The need to improve the quality of mining governance, in both private and State-owned companies, is now a priority in countries seeking to make optimal use of their natural resources. MMJ talks to Bryan Land, Lead Extractives Specialist at the World Bank and Team Leader of its Improved Governance of Extractives Project in Mongolia, about this and related issues.
Your presentation on mining governance at the G7 Fast Track Partnership seminar, held in Bangkok in October, was very timely. Just what is mining governance?It’s not a simple concept, and different people have different views on this. I see mineral governance as a set of formal rules and practices about how decisions are made concerning the exploitation of mineral resources. Some of these are very obvious, like the laws of the country, and the procedures followed by the mining ministry and regulatory authorities. If these are the formal arrangements, on the informal side there is the way in which things are actually implemented, and this may not always be completely consistent with laws or regulations. Some rules can be very prescriptive and some very open ended. For example, the minister may decide to do this or that if he considers it to be in the best interest of the country – this opens up a wide range of possibilities. So a system of governance consists of the formal rules and the practices around certain decisions allocating resources, rights and so on. But it’s also the informal side of the actual practices -- the way difficult decisions have to be made knowing who influences the decision, and what the underlying interests are. So mining governance cannot be explained in one simple sentence.
It is an idea about the way that things are governed.
Your presentation mentioned that mining is being polarized in Asian countries. Could you explain this in more detail?What’s been polarized are views on whether mining brings good or bad things. The reason people’s views are polarized is because some people have a view that mining governance is extremely difficult to do well. And they have very little confidence in the institutions that are supposed to govern mining. So in some countries people have reached the conclusion that you cannot trust the institutions to govern the mining sector in ways that benefit the people. And so they’ve taken one view which is “I don’t want mining because I fear this will lead to ruin”. And there is another view that “This is a resource which may be the most important resource that we have as a developing country. And we have to go ahead. We can’t pretend resources don’t exist. We have to go ahead. We have to develop. We need to get exports, get revenues and so on. And we’ll try very hard to minimize the costs, minimize the environmental and social harm.” There is yet another view that says that on balance it is much better to go ahead, and to develop these resources.
And what’s happening, is what I shared in my presentation. If you look at different countries in Asia, many are taking drastic measures, like introducing a moratorium on mining. The idea is ‘Let’s slow down, let’s figure things out. Can we do this properly, can we get the full value of the resources or are we unprepared and are we at risk of having major environmental and social upheaval?”
The Philippines is a very good example of a government that is taking this very tough stand. You need to step back a bit to look at the history of mining there. The Philippines is very rich in minerals. There are mineral projects worth $20 billion, ready for development with all of the economic benefits. But over the last few decades mining in the country has been very controversial. For example, the political elite has tended to get many of the benefits as it was strongly associated with mining.
So there is a political issue there. And in many places where mining was taking place over the last few decades some of the environmental practices were not very good. Pollution, leakages and so on. So for many communities their experience of mining is all of the costs and none of the benefits. So the new government of Duterte has come in with a view that mining has generally not been of benefit to the people, one reason being that the mining companies have never been kept under control. So the new government said it was going to shut down mines unless they can demonstrate they are operating to the very highest standards, and that it would take dramatic steps to do this and it has a lot of public support in this. In fact, President Duterte has said, “We don’t need mining. As a whole country we can develop without mining.”
And many other countries that I included in my presentation are, let’s say, a little bit nervous and not sure which way to move. A good example is Laos where there was a period when the country enjoyed a lot of exports and revenues from mining. There were two copper-gold mines developed by foreign investors and this was like a breakthrough, a new phase in Laos. But they also had many examples of irresponsible mining and so they decided to put a moratorium.
This means no new mining licences are being issued. And the government says it will not lift the moratorium until it thinks it can control the existing mines, and will even then let in new companies only if they are responsible miners. But to do that they need to have strong mining governance. They need to be able to enforce the law and they also need a very good way of screening companies that want to apply to explore minerals or to mine for minerals. All of this needs time and effort. Now Laos is trying to come up with a system of strong mining governance.
The World Bank has done many projects in Mongolia and among the more interesting of these was SESA (Strategic Environment and Social Assessment). However, at a recent mine closure conference, there was criticism that the country still has no resources to make a social and economic assessment before planning for mine closure. Another of your interesting projects was related to Mining Cadastres. Could you give us more details on that?
I have to clarify. The Government carried out the SESA and Mining Cadastres projects under the Mining Sector Institutional Strengthening Technical Assistance Project (MSISTAP) which was financed by a loan from the World Bank and overseen by a Project Steering Committee chaired by the State Secretary of Finance. The project started in 2009 and closed at the end of 2015.
First of all, what is SESA? It is an analysis carried out to understand the impact of a new policy the government introduces, for example to promote investment in a sector. What are the implications and impact? What a strategic assessment tends to do is to look at the impact of a series of projects or the cumulative impact if there is a boom in the sector, instead of looking just at one project, like OT in South Gobi, and its impact on the immediate surrounding community in South Gobi. It’s not a question that can be answered by a single company.
If you ask what the impact of growth in the mining sector will be, that’s really a question for all stakeholders to look at, and that’s what the strategic environment and social assessment tries to do. It’s both looking at things cumulatively over a period of time and involving all of the stakeholders, particularly to focus on the environmental and social aspects. How should the government prepare for mining, how should other stakeholders prepare for mining? This will be revealed in the SESA.
It was launched in 2013 and completed in 2014, and the results are available as a public document. It is not just about the ministries in Ulaanbaatar, it is also on the aimag and soum levels. So it’s actually something that is a collective responsibility. So what the SESA tries to do is to identify who is affected and what their respective roles and responsibilities are and what kind of legislation is needed to give a mandate and to give a power to right institutions to manage that growing sector.
Now one of the interesting things is that an assessment has not traditionally been a combination of environmental and social issues.
When the work was being prepared the Ministry of Environment and Green Development was familiar and comfortable with the environmental side but not so much with the social side. So when we try to find out which part of the government is responsible for the social impact and social issues, we find there are in fact many. For example, one part could be responsible for the health impact, while another would be for the labour and job impact, and yet another for migration and educational impact. It really cuts across the whole of government and no one ministry can take the responsibility. At the end of this study there was a report with an action plan assigning responsibility. You have two problems - one is that of expertise, capacity, and skills but you also have the problem of who takes responsibility and I think that this is not just in Mongolia but this is an issue in many countries.
Mongolian government is aiming to make the geological database international standardized? I think your project on Mining Cadastre was made well contribution to that aim.The mining cadastre – I’ll just make a few comments on that. Certainly at a time that the World Bank first started providing technical assistance in the early and mid 2000 the mineral licenses were allocated dependent on paper based records and files full of evidence documents and a traditional way of managing this. There are two problems with that. One is that if you have a mining boom it can be quite slow but the second thing is it’s also very vulnerable to manipulation and just very difficult to hold public officials to account. So the question was what are we are going to do with this? The idea of mining cadastre was not just more efficient management of the process but also to try and limit vulnerability and actually provide a system that was less open to manipulation and also in the form that would allow people to hold public officials to account by making records available, having maps and so on, so that the whole system was both more efficient and was so more reliable and fair. So we supported it through stages and it was managed by MRAM. One of the steps was to go for a computer based system where people could find out where licenses are, who has licenses, who has applied for a license - all of that information available. The next step after that was for this computer based system to actually be used to process the applications and for companies to be able to make applications online and I think that change was introduced in the end of 2014. I am sure your journal was covering this. There were some problems early on - questions about registration and IT operations, and some accusations that still people were able to cheat the system but compared with where we were say ten years ago the system now is much improved.
As for Mongolia, now the situation is very vulnerable and not easy because of you know that mineral commodity market is falling except some raw material price is getting higher, and huge debt pressure and lack of foreign investment. Now, what things should we do in order to make sure the better management of the mining industry and in terms of sustainable economic development? Of course currently we don’t have any kind of thing like a Norway’s Pension Fund except there are some just starting wealth funds.This is not an easy question to answer and moreover this is more a responsibility of the World Bank Group rather than me as an individual. But I think it is safe to say that Mongolia is experiencing the difficulties that typically face countries that are highly dependent on mineral resources. Remember that Mongolia is among the most highly dependent countries in the world when measured by mining share of GDP, exports and government revenues. Only diamond-rich Botswana is more highly dependent. Of course, there are quite a few small oil rich countries in the Middle East, and Timor Leste, South Sudan and Equatorial Guinea that depend on oil for almost everything. With these high levels of dependency comes a high degree of economic instability because commodity prices not only move in cycles but also display high levels of volatility on the way up and down.
Although this instability is imposed from outside, from global markets, the government is not completely powerless to choose the right mix of policies to address instability. You mentioned wealth funds. It is certainly the case that the current economic difficulties being faced by Mongolia would have been cushioned if there were savings accumulated during the good times which could have been available now during the bad times.
Some people quite understandably feel that Mongolia needs to diversify its sources of economic development in order to avoid dependency on mineral resources and continued exposure to economic instability. That would, of course, be the best way forward, however, it is not obvious to me that this will happen either quickly or by ignoring the need to ensure the mining sector provides a platform for diversification. The mineral resources of Mongolia are truly impressive – most of the projects the current Government hopes to promote are mining or mining-related. The challenge is to take advantage of this in a way that counteracts economic instability, shares the benefits equitably and lays the foundation for a stronger and more diversified economy in the future.
Now, let’s focus on more global issue. We could not use the last super boom cycle, however, we are located next to the China, which was the country that had the strongest growth and still its growth is high now. So, what other countries, that could use the last boom cycle very well, would you say? Why they could make a success?Well from my experience some of the countries that did quite well during the last boom were in Latin America. I think Chile was already performing well and it was in a really very good position to take advantage of it. But one of the countries that had not done so well historically but then emerged during the boom was Peru. The country is not without some challenges but its overall economic standard and social indicators generally have improved. Nonetheless there are still some issues at local level and the impact of mining in some communities have been extremely difficult but let’s say at a macro level certainly Peru is the country that tremendously improved during the last mining boom.
