May 2nd 2012

Luqman Ahmad

Implementing Extractive

Industries Governance Reform

Overview

1. Background to ASI’s Extractive Industries Practise

2. Key trends in sector shaping government responses

3. State of EI governance reform

4. Development partner/Donors

5. Implementation challenges

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Adam Smith International

» Consulting company established in 1992, focused on advising on

Government reform and economic growth.

» Experience in close to 70 countries, currently delivering projects in

25 countries.

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ASI’s countries of experience

ASI’s permanent offices

ASI’s Extractive Industries Practise

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Legislative Reform

Primary Law

Regulations,

Stakeholder Consultation

Institutional Reform

Sector Strategy,

e.g. Political Economy Analysis

Institutional Audit & Design

Organisation Design &

Process Re-engineering

Fiscal Reform

Minerals Fiscal Policy Analysis &

Advice

Tax & Non-Tax Administration

Revenue Management,

e.g. compliance, sovereign funds

Change Implementation

Capacity Building / Training

Strategic Communications

Community Outreach &

Sensitisation,

e.g. artisanal communities

Technical Services

Geoscience Information

Management,

e.g. GIS

Mineral Rights Information

Management,

e.g. cadastre

Environmental Assessment

Transparency & Governance

EITI Implementation

Support

EITI Validation

Certification Support,

e.g, Kimberley Process, conflict

minerals

Specific ASI projects -last 18 months

5

Legislative

Reform

Institutional

Reform

Fiscal

Reform

Capacity

Building

Technical

Services

Transparenc

y

Afghanistan

Cameroon

Ghana

Liberia

Macedonia

Mongolia

Mozambique

Nigeria

Pakistan

PNG

Sierra Leone

South Sudan

Sudan

Tajikistan

Tanzania

Zimbabwe

Trends in Extractive Industries

Influencing Governance Reform

Trends in the Sector

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Post colonial nationalisation

Weak performance of state run enterprises

Privatisation & liberalisation

Rise in Chinese competition for resources

Commodity price boom (super cycle)

Rethink role of Government and

investment environment

Some messages coming from Governments

» We haven’t received adequate share of benefits from private mining companies.

» State ownership in production companies might better protect our interest (Chinese examples).

» Companies are realising massive capital gains through selling licence holding companies – we are not.

» There have not been sufficient benefits to the local economy.

RE-THINK OF LEGISLATIVE ENVIRONMENT AND ROLE OF GOVERNMENT.

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State of EI Governance Reform

» Some regions never went through reform – still limited private sector involvement (Central Asia)

» Some countries who liberalised early now looking to claw back and increase Government role and stake. (Tanz, Ghana, Zambia)

» Indications of growing resource nationalism (Zim, South Africa)

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What type of assignments are we seeing

» Changes to the fiscal regime (tax,

royalties, VAT, Customs)

» Re-negotiating agreements

(stabilisation, harmonising enabling

environment)

» Changes to licensing regime (first-

come/first serve, auctions, use it or

loose it.)

» Institutional reform (ministries vs.

agency)

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International Initiatives and

Development Partners

Types of support interventions

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Some international initiatives related to EI

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Initiative Subject matter Users

EITI Revenue transparency, multi-stakeholder

dialogue

Government

Private Sector

Civil Society

Equator Principles Environmental and social performance

standards

Private sector

Global Reporting

Initiative

Reporting on sustainable development issues Private sector

ICMM Range of issues (social, environmental) Private sector

IFC Range of issues (social, environmental) Private sector

OECD Corporate governance Private sector

UN Global Compact Guidance on human rights, labour,

environment, anti-corruption

Private sector

NRC Precepts – across EI governance chain Government,

Private sector

Civil Society

International partners supporting EI governance

reform

» World Bank

» IMF

» Norway (OfD)

» DFID

» EBRD

» GIZ

» AusAID

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Types of support

» Technical assistance (advisory)

» Drafting legislation

» Institutional change management

» Fiscal affairs and agreement negotiations

» Geological information

» Airborne survey

» Geo-chem survey

» mapping

» Support to civil society

» Building capacity to increase accountability

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Implementing EI governance

reform

Experiences from the “coal-face”

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Anatomy of a poorly managed EI sector

» Capacity gaps – easier said than done

» Discretionary decision making – vested interests

» Complex laws and dysfunctional institutions – lack of clarity and leadership

» Artisanal mining – much more than a resource issue.

» Speculators and non-performing investors – “gaming it”

» Limited geological information – increased risks

Why haven’t we been more successful?

» A lot of smart people have been working on EI

governance issues – “avoiding the resource curse”

» We know what good governance looks like.

» Why do we still have a hard time implementing

reform?

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1. Complex political economy

» Understanding what influences current decision making.

» While there may be interests to reform, there are going to be

vested interests in the status quo.

» Reform initiatives need to understand this and even go further

to identify entry points and opportunities for leverage.

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2. Misaligned timeframes

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1 2 6 5 4 3 7 8 12 11 10 9

Political cycle 1 Political cycle 2 Political cycle 3 Politicians

Exploration Prospecting Companies

Policy direction 1 Donors

Policy direction 2

Policy direction 3

Policy direction 4

Years

Feasi bility study

Build mine Operate mine

3. Capacity constraints

» Reforms not necessarily matched against absorptive

capacity (shelves full of analysis and reports)

» Administrator capacity part of wider civil and public

service challenges (attract and retain) – discrete capacity

building not effective

» Focus on licencing and agreements, limited attention to

monitoring and implementation

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4. Inconsistent or unclear policy framework

» Weak policy formulation process – stakeholder

engagement (still a lot of mistrust)

» Reform efforts piecemeal (avoiding the elephant in the

room)

» Unique agreements and renegotiations

» Disconnect between policies and decisions

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Influencing Systemic Change

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Influencing systemic change

Policy, Legal and Contractual Framework

Sector Organisations

and Institutions

Fiscal Design

and Administration

Revenue management & distribution

Sustainable development

Political economy

Conflict issue

National – subnational dynamics

Information asymmetries

Stakeholders

Capacity issues

Market forces