Dr. Michael Stanley & Dr. Yongmei Zhou

World Bank Group

China Mining Congress 2014

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• Global extractive investment trends • China’s overseas mining investment • What can we learn from the international

experience? • What can the World Bank Group offer?

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The global population is consuming the stock of inventoried resources – there are diminishing rates of discovery across many metallic commodities

Even if the world were able to achieve a step change in resource productivity—the efficiency with which resources are extracted and used—new sources would still be required to replace those that are running out.

By 2030 an estimated $11-17 trillion of new investment needed in mineral and oil and gas projects in lower-income countries

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Source: McKinsey on Sustainability & Resource Productivity

Number of discoveries by Region Major deposits found in the World: 1950-2009

Source: McKinsey on Sustainability & Resource Productivity

Historically:

About 90% of resource investment has been in generally stable high- and upper-middle-income countries.

Future:

More resource investment flowing into poorer and often more volatile environments. (Source: Macroeconomic Policy Frameworks for Resource-Rich Developing Countries, IMF 2012

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Afghanistan, Angola Bosnia and Herzgovina, Burkina Faso Cameroon, Central African Republic, Chad, Congo, Democratic Republic, Cote d'Ivoire Egypt, Eritrea Guinea Iraq Korea, Democratic Republic Libya Madagascar, Mali, Mauritania, Myanmar Niger, Nigeria Sierra Leone, Sudan, South Sudan, Syrian Arab Republic Togo Uganda Yemen Zimbabwe

Investment Decision Criteria What Government Needs to Do

Geological Potential / Resource Certainty Geological Survey providing basic

geo-data and undertaking mineral

resource assessment

Profitability of Potential operations – competitive fiscal

regime, realistic foreign exchange controls

Investment Laws

Security of Tenure – clear, non-discretionary mining

rights and title for permitting

Mining Cadastre

Consistency of Mineral Policy – clarity of roles &

responsibility, stability of exploration / exploitation terms

and conditions, mineral ownership (resource nationalism)

Mineral Policy

Tax Legislation

Stability of Legislation –predictable environmental /

social obligations, non-discretionary transparent

regulatory environment

Clear, consistent mining,

environmental, social, and tax

regulations

Availability of Infrastructure Public Private Partnerships

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Source: “Mining Exploration, Corporate Social Responsibility and Human Rights: Untangling the Facts, Seeking Solutions”. Odell & Silva. PDAC Paper.

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$27

$31

$33

$20

Aluminum Copper Steel Other metals

$26

$85

FCS Non-FCS

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$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000

Philippines

Ghana

Saudi Arabia

USA

Zambia

India

Malaysia

Russian Federation

Myanmar

Chile

South Africa

Ecuador

Afghanistan

Canada

Brazil

Sierra Leone

DRC

Guinea

Indonesia

Peru

Australia

Chinese Overseas Investment in Mining Jan 2005- Jun 2014 (in $million)

(Only including deals larger than $100m each) Data source: http://www.heritage.org/research/projects/china-global-investment-tracker-

interactive-map

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Community grievances related to environment issues, lack of jobs in the mine, lack of business contracts as suppliers, resettlement issues

Labor protest and strike related to conditions of service

Demand by civil society and media for disclosure of tax payment, contract terms (incl. tax exemption of imports, pricing of exports)

Guidelines for Overseas Investment

Environment Protection Guidelines for Overseas Investment

SASAC Guidelines on Corporate Social Responsibility

Green Credit Policy and training of commercial banks and big companies

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Source: OECD

Many fragile states are extremely dependent on proper management of

natural resources

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Decisions taken about mining investment, land acquisition and allocation of development budget without transparency and involvement of local communities and stakeholders

Fiscal revenue from extractive industries not shared equitably across levels of government and among stakeholders in the local area.

Local people bear disproportionately the cost of mining: local inflation, environmental degradation, health problems, loss of traditional livelihood, displacement

Local people’s expectation for jobs and business opportunities often dashed due to poor skills and business capacity

Conflicts due to competing claims to land ownership or inadequate surface rent

Poor management of revenues from extractive industries leads to grand corruption, rapidly increase in inequality, and sometimes funding for violent conflict within country or with neighboring countries

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International standards ◦ Global Reporting Initiative

◦ Global Compact

◦ OECD Guidelines on Multinational Enterprises

◦ OECD Convention on Combating Bribery

◦ Voluntary Principles on Security and Human Rights

Industry standards: ◦ ICMM: 10 sustainable development principles

◦ The Mining Association of Canada, the Towards Sustainable Mining (TSM) initiative

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Extractive

Industries

Local /

Regional

Economic

Development Regional

Development

Planning &

Coordination

Infrastructure

and

Transport

Corridors

Community

Development

Agreements

& Outcomes Social &

Human

Development

Collection of

Taxes &

Revenues

Management

Environmental

Management

Licensing &

Contracts

Policy & Regulatory Sustainable Development

Mining firms are only part of the puzzle

• National government: leadership for overall governance,

policy, fiscal and broad legal regime.

• Sub-national government: legal basis, licensing, technical

requirements, facilitation of good investments, information.

• Mining company: commitment to transparent, safe and

productive operations.

• Mining community: maintain communication with mining

firm for mutual benefit; identify needs.

• Civil society: monitoring social, environmental and other

impacts for local and national well-being.

Everybody needs to play a role

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World Bank Group work aims to support country’s along the entire extractive industries value chain to enable the transformation of revenue from resources into sustainable development that benefits the poor.

Award of Contracts and

Licenses

Regulation and Monitoring of

Operations

Collection of Taxes and Royalties

Revenue Management and

Allocation

Implementation of Sustainable

Development Policies and

Projects

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Capacity building for government ◦ Licensing: provision of data on natural resource, contract

negotiation support ◦ Sector promotion: provision of geo data, building

professional capacity, increasing capital and innovation ◦ Regulations: strengthen institutional capacity, address

illegal mining ◦ Tax/royalty: value-chain assessment, pricing, improved

compliance and collection ◦ Transparency: of payments to inform forecast and

monitoring ◦ Public expenditure management and public investment

management ◦ Building capacity of local government for managing local

development around mining areas ◦ Building multi-stakeholder platform for dialogue

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Integrated spatial planning around “resource corridor”

Co-financing multi-use infrastructure projects, e.g., roads, railway, port

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IFC Equity investment in mining companies

Developing capacity of local companies as suppliers for mining companies

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Promote sustainable mining through partnership with mining associations

Support international initiatives for improved transparency and accountability

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• 14 IDA credits for a total of $428 million: 11 in Africa, 2 in East Asia-Pacific, 1 in South Asia

• 33 recipient-executed trust fund projects worth a total of $77 million

• 52 technical assistance activities in 38 countries

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MIGA insures FDI against losses due to ◦ Currency inconvertibility and transfer restrictions ◦ Expropriation ◦ War, civil disturbance, terrorism, and sabbotage ◦ Breach of contract ◦ Non-honoring of sovereign financial obligations

Since inception in 1988, MIGA has issued guarantee contracts of $1.6bn for mining projects. Mining portfolio currently is $240m, 2% of MIGA’s outstanding gross portfolio.

MIGA provides dispute resolution services for guaranteed investments to prevent disruptions to developmentally beneficial projects

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The World Bank in Mozambique is supporting:

Capacity Building for responsible & transparent management of Mozambique’s massive extractives industry, including: • Negotiating deals • Raising financing for projects • Improving tax administration • Improving environmental & social practices • Facilitating development of domestic market value addition.

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The World Bank is supporting the Government to establish the policy, fiscal, legal, regulatory and institutional framework for the extractive sector

Provided the state owned mining company with extensive training & technical support, including for its

o legal statutes & charter

o preparation of agreements with its project companies.

o The company received technical advice on corporate strategy and assessment of some of its mineral assets, advancing it towards international standards

o one of its green field projects started operation in 2011.

IFC is discussing equity financing to support a $12 billion investment to develop a copper &gold deposit at Oyu Tolgoi in the South Gobi desert. OT is the world’s largest undeveloped copper-gold deposit.

The World Bank is working with the government of Afghanistan to strengthen the country´s mining institutional framework and regulation.

Results:

Review of major mining contracts providing transparency and accountability to the negotiations process.

Ministry of Mines has completed its first ever competitive tender rounds for hydrocarbons & production of hydrocarbons has begun.

Revenue Transparency: strong progress has been made regarding implementation of the Extractive Industries

Transparency Initiative (EITI).

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The World Bank is supporting the Government of Guinea to

strengthen the capacity & governance systems of key institutions for managing the minerals sector in Guinea

assist in creating an enabling environment for the realization of PPPs in mining ancillary infrastructure development.

IFC: Partnering with Rio Tinto, which is developing the Simandou iron ore project in Guinea, Africa’s largest private sector investment.

IFC is a 5% shareholder in the project.

IFC is implementing a local supplier development program, helping smaller businesses improve their technical and management skills, and better understand Rio Tinto’s requirements for health, safety & environmental responsibility.

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Extractive

Industries

Local /

Regional

Economic

Development Regional

Development

Planning &

Coordination

Infrastructure

and

Transport

Corridors

Community

Development

Agreements

& Outcomes Social &

Human

Development

Collection of

Taxes &

Revenues

Management

Environmental

Management

Licensing &

Contracts

Policy & Regulatory Sustainable Development

Entry points for partnership