What is true of the World Bank is also true generally of mining companies, and increasingly of the banks that finance the industry. Expectations about what mining companies must deliver have grown hugely. At a time of increasing competitiveness (downsizing organizations, cutting costs, and getting things done ever faster and leaner), companies also need to meet growing expectations on a whole range of “sustainability” issues, many of which are beyond the immediate control of the average miner.
Although this is not easy, progress can be made. But it is clear that we all need to work together to address the fundamental issues in the best way possible, given the situation on the ground. There are many examples, of course, where this has happened and where seemingly challenging problems are being addressed in ways that are expanding our understanding of the potential for investing in various countries, including those countries where governance is weak.
In Peru, for example, one of the projects that International Finance Corp. (IFC) financed with loans and equity is the Yanacocha gold mine. By any standards, this project is a mining success. Since startup, it has grown hugely in scale and expected life. It produces more than 2 million oz. gold per year at low cost and has generated a good return for investors and substantial taxes for government. It is a major provider of local jobs and of business for local firms. Yet only recently, a lot of this seemed as if it might be put at risk. Rapid expansion of the mine meant that it grew without an adequate community relations and development program. This was compounded by a failure of tax monies to reach the local community, despite large revenues going to central government. As a result, local communities became distrustful of the mine, and its successful operation seemed at risk. Distrust and resentment made it very difficult to deal with significant issues, including a serious mercury spill and concerns about water supplies.
Fortunately, the investor reacted strongly and positively, and now there is an extensive community program focused on helping to develop sustainable local business around the mine. IFC has been participating in a small business development program. Also, the IFC Ombudsman’s office has helped develop more effective dialogue with local people and ensure the credibility of a key review of the water issue surrounding the mine.
In the case of the Yanacocha project, the actions of government were a factor in the issues faced. In other cases, the sustainable impact of projects will depend mainly on governments.
One of the most important resource projects we have been involved in in recent years is related to the oil sector, though the lessons learned are applicable to mining as well.
The Chad-Cameroon oil pipeline was a huge, complex project with many urgent social and environmental issues. The unique feature of the project was the way efforts were made to address what was seen as the biggest threat to the project’s contribution to sustainable development: how the revenues from oil would be managed by the government of Chad, one of the world’s poorest countries.
Fortunately, the investors, the World Bank and the government had a common interest in dealing with the issue and were able to work together. As a result, significant steps have been taken to ensure that the oil revenues Chad receives help contribute to long-term development, and to reducing poverty. Most importantly, the government has agreed to the allocation of revenues to development purposes in a transparent way that is overseen by a group that includes members from outside government. Revenues are earmarked broadly as follows: for immediate priority development purposes (72%), for people in the immediate area of the oil fields (5%), and for saving for future generations (10%). It will, of course, be some time before we know how successful this initiative has been. But the arrangements in place must significantly increase the chances of the people of Chad gaining sustainable benefits from the oil development.
In Papua New Guinea (PNG) our principal partner is the government. PNG is a complex country from a social and environmental perspective. It is also one in which oil, gas and mining contribute significantly to the economy. The country faces two immediate challenges: to ensure continued development (nearly all its current developments will be exhausted in a decade), and to ensure that mining and oil-and-gas developments contribute effectively to its overall development. In the past, this contribution often left much to be desired.
In Papua New Guinea, the World Bank program has a number of activities:
— At the most aggregate level, the bank is active in trying to promote overall good governance and accountability in the country.
— In terms of mining, the bank is helping the government to develop a program for sustainable mining development, a major focus of which is the use of the revenues from development.
— The bank is helping the government increase its capacity to attract and manage new investment.
— The bank is trying to ensure that gender issues are recognized and dealt with, since these can be critical to the impact of large new investments on traditional communities.
A key priority, from the bank’s perspective, is transparency of resource revenues. Good governance means that governments should publish the revenues that they receive from oil, gas and mining so that their citizens can then monitor how this wealth is spent. The Extractive Industries Transparency Initiative, which was launched by the U.K., is a good framework that puts the focus on the voluntary involvement of governments. The World Bank is going to help ensure the success of the initiative, which has many willing partners. Our focus at present is on helping governments develop a more transparent process of publishing resource revenues.
Many readers are familiar with the “Equator Principles,” whereby a growing number of banks (18 at last count) have agreed to use IFC’s environmental and social safeguards for project financing in developing countries. This agreement should help ensure that good practice (and not just in mining projects) becomes widespread.
While some in the industry have expressed concern that the agreement may reduce the effective choice of financing available. We believe it is likely to make financing more available for those who aim to meet good standards. It should provide clarity to the banks and reduce their reputational and commercial risks.
— The preceding is an edited version of a speech presented to the Mining Journal World Congress, held in London in December 2003. The author is the executive vice-president of the World Bank, based in Washington, D.C.
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