Document of The World Bank FOR OFFICIAL USE ONLY Report No: 74011-MZ INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 32.6 MILLION (US$50 MILLION EQUIVALENT) TO THE REPUBLIC OF MOZAMBIQUE FOR A MINING AND GAS TECHNICAL ASSISTANCE PROJECT March 1, 2013 Oil, Gas and Mining Unit Sustainable Energy Department Sustainable Development Network Country Department AFCS2 Africa Region This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank's policy on Access to Information. 1 CURRENCY EQUIVALENTS (Exchange Rate Effective November 30, 2012) Currency Unit = Special Drawing Rights (SDRs) SDR 0.65154 = US$1 US$1.53481 = SDR 1 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS AfDB African Development Bank ASM Artisanal and Small Scale Mining AusAid Australian Agency for International Development CSO/CBO Civil Society Organization/Community Based Organization CIDA Canadian International Development Agency CSR Corporate Social Responsibility CUT Single Treasury Account DflD Department for International Development of United Kingdom DNG National Directorate of Geology (Direcqdo Nacional de Geologia) DNM National Directorate of Mines (Direcqdo Nacional de Minas) DNT National Directorate of Treasury EFO Externally Funded Output EIA Environmental Impact Assessment EI-TAF Extractive Industries Technical Advisory Facility EITI Extractive Industries Transparency Initiative EMEM National Mining and Exploration Company (Empresa Mocambicana de Exploracao Mineira) ENH National Petroleum Company (Empresa Nacional de Hidrocarbonetos) FAD Fiscal Affairs Department FFM Mining Development Fund (Fundo de Fomento Mineiro) FM Financial Management GDP Gross Domestic Product GIS Geographical Information System IGREM General Inspectorate (InspecCdo Geral dos Recursos Minerais) IMF International Monetary Fund INP National Institute of Petroleum (Instituto National de Petroleos) LNG Liquefied Natural Gas MAGTAP Mining and Gas Technical Assistance Project MICOA Ministry of Coordination of Environmental Affairs (Ministerio para Coordenacao da Acqdo Ambiental) MIREM Ministry of Mineral Resources (Ministerio dos Recursos Minerais) MMAS Ministry of Women and Social Action (Ministerio das Mulheres e Acqdo Social) 2 MPD Ministry of Planning and Development NEPAD New Partnership for Africa's Development NORAD Norwegian Agency for Development PARP Action Plan for Poverty Reduction (Plano de Acqdo de Reduqdo de Pobreza) PDO Project Development Objective PIM Project Implementation Manual PMU Project Management Unit PPA Project Preparation Advance PPP Public Private Partnership PRSC Poverty Reduction Strategy Credit SADC South African Development Community SESA Strategic Environmental and Social Assessment SIA Social Impact Assessment SSA Sub-Saharan Africa ToR Terms of Reference TVET Technical and Vocational Education Training USAID United States Agency for International Development Regional Vice President: Makhtar Diop Country Director: Laurence Clarke Sector Director: Subramaniam V. Iyer Sector Manager: Christopher Sheldon Task Team Leader: Ekaterina Mikhaylova/ Alexander Huurdeman 3  MOZAMBIQUE Mining and Gas Technical Assistance Project TABLE OF CONTENTS Page I. STRATEGIC CONTEXT .................................................................................................1 A. Country Context ......................1.......................... B. Sectoral and Institutional Context......... ............... ................ 2 C. Higher Level Objectives to which the Project Contributes ........... ........ 6 II. PROJECT DEVELOPMENT OBJECTIVES ...........................................................9 A. PDO........................................................ 9 Project Beneficiaries .....................9.........................9 PDO Level Results Indicators............................................ 10 III. PROJECT DESCRIPTION ............................................................................................10 A. Project Components ..................................... ....... 10 B. Project Financing ..................................... ......... 15 Lending Instrument ...................... .................. 15 Project Cost and Financing .......................................... 15 C. Lessons Learned and Reflected in the Project Design..................... 16 IV. IM PLEM ENTATION .................................................................................................. 17 A. Institutional and Implementation Arrangements .................... ..... 17 B. Results Monitoring and Evaluation .................................... 18 C. Sustainability................... ............................. 18 V. KEY RISKS AND MITIGATION MEASURES......................................................19 A. Risk Ratings Summary Table ...................................... 19 B. Overall Risk Rating Explanation .............................. ...... 19 VI. APPRAISAL SUM M ARY ......................................................................................... 20 A. Economic and Financial Analyses .......................... ......... 20 B. Technical .................................................... 21 C. Financial Management..................................... ...... 22 D. Procurement ........................................... ....... 22 4 E. Social (including Safeguards) ...................................... 23 F. Environment (including Safeguards) ................................. 24 Annex 1: Results Framework and Monitoring ....................................................................26 Annex 2: Detailed Project Description..................................................................................35 Annex 3: Implementation Arrangements ............................................................................. 52 Annex 4: Operational Risk Assessment Framework (ORAF).............................................67 Annex 5: Implementation Support Plan ................................................................................72 Annex 6: Extractive Industries Value Chain Analysis.........................................................75 5 PAD DATA SHEET Mozambique Mining and Gas Technical Assistance Project (P12984 7) PROJECT APPRAISAL DOCUMENT AFRICA SEGOP Report No.: PAD315 Basic Information Project ID Lending Instrument EA Category Team Leader P129847 Technical Assistance B - Partial Assessment Ekaterina Mikhaylova Loan Project Implementation Start Date Project Implementation End Date 28-March-2013 31 -May-2020 Expected Effectiveness Date Expected Closing Date 01-July-2013 31 -May-2020 Joint IFC No Sector Manager Sector Director Country Director Regional Vice President Christopher Gilbert Sheldon Subramaniam V. Iyer Laurence C. Clarke Makhtar Diop Borrower: Republic of Mozambique Responsible Agency: Ministry of Mineral Resources Contact: Benjamim Chilenge Title: National Director for Planning and Development Telephone No.: 258-21-301-600 Email: benjamim.chilenge@mirem.gov.mz Project Financing Data(US$M) ] Loan [ ] Grant Term: [X] Credit [ ] Guarantee The credit has a final maturity of 40 years including a grace period of 10 years. For Loans/Credits/Others Total Project Cost (US$M): 58.15 Total Bank Financing (US$M): 50.00 1 Financing Source Amount(US$M) BORROWER/RECIPIENT 0.00 International Development Association (IDA) 50.00 Department for International Development of UK (DflD) 8.15 Total 58.15 Expected Disbursements (in USD Million) Fiscal Year 2013 2014 2015 2016 2017 2018 2019 2020 0000 Annual 2.00 5.00 6.00 10.00 10.00 7.00 5.00 5.00 0.00 Cumulative 2.00 7.00 13.00 23.00 33.00 40.00 45.00 50.00 0.00 Project Development Objective(s) The proposed project development objective is to strengthen the capacity and governance systems of key institutions to manage the mining and hydrocarbon sectors in Mozambique. Components Component Name Cost (USD Millions) Component A: Mining Governance Capacity Building and Reform 17.65 Component B: Natural Gas Capacity Building and Governance Reform 11.05 Component C: Cross-cutting Mining/ Natural Gas Capacity Building and Reforms 9.95 Component D: Cross-Sectoral Reforms 0.80 Component E: Project Management and Coordination 4.09 PPA Refund 3.00 Contingencies 2.65 Compliance Policy Does the project depart from the CAS in content or in other significant respects? Yes [ ] No [X] Does the project require any waivers of Bank policies? Yes [ ] No [X] Have these been approved by Bank management? Yes [X] No [ ] Is approval for any policy waiver sought from the Board? Yes [ ] No [X] Does the project meet the Regional criteria for readiness for implementation? Yes [X] No [ ] Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 X Natural Habitats OP/BP 4.04 X Forests OP/BP 4.36 X 11 Pest Management OP 4.09 X Physical Cultural Resources OP/BP 4.11 X Indigenous Peoples OP/BP 4.10 X Involuntary Resettlement OP/BP 4.12 X Safety of Dams OP/BP 4.37 X Projects on International Waterways OP/BP 7.50 X Projects in Disputed Areas OP/BP 7.60 X Legal Covenants Name Recurrent Due Date Frequency Co-financing deadline for effectiveness March 31, 2014 Description of Covenant The co-financing Deadline for the effectiveness of the Co-Financing Agreement is March 31, 2014 (Financing Agreement, Article 4.01 (c)) Name Recurrent Due Date Frequency Environmental and Social Management of February 28, 2015 Mining and Gas Description of Covenant Carry out a Strategic Environmental and Social Assessment of the Recipient's mining and gas sector not later than February 28, 2015, and disclose an adopted action plan not later than nine months after the completion of the SESA. (Financing Agreement, Schedule 2, Section I, G 1) Name Recurrent Due Date Frequency Transparency of revenues from mining and Yes Annual gas sector Description of Covenant The Recipient undertakes to carry out the Project in accordance with internationally recognized standards and guidelines for extractive industries transparency, including those of the EITI. (Financing Agreement, Schedule 2, Section V A.) Conditions Name Type Adoption of Project Implementation Manual Effectiveness Description of Condition The Project Implementation Manual shall have been adopted by the Recipient in a manner satisfactory to IDA. (Financing Agreement, Article 5.02) Name Type Provision of transitional salary support for additional civil servants staff positions Disbursement to be created in MIREM under Part C(iv)(a) of the Project Condition 111 Description of Covenant No withdrawals will be made from the Credit in respect of civil service staff salaries under Category (2) of the disbursement table in Schedule 2 to the Financing Agreement, in any Fiscal Year unless: (i) the Recipient has adopted the policy referred to in said Schedule 2 ; (ii) such salaries are provided in accordance with the provisions of the implementation and financing plan adopted by the Recipient for the respective Fiscal Year; and (iii) the staff to be financed are included into the MIREM organogram. (Financing Agreement, Schedule 2, Section IV B. 1.) Team Composition Bank Staff Name Title Specialization Unit Natalia Cherevatova Operations Analyst Operations Analyst SEGOP Ekaterina Mikhaylova Sr. Mining Specialist Team Lead SEGOP Luz Meza-Bartrina Senior Counsel Senior Counsel LEGAM Jose C. Janeiro Senior Finance Officer Senior Finance Officer CTRLA Cheikh A. T. Sagna Senior Social Development Senior Social Development AFTCS Specialist Specialist Antonio L. Chamuco Senior Procurement Specialist Senior Procurement Specialist AFTPE Amos Martinho Malate Procurement Analyst Procurement Analyst AFTPE Arlete Quiteria Program Assistant Program Assistant AFCS2 Comissario Nkamate Elvis Teodoro Bernado Financial Management Analyst Financial Management Analyst AFTME Langa Alexander Johannes Sr. Gas Specialist Co-Team Lead SEGOP Huurdeman Emerson Siquice Team Assistant-Safeguards Team Assistant-Safeguards AFCS2 Non Bank Staff Name Title Office Phone City Robert A. Robelus Consultant - Sr. Environmental Washington, Specialist DC Locations Country First Location Planned Actual Comments Administrative Division Institutional Data Sector Board Energy and Mining iv Sectors / Climate Change Sector (Maximum 5 and total % must equal 100) Major Sector Sector % Adaptation Mitigation Co- Co-benefits % benefits % Public Administration, Law, and Justice Public administration- 40 Energy and mining Energy and mining Oil and gas 30 Energy and mining Other Mining and 30 Extractive Industries Total 100 0 I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project. Themes Theme (Maximum 5 and total % must equal 100) Major theme Theme % Environment and natural resources Other environment and natural resources 50 management management Rural development Rural non-farm income generation 20 Public sector governance Other accountability/anti-corruption 20 Financial and private sector development Other Private Sector Development 10 Total 100 V  REPUBLIC OF MOZAMBIQUE MINING AND GAS TECHNICAL ASSISTANCE PROJECT I. STRATEGIC CONTEXT A. Country Context 1. Mozambique has been a strong economic performer in Africa since the end of its civil war in 1992. The country's economic growth has averaged above eight percent from 1993 to 2010, making Mozambique the fastest growing, non-oil economy in Sub-Saharan Africa (SSA). In the 2010 Worldwide Governance Indicators, Mozambique performed better than the SSA and low-income country group averages on all six aspects of the index (voice and accountability, political stability, government effectiveness, regulatory quality, rule of law and control of corruption). However, significant challenges remain. The country's per capita income level in 2010 was US$440 (no change from 2009), which is below average levels for SSA and the group of low-income countries. Social indicators are also low, infrastructure is inadequate, and the business environment remains difficult. 2. In the post-war period, Mozambique succeeded in attracting foreign investment for several "mega-projects" in the extractive industries, including BHP-Billiton's Mozal aluminum complex, ; Kenmare Resources' Moma mineral sands development, and Sasol's gas development projects. These investments received substantial concessions from Government in order to demonstrate that Mozambique's "doors were open for business," and the approach has started to pay off. With a visible track record of a stable investment environment for foreign investors established Mozambique has continued to attract large-scale investors in the extractives sectors, including Vale, Rio Tinto, Tata, Coal India, Jindal, and Beacon Hill in mining, and Anadarko, ENI, Statoil, Petronas, and others in the oil and gas sector. Mozambique also successfully raised financing for the first toll road in SSA outside of South Africa proper (Maputo - Pretoria toll road) and has experience with a Public Private Partnership (PPP) and International Bank for Reconstruction and Development enclave financing for the Sasol gas pipeline. This experience, coupled with its rich natural resources and long coastline, positions Mozambique to continue to be a promising destination for extractive industry investments, including complex, mega- projects, and as a natural transit point for neighboring, land-locked countries that currently use less direct, more costly routes. 3. Despite these developments, the healthy growth rates of the Mozambican economy have not translated into significant poverty reduction, and the economic impacts of mega-projects to date has been less than anticipated. The communities residing near and around mega-mining projects, for instance (such as those in Tete and Nampula Provinces), benefit in part from employment opportunities and improved access to infrastructure, but also experience a variety of negative impacts, such as inflation (with the disparity in incomes amongst local populations and migrant workers growing). Until 2008, Mozambique largely avoided the impacts of the "resource curse" due to the low level of integration of existing mega-projects into the economy as well as the expatriation of revenues from those projects. However, with increased development of I existing projects and new projects expected to come online, the risk of the resource curse will grow. Potential risks include: exchange rate appreciation and inflation; an influx of revenues in the form of taxes and royalties in the absence of adequate systems to collect, manage and allocate them; and macro impacts of commodity price fluctuations (not yet a visible factor on the economy, but potentially a large risk in the future). In 2008, a joint International Monetary Fund (IMF), World Bank, Norway, and Department for International Development (DflD) mission discussed with the Government options to address these potential impacts and improve the contribution of mega-project developments on the economy.' As a result, the Government undertook several reforms, which are in place or continue today. 4. To improve the positive impact of mega-projects on the Mozambican economy, and with a view to tangibly reducing poverty, the Government's strategy is evolving towards better integration of large-scale investments into the country's overall development targets (economic, social, environmental, and so on). This is being achieved through a series of actions to improve cross-sectoral coordination, particularly with the aim of maximizing local employment, local procurement, and the targeting of pro-poor growth. In view of the decreased perception of country risk (political, economic, etc.), the Government was able leverage more balanced mining investment agreements after 2006-07. During these years, a new Mining Law and new fiscal laws for the mining and petroleum sectors were adopted. In 2011, a new PPP and Mega-projects Law was adopted, with the objective to improve economic linkages and revenues from PPPs and mega-projects. While the new law has some unintended consequences for the extractive industries sector, it strives to improve transparency and accountability as well as economic planning by Government-all of which are required for further, sound economic growth. The reform process requires strong and sustainable support and coordination amongst Government, the private sector, local communities, and development partners. B. Sectoral and Institutional Context 5. The majority of current and forecasted mega-project investments in Mozambique are in the natural resources sector dominated, investment size-wise, by natural gas production and transmission (pipeline), mining and mineral processing. With its vast potential in hydrocarbon and mineral resources, Mozambique may be able not only to achieve higher economic growth rates than ever before, but to graduate to middle-income country status sooner than originally forecasted, enabling the country to take on a key role in regional economic development. For the Government, it has now become critical to ensure that (i) the natural gas and mining sectors (which are expected to dominate investments for decades to come) and, if discoveries are made, the oil sector, are developed in a sustainable way; (ii) the revenues from these sectors are efficiently collected and transparently managed to achieve desired growth across all productive 1 Optimizing the Domestic Benefits of Major Investment Projects, Aide-Memoire of Mission to Mozambique, February 2008. 2 These include (i) fiscal implications that may not be internationally competitive for extractive industries (while being suitable for other industries); (ii) licensing complications whereas the "first come, first served" principle for green field mineral exploration by an association may be overridden by a tendering requirement and where security of tenure between exploration and exploitation may be questioned; (iii) the proposed tendering procedures are not suited or typical for extractive industry projects or related infrastructure projects. While the PPP/Mega Projects Law implies that sector-specific laws shall prevail in such cases, it nonetheless holds considerable potential to confuse sector governance and to create undesired consequences and interpretations. 2 sectors; (iii) the resource curse is avoided through sound fiscal management, planning and diversification of the economy; and (iv) natural gas production and mining contribute to the overall economic growth and development agenda of Mozambique, including infrastructure and power generation, and mobilization of midstream, downstream and ancillary industry and business. It must be underscored that based on the experience of Mozambique and other resource-rich countries, where economic growth has often not translated into poverty reduction and development, there is a need for specific and targeted "pro-poor" and inclusive economic growth strategies to position the sector to be sustainable. It is essential that such strategies have clear and strong Government support. 6. The extractive industries sector in Mozambique currently accounts for about five percent of the country's Gross Domestic Product (GDP), primarily from natural gas development. Expectations are that in as little as five years, new natural gas and coal projects alone could double their contribution to the country's GDP. The wider metals/mining sector, with more than 1,000 active prospecting and exploration licenses, has the potential to contribute an additional five to eight percent to GDP based on globally comparable indicators. 7. Natural Gas Sector. Mozambique is on the brink of a major expansion of its natural gas sector to world-class scale. Exploration in the offshore Rovuma Basin between 2010 and 2012 confirmed natural gas volumes in excess of 100 trillion cubic feet (comparable with Norway, a country with one of the world's largest gas reserves). Initial projected investments, announced by two private sector concession holders-Anadarko and ENI, both seeking to process natural gas as Liquefied Natural Gas (LNG) for export markets-amount to US$70 billion. Gas production could start as early as 2018. The estimated export revenues from these two projects alone could be in excess of US$300 billion over the life of the projects. The size of the discoveries presents an historic opportunity for Mozambique to develop its domestic gas market for power generation in addition to developing new export schemes that subsequently create value from these hydrocarbon resources beyond just generating revenues from export. 8. Mining Sector. Mozambique is also growing into a world-class mining destination with (i) massive anthracite and other high quality coal reserves that would eventually place Mozambique on par with the world's largest coal exporters; (ii) massive titanium mineral resources/heavy mineral sands (ilmenite, rutile, zircon); (iii) other minerals, such as tantalum and limestone; and (iv) high prospectivity for gold, the platinum minerals group, uranium, iron ore and bauxite. Current coal production of about three million tons per year is expected to increase to 11 million tons per year within the next few years, reaching upwards of 20 to 50 million tons per mine, per year, depending on the level of associated infrastructure development, presently a major bottleneck to production. Current production of heavy mineral sands (primarily the Moma mine) is modest at about 400,000 tons of ilmenite, 500,000 tons of zircon and 14,000 tons of rutile per year (the Moma project is expanding and will be doubling when the next phase of construction is complete). The tantalum project in Noventa in Zambezia Province has current production of about 300,000 tons, but is expanding and more exploration is taking place for high value minerals and rare earths in the area. 9. According to government statistics, as of 2012 mining accounts for more than 15,000 direct jobs, of which more than 10,000 are based at coal mines in Tete Province. While direct 3 employment in mining is not as high as in other productive sectors, such as agriculture or forestry, the level of income in the mining industry is substantial. In addition, mining can generate four to five times the number of direct jobs through indirect employment across Mozambique, particularly in affected mine communities. However, absent clear Government strategic development, private sector investment and local capacity, the extent of indirect employment opportunities will be considerably reduced. 10. Artisanal and Small-Scale Mining. The artisanal and small scale mining (ASM) sector in Mozambique (mainly gold, gemstones, tantalum and small-scale quarrying for construction) is large, with a rough estimate that upwards of 150,000 artisanal miners are engaged in the sector. In addition, it is estimated that over half a million people directly depend on ASM activities across the country, notably providing livelihoods in rural areas. In 2012, based on data provided by the Ministry of Mineral Resources (MIREM), there are 73 designated ASM areas across Mozambique's ten provinces. Based on a survey carried out in 2006, artisanal gold miners were earning between US$75-US$1,500 per month, which was (and continues to be) sufficiently above other sources of incomes in rural areas. With the increase in gold prices since 2006, incomes should have become substantially higher, but according to some artisanal miners, traders have not been sharing the increased profits. Thus, despite the increase in gold prices globally, artisanal miners' incomes in Mozambique likely did not grow much (but still remain high relative to other sectors). 11. Most artisanal mining operations are unlicensed, poorly supervised, and very often environmentally and socially unsustainable (in particular, in regards to water pollution, including in the Lake Niassa watershed as well as the Zambezi River Basin). The sector is challenged by critical issues: use of mercury in gold production is common; smuggling of gold and gemstones is also common; and operations are conflict prone (e.g., with conflicts erupting between miners in the same area, between miners and communities, and between ASM and formal mining operations in the same area). Nevertheless, ASM will remain an important income source for many rural communities and has the potential to develop into a more formal and more economically important sub-sector. With Government providing targeted support to ASM since the 1990s, including with the establishment of a Mining Development Fund (Fundo de Fomento Mineiro, or FFM)3, some progress has been achieved but substantial reforms are required to continue the positive trend.4 12. Institutional Set-up. Management and oversight of oil, gas and minerals in Mozambique are the responsibility of the Ministry of Mineral Resources (MIREM). Within MIREM, the National Directorate of Mines (DNM) is responsible for the licensing and monitoring of mining activities while the National Directorate of Geology (DNG) is in charge of geo-data collection and management (for non-petroleum sector). Cadastre and inspectorate functions are in place and, for petroleum, the National Institute of Petroleum (INP) promotes exploration and production and regulates upstream operations. The General Inspectorate (IGREM) is in charge of the mineral ' The FFM is to be restructured, although no decision has yet been made on its new mandate or affiliation. 4 As of 2012, according to data provided by MIREM, there are 63 registered ASM associations, incorporating close to 64,000 members. Production of gold by ASM has increased from 17 kilograms in 2002 to 242 kilograms in 2008, and mining of tourmaline and aquamarine gemstones also increased from 128 kilograms to 9,800 kilograms and 26 kilograms to 500 kilograms, respectively (data of years 2002 and 2008). 4 resources sector inspections and internal audit. Many other parts of Government (i.e., Ministries of Finance, Labor, Planning and Development, Transport etc.) play a role in the mining sector, for example, through consultation and participatory processes, steering committees for the negotiation of large projects and more. However, the relationship and responsibility-sharing amongst the Ministries and other agencies needs to be sharpened, strengthened and made fully operational in order to ensure broader and sustainable economic impacts and regularized coordination. 13. A functional diagnosis of MIREM and its key departments and agencies, including INP and the National Petroleum Company (ENH), was launched in early 2012 and will be completed prior to project effectiveness. Recommendations from this diagnosis will inform actions required to develop a comprehensive approach to sector management and inform further institutional reforms. The organizational set up and capacity of MIREM is based on the size of the extractive industries sector as of a few years ago. The size of the sector is dramatically increasing, thus it is timely to review whether the organizational size and structure that has worked well in the past is adequate for future developments. It is anticipated that a strong capacity building program will be essential in order to enable MIREM to adequately perform its core functions. As is a problem globally (due to earlier commodity market declines of the 1970s), there is a generation gap in mining and geology professionals with a large number of senior skilled staff set to retire in the next few years. This large skills gap needs urgently needs to addressed as the sector grows. 14. Cross-Sectoral Dimensions and Poverty Indicators. Extractive industries affect multiple layers of the economy, impact the livelihoods of future generations, and impact environment and local demographics. Therefore, related policy and investment decisions must be taken by the Government in a consistent and sufficiently strategic way, taking into consideration both near- and longer-term developments. A well-managed sector can bring huge positive and sustainable impacts to Mozambique, including the development of domestic downstream markets and service industries, improved structure and scale of regional and local transport infrastructure, expanded power grids, township developments, socio-economic growth and positive economic externalities through forward looking management of the revenues generated. However, if left unmanaged, the impact of extractive industries development can be economically, environmentally, socially and otherwise disastrous and crippling for the country-the resource curse. Historically, the development of mineral resources (or other natural resources, such as forestry) in developing countries in parts of Africa and Asia had little correlation with reducing poverty. However, based on experience in such countries as Australia, Canada, the United States, South Africa, several Gulf countries, Finland and others, it is important to recognize that positive impacts on overall poverty levels are achievable with sound governance and resource management policies and targeted programs to implement them. These countries triggered growth as resource-based economies, but ultimately succeeded in achieving wider growth, diversification and poverty reduction through targeted interventions and policies. 15. Extractive Industries Value Chain Framework. A review of the extractive industries sector value chain in Mozambique was carried out in 2008 and updated for the purposes of this The institutional review of MIREM, INP and ENH is supported under AusAid and DflD financing managed through Externally Funded Output arrangements with the World Bank. 5 Mining and Gas Technical Assistance Project (MAGTAP) during preparation. The analysis provided a sound framework to support necessary reforms to ensure optimized sustainable development of the extractive industries sector. The analysis is provided in Annex 6, and findings include: * Mozambique has set out a strong foundation for the proper management of its oil, gas and mining resources. The legal, regulatory and contractual framework is mostly in place, up- to-date and largely in line with international good practice. The award of contracts and licenses is conducted through open, transparent processes; reforms are still ongoing. * The major challenges for Government going forward include (i) ensuring the requisite human resource, training and institutional capacity to implement and monitor oil, gas and mining operations is in place; and (ii) planning use of revenues generated by such operations. Improvements in coordination inside Government operations are essential to improve efficiency along the mining value chain as well as how mining operations impact non-mining development. 16. Government Commitment to Reforms. In December 2011, the Ministry of Planning and Development (MPD) requested a US$50 million Credit from the World Bank in order to support governance reforms of its mining and natural gas sector with the objective to address economic and social impacts of extractive industry development. In follow-up to the request, MIREM has led Project preparation and is contributing staff and support for policy level work to formulate sector reforms and to commence Project implementation. EITI compliance was confirmed in October 2012 and key policy level commitments are now in place. The World Bank has assisted in detailing sector policy and strategy, including action items. C. Higher Level Objectives to which the Project Contributes 17. The proposed Mining and Gas Technical Assistance Project (MAGTAP) is aligned with Mozambique's own development strategy PARP (the Portuguese acronym for "Action Plan for Poverty Reduction") for 2011-2014 and the new Country Partnership Strategy for FY12-15.6 Both strategies identify the potential of natural resources (including mining and gas) as a "source of growth" and accentuate the country's immediate task of maximizing the social and economic benefits of mining endowments for Mozambique and its people. The Government has already begun to implement a series of measures and reforms to ensure that mineral revenues are at comparable levels to other resource-rich countries and to bring them more in line with current international good practices; and the Project will support the Government on this path. The successful reforms will pave the way for economic growth and enhanced well-being of the people of Mozambique, contributing to poverty reduction. Policy level objectives will be reinforced through the Poverty Reduction Strategy Credit (PRSC) series and other policy level instruments as applicable. 18. The proposed Project responds to the Government's priority of streamlining the institutional setup to increase efficiency of decision-making related to policy formulation, planning, investments and private sector participation. The other high priority on the Government's agenda is implementation of a comprehensive and workable regulatory framework 6 Country Partnership Strategy FY12-15 for the Republic of Mozambique, Report No. 66813-MZ, The World Bank Group, February 8, 2012. 6 for the development of natural resources in an environment of scarce manpower for management of the mining and gas sectors. The major institutions that deal with these sectors require an adequate set of skills and competences to execute their mandates in a way that is conducive to investments and ensures that all safeguards and safety standards are met to international standards. 19. Beyond institutional capacity development, the proposed Project seeks to improve transparency and accountability of Mozambique's extractive industries sector through strengthened demand for good governance aligned with the cross-cutting pillar "Good Governance" of PARP 2011-2014 and the Country Partnership Strategy's foundational pillar, "Governance and Public Sector Capacity." Furthermore, the Project will contribute to the achievement of the Country Partnership Strategy's Pillar I, "Competitiveness and Employment," which is aligned with the PARP Pillar "Job Creation," by strengthening the economic linkages of the mining and gas industries and creating an environment for the industries to serve as a springboard for additional economic activities that will generate employment and stimulate local industry development, ultimately contributing to poverty reduction. 20. The proposed Project is aligned with the regional integration strategies for Africa, including the African Union Mining Vision 2050 and Strategy for Regional Infrastructure Development. The Project builds on such regional initiatives already under implementation, such as NEPAD's Spatial Development Initiative and the South African Development Community's (SADC) regional integration targets for infrastructure. The World Bank's Africa Strategy calls for governance and public sector capacity improvements to be approached from both the demand and supply sides. On the supply side, the Project would support the improvement of government services. On the demand side, the Project strategy aims to strengthen citizen voices using social accountability tools, such as the accountability platform, the objective of which is to improve governance, develop dialogue and consensus and monitor the sector performance to minimize potential negative impacts of mineral resources exploitation and gas production. 21. Rationale for IDA Involvement. The Bank has extensive conceptual, policy and technical experience in Africa and in the extractive industries sector and can draw on lessons learnt through the implementation of similar operations globally and in the region, including in Burkina Faso, Ghana, Liberia, Madagascar, Mali, Mauritania, Mozambique, Nigeria, Tanzania, Uganda, and Zambia. The Bank is uniquely positioned to offer assistance covering the full spectrum of the extractive industries value chain through the proposed Project, and in coordination with other World Bank and development partner supported activities. 22. In the 2000s the Bank supported the first Mining Capacity Building Project in Mozambique8. The Project achieved its objectives of invigorating the mining sector and 7 Africa's Future and the World Bank's Support to It, March 2011. 8 ICR0000630, December 20, 2007, for Credit to the Government of Mozambique for a Mineral Resource Management Capacity Building Project. The objective of the project was to provide technical assistance to the Government of Mozambique for (a) institutional development and regulatory reform designed to encourage the expansion of private investment in mining in a socially and environmentally sound way; and (b) targeted interventions to alleviate poverty in areas of strong incidence of small-scale and artisanal mining. As reported in the ICR, the value of exploration and mine investment increased from US$10 million to US$90 million and the number 7 attracting mineral investment and was successfully completed in 2007. Between 2007 and 2011, Bank support was provided to Mozambique in the form of policy dialogue and short-term, grant- financed projects, notably extractive industries value chain diagnostics; support to EITI implementation; support to sector development under the Extractive Industry Technical Advisory Facility (EI-TAF); analytical work to inform good practices and sector reforms with support from AusAid and DflD under Externally Funded Outputs (EFOs), including update of Mineral Resource Policy and preparation of a strategy and action plan for its implementation; preparation of a draft Gas Master Plan funded by the Public Private Infrastructure Advisory Facility and Petroleum Governance Initiative; and support for mining sector development strategy funded by AusAid. Key outcomes of this support have included Mozambique becoming an EITI compliant country in October 2012; drafting of a new Mining Law presently pending Cabinet review; fiscal regimes reviewed and progressing into the new draft fiscal laws; and consultation on the strategy to implement Government's Mineral Resources Policy, which is underway. As discussed in more detail in the Project Description Section, support from DflD, AusAid, the Embassy of Norway and the Canadian International Development Agency (CIDA) was instrumental to inform Government's assessment of needs, its thinking on the design of this Project and building understanding and momentum for needed reforms. 23. Coordination across World Bank Projects. The proposed Project fits well with other projects supported by the World Bank in Mozambique. Most notably, the Spatial Development Project (approved in FY11), which focuses on planning of infrastructure corridors based on commercial requirements, as well as the proposed Integrated Growth Poles Project (in pipeline for FY13) to improve the business environment and promote entrepreneurship in growth regions (i.e., Tete, Nampula and, potentially, Pemba). The Bank supported PRSC series included prior actions on EITI, with which Government has complied. With the expansion of the extractive industries sector and to complement reforms, the PRSC series will also include elements to support the improved management of revenues generated from extractive industries, macro- economic management to avoid the onset of resource curse outcomes, and development of high standards of transparency of revenues and expenditures. To support increased local employment, the proposed Project will also be coordinated with ongoing work by the Human Development team, including TVET programs and analytical work on skills needs. As such, the proposed Project will be coordinated across multiple sectors to ensure that reforms complement and support each other while ensuring broader, sustainable impact on the overall economy. 24. Partnerships. The extractive industries sector of Mozambique receives strong support from development partners, and donor coordination mechanisms are exemplary. The G-19 donors have organized an Extractive Industries Task Force, which has the objective to coordinate sector reforms and provide real time support and analytical know-how on issues affecting mining and petroleum sectors development. Currently, the Task Force is chaired by DflD and includes some non G-19 members (e.g., AusAid). Other support for the sector includes fiscal regime, taxation reform and capacity building by the IMF; upstream natural gas sector reform and capacity building support to INP through the Norwegian Agency for Development (NORAD)/the Embassy of Norway; governance reforms and expected co-financing for this Project by DflD; of private operators increased from 10 at project start to 22 by its close. The Project's activities in the area of ASM focused on the establishment of artisanal ceramic and gold pilot sites as models to improve the techniques and lives of artisanal and small-scale miners. 8 Tete projects and legal capacity building for MIREM by AusAid; support on CSR issues and potential co-financing to this Project in the next year from CIDA; governance and transparency support from USAID; governance/ EITI support by the African Development Bank (AfDB); and governance/EITI and a planned three--year technical assistance program by GIZ. There is recognition amongst the donor community that the World Bank is the most suitable agency to lead in the coordination and provision of sector support to the Government's reform efforts, given its technical expertise and global mining and natural gas experience. Thus, the Bank is taking the lead in the design of sector support and policy advice as well as in the provision of funding and supervision, in close collaboration with other development partners active in the mining and petroleum sectors. II. PROJECT DEVELOPMENT OBJECTIVES A. PDO 25. The proposed Project Development Objective (PDO) is to strengthen the capacity and governance systems of key institutions to manage the mining and hydrocarbon sectors in Mozambique. Project Beneficiaries 26. At the macro-level, the beneficiaries of the Project will be Mozambicans at large through (a) the contribution of increased mining and natural gas sector activities to fiscal and foreign exchange revenues, which will stimulate economic growth and at the same time allow for better socio-economic management of the country; and a significant increase in access to reliable power. The Project will also benefit the extractive industries sector through an improved investment climate and enhanced legal, regulatory and institutional framework that facilitates economic efficiency and new business activities. 27. At the micro level, there are direct and indirect beneficiaries. The direct beneficiaries include (i) Government institutions and their staff involved in managing mining and natural gas sectors, who will benefit from capacity building; (ii) the gas and mining sector workers, including local and international firms that supply goods and services to the mining, gas and power operators, who will receive employment and relatively well paid incomes, and artisanal and small scale miners, who will be able to improve safety, quality of production, overall productivity and value-based sales; and (iii) civil society, including community based and non- government organizations and institutions that will benefit from capacity building and improved public information on sector development and impacts. The main indirect beneficiaries at the micro level include (i) residents in potentially mine affected communities, who will benefit from well-regulated mining and gas developments, including the safeguarding of the local environment, social, health and safety performance; (ii) women who will benefit from opportunities to switch from coal/wood/dung as cooking fuels to affordable cleaner fuels for household energy consumption; and (iii) firms and individuals who take advantage of new opportunities offered by the infrastructure constructed for mining and gas sectors (ports, railways, roads, social infrastructure, water facilities etc) and for large power generation projects. 9 PDO Level Results Indicators 28. Key outcome indicators to be used to measure progress on the PDO over its lifetime include: * Mining cadastral database and Geographical Information System (GIS) integrated with the land-use databases and accessible on-line for public level information. * Mines and gas construction projects subject to annual technical inspections in line with established standards. * Mines and gas operations subject to fiscal controls per year in line with established standards. * Regular health and safety and environmental monitoring visits and inspections to mines and gas exploration/production sites in line with standards for supervision of compliance and monitoring of health and safety and environmental regulations. * New mining/gas/related infrastructure contracts negotiated, benefiting from the developed frameworks and procedures. * Direct project beneficiaries (number) of which females (%). III. PROJECT DESCRIPTION A. Project Components 29. The proposed project has five components, each with multiple sub-components. The components are (A) Mining Governance Capacity Building and Reform; (B) Natural Gas Capacity Building and Governance Reform; (C) Cross-Cutting Mining/Natural Gas Capacity Building and Reforms; (D) Cross-Sectoral Activities; and (E) Project Management and Coordination. Components and sub-component are summarized below (and see Annex 2 for a detailed description). The proposed Project is expected to be implemented over a seven year period (from effectiveness, anticipated in July 2013, until closure in May 2020). 30. The Project's design is well informed by prior policy dialogue and several analytical studies as well as preparatory work completed by the Government, independently and with Bank support. Project preparation enjoyed a high level of donor support and collaboration. As part of Project preparation, the Government is in the process of updating the overall Mineral Resources Policy (2012) by developing a short- to long- term action plan for sector development; preparing a Natural Gas Master Plan to inform policy-level decision making and a long-term vision of sector development (to be completed in Spring 2013; and undertaking and completing some scoping studies, including of the ASM sector (completed in mid-2012), a review of laws and regulations for mining (completed in October 2011), and a review of fiscal regime and implications for mining (completed in March 2012). Scoping of geo-data commenced in October 2012 (expected to be completed in March 2013) and a functional management review of mining and gas sector governance has been launched in January 2013. 31. The Project Management Unit (PMU) has been set up by the Government (with support from a Project Preparation Advance) in November 2012, and key Terms of Reference (ToR) and Technical Specifications are to be completed before Project effectiveness. With respect to 10 environmental and social components, the ToRs for the Strategic Environmental and Social Assessment (SESA, see component C) were prepared, approved and disclosed both in-country (MIREM website) and at the Bank InfoShop on November 8, 2012, and selection of consulting services will begin ahead of Project effectiveness. Review and assessment of environmental and social laws and regulations, including new Involuntary Resettlement Regulations (Decree 31, 2012), were completed by the World Bank safeguards and legal team in October 2012. The World Bank has raised concerns to the Government and initiated a series of technical working group discussions aimed at improving the Involuntary Resettlement regulation in the near future. Assessment of CSR issues around extractives is to be completed by CIDA in late 2012 which, together with the ongoing support for c capacity building of civil society organizations (CSOs) under EITI, will help to structure demand-side governance sub-components of the Project. 32. It is noted that, due to the complexity of reform and development issues that comprise the Project, some of the components (most notably, cross-sectoral platform support and broader economic planning dialogue) will be sharpened during Project implementation once key activities are underway and the Government's project team gains experience as part of the first phase of Project implementation. Phasing of activities across seven years of implementation is crucial to keep the Project manageable and results oriented while maintaining steady momentum over the longer-term that it will take to achieve the Project's objective. The use of Annual Work Plans and Budgets (described in the Implementation Section of the PAD) will be instrumental to maintain flexibility of the Project while carefully planning activities and their institutionalization. 33. Project phasing is expected to encompass the following broad principles: (i) implementation in the first 18 months of the Project of activities for which ToR and Technical Specifications have largely been completed during Project preparation, such as geological components, ASM support, mining cadastre, transaction advisory services for mining and natural gas, SESA and others as mentioned above (see the Procurement Plan in Annex 3); (ii) implementation at mid-term of the cross-sectoral components and follow-up activities, such as follow-up to Natural Gas Master Plan (which is expected to be completed in Spring of 2013) and follow-up to the functional management review (which is to be completed by June 2013); and (iii) implementation of activities such as transaction advisory services and technical support for Government agencies and departments early in the Project and continuing throughout the Project under retainer contracts with firms (time-based contracts for the duration of the Project). 34. Component A: Mining Governance Capacity Building and Reform (total cost US$18.85 million, of which IDA US$17.65 million). The objective of this component is to support second generation reforms in Mozambique's mines and minerals sector to optimize sector revenues and including through the following: A.1 Mining Cadastre: updating the cadastral procedures and integrating the mining cadastral database and GIS system with other systems and land use databases including updating and building capacity of the central cadastre office in Maputo and provincial mining cadastre offices. 11 A.2 Mineral Assets Evaluation and Tendering: setting up detailed procedures for mineral assets assessments and tendering procedures including criteria for selecting appropriate targets for tendering. A.3 Improving Government's Capacity to Manage Artisanal and Small Scale Mining: increasing formalization of the ASM sector, improving Recipient's capacity to provide services to ASM, including services to improve standards and efficiency of the ASM operations A.4 Capacity Building of Technical Departments of MIREM: reinforcing the MIREM's function of reviewing and reporting on activities by license holders and their compliance with the agreed work plans. A.5 Geodata Acquisition, Interpretation and Promotion: carrying out of airborne geophysical and geochemical surveys of the selected strategic mineral resource rich areas, processing and interpretation of geophysical, geochemical and geological data, geomapping, upgrading of the Recipient's mineral information system, library, seismic stations, coreshed and geological and environmental laboratories. A.6 Reinforcing State Participation in Mining Concessions: defining EMEM's mandate and functions and building its capacity to assess and manage the risks associated with its participation in mining concessions in accordance with its mandate. A.7 Transaction Advisory Services for Large-Scale Mining Operations and Related Infrastructure: provision of technical and legal advice to the Recipient's representatives through the review of feasibility studies for mining and infrastructure development plans, drafting of mining and ancillary infrastructure development agreements. 35. Component B: Natural Gas Capacity Building and Governance Reform (total cost US$11.05 million, all IDA). The objective of Component B is to support strengthening the capacity of the Recipient's major institutions engaged in development and governance of the gas sector to allow them to execute their mandates in a way that is conducive to investments while ensuring that safeguards and safety standards are met in accordance with international standards, including through the following. B.1. Strengthening MIREM's Capacity to Support Governance Reform: (a) assisting in the formulation and implementation of policy decisions, and in the preparation for investment decisions, to support the Recipient's vision for the development of its gas sector; (b) updating gas up-, mid- and down-stream policies; and (c) building MIREM's capacity for assessing and structuring potential PPP arrangements for gas infrastructure. B.2. Capacity Building and Governance Reform Support for the INP improving the INP's capacity to manage the core functions within its mandate, including equipping and building capacity of the office in INP's office in the city of Pemba. 12 B.3. Capacity Building and Technical Support for the ENH: enhancing performance of ENH's principal function of managing the State participation in upstream developments. B.4 Transaction Advisory Services for Negotiating Gas Operations and Related Infrastructure: provision of technical, legal, economic and financial advice to the Recipient's representatives, including review of feasibility studies, productions plans, infrastructure development plans and drafting and reviewing of gas and ancillary infrastructure agreements. 36. Component C: Cross-cutting Mining/Natural Gas Capacity Building and Reforms (total cost US$14.45 million, of which IDA US$9.95 million). The objective of Component C is to support the Recipient's cross-cutting mining and gas reforms to: (i) strengthen the institutional and technical capacity of its agencies in revenue management, environmental and social management; and (ii) improve social accountability of its civil society organizations, including through the following: C.1. Legal and Regulatory Framework for Mining and Hydrocarbons by: (a) updating the mining law and related supporting mining regulations, as may be required from time to time during the implementation of the Project; (b) drafting petroleum regulations and updating petroleum legislation as may be required from time to time during the implementation of the Project; and (c) preparing sector specific health and safety and environmental regulations and guidelines. C.2. Support to General Inspectorate, Health and Safety, and Regulatory Enforcement: (a) developing operational standards and procedures for mine and petroleum projects' inspections and monitoring; (b) building staff capacity for regular monitoring and inspections using appropriate equipment; (c), strengthening the regulatory health and safety compliance enforcement mechanisms for efficient application of the mining and petroleum law and regulations; and (d) developing internal audit functions. C.3 Support to National Directorate of Planning and Development of MIREM, including: (a) developing a communications and outreach strategy; and (b) building staff capacity and providing equipment for monitoring and evaluation of implementation of mining and petroleum legislation and policies, planning of concessions and activities by MIREM and its agencies. C.4 Strengthening and Establishment of Staff Positions, Capacity and Infrastructure in MIREM and its Agencies, including through the: (a) provision of transitional salary support for additional civil servants staff positions to be created in MIREM based on the outcomes of the MIREM's and INP's functional diagnosis; and (b) upgrading of IT and physical infrastructure at MIREM's central and key provincial offices including in new agencies or departments to be established within MIREM for the purpose of this sub- paragraph during implementation of the Project. C.5. Revenue Generation and Management: implementation of the technical support plan for Ministry of Finance and the Revenue Authority. 13 C.6. Enhancing Environmental and Social Management of Mining and Natural Gas Industries through: (a) carrying out and implementing SESA for mining and gas sectors; (b) updating relevant regulations that affect the sector, including involuntary resettlement, (c) increasing Recipient's capacity to manage EIAs and Social Impact Assessments (SIAs) and to address disputes/grievances, and (d) setting up robust monitoring systems for EIAs and SIAs. C.7. Support for Implementation of the EITI and Building Capacity of Civil Society Organizations by supporting the EITI Secretariat including through the: (a) production of reports and publications to increase transparency; (b) carrying out of training and provision of targeted technical assistance to increase civil society and industry's understanding of the extractive industries challenges and to inform their involvement in the governance of the extractive industries sector 37. Component D: Cross-Sectoral Reforms (total cost US$2.7 million, of which IDA US$0.8 million). The objective of Component D is to support strengthening of the Recipient's capacity in integrating the mining and gas sector into its broader economy, including through the following: D.1. Strengthening the Recipient's Cross Sector Platform, including through the provision of technical advisory services to enable it to make better informed decisions on integration of large mining and gas projects into its broader economy. D.2. Strengthening Upward and Downward Economic Linkages of Mines and Gas Production, including through the carrying out of studies and provision of transaction advisory services to optimize the economic value derived from development of natural resources by creating an environment in which the industry serves as a springboard for additional economic activities. D.3. Framework for Oil Spill Preparedness and Response Capacity: support the design of preparedness and procedures for potential hydrocarbon spills in deep waters posing large operational and environmental risks, including building capacity of Recipient's relevant staff, coastal zone communities, and CSOs active in coastal areas, and provision of equipment to be in place in case of an emergency. 38. Component E: Project Management and Coordination (total cost US$4.9 million, all IDA). Support MIREM in managing and coordinating the Project and building its procurement, financial management, safeguards management, monitoring and evaluation capacity through the provision of technical advisory services, Training, acquisition of goods, and Operating Costs. 39. Project Preparation Facility Refinancing Category (US$3.0 million, all IDA). The Credit includes a Project Preparation Advance (PPA) of US$3.0 million. The PPA9 supports the setting up of the PMU, procurement of office equipment for the PMU, safeguards measures, and ' The PPA Letter of Agreement (Q812) was signed by the Bank on April 11, 2012 and countersigned by the Government on May 9, 2012. 14 preparatory steps for Project implementation, including the preparation of the Project Operations Manual, first year Annual Work Plan and Budget and commencement of Project procurement. B. Project Financing Lending Instrument 40. The Project will be developed in the form of an IDA-funded Technical Assistance Loan provided as a Credit in the amount of US$50.0 million equivalent for the Republic of Mozambique. The Credit is planned to be deployed over a seven year period from July 2013(expected Effective Date) to May 2020. Project Cost and Financing 41. The Project will be financed by the IDA Credit and a DflD grant in the amount of US$8.15 million equivalent in support of the Project. DflD's co-financing is expected to be for five years and will comprise two portions: (i) the portion of the grant that will be made available to the Recipient jointly with IDA financing will be US$8.15 million equivalent (after subtraction of World Bank fees for administering and servicing the grant and subtracting the Bank-executed portion of the grant mentioned next)-this recipient-executed portion of the grant shall finance specific sub-components as summarized in the table below and described in detail in Annex 2; and (ii) in addition, DflD will finance a Bank-executed portion of the grant to support the cost of Project supervision and oversight, including an extractive industries specialist to be stationed in Maputo. IDA Project IA Share of DH Project Components Cost Financing Total Financing (US$M) Tina (US$M) Financing A. Mining Governance Capacity Building and Reform 18.85 17.65 94% 1.20 B. Natural Gas Capacity Building and Governance Reform 11.05 11.05 100% 0.00 C. Cross-cutting Mining/Natural Gas Capacity Building and 14.45 9.95 69% 4.50 Reforms D. Cross-Sectoral Reforms 2.70 0.80 30% 1.90 E. Project Management and Coordination 4.90 4.90 100% 0.00 PPA Refinancing 3.00 3.00 100% 0.00 Total Baseline Costs 54.95 47.35 86% 7.60 Physical Contingencies 1.28 1.06 83% 0.22 Price Contingencies 1.92 1.59 83% 0.33 Total Project Costs 58.15 50.00 86% 8.15 Total Financing Required 58.15 50.00 86% 8.15 15 C. Lessons Learned and Reflected in the Project Design 42. The Project design and characteristics are informed by experience gained through similar tasks completed by the World Bank worldwide, especially in Africa in countries such as Burkina Faso, Democratic Republic of Congo, Ghana, Mali, Mauritania, Nigeria, Tanzania and others. In other regions, projects have included earlier generation support in Europe and Central Asia focusing on coal, state owned mining companies privatization and restructuring and in Latin America, earlier generation projects in Argentina, Chile, and Peru. More recent mining technical assistance projects include those in Afghanistan, Mongolia and Papua New Guinea. MAGTAP is also informed by analytical and knowledge products from the Bank's Sustainable Energy, Oil, Gas and Mining Group (SEGOM), the World Bank Institute (WBI) and the Governance and Anti-Corruption (GAC) group, including those related to mining tax administration, local content in mining, mining community agreement frameworks etc. Lessons learnt are regularly captured in SEGOM analytical work and publications. Recent examples include technical papers, guidelines, and an overview of the evolution of the World Bank's approach to mining sector reforms (see www.worldbank.org/mining).10 43. Valuable lessons that are being used in MAGTAP include experience with transaction advisory services under Bank support, including for the Afghanistan Aynak copper depositII as well as Pakistan Thar Coal and Power Project preparation experience. The Bank administered EI-TAF, which provides transactions-related support for oil, gas and mining sector projects, over its three years of operations, has also provided lessons learnt from transactions in Liberia (focused on iron ore infrastructure) and negotiations support in Sierra Leone, Guinea, and Mozambique (an attempt with Chibuto mineral sands tendering, as well as support for LNG agreement negotiations). The experience of these projects highlighted the need for standardized approaches, the need to fill in the gaps of existing legal regimes for the purposes of the development agreements, the necessity to include transparency measures throughout the process as well as the need for clarity among the parties and clear mandates with government institutions and project management, without which financial close will always be problematic. 44. Some of the lessons learned from the implementation of mining and petroleum technical assistance projects include (i) the importance of political commitment and ownership of project objectives and of active involvement of technical and managerial staff from client countries; (ii) the need to focus on addressing specific constraints within the key departments involved in sector management; (iii) the benefits of integrating cross-cutting issues arising from the extractive industries value chain; (iv) close coordination and consultation between various stakeholders; and (v) clear delineation of authority and responsibility across the various sector ministries and agencies. These lessons have guided the design of this Project. 10 The World Bank's Evolutionary Approach to Mining Sector Reform, Gary McMahon, the World Bank's Extractive Industries for Development Series #19, 2010. 11 Mineral Resource Tenders and Mining Infrastructure Projects Guiding Principles and the Case Study: The Aynak Copper Deposit, Afghanistan, Michael Stanley and Ekaterina Mikhaylova, the World Bank's Extractive Industries for Development Series #22, 2011. 16 45. The extractive industries value chain approach used in the Bank's current programs on extractive industries (refer to Box 1 above) has been instrumental in highlighting the critical need to integrate interventions aimed at improving mining and gas sector performance with those related to the management of resource rents generated by the sector. This approach, which is now being mainstreamed, is reflected in the MAGTAP design. IV. IMPLEMENTATION A. Institutional and Implementation Arrangements 46. MIREM will be the core implementing agency for MAGTAP among other beneficiary Ministries responsible for various aspects of the Project. MIREM will house the PMU, which will be responsible for day-to-day Project management, including coordination between the beneficiary Ministries on the technical level, fiduciary and safeguards management, monitoring and evaluation and reporting to the Project Steering Committee. The Project Steering Committee, under MIREM's leadership, will oversee Project implementation and be responsible for timely decision making and cross-sectoral coordination. The Project institutional and implementation arrangements are outlined in Diagram 1 in Annex 3. 47. Project Steering Committee. A Project Steering Committee will (i) provide strategic guidance for Project implementation; (ii) ensure synergies in policy level interventions; and (iii) promote effective coordination and communication across the various sectors on a macro level and across the Project on a micro level. The Project Steering Committee will be chaired by MIREM's National Director for Planning and Development and will include representatives of the core beneficiary Ministries on a permanent basis, complemented with the representatives from other sectoral Ministries on an as-needed basis. 48. Project Management Unit. The PMU within MIREM will carry out day-to-day Project management and coordination, including procurement, disbursement, financial management and monitoring and evaluation for the entire Project. The technical aspects of the Project implementation, including the signing of contracts with consultants and suppliers of goods, supervision of contracts, and acceptance of goods, services and consultants' recommendations, will be the responsibility of the beneficiary Ministries, who will assign focal points for MAGTAP purposes. The PMU will also serve as a secretariat for the Project Steering Committee and coordinate among the Project beneficiaries and financiers as appropriate. The PMU will comprise the Project Coordinator, responsible for the overall management of the Project activities, the Project Accountant/Financial Manager, responsible for accounting, financial management and reporting, and the Procurement Specialist, responsible for carrying out procurement activities in compliance with the IDA procurement procedures. The PMU core team, which will be hired as consultants to MIREM, will be supplemented with staff assigned by MIREM, including the required technical experts, social and environmental safeguards specialists, and a monitoring and evaluation specialist, all of whom will be dedicated to MAGTAP for the duration of the Project. On technical cross-sectoral issues, the PMU will draw on focal points in each beneficiary Ministry. 49. Project Implementation Manual. To facilitate the management and implementation of the Project, a Project Implementation Manual (PIM) will include a detailed description of 17 arrangements and procedures for the implementation of the Project, assignment of responsibilities, establishment of review procedures and thresholds, chart of accounts and formats, and monitoring and evaluation mechanisms. The PIM, subject to the Bank's prior review and approval, will be prepared and adopted by the Recipient by the Effective Date. B. Results Monitoring and Evaluation 50. Monitoring and Evaluation will be carried out by the PMU on the basis of the indicators and milestones developed in the Results Framework (Annex 1). Impacts and progress will be measured for the institutions involved as well as the mining stakeholders, including private sector and civil society organizations and gas stakeholders, including coastal zones and those affected inland by mid- and down- stream development of gas. The PMU's monitoring and evaluation specialist will put in place the required system and tools to systematically collect the appropriate data and monitor the performance of the Project. The monitoring and evaluation specialist will also be tasked to develop a training program to strengthen the capacities of the focal points in the Ministries and to facilitate data collection/monitoring. Where applicable, monitoring and evaluation will include gender-disaggregated data. Strengthening client capacity for monitoring and evaluation for the sector will be an integral part to enable the relevant institutions to keep track of environmental and social safeguards implementation and compliance. C. Sustainability 51. The Government is committed to the implementation of the Project. The authorities and stakeholders in Mozambique realize that mining and gas constitute the key growth opportunities and levers for other economic sectors' development. As mentioned in Section I, the Government is implementing a number of reforms on its own, which demonstrates strong ownership. 52. The Project activities will support Mozambique as it elaborates the frameworks for sustainable development and will further increase the Government's credibility in terms of its ability to facilitate complex mega-projects for the benefit of multiple sectors of the economy. At the national level, the Project will enhance the capacity of the Government to (i) engage and negotiate with the private sector on an informed basis and within a context of improved legal and regulatory frameworks; (ii) enhance the institutional and human skills to manage the technical, environmental and social aspects of the mining and gas sectors; (iii) enable improved flows of revenue and revenue management; and (iv) enable conditions for value addition and integration of the mining and gas sectors. Capacity building of civil society organizations and more systematized access to sector information to be devised through the Project are expected to contribute to its sustainability. Extensive revenues that would accrue to the Government from the new and better integrated mega-projects will provide impetus and resources for the Government to continually improve capacities and sector management. 18 V. KEY RISKS AND MITIGATION MEASURES A. Risk Ratings Summary Table Risk Rating Stakeholder Risk M Implementing Agency Risk - Capacity S - Governance S Project Risk - Design S - Social and Environmental M - Program and Donor L - Delivery Monitoring and Sustainability M Reputational Risk M Overall Implementation Risk S M=moderate, S=Substantial, L=Low B. Overall Risk Rating Explanation 53. The overall risk for Project implementation is substantial, given especially (i) the complexity of the extractive industries sector itself and its multifaceted cross-sectoral dimensions; (ii) weak institutional capacity to manage the sector effectively; and (iii) the country's economic vulnerability to external shocks. There are reputational risks to World Bank Group (including IFC and MIGA who are involved with investment into the sector and are accessing new opportunities), including those related to environmental and social management and performance of forthcoming mining and gas projects. There are high expectations on the side of the Government as well as development partners that MAGTAP will make a difference in developing the sector and improving its outcomes, which also raises risks that need to be managed. The Project will pay special attention to developing and implementing a Communications Strategy to manage expectations, regularly update information on the Project in the public domain and keep open dialogue with stakeholders. The Communications Strategy will be developed in the early phase of Project and will support it throughout implementation; key messages will include transparency principles, disclosure and inclusiveness of the dialogue. 54. The Government of Mozambique is committed to ensuring that the sector develops successfully and contributes to the country's overall economic and sustainable growth. At present, the Government is overwhelmed with the enormous task of adequately planning for sector development, especially with the rapid developments in the gas sector, completely new for the country and its economy. Hence, capacity building to be able to handle the challenge ahead is a priority on the Government's agenda. Furthermore, there is solid evidence of strong political buy-in for the Project. 19 55. The risks to Project implementation will be mitigated through a close dialogue between the Bank, MIREM and other development partners, as well as through the development of the Cross-Sectoral Platform, strengthening collaboration and coordination of the government agencies engaged in the sector, establishment of a capable PMU within MIREM, provision of training and professional advisory services for capacity building in the key entities, and strengthening of mechanisms of demand for good governance and transparency. The Communications Strategy will be instrumental to deliver key messages and share views on Project implementation and outcomes. VI. APPRAISAL SUMMARY A. Economic and Financial Analyses 56. The extractive industry sector currently represents about five percent of GDP, largely through gas development. However, these numbers are expected to grow exponentially with mining and gas explorations moving into production phase starting from 2011. Share of extractive industries in GDP can exceed 10 percent in the next decade based on the current projects alone. Overall tax revenue from extractive industries in 2009 contributed just 354.5 million Meticais (about US$12.5 million), including income taxes, personal taxes, royalties, fees and rents and other taxes and payments. The total number of licensed companies in Mozambique in 2009 was 96, with just 24 companies representing 92 percent of payments.12 However, these numbers are growing exponentially with companies now starting production. 57. Based only on production estimates for the existing mining projects, a speculative but conservative estimate in current low commodity prices and using current royalty rates, is that the annual royalty alone will grow from about US$10 million in 2012 to over US$60-80 million per year in the years 2013-17, exceeding US$700 million per year once the full production cycles of the (few) existing projects are reached. The corporate income tax rate is currently set at 32 percent, but it is impossible to estimate the volume without detailed project data (on average for large mining projects, the income tax payments start after 7+ years of production). Based on an IMF-FAD analysis, a large scale coal project in Mozambique using fiscal terms currently applicable in the country can yield as much as US$9+ billion in revenues to the Government over its lifetime (undiscounted, real terms). 13 On the gas side, the estimated export revenue from just the two upcoming gas projects in the Rovuma basin (those of Anadarko and ENI) can be as high as US$300 billion over the life of these projects. ASM currently provides livelihoods to about 400,000 people across Mozambique. The Project, by targeting improvement of their productivity, promoting cooperatives and associations, and assessing and promoting value addition opportunities, will be directly contributing to improving livelihoods in rural areas. 58. With the level of revenues and other economic opportunities from the extractive industries, Mozambique needs to focus on the ways to manage those revenues, stimulate diversified economic growth and improve linkages, and design macro and micro systems to mitigate against the "resource curse" and to smooth effects of commodity price fluctuations. While the objective of MAGTAP is not to influence the fiscal revenues or macro stability of 12 Mozambique EITI Scoping Study, 2011, by Ernst and Young. IMF-FAD Aide-Memoire, July 2012. 20 Mozambique (vis a vis its resource rents), the Project will aim to equip the Government with tools to improve sustainability of the sector in the long run and to maximize its positive impacts on the economy. 59. The Project will aim to strengthen the negotiation capacities of the Government through the provision of technical, legal and commercial advisory services to support the establishment of efficient negotiation processes, and in so doing enable consensus with mining and gas project sponsors on high level strategic issues to pave the way for the development of the mega-projects. It will advise on ownership options that the country may realistically achieve in the short, medium and long terms; and on measures to create the predictability required for large scale investments to be realized. The Project will work on improving administrative systems and processes and on strengthening the demand for good governance in order to increase benefits to the local economy in the medium- to long-term. 60. The proposed activities are expected to contribute to the expansion of the mining and gas sectors through the realization of new investments in the country, and to increased contribution of the sector to growth and fiscal revenues in the country. The proposed Project will support Mozambique in improving the framework for revenue collection derived from the mining and gas sectors. The efficiencies to be brought in and improved revenue collection administration will provide the economic basis for the fiscal sustainability of the Project. As a technical assistance project however, it is mostly the enabling environment that is being improved. Direct attribution of revenue gains or losses to the project cannot be established as too many external factors in the economy would play a role. B. Technical 61. The Project design was informed by sustained World Bank engagement with the Government in the mining sector since 2000s and on the gas sector since 2011, referred to in the Rationale for Bank Involvement (paragraph 20 above). It also benefited from work by IMF- FAD, AfDB and other financiers to the sector over the past decade. The Project is closely coordinated with other operations, most notably the Spatial Development Project (under implementation) and proposed Integrated Growth Poles Project (under preparation). 62. Constant dialogue between Bank staff and Management with the highest officials in the country and the direct engagement of technical staff from the Ministries in charge of mines, petroleum, finance, transport and environment have informed the design of the Project, which sought to balance its activities with the institutional capacities, the local context and internationally accepted practices in mining and petroleum technical assistance projects. The Project will deliver the capacity strengthening activities of key agencies needed to properly manage and regulate mining and gas projects and exploration activities, to negotiate agreements, and to improve the social and environmental sustainability of mining investments. A sound institutional and regulatory environment is critical to sustain mining and gas investment and increase the benefits to the local economy. Strengthening the capacity of key players involved in managing the mining and gas sectors and its ancillary infrastructure will improve the government's ability to promote the sustainable development of mineral resources and realize its growth potential. 21 C. Financial Management 63. FM Assessment: A financial Management (FM) assessment was conducted in accordance with the Financial Management Manual issued by the Financial Management Sector Board in March 2010. Its objective was to determine whether implementing entity has acceptable and adequate financial management arrangements. 64. FM Arrangements: The proposed FM arrangements were reviewed with the following conclusions: the overall FM risk rating of the project is moderate. However, the Project will implement some mitigating measures to the identified risks, which includes finalizing of the recruitment of a qualified and experienced FM consultant, elaboration of a FM Procedures Manual (within the PIM), registering the Project in the Government's budget for use of country systems such as the single treasury account and the government IFMIS. The external audit will be overall responsibility of the Administrative Tribunal, which is constitutionally mandated to audit all government funds. The proposed FM arrangements, as summarized in Annex 3, meet the minimum requirements for financial management under OP/BP 10.02. 65. There were ineligible expenditures incurred by one of the Project beneficiary - MICOA - which were incurred under another project managed by MICOA -- the Coastal and Marine Biodiversity Project (IDA Credit 3366 and TF23844), closed in 2007. The final amount of ineligible expenditures was determined as US$55.6 thousand and the amount was fully refunded by the Government of Mozambique on February 20, 2013. MICOA is one of the entities benefiting from MAGTAP and will receive support under sub-component C6 as well as will assist MIREM with the safeguards including implementation of the SESA (see Section IV, E and F below); financial management and disbursements would be responsibility of MIREM. D. Procurement 66. Procurement for the proposed Project will be carried out in accordance with the World Bank's "Guidelines: Procurement of Goods, Works and Non-consulting Services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers" published by the Bank in January 2011 and the World Bank's "Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers," published by the Bank in January 2011. Further, the "Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants", dated October 15, 2006, and revised in January 2011 shall apply to the Project. The procurement activities for the proposed Project will be managed by MIREM through the PMU. The capacity of the PMU cannot be assessed as the unit is under creation. MIREM was responsible for one prior IDA funded operation in 2001-07, but implementation was carried out by a consultant-staffed unit that no longer exists. The new PMU will be comprised by a Coordinator supported by technical specialists, including a procurement officer who will be recruited under ToR satisfactory to IDA. 67. The procurement risk associated with the project is rated as high. The key issues and risks concerning procurement for implementation of the Project have been identified and are discussed in Annex 3. Corrective measures discussed and agreed with MIREM are: (i) ensuring that qualified resources proficient in Bank funded procurement are recruited and retained; (ii) ensuring the procurement decision making is fully covered in the Project Implementation Manual 22 and is available/known to staff; (iii) ensuring a clear linkage between Project objectives and the procurement plan through appropriate support to staff, training and tools in preparing and monitoring of the procurement plan; (iv) the procurement planning process taking into account the steps and associated timeframe for Government's own process of approval; and (v) establishment of a contract monitoring system. A qualified procurement officer has been recruited and will support preparation of the Project Procurement Manual and provide capacity building to MIREM procurement officers. The procurement plan for the Project was prepared and finalized at negotiations. The plan will be updated at least annually (or as required). A summary of the procurement capacity assessment and procurement arrangements for the project are provided in Annex 3. More details are available in the Project files. E. Social (including Safeguards) 68. Mining is a relatively new sector in Mozambique with large projects just starting up, and large scale gas sector, including LNG, is a completely new sector. Some of the specific locations for mining and gas developments are known (e.g., existing coal developments and explorations in Tete province, the so-called Tete-Nampula corridor, and areas designated for LNG projects in Palma, Cabo Delgado province), but many new areas are yet to be determined based on sector development. The development of consultative structures and arrangements for dialogue will need to take this uncertainty into account. 69. Current resettlement practices resulting from mining in Mozambique have shown mixed results. While there were no major issues flagged from earlier involuntary resettlements around the Moma mine by Kenmare Resources or Sasol's gas and pipeline projects, Vale's more recent resettlements in Tete in 2012 drew considerable attention to weaknesses in existing practices, including the lack of proper public consultation, inadequate standards for compensation and lack of adequate grievance redress mechanism. 70. Learning from these experiences and global practices, the Government of Mozambique has developed a new regulation on involuntary resettlement. The Involuntary Resettlement Decree (Decree No. 31/2012 of August 8, 2012)14 has been created to improve the practices and guide the current and future investments that require land acquisition leading to involuntary resettlement. Numerous reports from various stakeholders including civil society organizations and private entities found the regulation to be weak and in need of an update to be in line with international and World Bank/IFC standards. These critics confirm that social management (and resettlements in particular) requires considerable support and strengthening in Mozambique. MIREM is working with MICOA to address the social issues in mining, oil and gas in an integrated manner. MAGTAP, under sub-component C6, will provide targeted advisory services to MIREM, MICOA, and Ministry of Women and Social Affairs (MMAS) to strengthen the social, environmental, health and safety oversight of the mining and gas sectors in Mozambique, including improving/enhancing the Resettlement Decree and developing an easy-to-implement operational manual to guide investment and which would benefit from further support. 71. Given the importance of resettlement issues in the context of the mining sector, OP 4.12 is triggered for this operation. The SESA (see also section F below) to be undertaken during 14 The Decree was promulgated by the Council of Ministers in August 2012. 23 Project implementation will provide a comprehensive diagnosis of the broader environmental and social issues associated with mining and gas sectors development, including land acquisition leading to resettlement and/or restrictions of access to resources and livelihoods. The SESA is expected to be completed by late calendar year 2014 and its recommendations adopted by February 2015. The SESA will provide an appropriate basis for development of policies to mitigate potential social risks consistent with international good practice. This will complement ongoing Bank dialogue with the Government on resettlement issues, and will provide guidance on broader environmental, social, and health and safety management measures for ASM. 72. The technical assistance under the Project will not, however, provide support to land use planning or spatial planning as this is being done in another technical assistance operation. The proposed Project is limited to the provision of technical assistance and is not expected to result in any direct environmental or social impacts. In particular, there will be no land acquisition leading to involuntary resettlement and/or restrictions of access to resources or livelihoods. F. Environment (including Safeguards) 73. Mozambique has a substantial system in place with regards to health and safety regulations (which, for mining were promulgated a couple of years ago and are still relatively up to date) and basic environmental management (under the Environmental Act, which is also relatively modern and follows good practice), but significant gaps have been identified regarding mining and gas sector specific standards (such as mine water management, riverine disposals, acid drainage, radioactive and harmful substances management, and deep sea drilling), which need to be addressed soonest with the industry moving into production. The Project includes a specific component (sub-component C3) with regard to strengthening environmental, health, safety and social management of the mining and gas sectors. Advisory services will be provided to MIREM and MICOA to strengthen environmental, social, health, safety and security oversight of the mining and gas Sectors in Mozambique. 74. The Project triggers World Bank Safeguard Policy OP/BP 4.01 on Environmental Assessment and IFC Performance Standard 1 on Assessment and Management of Environmental and Social Risks and Impacts. The Government has prepared ToR to be used in the preparation of a SESA. These ToR have been shared with the Bank and disclosed in-country and at the Bank's InfoShop before appraisal. The SESA will be prepared during MAGTAP implementation per above and will inform the updating of environmental, social, health and safety regulations for the mining, oil and gas sectors in order to bring them in agreement with international best practices, especially the World Bank Safeguard Policies and IFC Performance Standards. The SESA will identify individual as well as cumulative environmental, social, health, safety and security gaps in Mozambique's new mining and petroleum policies and propose measures to strengthen these aspects in the new policies. As a planning tool, the SESA will also include an Environmental and Social Management Framework, as well as a resettlement policy framework to be used by MIREM and DNM's Environment Department, IGREM, INP and, whenever suitable, MICOA and MMAS, respectively, to carry out environmental and social screening of new projects in the mining, oil and gas sectors. 75. The Project will support transaction advisory services, which will include economic, financial and legal advice to the Government's representatives on new/upcoming mining and gas 24 development projects, including ancillary and related regional infrastructure and mid-stream and downstream processing (such as LNG). Transaction advisory services will focus on technical, economic, financial and legal aspects of mining, gas and related infrastructure contracts, as well as advising the Government on its review of feasibility studies. The transaction services will be provided within the existing legal framework of Mozambique, technical and financial criteria and international good practices, and will be consistent with the Bank's operational policies, including on environmental and social safeguards. Preparation of EIAs, SIAs and other instruments will be the responsibility of the investors within the legal framework of Mozambique and international good practices (outside of MAGTAP, which will support the Government's efforts to improve those legal and regulatory frameworks as part of the technical assistance). The Government will ensure the above measures are appropriately taken into consideration and followed during implementation. 25 Annex 1: Results Framework and Monitoring Country: Mozambique Project Name: Mining and Gas Technical Assistance Project (P129847) Project Development Objectives The proposed PDO is to strengthen the capacity and governance systems of key institutions to manage the mining and hydrocarbon sectors in Mozambique. Project Development Objective Indicators Cumulative Target Values Responsibi Data Source/ lity for End Methodology Data Indicator Name Core Unituof Baseline YR1 YR2 YR3 YR4 YR5 YR6 Target Collection Measure (YR7) y Mining cadastral database and GIS system integrated with the P c p land-use databases and Yes/No No No No No Yes Yes Yes Yes Annual Pj REpr PMU accessible online for public level information Mines and gas construction Records from projects subject to annual Gnr technical inspections in line Number 0 0 0 2 5 6 7 7 Annual neraPM estabishedInspectorate of with established standards MIREM, INP Mines and gas operations subject to fiscal controls per Ana eot suject to iwisca rlsher Number 0 0 0 2 5 5 5 5 Annual from Revenue PMU year in line with established Atoiy N stanardsAuthority, INP standards Regular health and safety and Inspection environmental monitoring On reports from visits and inspections to mines Number on a MICOA, Env. an gs xportin!hoc 0 20 30 40 50 50 50 Annual DepMUn and gas exploration/ bssDep. and production sites in line with General standards for supervision of Inspectorate of 26 compliance and monitoring of MIREM safety and environmental regulations Project reports New mining/gas/related by MIREM infrastructure contracts based on data negotiated, benefitting from Number 0 2 2 3 5 7 9 11 Annual from project PMU the developed frameworks and beneficiary procedures institutions (ENH) Project reports by MIREM based on data Direct project beneficiaries Number 0 77 255 352 504 650 794 2390 Annual fro pjt PMU from project beneficiary institutions Project reports by MIREM Female beneficiaries % 0 13 15 20 22 26 30 34 Annual based on data PMU from project beneficiary institutions Intermediate Results Indicators Cumulative Target Values Responsibi Data Source/ lity for Unit of End Methodology Data Indicator Name Core Measur Baseline YR1 YR2 YR3 YR4 YR5 YR6 Target Fq Collection e (YR7) c Component A. Mining Governance Capacity Building and Reform Mining cadastre procedures Project reports updated Yes/No No No No Yes Yes yes Yes Yes Annual frmMRM PMU updated eo 0sua from MIREM Mineral Information System Yes/No No No No Yes Yes Yes Yes Yes Annual Project reports PMU upgraded with new geodata III II from MIREM 27 for strategic areas 63regist Number of ASM eredPrjcreot Number 66 69 73 77 80 84 89 Annual Project reports P associations/cooperatives associati from MIREM ons Procedures of tendering and P r evaluation of mineral assets Yes/No No No No Yes Yes Yes Yes Yes Annual Project reports PMU deveopedfrom MIREM developed Number of ASMs who have Project reports received targeted training (of Number 0 0 100 150 250 350 450 2000 Annual Proj RE PU which female %) % 0 0 10 15 25 35 45 200 Health and safety and environmental regulations, including standards and Yes/No No No No No Yes Yes Yes Yes Annual Project reports P monitoring procedures updated Local law enforcement and judicial personnel trained on Number 0 0 50 85 120 150 175 200 Anl Project reports mining law and regulations from MIREM under the Project Component B. Natural Gas Capacity Building and Governance Reform Project reports Number of studies assessing from MIREM economic and financial based on data feasibility for development of Number 0 0 0 1 2 3 4 5 Annual from project PMU Staff of gas sector project reports management institutions from MIREM trained through MAGTAP to Number 0 77 85 93 105 116 127 140 Annual based on data manage, regulate and monitor from project beneficiary institutions ENH, NP 28 Tools and mechanisms to Reports from attract financing for the State Yes/No No No Yes Yes Yes Yes Yes Yes Annual ENH PMU participation are in place andMIREM Pemba Regional Office equipped and operational to from MIREM support safety and Yes/No No No No Yes Yes Yes Yes Yes Annual beon dat PMU environmental inspections of poed by INP gas field operations provided by INP Component C. Cross-Cutting Mining/Natural Gas Capacity Building and Reforms Computerized Environmental Management Information Yes/No No No No Yes Yes Yes Yes Yes Annual Proj REo PMU System developed Results of SESA publicly disclosed by Government in Project reports paer ndthoghwokhosYes! No No No No No Yes Yes Yes Yes Annual froMURE papers and through workshops from MIREM and public outreach Annual disclosure of reports Ministry of on extractive industries Number 0 0 0 1 2 3 4 5 Annual Finance, PMU revenues and revenue MIREM allocation at national level Provincial Directorates of Mineral Resources equipped and capable to monitor and Number 1 1 2 4 6 8 10 10 Annual Project reports PMU inspect mining and exploration operations in their jurisdictions Number of CSO/CBOs trained on transparency monitoring Number 0 0 20 24 29 35 41 50 Annual Project reports PMU across the extractive sector from MIREM value chain Component D. Cross-Sectoral Reforms Strategies and policies for strengthening linkages of Yes/No No No Yes Yes Yes Yes Yes Yes Annual MIREM,MPD PMU mines and gas production with national economy developed 29 Number of bankable business plans developed under the Proj ect related to local indust rtato in Number 0 0 0 1 2 2 2 2 Annual MIREM, MPD PMU mndustry participation in provision of local goods and services to extractive industry Standards and procedures for oil and gas contingency MIREM INP planning and emergency Yes/No No No No No Yes Yes Yes Yes Annual MPD PMU preparations developed 30 Attachment to Annex 1: Results Framework: Explanation of Indicators Project Development Objectives The proposed PDO is to strengthen the capacity and governance systems of key institutions to manage the mining and hydrocarbon sectors in Mozambique. Indicator Name Description (indicator definition) n CThis indicator verifies if (i) the mining cadastre system is consistent with Mninge Cdastrldatabased andesiSsy ineratedlit he the updated mining regulations; (ii) the mining cadastral database and .nd-smatace GIS system are integrated with land-use databases; and (iii) titles information is accessible online. Number of mines and gas construction projects subject to annual field- Mines and gas construction projects subject to annual technical based technical inspections. The inspections are conducted by the inspections in line with established standards. General Inspectorate of MIREM to assess regulatory compliance of mining and gas operations. Number of mines and gas operations subject to annual fiscal audits by Mines and gas operations subject to fiscal controls per year in the Revenue Authority in collaboration with the MIREM General line with established standards Inspectorate in compliance with the established fiscal regime in Mozambique. Number of environmental and health and safety visits and inspections of Regular health and safety and environmental monitoring visits .ie n a eeomns(xloainadpouto)b IO and inspections to mines and gas exploration/production sites in minea gasdeveopme (exploain and prOdIN by M a liewt. tnad o uevso ofcopiac an oioigand General Inspectorate (for mining) and MICQA and INP (for gas) to e .h monitor overall environmental and health and safety management and of safety and environmental regulations compliance of health and safety and environmental regulations. Number of negotiated contracts for new mining and gas operations that w .c evidences the benefits of the newly developed frameworks and benefitting from the developed frameworks and proctiated procedures, including ENH logistics projects. Type and size of investments under the new contracts will be recorded for statistical purposes. 31 Aggregate number of beneficiaries (government personnel, CSOs/ Direct project beneficiaries CBOs, ASMs, communities in mining and gas areas) benefitting from formal training, programs, on-job training, sensitization campaigns. Female beneficiaries Percentage of female beneficiaries of the total direct project beneficiaries (see the above indicator). Intermediate Results Indicators Component A. Mining Governance Capacity Building and Reform Mining cadastre procedures updated to comply with the new mining law Mining cadastre procedures updated an euai. and regulations. Mineral Information System upgraded with new geodata for New geological data for strategic areas are included into Mineral areas Information System and accessible both through the National Directorate for Geology and online. This indicator measures the increase of ASM associations/cooperatives e . .M as an evidence of improvements in formalization of ASM sector and its efficient operations. The data will also (for statistical purposes) be disaggregated by province. In support of existing laws and regulations (including Mining Law and Procedures of tendering and evaluation of mineral assets PPP/Mega projects law), standard documents for mineral assets developed assessment and tendering procedures, including criteria for selection of appropriate mineral assets for tendering, developed. Cumulative number of artisanal and small scale miners trained on mining processing, technical and financial aspects, environmental and Number of ASMs who have received targeted training (of which social management, including health and safety issues. This indicator female %) includes disaggregation by female miners who received the above targeted training. The data will also (for statistical purposes) be disaggregated by province. t .d This indicator verifies that health and safety regulations, including Halthrd and afetn enironenureuati, istandards and monitoring procedures, are updated to be in compliance with the new legal framework for the extractive industries sector and 32 global good practices. Following set up of remedial actions guidelines and procedures the local Local law enforcement and judicial personnel trained on mining law enforcement employees, police, and judges will be trained to law and regulations under the Project understand and apply mining law and regulations, as well as the use of dispute resolution mechanisms and redress. Component B. Natural Gas Capacity Building and Governance Reform Economic and financial feasibility studies will help to assess economic feasibility and options for development and financing of gas e .f infrastructure which is crucial for domestic (and sub-regional) gas use. Number of studies assessing economic and financial feasibility Thsassmn.ilgieteGoeneti aigplc n for ~ ~ ~ .eeomn fgsifatutr are u This assessment will guide the Government mn making policy and investment decisions and attracting financing for concrete investment opportunities. Type and size of investments under the new contracts will be recorded for statistical purposes. Staff of gas sector management institutions trained through Number of staff from INP, ENH and MIREM trained in management, MAGTAP to manage, regulate and monitor gas sector regulation and monitoring of the gas sector. Tools and mechanisms required for attracting investments for the state Tools and mechanisms to attract financing for the State participation in the gas projects (required by law) are developed and participation are in place applied efficiently in managing state participation in upstream and mid- stream where applicable developments. Pemba Regional Office which will provide support with monitoring and hebah giand l fe and pections o gasrfie inspection of gas developments is fully equipped to execute the core functions of INP mandate as the national regulator for the petroleum operations sector. Component C Cross-Cutting Mining/Natural Gas Capacity Building and Reforms Environmental management data, including baseline and monitoring data, EIAs, are organized into a computerized system for joint Computerized Environmental Management Information System management and monitoring of the environmental and social aspects of developed the extractive industry sector by MIREM and MICOA. This indicator is linked with the mining cadastre indicator and both systems will have a dynamic link once established and operational. 33 Results of SESA publicly disclosed by Government in papers This indicator ensures that the SESA will be completed and actively and through workshops and public outreach consulted upon. a .r This indicator monitors regular annual disclosure of extractive industries Annual disclosure of reports on extractive industries revenues.. revenues and their allocation at national level and in the provinces (the format to be developed under the Project). Provincial Directorates of Mineral Resources equipped and Number of Provincial Directorates of Mineral Resources fully equipped capable to monitor and inspect mining and exploration and capable to monitor and inspect mining and exploration activities on operations in their jurisdictions the ground and assist ASM. Under a broader objective of demand for good governance this indicator Number of CSO/CBOs trained on transparency monitoring measures number of CSOs/CBOs representatives who received across the extractive sector value chain training/sensitization on extractive industries governance in general and EITI in particular. Component D. Cross-Sectoral Reforms e .d . Strategies and policies are developed to stimulate local industry gsreg in poiciforl secnelges oparticipation in provision of goods and services as well to enhance the use of local staff for employment in the mining and gas sectors. Number of bankable business plans developed under the Project This indicator measures number of bankable business opportunities related to local industry participation in provision of local goods (PPP or private) of provision of local goods and services to mines and and services to extractive industry gas exploration and production operations. Type and size of investments under the new contracts will be recorded for statistical purposes. This indicator ensures that standards and procedures for oil and gas spill contingency planning and emergency preparations in Mozambique Standards and pmrcureporioans slon y based on the best international practices are developed by INP. The procedures will comply with regional norms and will fit into SADC and other frameworks. 34 Annex 2: Detailed Project Description MOZAMBIQUE: MINING AND GAS TECHNICAL ASSISTANCE PROJECT 1. The proposed Project has five components, each with multiple sub-components. The components are: (A) Mining Governance Capacity Building and Reform; (B) Natural Gas Capacity Building and Governance Reform; (C) Cross-Cutting Mining/Natural Gas Capacity Building and Reforms; (D) Cross-Sectoral Reforms; and (E) Project Management and Coordination. 2. MAGTAP's design is well informed by prior policy dialogue and by several analytical studies and preparatory work completed by the Government both independently and with the Bank's support. Project preparation enjoyed a high level of donor support, which will be instrumental to start Project implementation on time. The PMU was set up by the Government (with support under Project Preparation Advance for MAGTAP) in advance and key ToR and Technical Specifications are being completed before Project effectiveness. 3. However, it is noted that, due to the complexity of reform and development issues that comprise the Project, some of the components (most notably, cross-sectoral platform support and broader economic planning dialogue) will be sharpened during Project implementation once key activities are underway and the Government's project team gains experience as part of the first phase of Project implementation. Phasing of activities across seven years of implementation is crucial to keep the Project manageable and results oriented while maintaining steady momentum over the longer-term that it will take to achieve the Project's objective. The use of Annual Work Plans and Budgets (described in the Implementation Section of the PAD) will be instrumental to maintain flexibility of the Project while carefully planning activities and their institutionalization. 4. Project phasing is expected to encompass the following broad principles: (i) implementation in the first 18 months of the Project of activities for which ToR and Technical Specifications have largely been completed during Project preparation, such as geological components, ASM support, mining cadastre, transaction advisory services for mining and natural gas, SESA and others as mentioned above (see the Procurement Plan in Annex 3); (ii) implementation at mid-term of the cross-sectoral components and follow-up activities, such as follow-up to Natural Gas Master Plan (which is expected to be completed by 2013) and follow- up to the functional management review (which is to be completed in 2013); and (iii) implementation of activities such as transaction advisory services and technical support for Government agencies and departments early in the Project and continuing throughout the Project under retainer contracts with firms (time-based contracts for the duration of the Project). Component A: Mining Governance Capacity Building and Reform (total US$18.85 million, of which IDA US$17.65 million) 5. The mining sector components of the proposed MAGTAP build upon the first Bank- financed Mining Capacity Building Project and related support provided by AfDB and the Nordic Development Fund, which were completed in the mid- 2000s. As such, mining sector governance support under MAGTAP will support second generation reforms faced by Mozambique. These reforms target optimizing sector revenues and economic benefits to the country through ensuring that exploration indeed turns into exploitation, that mining contracts 35 are developed in line with best global practices given their very long durations and impacts, that mines once commissioned produce in accordance with the agreed plans and operate within the frameworks and requirements of the laws and regulations. Given high dependency of mines on infrastructure, structuring infrastructure corridors, stimulating PPP arrangements and facilitating shared-use infrastructure development would be a key to ensure broader economic impacts of the sector and to maximize revenues. 6. The department level beneficiaries at the Ministry of Mineral Resources (MIREM) include the National Directorate of Mines (which comprises Mining Cadastre Department, Artisanal and Small Scale Mining Department, Environmental Department, Coal Department, and Technical and Economical Department), National Directorate of Geology (including Geoscience Laboratory, Geomagnetic stations, Seismic stations), the General Inspectorate (including Health and Safety Department), the Legal Department, and provincial directorates of mineral resources. 7. Sub-component Al: Mining Cadastre (total US$2.1 million, all IDA). The current mining cadastre system has been recently upgraded to deal with the ongoing increase in volume of mining licenses. Despite the current software update, MIREM will still have to revise its cadastral procedures by early 2013 in line with the new mining law (pending approval) and new regulations, as well as to improve its regional offices' capacities to review and accept applications and process mining passes locally. Time for granting of licenses is currently within the regulatory requirements, however with increase of activities and integration of mining cadastre with other land use databases, the process will need to maintain specified in the regulations time frames. The proposed MAGTAP will support this effort through several activities: Activity Al.]: Update cadastral procedures to reflect the new mining law and new regulations; develop specific licensing regime for diamonds sector. Activity A1.2: Integrate the mining cadastral database and GIS system with other land use databases and cadastre systems (where applicable) for better land use planning and to avoid overlaps in licensing (agriculture, tourism, environment, infrastructure, and other to be determined). Some land-use databases exist with different ministries (such as transport and agriculture and tourism). The current cadastre system is capable of going online, but requires additional work. Activity A1.3: Reinforce provincial mining cadastre offices through capacity building. Activity A1.4: Improve filing and record keeping procedures and upkeep of mining cadastre. Develop and make available to the public a web portal containing public licensing information. Activity A1.5: Provide equipment to support the mining cadastre, including computers, printers, software, GPS units and stations, compasses, generators, protection for servers and data backup systems. 36 Activity A1.6: Assess and put into mining cadastre reserved areas ("no-go" zones where no mining activities shall be allowed) (NB: this activity will be integrated with Activity C5.5 - development ofEnvironmental Management Information System). 8. Sub-component A2: Mineral Assets Evaluation and Tendering (total US$0.8 million, all DflD co-financing). The Project shall support setting up detailed procedures for mineral assets assessments and tendering procedures (including criteria for selecting appropriate mineral assets for tendering). Standard documents will be developed. 9. Sub-component A3: Improving Government's Capacity to Manage Artisanal and Small Scale Mining (total US$1.25 million, all IDA). ASM operations have a significant foot print in Mozambique and provide livelihoods to hundreds of thousands of people nationwide. ASM activities include gold, gemstones, clay, sand and gravel quarrying. ASM remains largely informal and unregulated. There is an identified need to establish a cross-ministerial ASM group which will target support to ASM in view of its importance to local livelihoods and potential issues around environment and social. The cross-sectoral group will need to include MICOA, MMAS, Ministry of Agriculture and Land Use, Ministry of Industry and Provincial Authorities and traditional leaders. To support formalization of the ASM sector and improvement of standards and efficiency of the operations, MAGTAP will provide assistance as follows: Activity A3.1: Develop/update specific ASM standards (and streamline and improve monitoring of ASM licenses ("mining passes"). Regulation of radioactive minerals mining will require special attention in view of existing ASM mining of tantalite in several locations. Activity A3.2: Provide training and develop handbooks on good practices for ASM officers, inspectors, extension officers and support "train the trainers" program. This sub-component will also support establishment of information resource centers for ASM, including libraries, research materials, handbooks on various minerals in several areas with high representation of ASM (such as Manica, Tete, Nampula, Niassa and Zambezia). Training will also be extended to mining communities members on financial management, hygiene, health and safety, and other required skills to benefit their well being. Activity A3.3: Access and provide targeted training to potential problematic zones (such as areas with extensive use of mercury, potential water contamination sites, areas with presence of hazardous minerals, etc.). Activity A3.4: Provide necessary equipment to ASM department and decentralized ASM officers in the provinces, including computers, vehicles, motorbikes, portable training equipment and laboratories, generators for field use, camping equipment, handheld GPS units. 10. Sub-component A4: Capacity Building of Technical Departments of MIREM (total US$0.4 million, all DflD co-financing). The Project will support capacity building and strengthening of the Technical Department, in particular its core function to review and report on activities by license holders and their compliance with the agreed work plans. The Project among other things will help to develop handbooks and procedures for the use by Technical Department for review and reporting on different types of reports from exploration and mining companies. 37 11. Sub-component A5: Geodata Acquisition, Interpretation and Promotion (total US$12.0 million, all IDA). In addition to attracting investments into the mining sector and providing data relevant to mine operations, geodata is an important source of information to guide decision making in areas such as agriculture, water resources management, land use, urban planning and disaster risk management. As such, the Project will support specific geodata acquisition for strategic areas as well as the purchase of equipment to facilitate the generation and interpretation of this data making it available to the industry and for other users. The Project is expected to support: Activity A5.1: Mapping, surveying and publication of maps and other geological information: (i) Geological mapping on a 1:50 000 scale of strategic areas; (ii) Data acquisition and completion of the Mozambique Geo-Magnetic Map on a 1:2 million scale and support and equipment for geomagnetic observatories; (iii) Upgrade of the Deposit and Mineral Occurrence Map of Mozambique of 1:1 million scale; (iv) Translation into Portuguese and publication of the Explanation of the Geological Map of Mozambique of 1:1 million scale; (v) Update and publication of the book of Geology and Mineral Potential of Mozambique15 in Portuguese and in English; (vi) Mapping and inventory of thermal and mineral water occurrences in selected areas; (vii) Geophysical surveying and mapping (a) regional airborne geophysics survey of selected areas (up to three blocks) and other high resolution geophysical surveys for selected strategic mineral resource rich areas to fill in the gaps in the earlier surveys; (b) ground geophysics for the follow up of magnetic anomalies; (c) processing and interpretation of geophysical data; (viii) Geochemical surveying, mapping and analysis of strategic areas; (ix) Geo-environmental mapping of strategic areas; (x) Supervision support for surveying and mapping activities. Activity A5.2: Acquisition of geophysical and geochemical equipment and other mapping and relevant field and surveying equipment to support implementation of activity A6. 1. Activity A5.3: Support to build capacity and upgrade key seismic stations and improve reporting and data availability to the public. 15 The book was been prepared under the first IDA-financed mining technical assistance. 38 Activity A5.4: Upgrade and furbish core storage for mining and petroleum,16 including renovation of the shed, installation of shelving and provision of a fork-lift truck for loading. Activity A5.5: Upgrade of mineral information system and library and making data available to public for industry and research purposes. Activity A5.6: Support to Geoscience and Environmental Laboratories. The Project will review the need and required scope for an upgrade of the laboratory, including possibly setting up a Mobile Laboratory service to support testing for the purposes of regulation of mining operations and environmental monitoring. 12. Sub-component A6: Reinforcing State Participation in Mining Concessions (total US$0.3 million, all IDA). Current laws envisage State participation in mining projects between five to 20 percent of any foreign investment. While the provision has been made in the PPP/Mega-Project Law and a special purpose vehicle for mining state participation, EMEM (Empresa Mocambicana de Exploracao Mineira), was created in 2010, there is no clear mechanism on how to implement this requirement and how to ensure that risks are assessed and managed. With this in mind, the Project will review the structure and potential for EMEM, review global experiences with such entities, update the mandate and prepare a business plan, including a fund raising strategy and building of EMEM's capacity to assess and manage risks. After the completion of first phase of defining EMEM's management system and statutes, the Project will assess the need for additional support. 13. Sub-component A7: Transaction Advisory Services for Negotiations of Large-Scale Mining Operations and Related Infrastructure (total US$2.0 million, all IDA). This sub- component will include technical and legal advice to the Government's representatives, including regarding review of feasibility studies, mine development plans, infrastructure development plans, mine development agreements and ancillary infrastructure agreements. The advice will be on technical, economic, financial and legal aspects of mine development agreements (and related infrastructure) and will be provided within the existing legal framework of Mozambique and international good practices, and will be consistent with the Bank's operational policies, including on environmental and social safeguards. Transaction advisory services contracts and requirements will be structured using lessons leamt and experience from implementation of EI-TAF in Mozambique and globally, and other similar projects. High standards of transparency and disclosure will be adopted as a requirement for this activity. Component B: Natural Gas Capacity Building and Governance Reform (total US$11.05 million, all IDA) 14. Sub-component Bl: Strengthening MIREM's Capacity to Support Governance Reform (total US$1.3 million, all IDA). A Gas Master Plan is being developed, which integrates all elements of the gas value chain - from production, treatment, transport, storage, distribution and usage in domestic and export markets - and that presents strategic alternatives, policy options and implementation plans for the Government to maximize value arising from 16 DNG and INP are sharing the facility. The core storage keeps sections of core samples from private company drillings, which inter alia provides for a mechanism to ensure integrity of exploration data in case of disagreements or the need to verify or audit exploration results. 39 natural gas development (financial, social and environmental) in Mozambique. Based on the outcome of the Gas Master Plan, the Government will formulate a vision for the development of its gas sector and make policy decisions and investment decisions to implement this vision. Activity Bl.1: follow up activities to the Gas Master Plan. MAGTAP will provide support to MIREM and its agencies for strategic follow up activities to the Gas Master Plan, which may include (i) advisory services to support the development of a vision for the development of the gas sector and the preparation of required policies; (ii) the establishment of new institutions; (iii) establishment of special purpose vehicles to implement the Government's vision; (iv) assessing economic feasibility and options for the development and financing of gas infrastructure; (v) the assessment and structuring of potential PPP arrangements for gas infrastructure; (vi) the development or modernization of gas upstream, midstream and downstream policies and legislation; (vii) study prospectivity of basins outside of Rovuma; and (viii) provide additional capacity building and advisory services to support implementation of the vision. 15. Sub-component B2: Capacity Building and Governance Reform Support for the INP (total US$2.9 million, all IDA). The INP promotes exploration and production and regulates the upstream petroleum sector. The Government of Norway is providing support to INP over the period 2011-2015 with the objective to improve INP's capacity to manage the core functions of its mandate as the national regulator for the petroleum sector of Mozambique. The Project will complement Norway's support through: Activity B2.1: Purchase of equipment for an INP regional office in Pemba. INP is planning to set up a regional office in Pemba to support the execution of core functions of its mandate as the national regulator for the petroleum sector of Mozambique, close to the operational areas. The Project will finance purchase of equipment and vehicles required for operational, safety and environmental inspections of gas field operations. Activity B2.2: Upgrade of information technology infrastructure in INP. INP has made an assessment of its current information technology infrastructure requirements for the coming years. For the most part, budget for this upgrade is available. The Project will fill in a gap in short term needs as well as a second phase of the infrastructure upgrade, which is foreseen to meet its future requirements in view of the growth of the gas sector and the mandate of the organization. Activity B2.3: Human development plan. The implementation of the human development plan, based on the functional diagnosis to be carried out, will be considered under the Project. In the case of INP, this will be done in close collaboration with the Norwegian support program to prevent any overlap. Activity B2.4: Technical advisory support. The proposed support under this activity includes (i) geological and geophysical evaluation and prospectivity assessment of the Rovuma Basin; and (ii) integration of geological and geophysical data into the data management and GIS systems. 40 16. Sub-component B3: Capacity Building and Technical Support for ENH (total US$2.85 million, all IDA). The ENH manages the State participation in upstream developments. The State participates 15 percent in Block 1, operated by Anadarko, and 10 percent in Block 4, operated by ENI. The investment requirements for ENH are estimated at US$3 billion and US$5 billion in these blocks, respectively. ENH has updated and prioritized a request for support from the World Bank in April 2012: Activity B3.1: Evaluate financial options for Area 1 LNG Project. ENH needs support to (i) validate its financial needs (short and medium term); (ii) investigate and evaluate financial options; (iii) prepare a company brochure; and (iv) contact potentially interested investors (via a petroleum sector "road show"). The outcome is that a competent strategic partner to ENH in the Area 1 LNG project has been identified, ways to establish constructive competition among potential investors have been determined, options for timely equity funding for ENH on acceptable terms have been identified, and financial costs related to project finance have been minimized. This should result in a conclusion of the financial option to select and a strategy to negotiate a financing arrangement. Activity B3.2: Negotiations support up to financial closure for Area 1 LNG Project. This will include the establishment of a project structure, performance of due diligence on the feasibility study, a risk analysis and preparation of a risk mitigation strategy, financial structuring, modeling and sensitivity analysis. A financial adviser will be recruited to support ENH all through the process through financial closure. Activity B3.3: Technical advisory support. The proposed support under this activity includes (i) data and GIS management; (ii) develop ENH's natural gas trading and shipping strategy; (ii) provide capacity building training to ENH staff; and (iv) upgrade the information technology infrastructure (hardware and software) to execute ENH's role. Activity B3.4: Develop a business plan for ENH logistics. ENH has the intention to establish a subsidiary company "ENH Logistics" with the objective to develop petroleum downstream and support activities in the Rovuma basin and elsewhere and to stimulate the use of local content in the petroleum sector. The scope of ENH Logistics may include supply base logistics, aviation, provision of services (catering, medical etc.), port expansion and airport expansion in Pemba, development and management of the Palma supply jetty, and management of the common facilities of the Palma LNG plant. The Project will provide support to ENH to develop a viable business plan for ENH Logistics. 17. Sub-component B4: Transaction Advisory Services for Negotiating Gas Operations and Related Infrastructure (total US$4.0 million, all IDA). This sub-component will include technical and legal advice to the Government's representatives regarding their review of feasibility studies, production plans, infrastructure development plans, gas agreements and ancillary infrastructure agreements. The advice will be on technical, legal, economic and financial aspects of gas development agreements (and related infrastructure) and will be provided within the existing legal framework of Mozambique, technical requirements and specifications and international good practices and will be consistent with the Bank's operational policies, including on environmental and social safeguards. As with the mining sector, the transaction 41 advisory services contracts and requirements will be structured using lessons learnt and experience from implementation of EI-TAF and other similar projects. Component C: Cross-cutting Mining/Natural Gas Capacity Building and Reforms (total US$14.45 million, of which IDA US$9.95million) 18. Sub-component Cl: Legal and Regulatory Framework for Mining and Hydrocarbons (total US$0.8 million, all DflD co-financing). The overall legal and regulatory framework for mining and hydrocarbons is being updated in 2012, however some gaps may remain and there is a need to develop several complimentary pieces of regulations. The Project will maintain an allocation to support updates and strengthening of laws and regulations as needed, including: Activity CL.1: Finalize update of the Mining Law and support preparation of mining licensing regulations update in view of the new mining law, and legal support to MIREM on updating relevant mining policies, laws, regulations, statutes and other legal instruments as may be required from time to time during the MAGTAP implementation period. Activity C1.2: Sector specific environmental and social regulations and update of health and safety regulations. The health and safety regulations are fairly modem, but will benefit from an update based on the experience of the implementation that far. The environmental and social regulations are, however, considered more outdated and require updates that the Project will help to address. While a detailed review will be undertaken during the implementation phase under the SESA, key areas highlighted as in need of update are: (i) specific requirements to ESIAs for mining and petroleum projects; (ii) solid waste and hazardous waste management (including control and monitoring procedures, manuals and processes); (iii) water and water discharge management; (iv) acid drainage; (v) deep sea drilling; (vi) refinement and clarification of the system of environmental bonds, including additional financial and insurance mechanisms to safeguard against potential disasters and environmental and social damages and to support biodiversity and off-set measures and mechanisms; (vii) development of standards, control and monitoring procedures, manuals and processes with respect to Gas Venting and Flaring; and (viii) development of a community-based early warning/response system. This activity will require coordination with other donors, including Norway, Denmark, the Netherlands and others. Activity C1.3: Update of petroleum regulations. INP anticipates that petroleum regulations, including health, safety and environmental regulations specific to the petroleum sector may require an update from time to time to reflect changes in the petroleum sector in Mozambique or international best practices. In particular, the development of hazardous waste management, road safety and oil spill readiness requires attention (see also oil spill preparedness sub-component D4). The Project will support the provision of necessary advisory services to INP in close collaboration with the Norwegian support program to prevent any overlap of support. 19. Sub-component C2: Support to General Inspectorate, Health and Safety, and Regulatory Enforcement (total US$2.3 million, all IDA). The current set up is not sufficient to manage the exponentially increasing mining activities in Mozambique. The Project will 42 address the lack of basic equipment and staff to carry out those functions, including the following activities: Activity C2.1: Develop detailed operational standards and codes of conduct for mines and petroleum projects, prepare manuals for mine and hydrocarbon inspectors including operational guidelines for field inspections and monitoring. Activity C2.2: Support general inspectorate and update standards and procedures pertaining to mine and petroleum health and safety (environmental, health and safety regulations for mining sector), and monitoring and inspection functions of health and safety, monitoring of blasting, monitoring of environmental and social impacts, and specific procedures for coal bed methane and monitoring of radioactive minerals mining and diamonds (including compliance with Kimberley Process). Activity C2.3: Provide equipment to the general inspectorate and its regional offices, including field vehicles, information technology and communications equipment, and update regional facilities Activity C2.4: Strengthen regulatory compliance enforcement mechanisms (through local police and court system) and set up the follow up and remedial actions guidelines and procedures. Special attention will be paid to training of the local law enforcement employees and judges to understand and apply mining law and regulations. Activity C2.5: In accordance with the Government regulations, Ministerial general directorates are tasked with internal audit functions for their respective industry. In the case of MIREM, however, there is a certain conflict of interest where its General Inspectorate has a clear technical mandate to inspect mining and hydrocarbon projects, it also carried out internal audit of MIREM and its departments. The functional management review will help to clarify this function and capacity building will be provided to the responsible department of MIREM accordingly. 20. Sub-component C3: Support to the National Directorate of Planning and Development of MIREM (total US$1.6 million, all DflD co-financing). The Project will: Activity C3. 1: Provide equipment and capacity building to the planning directorate, including provision of a resident advisor, development of frameworks for sector planning, monitoring and evaluation of sector policies implementation, communications strategy and public web- sites and outreach. Activity C3.2: Support the Planning Directorate to coordinate and follow up on the functional management review of MIREM, INP and ENH (to be completed before Project effectiveness). Follow up actions will focus on implementation of recommendations on institutional reform of MIREM and INP, including potentially establishment of new institutes or agencies and strengthening of the existing ones. The Project will support preparation (or update of existing) mandates for the institutions and agencies, statues and procedures, as well as support capacity building and equipment. The required follow up actions will be agreed 43 upon between MIREM and the Bank and will be incorporated into the updated procurement plan and annual work plans as appropriate. Activity C3.3 Support MIREM's data collection function, statistical function for mining and hydrocarbon sectors, and monitoring and evaluation of ministry's performance, including development of data management systems, and reporting. Activity C3.4: Finance preparation and upkeep and reporting on the Communications Strategy for both the sector and the Ministry performance as well as on the Project. 21. Sub-component C4: Strengthening and Establishment of Staff Positions, Capacity and Infrastructure in MIREM and its agencies (total US$4.6 million, all IDA). The technical capacity of MIREM is limited and a strong capacity building program is essential to enable the Ministry and its agencies to perform their core functions. The assistance will be structured along the following broad activities: Activity C4. 1: Support creation of additional staffpositions (civil servants) in MIREM and its agencies. Based on the functional diagnosis to be carried out, the Project can finance selected formal establishment positions in MIREM and INP on a temporary basis. Such positions will be permanent civil servant positions designated to manage new permanent functions as to be supported under the Project, which have a clear immediate business need and for which the budget funding cannot be allocated by the government immediately. Conditions for this support would include agreement by the Government to make these positions part of the formal establishment and provide budget for these positions at the earliest opportunity and on a permanent basis before Project completion. It is anticipated that the following departments would benefit from this support: Planning Department, Environmental Department and General Inspectorate of MIREM, Health, Safety and Environmental Inspection Department in INP, and other agencies as will be determined in annual civil servants financing plans and justifications which will be subject to Bank's prior approval. Activity C4.2: Training, capacity building, study tours, and promotional activities for MIREM and INP, including development of specific courses and materials where needed. Activity C4.3: Upgrade of information technology and physical infrastructure in MIREM, including provincial directorates of mineral resources in key geographic areas. An assessment will be made of requirements to upgrade the IT infrastructure to support the increased capacity of MIREM based on its functions and mandate (as to be informed in more detail by functional management review). The Project will finance procurement of vehicles, furniture, as well as minor works to upgrade and renovate existing office space as needed, in particular to accommodate new functions. 22. Sub-component C5: Revenue Generation and Management (total US$1.5 million, all DflD co-financing). Mozambique will need to create the necessary fiscal space and improve the effectiveness and efficiency of public expenditure for better public services delivery and the appropriate policy mix to minimize macroeconomic distortions and improve the economy's competitiveness for inclusive growth. Design of the reforms to improve mining and petroleum taxation in Mozambique and to strengthen the Government's capacity to forecast, collect, verify 44 and manage the revenues from the extractive industries, but also to review public expenditure, manage public investment and create inclusive growth in all regions will be informed by ongoing efforts by the Government, IMF 1 and programmatic analytical work carried out by the World Bank.18 Implementation of the proposed reforms on the ground and building the requisite capacity in the government will be supported through the Project in coordination with other donors, while the policy level decisions shall be supported under separate policy level support by the World Bank. This sub-component will be carried out in close coordination with the Bank's economic team, the IMF and other donors. 23. The Project will support implementation of the Technical Support Plan for Ministry of Finance and the Revenue Authority. The scope of this activity will be informed by the analytical work being carried out by the World Bank and the IMF, but may include: (i) institutional reform with respect to revenue streams, fiscal management and an effective public investment system; (ii) capacity building; (iii) development of policies and mechanisms to isolate the economy from commodity price volatility; (iv) mitigation of the impact of real exchange rate appreciation; (v) fiscal and monetary policies to encourage savings for future investments; (vi) development of policies for revenue sharing to distribute wealth and economic growth over geographic regions; and (vii) transparency of revenues and their management beyond the scope of EITI (this sub activity will be linked with the implementation of EITI as per sub-component C7. 1). 24. Sub-component C6: Enhancing Environmental and Social Management of Mining and Natural Gas Industries (total US$3.05 million, all IDA). A substantial system is already in place in regards to health and safety and general environmental and social management, but gaps have been identified in several areas, including social management. Assistance from the Project will be extended to MICOA (inclusive of its departments, and its new implementing entity AQUA19), the Environmental and Social Department at MIREM, and MMAS to design and implement sector specific standards, frameworks and baselines for mining, oil and gas operations. Activity C6.1: Strategic Environmental and Social Assessment and Safeguards Support. SESA preparation will start early in the Project and will inform the Government on environmental and social management of the sector, including environmental and social impacts, involuntary resettlement, and health and safety (see below). The SESA will need to review and coordinate other related, ongoing and planned SESAs, including the recently completed SESA of the coastal zones supported by the NORAD project, the proposed SESA of the Zambezi Valley supported by the Bank-financed Spatial Development Project, the proposed SESA of the Tete-Nacala infrastructure corridor (also under the Spatial Development Project), and various environmental and social assessments envisaged for the purposes of the preparation of the proposed Growth Pole Project. In the area of safeguards, 17 The programs by the IMF include: (i) IMF-FAD-implemented Topical Trust Fund support (phases 1 and 2, where phase 1, completed, provided advice on fiscal regimes for mining and petroleum, and phase 2 will look at revenue management); (ii) general support to tax authorities and the Ministry of Finance. 1 Programmatic economic sector work includes enhancing macroeconomic and fiscal policy making for inclusive growth in a resource rich setting (under preparation). 19 AQUA, the implementation agency for environmental policy, was established in 2012 requires strong capacity building support to make it effective, and to integrate it with the existing (and rather complex) system of environmental and social management in Mozambique. 45 the Project will define safeguards policy requirements for transaction level advisory services that will be provided under the Project and for projects supporting ASM (such as a matrix for social and environmental screening and checklists). Activity C6.2: Regulations for Involuntary Resettlement and Community Support. The involuntary resettlement regulations have been created, however a detailed review carried out by the Bank in September-October 2012 revealed that the new regulations are not responsive to the World Bank and IFC standards.20 With recent experiences and social challenges emanating from the resettlements operations in Tete during 2009-2011, it is extremely important to improve the policy standards and requirements for involuntary resettlements and improve implementation mechanisms, including (i) establishing a grievance redress and arbitration mechanisms; (ii) streamlining CSR projects coordination so as to ensure there is a benefit-sharing mechanism in place that reaches out to local communities; and (iii) integrating targeted social protection programs to adequately mitigate negative impacts of resettlements on vulnerable groups (such as children, women and elderly). The strengthening of resettlement policies will complement the policies aimed at maximizing the positive aspects of large scale industry development, such as access to infrastructure and power, job creation, increased employment opportunities and business development. Activity C6.3. Support preparation of guidelines and practice standards for resettlements triggered by mining and hydrocarbon development projects. Activity C6.4. Given high toll taken by HIV/AIDS, malaria, and communicative diseases on work force in Mozambique (not specific to mining or petroleum), the Project will work with investors (their CSR programs and bi-lateral support to communities) as well as MMAS and other authorities on improving health awareness and services and coordination of program. Activity C6.5: Support development of an Environmental and Social Management Information System to be managed by MIREM jointly with MICOA, and bring MICOA and the Environmental Department of MIREM "online," including EIAs, baseline data and monitoring data for mining and gas projects. This sub-component will also establish a link with available databases (managed by other governmental entities) on baseline data in mining and gas production and processing areas. Activity C6.6: Purchase of environmental monitoring equipment for MIREM's Environmental Department for sampling and testing of water, air and soil to support inspections and monitoring of operations, as well as adequate technical capacity building. Activity C6.7: Advisory services and training to MICOA, MMAS and MIREM. 25. Sub-component C7: Support for Implementation of the EITI and Building Capacity of Civil Society Organizations (total US$0.6 million, all DflD co-financing). The MAGTAP is envisaging continued support to increase transparency and disclosure in the extractive 20 A letter dated October 2012 from the World Bank Director for Sustainable Development in Africa to the Minister of MICOA has provided detailed comments and recommendations. Follow up technical discussions with MICOA, MIREM, MMAS and MPD have been initiated by the Bank; Agreement with MICOA has been reached to initiate a Technical Working Group to jumpstart the review the gaps and ways in retrofitting them in an effective manner. 46 industries sector and to build frameworks for local and public consultations and improved social accountability. Activity C7.1: Support for EITI implementation. The Project will provide support to deepening the EITI process and coverage in Mozambique following Mozambique's achievement of EITI compliant status in 2012, including support for preparation and dissemination of EITI reports, outreach, and support to the EITI secretariat. Activity C7.2: Capacity Building Community Based Organizations. Civil society organizations have discussed their requirements for building capacity related to the extractive industries sector. They have identified a number of priorities, which include advancing the EITI at the regional level, building civil society capacity on the EITI and monitoring transparency across the full spectrum of the extractive sector value chain. The Project will support the development of a communication strategy for civil society and community based organizations as well as capacity building to help them better understand the sector challenges. The content of this sub-component will be further informed by a written submission from CSO/CBOs on their consolidated capacity building priorities. Component D: Cross-Sectoral Reforms (total US$2.7 million, of which IDA US$0.8 million) 26. Oil, gas and mining industries affect multiple layers of the economy, impact future generations' livelihoods, and affect environment and local demographics for generations to come. Therefore, policy and investment decisions related to the extractive industries are often the most crucial ones made by the governments. A well-managed sector can bring significant positive and sustainable impacts including the development of domestic downstream markets and service industries, employment, improved shape and scale of regional and local transport infrastructure, expanded power grids, townships developments, socio-economic growth and many positive economic externalities through forward looking management of the revenues generated. If left unmanaged, the impact of the extractive industries development can be disastrous and crippling for the economy, a resource curse. The range of challenges faced by the Government requires a multi-dimensional approach and a strong leadership at the highest level. 27. Sub-component D1: Strengthening the Recipient's Cross Sector Platform (total US$0.5 million, all DflD co-financing). Activity Dl.]: Support Government platform for decision making on cross-sectoral aspects of the extractive industries sector. Important cross-sector policy and investment decisions are prepared by the Inter-Ministerial Evaluation and Investment Committee (chaired by MPD) for final decision in the Council of Ministers. This Committee is supported and informed by Steering Committees (at national director level) that are set up ad-hoc for specific issues (e.g., LNG or spatial development). The Project will support this Government Platform in making informed decisions on integration of large mining and gas projects into the broader economy of Mozambique. Led by MIREM (reporting to MPD), the Project will support the Government's cross-sectoral decision making through frameworks development, technical advice and assessments, workshops, site visits, involvement in international fora, and other initiatives as to be agreed. 47 28. Sub-component D2: Strengthening Upward and Downward Economic Linkages of Mines and Gas Production (total US$1.4 million, all DflD co-financing). Enlightened policies can increase the value of oil, gas and minerals projects beyond the direct revenue gained from royalty payments and taxation. It is important to formulate sound public and private sector policies to capitalize on resource development. The concept of value-addition means policies that optimize the economic value derived from development of natural resources by creating an environment in which the industry serves as a springboard for additional economic activities and facilitates a robust multiplier effect. This includes promoting value-addition activities downstream to reduce dependency on exports of primary goods, generating employment through provision of services upstream and downstream, designing local content policies, facilitating diversification away from natural resources and promoting the productive sector with natural resources projects. This sub-component is closely linked to the Spatial Planning and Growth Pole Projects. It is anticipated that MIREM and MPD will be the leading ministries for this sub- component and that they will involve other ministries that form part of the Steering Committee of MAGTAP as appropriate. Activity D2.1: Development of a local staffing policy and action plan. Develop strategies and policies to enhance the use of local staff for employment in the upstream oil and gas sector in a sustainable way. Learning from experiences in other countries, policies are required to gradually increase the number as well as the responsibilities of Mozambicans working in the upstream oil and gas industry. This requires close coordination with the Ministry of Education, the Ministry of Women and Social Affairs, MICOA, the Ministry of Labor and the private sector. Activity D2.2: Development of a policy and strategy for local goods and services Procurement. Develop strategies and policies to enhance the use of locally procured and manufactured goods and services in the upstream oil and gas sector in a sustainable way. It will require close coordination with the Ministries of Planning and Development, Industry, Transport and Finance to develop the required industrial capacity and infrastructure to deliver these goods and services. This will include: (i) carry out studies and assessments (both supply and demand) to pinpoint the opportunities and hurdles for domestic procurement and services to supply and service mines and gas projects as well as downstream industries in Tete, Cabo Delgado, Nampula, and Niassa; (ii) carry out a review of policies and experiences elsewhere and the necessary trade-offs from the governments and the investors' point of view; (iii) identify required investments to capitalize on opportunities or remove hurdles; (iv) support preparation of bankable business opportunities (PPP or private) related to local industry participation in the provision of goods and services. Activity D2.3: Stimulate the development of downstream mining and gas industries. Downstream industries such as fertilizers, petrochemicals and mineral processing that use gas or mining products as a feedstock, as well as power plants and energy-intensive industries (e.g., cement, steel) can provide an important market for gas and mining production that creates employment and value-added products. This support will include the following activities: (i) develop a road map for mineral resources in Mozambique for the next 15 years, gathering geological information and resources evaluation and price forecast, a design of domestic utilization long term strategy of the mineral resources produced and/or left in Mozambique; (ii) support preparation of bankable business opportunities related to 48 development of the PPPs centered on domestic mining and gas downstream activities; (iii) provide transaction advice for a few top priority projects including gas for power projects and infrastructure, and mineral processing, as per the plan that will be developed. On a more micro-level, the project will (i) assess potential for use of mining by-products (such as lower grade coal or iron ore by-products from phosphate mining); (ii) research potential and promote local mining and use of agri-minerals to improve agricultural productivity; and (iii) promote and support value addition activities for local mining industries (including gemstone cutting and polishing, lime production, dimension stone industry, cement production, rock quarrying for construction, etc.). 29. Sub-component D3: Framework for Oil Spill Preparedness and Response Capacity (total US$0.8 million, all IDA). Mozambique is hosting significant oil and gas activity in deeper waters. These activities can pose large operational and environmental and social risks, especially to coastal zone communities, as it was learned from the large incidents of Macondo in the United States and Montara in Australia. The Offshore Spill Commission (OSC) established by the United States issued its report on the Macondo disaster in January 2011. Among its findings were that deepwater exploration and production, especially in the frontiers of practices and experience, involve risks for which neither industry nor government are adequately prepared. 30. Governments hosting existing deepwater exploration and production, new developments and potential unexplored offshore areas (in developed or developing countries) need to cooperate to ensure safety and offshore operational integrity. In this context, this sub-component will assist the Government in the development of knowledge and capacity to effectively govern deepwater offshore oil operations. The institutional set up in Mozambique covers multiple sectors The Maritime Administration and Safety Authority, part of the Ministry of Transport and Communications, is the national oil spill authority. Responsibility for shore clean-up falls to the local city councils. The Marine Administration and Surveillance Institute is responsible for the development and implementation of oil spill contingency plans. It also regulates naval activities in general and also possible environmental and social damages created by ships, vessels and sea platforms. It establishes measures to control, fight and reduce pollution from ships. Mozambique does not have a National Oil Spill Contingency Plan in place. MICOA is the national authority dealing with coastal and marine environmental issues. MICOA is represented in the provinces by the Provincial Directorates for the Coordination of Environmental Affairs. The Ministry of Tourism is responsible for the management of protected areas. These responsibilities are primarily governed by two pieces of legislation, the Maritime Law (1996) and the Environmental Law (1997). There are a few state dependent institutes that might get involved, including the Centre for Coastal and Marine Environment Research, the Centre for Sustainable Development for Coastal Zones, the National Institute for Maritime and a Border Affairs and the National Institute for Hydrography. Activity D3.1: Identify gaps and recommend actions, including (i) conduct an assessment of existing institutional conditions, current practices and regulations (safety and environmental) and oil spill preparedness and response capacity; (ii) identify gaps with reference to the best practices and regulations (post-Macondo); and (iii) prepare recommendations to strengthen the Government's capacities in these areas. 49 Activity D3.2: Assist the Government in the development of knowledge (best practices in safety and environmental offshore exploration and production) and capacity to effectively govern deepwater offshore oil operations, including regulation, monitoring and enforcement. Activity D3.3: Identify, develop and implement standards and program philosophies for shared public-private oil and gas contingency planning, emergency preparation and response capabilities and resources. Develop risk management plans. Activity D3.4: Develop regional response capacity. Connect with East African nations and international partnerships and entities (e.g., International Maritime Organization, United Nations Environment Program) involved in offshore oil incident preparedness and response in the African region to investigate ways to develop cost-effective regional emergency response capacity. Component E: Project Mana2ement and Coordination (total US$4.9 million, all IDA) 31. This component supports the Project Steering Committee as well as the PMU. MIREM will be the core implementing entity and the PMU will be placed within it. The PMU will require substantial staffing to manage this complex technical assistance, and will need to include, in addition to technical experts and program coordinators, strong financial management, accounting, procurement and safeguards staff. Summary of Financing Arrangements by Financier Sub-components Financed by Project Components and Sub-Components DHD ] I y DflD IDA A. Mining Governance Capacity Building and Reform Al: Mining Cadastre X A2: Mineral Assets Evaluation and Tendering X A3: Improving Government's Capacity to Manage ASM X A4: Capacity Building of Technical Departments of MIREM X A5: Geodata Acquisition, Interpretation and Promotion X A6: Reinforcing State Participation in Mining Concessions X A7: Transaction Advisory Services for Negotiations of Large-Scale Mining Operations and Related Infrastructure X B. Natural Gas capacity Building and Governance Reform Bi. Strengthening MIREM's Capacity to Suport Governance Reform X B2: Capacity Building and Governance Reform Support for the INP X B3: Capacity Building and Technical Support for the ENH X B4: Transaction Advisory Services for Negotiating Gas Operations and Related Infrastructure X C. Cross-Cutting Mining/Natural Gas Capacity Building and Reforms Cl: Legal and Regulatory Framework for Mining and Hydrocarbons X C2: Support to General Inspectorate, Health and Safety, and Regulatory Enforcement X C3: Support to National Directorate of Planning and Development of MIREM X C4: Strengthen and Establishment of Staff Positions, Capacity and Infrastructure in MIREM and its Agencies X C5: Revenue Generation and Management X C6: Enhancing Environmental and Social Management of Mining and X 50 Natural Gas Industries C7: Support for Implementation of the EITI and Building Capacity of Civil Society Organizations X D. Cross-Sectoral Reforms Dl: Strengthening the Recipient's Cross Sector Platform X D2: Strengthening Upward and Downward Economic Linkages of Mining and Gas production X D3: Framework for Oil Spill Preparedness and Response Capacity X E. Project Management and Coordination X PPA x 51 Annex 3: Implementation Arrangements MOZAMBIQUE: MINING AND GAS TECHNICAL ASSISTANCE PROJECT PROJECT INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENTS 1. Overall Project coordination and management will reside in the Ministry of Mineral Resources (MIREM), representing a core implementing entity of the MAGTAP among other eight beneficiary Ministries responsible for various aspects of the Project implementation pertinent to their activities. MIREM will house the Project Management Unit (PMU), which will be responsible for day-to-day Project management, including coordination between the beneficiary Ministries on the technical level, fiduciary management, monitoring of the Project execution, its evaluation and reporting to the Project Steering Committee. The Project Steering Committee under MIREM's leadership will oversee Project implementation and be responsible for timely decision making and cross-sectoral coordination. The Project institutional and implementation arrangements are outlined in Diagram 1 below. I MUIEM PMU Beneficiary Ministries Focal Points Diagram 1. Project Implementation Arrangements 2. Project Management Unit. The PMU requires substantial staffing to manage this complex technical assistance with multiple beneficiary Ministries engaged in Project implementation. The PMU will be composed at a minimum of: the Project Coordinator, responsible for the overall management of the project activities, compliance with its objectives and reporting to the Project Steering Committee; the Project Accountant/Financial Manager responsible for accounting, financial management and financial reporting; and the Procurement Specialist, responsible for carrying out procurement activities in compliance with IDA procurement procedures. The selection of the PMU core team is completed. MIREM will expand the PMU with the required technical expertise by assigning the technical experts, safeguards specialists, monitoring and evaluation specialist who will be fully dedicated to MAGTAP. Each beneficiary Ministry will assign a focal point to provide technical support to the PMU related to cross-sectoral components or other sectors. 3. The PMU will manage an IDA Designated Account, all the fiduciary aspects (procurement, disbursements, accounting and financial management), and monitoring and evaluation for the entire Project. This will reduce fiduciary risks, and consolidate all fiduciary 52 transactions in a way that minimizes burden and complexities to the beneficiary agencies involved. The PMU will also serve as a secretariat for the Project Steering Committee and coordinate among the project beneficiaries and financiers as appropriate. The technical aspects of the project implementation, including the selection of consultants and suppliers of goods, supervision of contracts and acceptance of goods, services and consultants' recommendations will be responsibility of the beneficiary Ministries. The PMU, once established, will be maintained with staff and resources needed for effective Project implementation for the duration of the Project. 4. Project Steering Committee. Given that the cross-sectoral nature of the Project resulted in multiple beneficiary agencies, it is critical to ensure synergy in policy level interventions as well as effective coordination and communication across the various sectors on a macro level and across the Project on a micro level. To that effect, an inter-ministerial body, the Project Steering Committee, will be formed to oversee Project implementation and be responsible for timely decision making. The Project Steering Committee, chaired by MIREM's National Director for Planning and Development, will comprise the representatives from the core beneficiary Ministries on a permanent basis supplemented with the representatives from the other sector Ministries on a call basis when need be. Selection of the Project Steering Committee members is under way under MIREM's leadership. 5. In addition to Project oversight, the Project Steering Committee will be responsible for strategic guidance of Project implementation and coordination of Project supported initiatives and reforms. Project Steering Committee meetings will be held monthly in the first year of implementation and thereafter quarterly. Further details on modalities and responsibilities of the Project Steering Committee will be recorded in the Project Implementation Manual. 6. Project Implementation Manual. To facilitate the management and implementation of the Project, a Project Implementation Manual (PIM) will include a detailed description of arrangements and procedures for the implementation of the project, assignment of responsibilities, establishment of review procedures and thresholds, chart of accounts and formats, and monitoring and evaluation mechanisms, including: (a) capacity building activities for sustained achievement of the Project's objective; (b) disbursement and financial management; (c) institutional administration, coordination and day-to-day execution of Project activities; (d) monitoring, evaluation, reporting (including mechanisms and formats for the preparation of Annual Work Plans and Budgets), information, and communication; (e) procurement; and (f) such other administrative, financial, safeguards, technical and organizational arrangements and procedures as shall be required for the Project. The PIM, subject to the Bank's prior review and approval, will be prepared and adopted by the Recipient by Effective Date. Given the complexity of the project and importance of fast-tracking its implementation, the preparation of the PIM is given priority through PPA support. 53 PROJECTADMINISTRATIONMECHANISMS Financial Management, Disbursements and Procurement 7. The Ministry of Mineral Resources (MIREM) will be the coordinating agency for the Mining and Gas Technical Assistance Project. Within MIREM, the overall responsibility for project implementation will lay with an integrated Project Management Unit (PMU), which includes personnel from the ministry and recruited personnel for effective coordination. 8. MIREM has previously implemented Bank financed operations, however this occurred several years ago and institutional memory may have disappeared. That said, with the Project Preparation Advance (PPA) being implemented by the EITI Secretariat, synergies may be created by sharing of experiences with issues related to Bank disbursement and reporting procedures. 9. The Project will use the country's FM system from budgeting, accounting, internal controls, funds flow, financial reporting to auditing as follows: Budgeting 10. Budgeting, budgetary control, and budget revisions will follow national procedures requiring that the Project budget is inserted as part MIREM's budget and approved by parliament. Approved activities on the budget will be captured in annual work plans, which for IDA purposes will be the documents driving implementation. The project budget will need to be registered with the National Directorate of Budget and National Directorate of Treasury (DNT) prior to effectiveness to be able to make use of the country FM systems including the government accounting system e-SISTAFE and Single Treasury Account (CUT). Internal control and Accounting procedures 11. The internal controls and accounting will similarly be based on the national procedures. In addition to MIREM's own internal control system, the Financial Inspectorate (Inspeqjo Geral das Finanqas) will be responsible for the internal controls through their inspections, which take place at least on a yearly basis. Procedures relating specifically to the project including the disbursements and Interim Financial Report templates will need to be finalized and captured in the FM procedures manual applicable for the project. MIREM will be provided with an FM procedures manual for Bank operations in Mozambique that use the FM country systems, and should adjust the manual to realities of the Project. The manual already contains accounting procedures for approval of transactions, travel and per diem procedures, supporting documentation, which are issues which are normally raised by audits. The manual will also provide procedures on coordination within the integrated Project team and other beneficiary institutions. 54 Staffing 12. The accounting staff capacity is generally weak and currently handling several other responsibilities. As such the Project's accounting and other FM related activities will be under the responsibility of the semi-integrated PMU. Among the team, there will be a full time financial consultant, which will work with the DAF of the MIREM, allowing for appropriate integration of accounting staff of MIREM into the project as needed and capacity building. The accounting staff from DAF already has access to the government e-SISTAFE and CUT and will be able to execute transactions. To ensure celerity and adequate oversight of accounting activities, the FM consultant will need have access to the government's e-SISTAFE either as an internal control agent or financial execution agent, making the FM consultant an integral part of the financial execution process. MIREM will need to make the necessary arrangements with the Ministry of Finance for this to take place prior to effectiveness of the Project. World Bank Banco de Mozambique DA (USD) MOF (DNT) Transit Account (USD/MT) 4 CUT (MT, USD, ZAR, EURO) Suppliers/Service Providers Accounting System 13. MIREM is connected to the Government's own IFMIS e-SISTAFE and the Project will also make use of it for summarizing its transactions. The system has embedded segregation of duties in it, which is the most fundamental internal control. The preparation of the accounting information will be on cash basis in accordance with Mozambique government requirements, which are also in alignment with the International Public Sector Accounting Standards. 55 Funds Flow 14. The Project will operate one Designated Account in U.S. Dollars at the Banco de Mozambique managed by MIREM, covering all Project payments going through transfers to the CUT as shown on the illustrative chart. 15. In coordination with the National Directorate of Budget and DNT, the funds will be coded to ensure that only the Project has access to the funds. Upon submission of acceptable quarterly withdrawal applications, along with the respective quarterly Interim Financial Reports, funds will be advanced to the Designated Account held in the Banco de Moqambique. Based on the Project's need for funds, MIREM will request the DNT to transfer funds into the government's single treasury account CUT, where payments will be effected directly to suppliers in (i) Meticais, (ii) USD, (iii) Euros, and (iv) ZAR. Expenditures will be posted directly into e- SISTAFE, enabling the project Finance Manager to collate expenditure information and produce the necessary regular reports. 16. To ensure that funds are readily available for project activities, the project accounting department will need to prepare cash forecasts timely to submit to the DNT. Guidelines from the DNT on project funds flow through the CUT will also be shared with the Project team. Reporting 17. Quarterly reports formats were agreed at negotiations and will be prepared and submitted to the Bank within 45 days of the end of each calendar quarter reported on. These quarterly reports will include: * Sources and Uses of Funds; * Detailed Use of Funds Schedule by Project Component/ Disbursement Categories, comparison with budgets; and short-term forecasts of expenditure; * Designated Account Activity Statements; * Summary Statements of Designated Account expenditures subject to Prior Review; * Summary Statements of Designated Account expenditure not subject to prior Review; and * A narrative summary of implementation highlights for the quarter helps the readers understand the financial statements better. 18. MIREM would submit the audited annual financial statements together with the management letter to the Bank within six months of the end of the fiscal year. These audits will be conducted by the Administrative Tribunal in accordance with International Standards on Auditing. The Annual Financial Statements for the Project will incorporate all activities, and prepare in accordance with International Public Sector Accounting Standard for cash basis and specifically include among others: * A Statement of Sources and Uses of Funds showing funds from IDA and how they were applied; * A Summary of Expenditures analyzed by both Component and Category; and 56 * The supporting Notes in respect of significant accounting policies and accounting standards adopted by management; * Designated Account Activity for the Year showing deposits and replenishments received, payments substantiated by withdrawal applications, interest that may be earned on the account and the balance at the end of the fiscal year; * Summary of Withdrawals using Interim Financial Reports, listing individual withdrawal applications by reference number, date and amount. 19. MIREM's lack of familiarity with the Bank's disbursement guidelines, as well other requirements may prove to be an issue during implementation of the Project. It has not directly handled a Bank financed operation in the recent past, and as such the financial consultant may need to receive training in the Bank's disbursements guidelines if he/she is not experienced in handling Bank financed operations. External Auditing 20. The audit ToRs have been agreed with the Supreme Audit Institution, the Administrative Tribunal, which is constitutionally mandated to audit all government funds, including projects financed by external sources. As such, the Administrative Tribunal will have overall responsibility for the audits of the Project. The audits may be subcontracted to a firm of private auditors. 21. The audited financial statements, along with the auditor's report and management letter (incorporating management's comments) covering identified internal control and accounting system weaknesses, will be submitted to IDA within six months of the end of each fiscal year. A single audit opinion will be issued and will cover all Project receipts and payments, and Designated Accounts. Any firm of auditors subcontracted by the Administrative Tribunal to carry out the audit will have to meet IDA's requirements in terms of independence, qualifications and experience, which are designed to provide to assurance on whether the annual financial statements fairly present the financial transactions and balances associated with the Project. 22. MIREM has engaged a qualified Financial Management Specialist under the PPA. In addition to the above arrangements, MIREM will have to ensure that the PIM (which will include financial management procedures) is in place by effectiveness. The financial management procedures of the PIM will be the guiding tool where all procedures to be followed regarding financial management will be documented to ensure consistency of procedures, and the finance manager will be responsible for ensuring that the Project's FM arrangements are adequate and satisfactory throughout the life of the project. To mitigate FM capacity risks, the FM consultant's responsibility will also include providing training as needed to MIREM's DAF and use of the government e-SISTAFE for summarization and recording of accounting transactions. 57 Table of Audit Compliance Requirements Action Submission Date By whom Submit annual audited financial Annually by June 30 MIREM statements together with the management letter FM Action Plan Action Indicative Date By whom Agree on Formats of Interim Financial Completed at negotiations MIREM/Bank Reports Register project on CUT and on State Prior to effectiveness MIREM Budget Disbursements Arrangements 23. The Project will disburse on a quarterly basis based on Interim Financial Reports. The Advance disbursement method will be used to operate effectively through the CUT. Upon effectiveness of the Financing Agreement, an initial advance, based on an estimate of six months forecast financing requirements will be disbursed into the DA to cover eligible expenditure. 24. The Project may also make use of other disbursement methods/procedures such as (i) Reimbursement Disbursement method, whereby the Bank reimburses the Borrower for eligible expenditures that the Borrower has pre-financed from its own resources; (ii) Direct Payment method, by which at the Borrower's request, the Bank makes direct payments to suppliers and contractors from the Credit account; (iii) the Special Commitment method, whereby the Bank will issue special commitment to commercial banks for payment of eligible expenditures. 25. The "Disbursement Letter" specifies the additional instructions for withdrawal of the proceeds of the Credit. PROCUREMENT 26. Procurement provisions and review thresholds. Procurement for the proposed Project would be carried out in accordance with the World Bank's "Guidelines: Procurement of Goods, Works and Non-consulting Services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers" published by the Bank in January 2011 and the World Bank's "Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers," published by the Bank in January 2011. 27. For National Competitive Bidding (NCB), Mozambican issued bidding documents may apply. All bidding documents will need to be satisfactory to the Bank and subject to the 58 additional procedures and modifications stipulated below and as reflected in the Financing Agreement. (a) General. The procedures to be followed for NCB shall be those set forth in the Regulation, with the modifications described in the following paragraphs: (b) Eligibility. No restriction based on nationality of bidders and/or origin of goods shall apply. Foreign bidders shall be allowed to participate in NCB without restriction and shall not be subject to any unjustified requirement which will affect their ability to participate in the bidding process such as, but not limited to, the proof that they are not under bankruptcy proceedings in the Recipient's territory; have a local representative; have an attorney resident and domiciled in the Recipient's territory; form a joint venture with a local firm In cases of joint ventures, they shall confirm joint and several liability. Prior registration, obtaining a license or agreement shall not be a requirement for any bidder to participate in the bidding process. Recipient's government-owned enterprises or institutions shall be eligible to participate in the bidding process only if they can establish that they are legally and financially autonomous, operate under commercial law, and are not dependent agencies of the Recipient. (c) Bidding Documents. Standard bidding documents acceptable to the Association shall be used for any procurement process under NCB. (d) Preferences. No domestic preference shall be given for domestic bidders and/or for domestically manufactured goods. (e) Applicable Procurement Method Under the Regulation. Subject to these NCB exceptions, procurement under NCB shall be carried out in accordance with the Regulation's public competition (Concurso Priblico) method. (f) Bid Preparation Time. Bidders shall be given at least twenty eight (28) days from the date of the invitation to bid or the date of availability of bidding documents, whichever is later, to prepare and submit bids. (g) Bid Opening. Bids shall be opened in public, immediately after the deadline for their submission in accordance with the procedures stated in the bidding documents. (h) Bid Evaluation. Qualification criteria shall be clearly specified in the bidding documents, and all criteria so specified, and only such criteria so specified shall be used to determine whether a bidder is qualified; the evaluation of the bidder's qualifications should be conducted separately from the technical and commercial evaluation of the bid. Qualification criteria shall be applied on a pass or fail basis. (i) Evaluation of bids shall be made in strict adherence to the criteria declared in the bidding documents; criteria other than price shall be quantified in monetary terms. 59 (ii) A contract shall be awarded to the qualified bidder offering the lowest- evaluated and substantially responsive bid. (iii) Bidders shall not be eliminated on the basis of minor, non-substantial deviations. (i) Rejection of All Bids and Re-bidding. All bids shall not be rejected and new bids solicited without the Association's prior concurrence. (j) Complaints by Bidders and Handling of Complaints. The Recipient shall establish an effective and independent complaint mechanism allowing bidders to complain and to have their complaint handled in a timely manner. (k) Right to Inspect/Audit. In accordance with paragraph 1.16(e) of the Procurement Guidelines, each bidding document and contract financed from the proceeds of the Financing shall provide that: (i) the bidders, suppliers, and contractors and their subcontractors, agents, personnel, consultants, service providers or suppliers, shall permit the Association, at its request, to inspect their accounts, records and other documents relating to the submission of bids and contract performance, and to have them audited by auditors appointed by the Association; and (ii) the deliberate and material violation by the bidder, supplier, contractor or subcontractor of such provision may amount to obstructive practice as defined in paragraph 1.16(a)(v) of the Procurement Guidelines. (1) Fraud and Corruption. Each bidding document and contract financed from the proceeds of the Financing shall include provisions on matters pertaining to fraud and corruption as defined in paragraph 1.16(a) of the Procurement Guidelines. The Association may sanction a firm or individual, at any time, in accordance with prevailing Association sanctions procedures, including by publicly declaring such firm or individual ineligible, either indefinitely or for a stated period of time: (i) to be awarded an Association-financed contract; and (ii) to be a nominated sub-contractor, consultant, supplier or service provider of an otherwise eligible firm being awarded an Association- financed contract. (m) Debarment Under National System. The Association may recognize, if requested by the Recipient, exclusion from participation as a result of debarment under the national system, provided that the debarment is for offenses involving fraud, corruption or similar misconduct, and further provided that the Association confirms that the particular debarment procedure afforded due process and the debarment decision is final. 28. Implementation of the procurement activities for the proposed Project will be managed by MIREM through the PMU. MIREM has implemented Bank funded operations in past, under the Mineral Resources Management Capacity Building Project (P001808). The new PMU has been established prior to negotiations (late November 2012) and is comprised of a Coordinator, Financial Management specialist and Procurement Officer - all recruited under terms of reference satisfactory to IDA. The PMU has no track record yet as it is just starting to assume its responsibilities. 60 29. The procurement risk associated with the project is rated as high. The key issues and risks concerning procurement for implementation of the project have been identified. These include: (i) insufficient checks, balances and accountability because procurement officers are not empowered with decision making; (ii) the procurement function carried out by PMU is not streamlined in MIREM and does not allow for adequate coordination of activities of all beneficiaries; (iii) inability of PMU staff to apply procurement processes correctly and consistently; (iv) poor quality procurement and outcomes due to limited procurement and contract administration capacity; and (v) delays caused by Government's own review process prior to contract signature. 30. To ensure an acceptable project implementation satisfying minimum Bank fiduciary requirements, corrective measures discussed and agreed with MIREM are: (i) ensuring that qualified resources proficient in Bank funded procurement are recruited and retained to properly implement project activities; (ii) ensuring the procurement decision making is fully covered in the Procurement Manual and is available/known to staff; (iii) ensuring a clear linkage between project objectives and the procurement plan through appropriate support to staff, training and tools in preparing and monitoring of the procurement plan; (iv) the procurement planning process taking into account the steps and associated timeframe for Government's own process of approval; and (v) establishment of a contract monitoring system. 31. In view of the overall experience and present capacity of MIREM to carry out procurement activities related to the proposed project, the procurement risk associated with the project is rated as high. Furthermore, a qualified Procurement Officer, proficient in Bank procurement procedures, was recruited to ensure adequate advancing of proposed procurement activities. In addition, the procurement officer would be in charge of the preparation of the Project Procurement Manual and the design of an 18 month procurement plan and be available to provide capacity building to MIREM procurement officers at a level to be able to operate independently in the implementation of project activities in future and possible phasing out the technical assistance. 32. Prior-Review Thresholds. Prior-review and procurement method thresholds for the project are indicated in Table below. The thresholds may be updated from time to time based on overall country portfolio performance, and changes will be reflected in the annual procurement plans updates. Procurement Thresholds Procurement Method Thresholds Proposed (USD million) ICB NCB Shopping QCBS CQS LCS DC ICS Works N/A <5.0 <0.05 All Goods >0.50 <0.50 <0.05 All Consulting Firms >0.20 <0.20 <0.20 All Services Individuals I I I All 0.10 33. The Project is not expected to finance large value Works contracts that would normally be subject to pre-qualification and or international competition. The first two procurement 61 transactions under each method shall be subject to Bank Prior review, irrespective of the cost estimate. 34. Procurement Plan and Procurement Arrangements. The Procurement Plan dated December 11, 2012 for the project was prepared by MIREM and reviewed during appraisal and finalized during negotiations. This plan will be updated annually or as required to reflect the project implementation. Works contracts expected to be procured through NCB under the project will include minor rehabilitations of office space and other buildings rehabilitation. Goods to be procured will include vehicles, information technology, office equipment, motorbikes, portable training equipment and laboratories, generators for field use, camping equipment, handheld GPS, units among others. Non-consulting services providers for geophysical surveying and mapping, processing and interpretation of geophysical data, development of a public a web portal, among others, will be procured. Consulting services to be financed will include transaction advisory, update of the Mining Law and support preparation of mining licensing regulations, updates to petroleum regulations, environmental and social studies, amongst others. 35. Generally, the World Bank Standard Bidding Document for Works and Goods and the Standard Request for Proposals as well as NCB documents satisfactory to the Bank will be used for contracts to be procured. These documents will be presented in the procurement section of the Project Implementation Manual that will be prepared by the Borrower prior to effectiveness. Details of the Procurement Arrangements Involving International Competitive Bidding and Other Methods Goods, Works and Non Consultant Services 1 2 3 4 5 6 7 8 9 Ref. Contract (Description) Estimated Procurement Prequalificati Domestic Review Expecte Commen No. Cost (USD) Method on (yes/no) Preference by Bank d Bid- ts (yes/no) (Prior/Pos Opening t) Date Goods G1.1 Equipment to 500,000 ICB No No Prior Mar-14 support mining cadastre GI.2 Equipment for ASM 500,000 ICB No No Prior Apr-13 departments G1.3 Geophysical & field 2,000,000 ICB No No Prior May-14 surveying equipment GI.4 Coreshed & related 800,000 ICB No No Prior Aug-14 equipment Gl.5 Equipment for 250,000 NCB No No Post Apr-14 provincial INP offices GI.6 IT infrastructure for 400,000 NCB No No Post Apr-14 INP Gl.7 IT infrastructure for 700,000 ICB No No Prior Apr-14 ENH 62 G1.8 Equipment to 1,000,000 ICB No No Prior May-14 general inspectorate & provincial offices GI.9 IT & physical 2,800,000 ICB No No Prior Oct-14 infrastructure for MIREM Gl.10 Equipment for 400,000 NCB No No Post May-14 environmental monitoring Gl.11 Vehicles & 900,000 ICB No No Prior Apr-14 motorbikes for ASM departments, general inspectorate & provincial offices, provincial INP offices, and PMU Non-Consultant Services NC 1.1 Geological mapping 3,300,000 ICB No No Prior Mar-14 & geochemical surveying NC 1.2 Airborne 3,000,000 ICB No No Prior Mar-14 geophysical survey Consultants 1 2 3 4 5 6 7 Ref Description of Assignment Estimated Selection Review by Expected Comments No. Cost (USD) Method Bank Proposals (Prior/Post) Submission Date C1.1 Update Cadastral Procedures 200,000 IC Prior Sep-13 C1.2 Technical Assistance to 1,000,000 QCBS Prior Feb-14 provincial cadastre offices C1.3 Training and handbooks for 250,000 QCBS Prior Aug-13 ASMs' good practice C1.4 Supervision of geophysical 600,000 QCBS Prior Mar-14 survey C1.5 State participation in mining 15,000 IC Post Sep-13 concessions C1.6 Transaction advisory 2,000,000 QCBS Prior Sep-13 services for mining & related infrastructure C1.7 Geological and Geophysical/ 1,800,000 QCBS Prior Apr-14 GIS data management and interpretation C1.8 Financial/technical 1,000,000 QCBS Prior Nov-13 evaluation of LNG Area 1 and legal support C1.9 Development of Business 600,000 QCBS Prior Sep-14 Plan for ENH Logistics CL.10 Transaction advisory 4,000,000 QCBS Prior Feb-14 services for gas & related infrastructure C1.1 1 Legal support to MIREM 500,000 QCBS Prior Oct-13 63 C1.12 Technical assistance/capacity 500,000 QCBS Prior Sep-13 building of the planning & economics directorate (resident advisor) C1.13 Communications strategy 150,000 IC Prior Jan-14 C1.14 SESA 400,000 QCBS Prior Jun-13 C1.15 Regulations for involuntary 300,000 QCBS Prior Sep-13 resettlement & community support C1.16 Resettlement guidelines for 150,000 IC Prior Mar-14 mining and gas (by MIREM Env. Unit) C1.17 Identification of gaps and 100,000 IC Prior Apr-14 recommendation of actions for oil spill preparedness and response C1.18 Project coordinator 102,000 SS Prior Nov-13 C1.19 Procurement Consultant 74,400 SS Prior Dec-13 C 1.20 Procurement Assistent 45,000 SS Prior Jul-14 C1.21 Financial Management 90,000 SS Prior Nov-13 Consultant C 1.22 Environmental consultant 72,000 IC Post Sep-13 C1.23 Social Consultant 72,000 IC Post Sep-13 C 1.24 Geological consultant 72,000 IC Post Sep-13 C1.25 Extractive Industries taxation 72,000 IC Post Sep-13 I specialist I I I I _1 _1 36. Short list comprising entirely of national consultants: Short list of consultants for services, estimated to cost less than US$200,000equivalent per contract, may comprise entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. ENVIRONMENTAL AND SOCIAL (INCLUDING SAFEGUARDS) 37. During Project implementation a Strategic Environmental and Social Assessment (SESA) will be prepared. The Government prepared the ToR for the SESA, which were disclosed on November 8, 2012 before appraisal in-country and in the Bank's Infoshop, to comply with Bank's procedures. 38. The PMU will include safeguard specialists (one on environment and one on social), which will be responsible for the supervision and monitoring of the environmental and social safeguard aspects of the Project. 64 39. The MAGTAP is a technical assistance project, which will assist MIREM and MICOA (and to some extent MMAS) to implement Mozambican environmental, social, labor and safety policies and regulations (with special attention given to women, youth, the poor and most vulnerable groups), which will be brought up to internationally acceptable standards, especially the IFC Performance Standards, World Bank Safeguard Policies and the applicable World Bank Group Environmental, Health and Safety Guidelines of April 2007. Some reputational risk to the World Bank Group exists should conflicts arise. MONITORING AND E VAL UA TION 40. Monitoring and Evaluation will be carried out by the PMU on the basis of the indicators and milestones developed in the Results Framework. Impacts and progress will be measured for the institutions involved as well as the mining stakeholders including private sector and civil society organizations, and gas stakeholders including coastal zones and those affected inland by mid- and down- stream development of gas. A monitoring and evaluation specialist will be engaged as part of the PMU to put in place the required system and tools to systematically collect the appropriate data and monitor the performance of the Project. The monitoring and evaluation specialist will also be tasked to develop a training program to strengthen the capacities of the focal points in the ministries, and to facilitate data collection/monitoring. Where applicable, monitoring and evaluation will include gender- disaggregated data. 41. The table below summarizes the key planning and reporting documents that will help monitor Project progress and results: Project Planning and Reporting Documents Type of report Period Due date Remark Planning (ex ante) Work Plan and Budget Annual TBD Prepared by Project Management Unit; First one prepared for negotiation Procurement Plan Annual TBD Prepared by Project Management Unit; First one covers 18 months Reporting (ex post) Interim Financial Quarter TBD Prepared by PMU Reports with Procurement Annex Project Monitoring and Annual TBD Prepared by PMU; First one covers from date Procurement Report of effectiveness to date TBD; External Audit Annual TBD Prepared by external auditor 65 42. Data will be collected by the PMU with support of Project Steering Committee. The data will be used to make adjustments to the Project as needed. The first critical point in monitoring and evaluation will be the mid-term review. ROLE OF PARTNERS 43. The Project will be co-financed with DflD. DflD financing will be provided through a World Bank administered Trust Fund for MAGTAP and the Bank will be responsible for supervision of the overall Project - IDA Credit and DflD co-financing grant. The DflD team in Maputo will participate in supervision missions and will contribute to oversight on the ground as appropriate. 44. Coordination with other donor projects that are or may be implemented in parallel to MAGTAP will be carried out through G-19 Extractive Industries Task Force. 66 wnne. а: оое.аюпа w.к лу...:т.т н�.етеwо.к (опwн� моzлмпоигопптгwиоыяггсич�ии=_srsглчсеvеыеп sг.ег: т.м ипg иуеlот г ивgететгоМ ОИгрrvръЮРтКеiтаlттту 4ын%оГ т(MIR[М1нопlдriчегюлИипи иryипУЬиlдiп8�^дииИпцФ�Jна11ут6пw тГпрGтыпнп: igeneшmm^1^4ттРчvхдпг кьМ�^БгыинrпечИтыислФпlШ 8 Ч п Ро е Р пр Lxavntliъxe рн Ь Th рю - РАР�ЮРтl�ыдпIDтиЬiЬа ипипtlипшbыгепьыпw�мшииматгаlьШlvге8чдиштiпiлgvN6+�'тми5омыд леЮпигтииГпиаюапн�ЮсюгпрvгичмrcпыЬ�+^^Вьи ыа иарпwР�иимунгпиг и%�-уог.и.л.,.,мчиапиаь амргтми°МФЬе ыпВаvl8ъ*ооттwыиж116едпФгЧииеИй ыРWпоМпдгеыортслшМгыппппыу ЛоргъыJ ртЮlппеиГЧгпьwтlпlпе�ЮM1ниlеитlанiши'гllvигvгубуыюпgФппlти[иттиыrylтlьпМгМппШппеJ Гтргоliги6lиу Рииуiiоп5пйедсддрттгаN5пР6+^типпюПоыlы игуппшпдiИтиеИФп т.в+�птиптътат��мs�паы'=�+�*иптиыгп�.пгтее,�п�ппыiл,.,пы. н пдит,иытп,,,��пепгапа.�ыпмъ, ш0оvтпттГь Юшqтис гарыУиwеllттryыгУоГйе RъР�.п Sage 1 р пив ипт4 Fequeлc_ и " иW8пьгтпнтемiыеа ewu у �ие вп8ь��ИпюvгыталдЬемГь - р тппнгiьil � � �Wш%.1еg4ФJм Upeeip ипg кпМiпп: ивртепи � ыггдигiг)'пе41Ма4�rгпФе 4пiн%оГ 1ЧРпrпптгт;идГптиiWпшwЬттгптПМИпгШВ;и4.Th тттРк^4УпГЧпрюl�иФЧе 3M1пlшуИшРптырслыки ь�иФlап4ивпglОАидwпШпдаГпыгЮГтlегы.iпгlшliпеЪеПilеЮП-UF.iп мltiрlеЬгие6гiт�г&Фишрепгуо! имноГр,vьчгаптгидбдппvу,аяРопю ThеРг^1�mиgemmгиillbabчNlaihYThIHFM1Fmuн6apmjen 6l 1У1:идвш iатryИОlThетшуцшптшшкеИимеvыWдппп8йеР�о1�Р^ТюГшлйРVпlыФеПrwт чи156гт пт. п1УР`Т��^�^слiипJryФьсч птФтl�чСwпГтеш гшыбп/Гт Мыаgвпvлч8р^"Nп4РтткттаSрГnцмУСМ++ �цrlетслтюыеlеуv INФыSислп8�^^ыв��ПиvЛеьМоvмад��оl�Уирю,jы мM1цrИпслаибоп �.GОипиеW.РмигившПпппЬшпдйе ЬгиРыаедш.пПгlвдвРWюlыlьтш� чРьсЧиlыИиВдилпlчцкФбеqпмM1иrиgыЛпvиlпеwыРо�ыМиЬуриjтвПшJVтшааiйпlиiвч DuпnBpro]иi 1Уiтрlетеwитo-дпплg ппРюlег�wиюдттцрптплтпt 6п шпиgслттУ ал[�птWкtвиеllтмьи�чалlч mool -е �аШаlиwУиИ�ртvШеJтавшейazЧе ииртФивойр�осwlиппалП 6aPИn�uJglmmvay158M1VO пГрюыreтет НедеюГп M1цrИпслшып имц ИйРю1� ЕWыгу и е �ператбппд ртАп¢а Iтрl�чптиJоо .оитеосе ISU ы�т1 п ип. еииАчоспг.. ыИЮиоИаа Thвртl�Гип�МыыlгпштихоМпачшйiтryыатwоГ ыУ8�ssшпекы�тllьlы юvпgтттlмпиvодвеЛор J RM1гри)ааwПlшппgИrnяыигтали8�+^��ыП8оь�rтит т'ч,ивдалнпt АтппВТ^�1иРг°neйJы;vnWaimXaнioBП+ M1вРю1� �11�ыРWпМ1ВИ311пвN ииы...пит,..;п мп.ииьвп .� 1пЬиlГпипеВиLkПЬуитирюпьуш:ИйиlЮаiеогуиlе�тЧерrогычпГишпеВ+аыЛ�ппivег 'fЬвryвjтиЧlиlеоГмiJечиРроиlй ппуbаМьштЬЮигM1га]опвlЧгчитрйыпgтттипlыбппыJиныЬп'шАпИаwыvйв4пю ииие�юiпJимrуи ,ичранюУ ThеРтlтюllM1;итФттвпслilмбиiеВЛотrпаgгирьсшв-шв�аNпryмппПгиlьсч� ттРИиlПео µцу�0.�iЕв012 RnP Г.о SaBe 1 Р пшы итты й vть�о М�ы У п П е а� (� ИРlппапJ . р � и РиNю�'1.ШгalrcBinxiMarvnPaiSVe. гтР^�та �аа,�епи �р�п ые т, .:.m,i ииЮiосапГ ❑ пе8мыiiпv Th wпrWrcm�wumwJ ыJ8wдтЬ8ип8ГыьJа типиgетитГмепка итйечьсшr 1Он1дп .... �п8 SиЬ.ы�т1 ..... ..... ..... Р . еиеучоспг пт ЬыЛ0в Р .�. Ь.. ..р - ппг8У ЬА sector reforms under the same umbrella appropriate sequence with the relevant Beneficiary Agencies, including procurement and financial management. The is new, but is justified by the synergies capacity assessment of the implementing agency during preparation will identify the areas for strengthening the fiduciary in development planning and performance of MIREM and PMU. PMU will be trained prior to effectiveness and/or at early implementation. The management of economic impacts and activities will be phased, procurement for the first 18 months have been prepared and will be updated each year. The project revenues, as well as through the will also rely on annual work plans to improve planning and sequencing of activities. leadership of MIREM in both sectors. Nevertheless, the large number of components/activities as well as multiple beneficiary agencies make the Resp: World Stage: Preparation and Recurrent: Due within project Frequency: Status: In project implementation challenging. Bank implementation 0 Date: preparation & progress implementation 3.2 Social and Environmental Rating Moderate Description: Risk Management: The project does not involve direct The Project will carry out SESA as part of project implementation JoRs are disclosed both in-country and at the InfoShop investment into either mining and gas prior to appraisal). The SESA will identify gaps in regulations, capacity building needs, and Public consultation and sectors development or other activities Participation mechanisms needed. Selected recommendations of the SESA within the scope of the project will be with significant environmental and/or implemented including the updating and preparation of new environmental, social (including labor and resettlement issues), social impacts. health, safety and security regulations (with specific attention to women, youth, elderly, the poor and most vulnerable groups such as the landless, widows, etc.) to bring them in agreement with international best practices, World Bank Safeguards Policies and IFC Performance Standards. As a planning tool, the SESA will also include an Environmental and Social Management Framework, to help the responsible Government entities to adequately and timely carry out environmental and social screening of new projects in the mining and gas sectors. The project will support sector dialogue in particular to strengthen country environmental and social frameworks, including Resettlement Regulations which are currently not in line with the WB or IFC standards. The indirect reputational risk will be managed through communications and disclosure. Resp: GoM Sta Implementation Recurrent: Due Project Frequency: Status: Not Yet ge: Date: Implementation Due 3.3 Reputation Rating Moderate Description: Risk Management: A successful project (update of legal, In addition to carrying out a SESA, the project will assist to increase capacity of the main regulating agencies to manage the regulatory and institutional environmental and social aspects in the sector and to perform its oversight efficiently. frameworks, transaction advice on The project will support sector dialogue in particular to strengthen country environmental and social frameworks, including contracts, and support for feasibility Resettlement Regulations which are currently not in line with the World Bank or IFC standards. studies) would be expected to lead to The indirect reputational risk will be managed through communications and disclosure. increased activities in the mining and Resp: GoM Stage: Implementation Recurrent: Due Proj ect Frequency: Status: Not Yet gas sector in a context of overall Date: Implementation Due limited capacities in the Ministry of 0 Coordination of Environment Affairs (MICOA) to enforce the legislation, 69 whih luld claleoindirct reputi,nal 3.4 Progrm andDonor Rg L. Description: Risk Mansgement KeyprNtersc ,lde the Efb,assy r Cotinting dialo Vndahdinatn wi1hnthr dInors includng &tMh hex isting donor n dinatino on m inigtt Nov.ay, A.Aid. D flD, fhel MF,GlZ, andpelroeu.n Mansteringdevelopnlentfarewjnitiaive for frdherrordinatjonwit donor.MAGTAIwillcenuk AfDB,UJSAID. OnUthe miingstor wthElTask FonofG-19 whchhas beoperationalfrorayearnw,andwilloominewiihb-lateln sltationswith supportside, the dottotrarativae in ihe donna. Onihbe gottveteidetihere isan inteatiot nothiiethestamteProject SieerintgCo,mmitteefroronther donor upportngsetctedelenenls ofsector fuf l pagras( ost tntably ftl,on.gG lIZklnreeI-yea r t, andAuAlb pporuLnder theCAuaial-Africa govenance and the is 'Ngntion Partrships Fiiy) Co-fundin wil be Ihtfrom es senies fort e implebbnintion nf eected ompn,ent tb the World n k isthe otnly ageny Resp: Wnrkl Sta P,rjc Returrent: Due Within prject Frequency: Satus: I widin-hnau eelenicalexpe,tiee nd Bank ge: preparationand Date: ,eparation& Progress bl itet . ,nuhnpbrlutpilt ,PIet tid, NORD rovides telhial enpertise ondlieuplsitangans developmnentwshi, ebwillwarokQ alntside h Bank i-epth tr enpertise. C-fundin8 will be sught fremtiese agencies furthe implem8eniatin selected 3.5 lelvery Monkloring and R Suseminability Rln oea Descrptino The nigand g1s etor, ae Risk Manaementh: growing fst n Moambique and hu aw,a efess-aising willh stakeholers ill help inl antcnipating when required The Pra.b~ t swill seek to boy-iflbyhie govemmant is very support[heGCovemnmeniisinmroving the nverall e icientcyandhatsaernefmytVriningoilandg 6as trong. TIe SD platro, win plae seetor t,tageemeand msttingth er ameworkfforiustinable de lment er m inetland f,O e, flt e and wl help hep rero hy doebat2nCre ee s To"c hieve&htbfecii v, h e roje t il ouI. ~ it tio al sten thening s a. " kd SCOrls dreanh t and Oa the ,RaI/regional integration ufmiitg and gas detelupmet.1 it will als 6 work a imprvitng yll,a The .1tb1.k bTr tlyffiffiltA committed Uarge cormpanieswsit[honriuessstial eenata esotbished CSR pratk·es. .n atditionitn oinUousm aitoing 'f Iie se rldeveloptesb reguar a~ess,mentl hferojct Susiabiity dfitnertje t[ate perforMtance wll bConduteL L tpar" fthe poje lAnitring and eal1atin and IhItnee l r i e ar traf3Ll1 ye~s. 'Lvtif* 1 Po lthe pr eifcatione willb e tlroewhentfedl. Is"L ha,e" i ri,e of yG-50 ~ef Nevertheles rate oolutin ofthe etactive instrs sebtor, espenially the gas seeior,m[o, atuStresson[the У ауатта мрнип5йг пГ@�7гпдго�ше�КИп wптаиге ю Rгвр'. .иН р птв им � о fг.уигпгу: и 1туИтгпиПопNLLWУпу:SиМ�втш1 йгМцlьсаiтРlтюпшПапiеыЬншwцЬЮ�тергiWlУ-L�lйг штр�ыiуигигаww�гпашЬVиеесигппчг;иаИатWЬпWеJтыv псПwШ -опеlтринушпшюgыИеиЧпгЙоишАу.чпJ[JilИетюqM1ыют¢ьWпипЬЛуые.еетШчЬьсivThепик иryишоыlпаk�яш Wm1JРиК6wpвлеll.ivdш4лgйпееmlvиJшгпlыптышlыJ.ьсSLтиациетмJryьГопvчеиоГГопИыипgпппиgиJ�шг nюFlg6eцwiwoиmouxxuk JoP^�+^Ф'УииПшiМАПТАРнИтпbейпаттшаvЛорйgйеееси. �лпрrтiпВг�шготппs,нИiгИпИпгнимКьИипеЮтИепююд� ТИгРт llpryeY�^�шепвюыФюпиыгввоь9iглеуушпvыНе npeцeмtregnMY Wd'�И' �тlйто��ипм дiгРтlе<�>Ю�Р орпйvlпд�е w�1ИЧе.ьЧеИпlдм ТИеСVттипгаиомSиаед 4еу тедыgынJl пФиЛе wпsyrwuYlп^5Р1едПцlпsиюапJидш�еьюиеиГйь vlпдиь ыЬртигттшедытеим0РюйеsеюгдеvNпрыт миуетегоllьсгопоыiеидьшi®vцlеЬпонИ ирытиИеГиютмтиоvюwИеlтгднWйwппи CNiyuшiypln юlиртт�врй'WlуиййеперШJиеbртмиlпйеgы итр4iПУ юw ГпгйепоипЬУ �*'�^отУ- Чтгг. йг яПиF1У ЬиПФп8 ы ЬгцlьыИ,иФWвА 11и8гиИгыlша РЛаПУ оп йеGоwпмоЬVВиПг полgрпИиШИпучпГтйерiогz l1 Annex 5: Implementation Support Plan MOZAMBIQUE: MINING AND GAS TECHNICAL ASSISTANCE PROJECT Strategy and Approach for Implementation Support I . The strategy for implementation support has been developed based on the cross-sectoral nature of the Project and its risk profile. It will aim at making implementation support to the client more flexible and efficient, and will focus on implementation of the risk mitigation measures defined in the ORAF. 2. The World Bank Co-Task Team Leaders will handle the day-to-day matters of the Project as well as coordination with the client and among Bank team members. The extended term consultant (ETC) based in the Maputo Country Office will maintain liaison and provide support to client on a daily basis under supervision and guidance of the Task Team Leaders from headquarters. The implementation support envisaged under the proposed Project also includes technical, safeguards (environmental and social), fiduciary (FM and procurement) and operational support. 3. In line with the World Bank's policy, the team will conduct bi-annual supervision missions, including technical, safeguards, operational and fiduciary staff. In conjunction with Government counterparts, the World Bank team will monitor and report on progress against the monitoring indicators agreed in the Results Framework, as well as verification of their achievement. They will also monitor risks, updating the risk assessment as needed and paying particular attention to the implementation risks. 4. A mid-term review will encompass a more in-depth stock-taking of performance under the Project. It will be carried out 40 months after the effectiveness date. The mid-term review will assess progress towards achieving the individual Project development indicators and the PDO. Based on the assessment of progress at the mid-point of the Project, recommendations for improvements/changes would be considered by both the Government counterparts and the World Bank management team. The mid-term review will also review overall Project implementation arrangements, making adjustments as necessary. 5. The tables below map out the proposed implementation plan, skills mix and other inputs required. Table 1: Implementation Plan Time Focus Skills Needed Resource Partner Role Estimate First twelve months Team leadership, TTLs, consultants US$200,000 Ongoing exchanges technical and (technical of information as procurement review of professionals), ETC, required by the the ToRs and operational specialist preparation of the procurement documents partner's project; and institutional preparation of ToRs, arrangement and procurement of Project supervision goods and 72 coordination consultants; preparation of project reports Strengthening of PMU Procurement and FM PMU staff including procurement Specialists selected/designated and FM training and available for training Verifying if the FM Specialist NA fiduciary risk mitigating measures implemented by Project effectiveness are still functioning as intended; identification of any potential problems early in the life of the Project Environment Consultant, Social MIREM held SESA iSpecialist (based in consultations of Maputo) TORs, procure consultancy firm for SESA, supervise SESA preparation Project overall iTLs, E, consultants US$750,000 Design and supervision, technical (technical specialists), implementation of and procurement review environment consultant, reform, laws and of the ToRs and social specialist, regulations, as procurement operational specialist applicable; project documents; technical management& support; Project coordination; supervision project monitoring coordination and evaluation, including Fiduciary compliance Procurement and FM preparation of specialists project reports Table 2: Skills Mix Required Skills Needed Number of Staff Weeks Number of Trips Comments ilL/Sr. Mining Specialist 10 staff weeks first 12 3 per annum Washington DC based months; 6-8 staff weeks annually afterwards Co-iTL/Sr. Gas Specialist 8 staff weeks first 12 3 per annum Washington DC based months; 6-8 staff weeks nannually afterwards ETC Full time for the first 4 Country based staff Skill_Needd_Numer_ofStafyears; IBD afterwards Operations Specialist 7 staff weeks first 12 2 per annum months; 6 staff weeks annually afterwards 73 Social Specialist 2-3 staff weeks first two Country office staff years; Istaff week annually afterwards Environment consultant 2-3 staff weeks first two 1-2 per annum during first Consultant years; 1 staff week year; as needed afterwards annually afterwards Procurement Specialist 3 staff weeks annually for Country office staff the first two years; 2 staff weeks annually afterwards FM Specialist 3 staff weeks annually for Country office staff the first two years; 2 staff weeks annually afterwards Sustainable Development 1-2 staff weeks annually Country office position Sector Leader Short term consultants On as needed basis (total As needed (technical professionals, between 5 and 6 staff PPP, legal, geology, weeks per year) geophysics, gas, infrastructure, etc.) 74 Annex 6: Extractive Industries Value Chain Analysis MOZAMBIQUE: MINING AND GAS TECHNICAL ASSISTANCE PROJECT 1. Extractive Industries Value Chain Framework. A review of the extractive industries sector value chain (see Box 1 below) in Mozambique was carried out in 2008 and updated for the purposes of this Mining and Gas Technical Assistance Project (MAGTAP) during preparation. The earlier analysis provided a sound framework to support necessary reforms to ensure optimized sustainable development of the extractive industries sector. Findings of the analysis remain largely valid: * Mozambique has set out a strong foundation for the proper management of its oil, gas and mining resources. The legal, regulatory and contractual framework is mostly in place, up- to-date and largely in line with international good practice. The award of contracts and licenses is conducted through open, transparent processes. Certain reforms are still ongoing. * The major challenges for Government going forward include (i) ensuring the requisite human resource, training and institutional capacity to implement and monitor oil, gas and mining operations is in place; (ii) implementing transparent revenue collection and reporting; and (iii) planning use of revenues generated by such operations. Improvements in coordination inside Government operations are essential to improve efficiency along the mining value chain as well as how mining operations impact non- mining development. Box 1: The Extractive Industries Value Chain Approach In many resource-rich countries, the Extractive Industries Transparency Initiative (EITI) is an important entry point to the sound management of the oil, gas and mining sector. With its focus on verification and publication of company payments and government revenues from the extractive industries, EITI demonstrates how voluntary global standards can help create incentives for transparent actions by governments and industry and provide an objective around which reformers can rally. However, many stakeholders, including governments, are emphasizing that transparent revenue reporting, while important, is not enough. Effective management of oil, gas and mining resources requires attention along the entire chain of managing them-from granting access to those resources, to monitoring operations, to collecting taxes, to improving economic management decisions, to spending resources effectively for sustainable growth and poverty reduction (see figure below). royalties Sustainable Such a value chain (or "EITI++") approach encourages countries to take a strategic and comprehensive view of how to translate wealth from the extractive industries into growth and development. Implementing the approach means that a government has (or is interested in developing) a vision for the good governance and sound management of its extractives sector and a (rolling) program of policy actions, institutional capacity- strengthening and investments consistent with its vision. The program, framed against the value chain, needs to be prioritized, sequenced and tailored to country circumstances. This methodology has already been used to analyze the extractive sectors of several countries globally. 75 2. As a result of Mozambique's early experience with focused mega-project developments, combined with regulatory development (through support from the World Bank, African Development Bank and Norway), its extractive industries policy and institutional frameworks are relatively well developed when compared to peers. Today, emphasis must be placed on establishing a more integrated model of extractive industries development that will unify the Government's handling of revenue, environment, infrastructure, and community development linkages. This emphasis must include a massive scaling-up and deepening of core regulatory capacity (for instance, in addition to exploration oversight skills, regulators quickly need to have capacity to manage the development phase issues of mining). i. Access to Resources 3. Laws and Regulations. The Mining Law and Regulations have been in place since 2002 and 2006, respectively, and were updated in 2012 based on international good practices and lessons learnt during the period of their implementation (pending passage). The Petroleum Law is also being updated in 2013. MIREM is leading the reform effort for upstream minerals and petroleum sectors in close liaison with the Ministry of Finance (on revenue collection and projections side) as well as the Ministry of Planning and Development, Ministry of Transport, Ministry of Industries, Environment and others. In addition, mining and gas sector developments are affected by the PPP/Mega Projects Law of 2011. As noted above in paragraph four, this Law may result in some unintended consequences for the extractive industries sector (i.e., in the area of licensing and tendering, and the fiscal treatment of projects). While the PPP/Mega projects Law provides an important framework for improved transparency and economic planning, it requires more rationalization on reinforcing these principles with international good practice and needs to be aligned with sector specific laws, including the Mining and Petroleum Laws. 4. Institutional Set-up. Management and oversight of oil, gas and minerals in Mozambique are the responsibility of the Ministry of Mineral Resources (MIREM). Within MIREM, the National Directorate of Mines (DNM) is responsible for the licensing and monitoring of mining activities while the National Directorate of Geology (DNG) is in charge of geo-data collection and management (for non-petroleum sector). Cadastre and inspectorate functions are in place and, for petroleum, the National Institute of Petroleum (INP) promotes exploration and production and regulates upstream operations. The General Inspectorate (IGREM) is in charge of the mineral resources sector inspections and internal audit. Many other parts of Government (i.e., Ministries of Finance, Labor, Planning and Development, Transport etc.) play a role in the mining sector, for example, through consultation and participatory processes, steering committees for the negotiation of large projects and more. However, the relationship and responsibility-sharing amongst the Ministries and other agencies needs to be sharpened, strengthened and made fully operational in order to ensure broader and sustainable economic impacts and regularized coordination. 5. A functional diagnosis of MIREM and its key departments and agencies, including INP and the National Petroleum Company (ENH), is to commence in late 2012.21 Recommendations 21 The institutional review is being supported under AusAid and DflD financing; procurement of a consulting firm is underway (Request for Proposals issued in October 2012). 76 from this diagnosis will inform actions required to develop a comprehensive approach to sector management and inform further institutional reforms. The organizational set up and capacity of MIREM is based on the size of the extractive industries sector as of a few years ago. The size of the sector is dramatically increasing, thus it is timely to review whether the organizational size and structure that has worked well in the past is adequate for future developments. It is anticipated that a strong capacity building program will be essential in order to enable MIREM to adequately perform its core functions. As is a problem globally (due to earlier commodity market declines of the 1970s), there is a generation gap in mining and geology professionals with a large number of senior skilled staff set to retire in the next few years. This large skills gap needs urgently needs to addressed as the sector grows. 6. State Participation. With respect to state participation in natural gas, ENH manages State equity holdings in upstream developments. The State holds 15 percent in Block 1, operated by Anadarko, and 10 percent in Block 4, operated by ENI. The anticipated investment requirement for ENH amounts to US$3 billion and US$5 billion in these blocks, respectively. With respect to state participation in mining, current laws (PPP/Mega Projects Law and Petroleum Law as well as the draft amended Mining Law) envisage State participation in mining projects between five and 20 percent of any foreign investment. This provision is legislated in the PPP/Mega- Project Law and a special purpose vehicle for mining State participation, the National Mining and Exploration Company (EMEM) was created in 2010. Still, there is no clear mechanism on how this requirement should be implemented or how State participation risks are assessed and managed. Over the past decade, diminished use of State mining companies has been a direct result of their non-performance; should Mozambique decide to retain this arrangement with EMEM, it will require creative solutions based on global lessons that consider how best to minimize financial exposure of the State, include sunset clauses and maintain a very clear mandate informed through mineral policy and law. 7. Mining Cadastre. A well-functioning mining cadastre and titling system is recognized as the backbone for sound mining investment climate. As such, modernization and consolidation of the services provided by the central cadastre system in Maputo and provincial systems in Manica, Tete, Zambezia, and Nampula are fundamental for sector development. As part of MIREM's strategy to handle the increased volume of mining licenses, the mining cadastre system (Flexicadastre, which was originally installed under the first World Bank mining capacity building project) was upgraded in early 2012 to a newer web-based version. The expectation is that the number of mining licenses will triple from the current 1,000 to around 4,000 in a very short time frame with more interest from the investors as more finds are proven. Despite the recent software update, MIREM will still need to revise its cadastral procedures in 2013 to be in line with the amended Mining Law and Kimberley Process Certification Scheme22 regulation (both pending approval) as well as to improve its regional office capacity to review and accept applications and to locally process mining passes. 22 While there is no significant diamond mining or trading in Mozambique, in view of the regional dimensions of diamond trade as well as ongoing diamond exploration in Mozambique, the Government of Mozambique is in the process of adopting the Kimberly Process, including developing regulations and setting up the system for certification of diamonds. 77 8. Infrastructure Development. It is recognized that, aside from human capacity, the most serious bottleneck to extractive industries development in Mozambique is inadequate infrastructure. A number of studies have been completed to inform the design and capacity of rail and port systems, including recent World Bank-led analytical work.23 Of the existing infrastructure development plans to support mining, the Nacala corridor/rail construction is moving forward with the support of Vale (estimated value of over US$5 billion). The Nacala corridor will be able to support Vale's coal production and builds in some excess capacity, which will be made available to third-party users. Other rail/port proposals under consideration include rail and Macuze port, barging down the Zambezi River (rejected in 2011, the proposal is being updated), Savane port, an additional Nacala line and terminal, expanded Sena Rail and Beira port and a few others. In addition, a greenfield port is being considered south of Maputo at Techobanine to service transited minerals and coal. In Cabo Delgado, a re-location of the port in Pemba is being considered to support offshore gas operations. The site development of the future LNG plant near Palma will include the development of an airport as well as jetties for LNG export and materials' import. Studies conducted by the Agha Khan Foundation and Anadarko suggest the need for road infrastructure in this part of Cabo Delgado in order to unlock further economic potential (agriculture, forestry). (ii) Regulation, Monitoring and Inspection of Sector Operations 9. The current Mining and Petroleum Laws are supported by regulations that stipulate licensing and monitoring processes. Environmental regulations and health and safety regulations are similarly in place. The health and safety regulations and general Environmental Impact Assessment (EIA) regulations are relatively modern; however, sector-specific environmental regulations and standards require detailed updates for this fast-growing sector. Monitoring of mine sector operations is a function of IGREM (which presently does both technical inspection of mines and petroleum projects as well as internal audit of MIREM and its agencies, which is not a common practice globally). The Environmental Department and Technical Departments of MIREM assist with the review of reports and plans. Environmental inspections and audits are led by the Ministry of Coordination of Environmental Affairs (MICOA) with support from the local mine officers and environmental department of MIREM. For the petroleum sector, inspections and environmental compliance are a responsibility of IGREM and INP together with MICOA. Inspections of ASM operations are carried out by IGREM with support from the ASM department, local ASM officers in the provinces and MICOA. Inspections are conducted but are rather ad-hoc due to staff and equipment constraints as well as insufficient capacity to enforce the regulations to monitor and control not only existing operations, but oversee the fast-growing and potentially much larger mining and petroleum sector. (iii) Collection of Taxes and Extractive Industries Transparency Initiative 10. The Government of Mozambique has made a strong commitment to develop its mineral and hydrocarbon resources in line with best global practices guided by transparency principles. Mozambique joined the Extractive Industries Transparency Initiative (EITI) in 2009 and became 23 Prioritizing Mozambique Infrastructure Using Spatial Lens, Chris Trimble and Cecilia Briceno-Garmendia, AFTSN, 2012. 78 EITI compliant in October 2012. The third EITI Reconciliation report was published in December 2012. 11. A modern fiscal regime for extractive industries in Mozambique was passed as part of the Fiscal Law and Law on Fiscal Incentives for Mining and Petroleum Sectors (2007) and Fiscal Regulations for Mining and Petroleum (2008). In general, the fiscal regime is adequate, clear and attractive to investors. Amendment to the Income Tax Act was passed in January 2013, and Mining and Petroleum Taxation Laws to further improve the system, including incorporating lessons learnt to date will come into force together with the IRPC beginning of the next fiscal year (year starting January 2014).24 The new law(s) include update of royalty rates based on global comparators, introducing mechanisms to capture higher revenues from highly profitable operations (i.e., such instruments as additional profit taxation for mining or sliding scale royalties) and refinement of the capital gains taxation system relevant to mining and petroleum. 12. The collection of taxes and royalties is carried out by the Revenue Authority under the Ministry of Finance. The collection system is relatively efficient and record keeping, as was verified by EITI, has been of a high standard. However, capacity required for the assessment of revenues, verification and audit is not yet fully in place. The new Mega-projects Unit and newly formed mining and gas auditing teams have been established as part of the Revenue Authority, but due to the newness of the sector and lack of prior experience, capacity building for specialists remains the biggest challenge. (iv) Revenue Distribution and Management 13. Mining revenues are just starting to flow into Government accounts. Following the commissioning of such major mines as Vale's Moatize in 2011 and Rio Tinto's Benga in 2012. Revenues will continue to exponentially increase as other licensees commission their mines. While collection of profit taxes and other derivatives from mining are still a decade away, royalty payments have already commenced and are significant. In addition, the first natural gas revenues are expected in 2018-2020, and the sector requires major public investment in the next three to four years. Mozambique thus needs to prepare for robust public financial management in advance of these anticipated revenues. As discussed above, the country will need to enhance its macroeconomic and fiscal policy making in order to harness the opportunities arising from the extractive industries' boom for more inclusive and sustained growth. 14. There is also the need to deepen capacity and understanding of relevant Government authorities to develop and implement financial instruments and options relevant to exposures in mining, natural gas and related infrastructure projects. Specifically, it will need to focus on capacity of Government to assess contractual fiscal terms and to manage budgetary and balance sheet issues that will arise from Government engagement with private sector operators, particularly issues related to sovereign guarantees, direct and contingent liabilities, risk sharing, projected return and timing of revenue generation, together with best practice risk mitigation measures. 24 The recommendations on adjustments were provided by the IMF-FAD in mid-2012, and the Government of Mozambique has since then finalized the acts. 79 15. To date, the revenue distribution system has been rather subjective; there are no set formulas or criteria for channeling revenues to and from the local communities and affected regions; institutional arrangements may be strengthened. Overall, the system is centralized, with only municipal taxes being locally managed and administered. The Mining Law envisages that a percentage of mining royalties are channeled back to mine communities-the first time this arrangement is expected to be enforced is in budget year 2013, where 2.7 percent of royalties are expected to be channeled to affected areas. Effectiveness and application of this approach has yet to be tested and assessed. Several bilateral agreements and donor funded projects attempt to smooth the negative social impacts, but this approach is unlikely to be sustainable with the anticipated growth of the sector. (v) Sustainable Investment 16. Community Development, Corporate Social Responsibility. The current approach to community development and corporate social responsibility (CSR) relevant to mining developments is ad-hoc and unregulated; criteria and processes are undefined. There is a multitude of projects undertaken by investors, contract terms and license expectations include CSR provisions, but accountability and effectiveness has been low and varied. From a taxation point of view, deductions and credits are predominantly a judgment to be made by tax authorities based on information provided by mining companies. The draft Mining Law (of 2012) provides for a more systemic approach to CSR, including minimum requirements for investors, monitoring tools and accountability provisions and requires a framework for community agreements to be in place for all operations. The Mining Law is undergoing consultation with an expectation to be passed by the Parliament in early 2013. 17. Current resettlement practices resulting from mining in Mozambique showed mixed results. While there were no major issues flagged from earlier involuntary resettlements at Moma mine by Kenmare Resources or Sasol's gas and pipeline projects, Vale's more recent resettlements in Tete in 2012 drew considerable attention to weaknesses in existing practices, including the lack of proper public consultation, inadequate standards for compensation and lack of adequate grievance redress mechanism. Resettlement negotiations are conducted through Government. New involuntary resettlement regulations (Decree 31/2012) were drafted with a view to improving the practices and promulgated by the Council of Ministers on August 8, 2012 (independent of Project preparation). In general, the regulations are not in compliance with international standards on involuntary resettlement, including the World Bank's OP/BP 4.12. In this respect, whenever there is a conflict between the national legislation and World Bank operational policies, such as OP/BP 4.12, the latter is expected to prevail in regards to the World Bank financed projects. A review of Decree 31/2012 was undertaken by the Bank and it is recognized that management of social impacts, and resettlement in particular, requires considerable support and strengthening in Mozambique. 18. Sustainability ofASM and ASM Communities. Artisanal mining in most countries in the SSA, including Mozambique, is the only known alternative to agriculture as a source of employment in rural areas. At the same time, multiple issues surround the ASM sector that require attention. If left unaddressed, further environmental and social problems are likely to result including, on the environmental side, soil degradation, water pollution, deforestation and 80 the use of mercury in gold recovery; and on the social side, conflicts amongst miners, child labor and problems arising from cultural beliefs and traditions, including gender inequality. For example, most of the higher paying employment in mining is captured by men, while women (and in many cases children who share chores of women in many communities, and elder people who no longer can mine) mainly are left with less paying jobs of washing, processing and transporting of ores, and food services to miners. 19. It is estimated that approximately one third of artisanal and small scale miners in Mozambique are comprised of women and children, with female participation increasing in the formal sector in recent years. In 1988, in order to support ASM and local communities, the Government established the FFM, ith the specific task of technically and financially promoting and assisting ASM operations. The FFM supports about 30 percent of Mozambican artisanal 25 26 miners. Between 2006-07, the FFM disbursed over US$300,000 to support ASM. However, the FFM is not currently functioning as it is undergoing a reorganization, with decisions regarding its future affiliation pending. 20. Use of mercury in ASM gold production is common in Mozambique (and across the region). However, recent tests by the Geological Survey of Denmark and Greenland (GEUS) of gold bearing soil samples from several locations across Mozambique have shown that a more modem and environmental friendly borax method to process gold is highly suitable and can provide a suitable and cost effective alternative to artisanal gold miners. More tests are being done and training programs being set up with GEUS in Mozambique through the Danish International Development Agency. More work needs to be done to reach the ASM communities, to continue improving their efficiency and productivity, improve environmental and social impacts and speed up the formalization process. 21. Training and Education. Currently, there is an insufficient number of skilled workers and higher level professionals in Mozambique to benefit from employment opportunities in the mining, oil and gas sectors and related services or goods supply chains. The Government is actively updating the system with support from the World Bank and other donors, including support to Technical and Vocational Education and Training (TVET) projects. In particular, under the management of the Executive Secretariat for the reform of TVET, the development of qualifications, curricula and related learning materials for selected courses in the area of mining and gas is currently being discussed with MIREM. Some of the results of this collaboration include: (i) an understanding that the close coordination of efforts and involvement of key sectors, including the private sector, in the design of qualifications for the sector is essential; (ii) the establishment of a technical advisory committee for the area of mining in close collaboration with MIREM, which includes representatives from Vale, Rio Tinto, Kenmare, CETA, University Eduardo Mondlane and a representative from the National Directorate of TVET, among others; (iii) the first competency based training qualification for medium technical level in the area of mining is being completed by end of 2012; and (iv) a technical advisory committee for gas is in the process of being established. The World Bank Human Development team is currently 25 Dondeyn, S. Ndunguru, E. Rafael, P. Bannerman, J. 2009. "Artisanal mining in central Mozambique: Policy and environmental issues." Article in press. Resources Policy. 26 A Rapid Baseline Assessment of ASM Sector in Mozambique, Geological Survey of Denmark and Greenland, August 2012. 81 developing a programmatic analytical work for Mozambique that will be implemented over the period 2013-2015 and will include further analysis of the development of skills for extractive industries, building on the current work. However, the needs remain enormous and development of strong curricula and careful planning will be a priority to improve employment outcomes for the population of Mozambique. From the mining and petroleum sector side, investors will need to continue supporting training and supply information regarding employment opportunities. 22. Economic Linkages, Regional Development and Cross-Sectoral Platform. The Government is already engaged in a spatial planning, including participating in the New Partnership for Africa's Development (NEPAD) Spatial Development Initiative as well as the Spatial Development Project funded by the World Bank (effective 2012) and the newly proposed Bank-supported Growth Poles Project (expected in FY13). Important cross-sector policy and investment decisions are prepared by the Inter-Ministerial Evaluation and Investment Committee (chaired by the Ministry of Planning and Development) for final decision in the Council of Ministers. This Committee is supported and informed by Steering Committees (at the National Director level) that are set on an "as needed" basis to address specific issues (e.g., LNG or spatial development). 23. The cross-sectoral dialogue remains limited due to factors such as capacity constraints and work overload of capable officials. The ad-hoc steering committees have become a regular part of Government engagement on specific cross-sectoral issues as they arise and have acquired some track record and credibility for resolving issues and "getting the job done." However, this approach requires strengthening and regularity and remains a weak link as sector activities continue to expand and become increasingly sophisticated. The cross-sectoral platform to address particular needs of large-scale mine and natural gas developments and associated economic planning needs to be streamlined, organized and supported through technical advisory services and linkages with international experts as well as peers across the world. 24. Government recognizes that the development of extractive industries must be integrated with overall economic planning in order to boost local procurement, business development and employment. Ongoing work on a Natural Gas Master Plan27 suggests, for instance, that while large-scale LNG export is important as an anchor to attract investment for the development of offshore gas production, distributed domestic gas mega-projects (i.e., methanol, fertilizers, gas- to-liquids, power, steel etc.) are key anchor projects that will support gas transport and distribution pipeline development and enable the expansion of small industry. It is also noted that urban areas have greater potential to foster backward and forward linkages between gas and mega-projects. 25. Specific issues to be addressed by Government in terms of linkages and regional development include further institutional capacity building, which may require some institutional 27 Preparation of a Gas Master Plan is supported by grants from the Public Private Infrastructure Advisory Facility and Petroleum Governance Initiative trust fund through the World Bank. The work commenced in mid-2012 and draft outcomes of the analysis were presented to Government stakeholders in a workshop in September 2012. The Gas Master Plan is expected to be finalized before the end of calendar year 2012 to inform Government's decision making in regards to gas development and use as well as revenue management and ways to stimulate economic growth through gas. 82 modification; introduction of policies to stimulate the development of domestic markets, local employment and skills development; reduction of barriers to doing business; creation of adequate resource databases; detailing and applying of high standards of environmental protection; rationalization and securing of optimal rents (where applicable, based on fair negotiations); introduction and implementation of participatory revenue management mechanisms; enforcement of high good governance standards, social accountability and transparency; and promotion of equitable distribution of benefits, particularly in mine affected communities (which, unlike the large gas developments, are onshore), including youth, elderly and most vulnerable groups (and resulting in better health, education and social services to those communities). 83 긱