1. WORLD LEGISLATION REFORMS IN SUBSOIL USE AND ANALYSIS OF THE RESULTS Gary McMahon Senior Mining Specialist gmcmahon@worldbank.org Prepared for MINEX CENTRAL ASIA-2014Astana, Kazakhstan, April 1-2, 2014

2. Introduction • 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 • Reversal of mine nationalizations began at end of 1980s • Part of move to market, structural adjustment • Poor performance of the soes • World Bank supported design of mining policies & laws to make countries attractive to private investment • Bank has supported 35 such projects of $1m+ in 24 countries since initial ones, Ghana (1988) & Bolivia (1989) • Priorities have changed & so has Bank’s approach to mining sector reform

3. The World Bank & Mining Sector TA • 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 • Since 2010 domestic procurement has moved to or near the top of the agenda • Reducing conflict • Shared infrastructure

4. The Extractive Industries Value Chain

5. Value Chain & Bank Support to Mining Sector Reform

6. Drivers of Bank TA in Mining Sector I • 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

7. Drivers of Bank TA in Mining Sector II • Fiscal regimes for mining sector moved to center stage in 2003 for two reasons • First, large, sustained increase in mineral prices (which continues) • 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 • Second, corruption as inhibitor of long-term development under greater scrutiny • natural resource curse & EITI • More emphasis on revenue management and allocation, 4th link of value chain • host communities and regions demanding greater share of mining sector revenues • decentralization & targeting of mining sector fiscal revenues is emerging issue • Social license evolved in mid-2000s from ‘fair compensation’ to sustainable long-term development of affected communities, including after closure • Can mining sector be engine of growth, linkages and infrastructure • Using mining fiscal revenues to develop rest of economy

8. Mining Sector Reform and Investment

9. Mining Reform and Institutional Capacity • Licensing, cadastre, geological survey, environment, social • TA emphasizes hands-on assistance • External experts, training • Develop educational programs • Mostly strong success in licensing, cadastral, and geological survey • Slower progress on M&E capacities • ‘Catch 22’ of mining sector reform’ • Mali & PNG earmark some mining revenues to sector institutions • Created independent legal entities to overcome civil service restrictions

10. Mining and Economic Growth in Argentina • 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 cadastresystem 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) • Salta-41; San Juan-54; Jujuy-61 • Neuquen-102; Mendoza-107; La Rioja-109 • Environmental concerns are biggest reason for low rankings

11. Mining and Sustainable Development in Mongolia • 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 OyuTolgoi 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 • 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

12. Summary & Conclusions I • 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

13. Summary and Conclusions II • 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

14. Next Steps • 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

15. THANK YOU