1. WORLD LEGISLATION REFORMS IN SUBSOIL USE AND ANALYSIS OF THE RESULTS
Gary McMahon
Senior Mining Specialist
Prepared for MINEX CENTRAL ASIA Astana, 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
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
Implementation of Sustainable Development Policies & Projects
Emerging Issue
1985-7
: Institutional capacity
: Environment
: Social & cultural
: Mining sector fiscal regimes
2005-6: , transparency
: Political economy
: More focus from sector perspective
: Decentralization of revenues, earmarking
: Community development
: Engine of growth / integrated development
: 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

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
Country
Year Reform Completed
Amount of Mining Investment
Comments
Argentina
1995
2008: $2.4 billion; cumulative increase from was 1014%
Based on ongoing developments, investment expected to double again by 2015
Liberia
Still ongoing; began in 2006
Approximately $7 billion of investment agreements has been signed
Potential to reach $10 billion of total investment by 2015
Mongolia
1997
: $335 million per year on average
Oyu Tolgoi mine just approved, entails $4 billion of investment by itself from
Mozambique
2006
2008: $804 million
Only $24 million in 2002; $2-$3 billion investment in coal expected in next 3-4 years
Papua New Guinea
2003 (approx)
: approx $1 billion in total; exploration investment rose from $10 million in 1999 to $84m in 2009
Expect 3 new large scale and 2 new medium scale mines by 2015
Tanzania
2000
: Averaged over $250 million per year
From , investment less than $10 million per year

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 , 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)
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
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
Headcount poverty fell from 61% in 2003 to 35% in 2008
From 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