Decentralization poses dilemmas for miners

Mining companies are increasingly accepting the business case for sustainable community investment, as it can help secure their social licence to operate, add value for shareholders and engage communities and stakeholders. If done well — that is, if it does not promote community and government dependency on company funding and is targeted to citizens’ and government’s visions and needs — effective community investment can be considered a key indicator of the project’s success.

However, mining projects are occurring in many countries where decentralization is taking place. Indeed, there has been a global trend towards government decentralization in the past 2-3 decades. In developing countries in particular, mining companies need to be aware of the issues and challenges of decentralization, local government development planning and the implications for their community development funding initiatives.

Recognized as a basic dimension of democratic governance and a process that often spans decades, decentralization involves the transfer of authority and responsibility, resources, and personnel from the national to sub-national governments. In theory, decentralization can promote more efficient provision of public goods and services while considering local citizens’ preferences and needs more closely.

By serving as a focal point for public participation, local government can help strengthen democratic and transparent decision-making processes. This is relevant to the mining sector since responsibilities that affect the sector are often transferred from central to local government, including powers to promote and develop regulations that may influence the costs and operations for mining business.

Indonesia is an example of a country undergoing decentralization. Since 1998, increased autonomy and responsibility for decisions have been devolved to the regency, district and village governments. New structures of government have been put in place, including direct elections of local representatives. As with other decentralizing countries, responsibilities for addressing poverty, social and economic development have been devolved to the newly formed local governments, which have become prime decision-makers and providers for healthcare, education, water and sanitation and other infrastructure.

Local government capacity to undertake community planning, budgeting and program implementation is essential to ensuring these services for communities. However, there is often a lack of clarity on central, regional and local government roles and functional assignments in service delivery, which can undermine local governments’ ability and commitment to support their community development planning process.

Newly formed local government leadership structures can be weak, and their capacity to design and implement development plans are often limited. Unaccustomed to the scale of responsibility and financial resources placed at their disposal, they may be reluctant to make decisions, or may make choices that do not improve people’s lives in a meaningful way.

Other challenges pertaining to the resource sector include lack of transparency and monitoring of fiscal transfers from central to local governments (limiting local government resources), overlapping mining regulations and lack of, or poor supporting policy and regulations for effective resource-based investment. Conflict can arise when national governments oversee decisions on mining concessions and rights without previous informed consent of local governments and communities potentially affected by the development. This can reduce the ability and rights of local governments to direct development policies and the social and economic welfare of its citizens.

Mining companies working in decentralizing countries will want to develop and implement sustainable community investment policies and strategies that: promote common goals around development between the company and local government; and provide opportunities for cost sharing and capacity building.

But there are challenges, and these can be addressed through two related processes: conducting an institutional assessment; and engaging in local participatory development planning processes.

An effective institutional assessment identifies administrative and fiscal arrangements between national and local government institutions, and main sources of local government revenue (i. e. intergovernmental transfers, local revenue generation, user charges and taxes, etc.). The assessment will also define national and local government structures, functions, responsibilities and management capacity, along with non-governmental institutions’ roles and capacities in supporting regional and/or local development within the project area. Finally, the analysis should determine policies and programs (such as povertyreduction and economic development plans) that are supported by international financial institutions, government and non-governmental agencies, and the amount of funding available.

Institutional assessments can draw upon, and be integrated with, social and economic information collected during mine feasibility studies, as well as baseline information collected during the environmental and socioeconomic assessment. The results can identify for mining companies local development needs and priorities, funding gaps and how best to enhance sustainable development priorities, programs and funding mechanisms by integrating with initiatives that are already in place.

In decentralizing countries, local governments are obligated to undertake development planning processes to meet their increased responsibilities. In this context, new legislation and regulations exist for community participation in local-level policy, planning and program implementation, such as the Musrenbang process in Indonesia. Called “participatory development plans,” this is a process for setting plans to improve the lives of community members. As outlined in Indonesia’s decentralization legislation,