Report No. 39878-IN India Towards Sustainable Mineral­Intensive Growth in Orissa Managing Environmental and Social Impacts May 30, 2007 Environment Unit Sustainable Development Department South Asia Region Document of the World Bank Towards SustainableMineral-IntensiveGrowthinOrissa iii MOU Memorandum of Understanding MPRDA Mineral and Petroleum ResourcesDevelopment Act MT Million Tons NALCO NationalAluminum Company Limited NGO Non-government organization NMP NationalMineral Policy NTFP Non Timber Forest Products OMC Orissa Mining Corporation OPCB Orissa PollutionControl Board OSIMA Orissa Sponge IronManufacturers Association PADM Pollution Assessment, Research, Development andMonitoring PCB Pollution Control Board I S 0 International Organization of Standardization PNG PapuaNew Guinea PRI Panchayati Raj Institution R&R Resettlement and Rehabilitation RO RegionalOffice RTI Right to Information Rs . Indian rupees SD StandardDeviation SME Small and MediumEnterprise SOE State OwnedEnterprises SPCB State PollutionControl Board TF Task Force UP Uttar Pradesh VAT Value Added Tax CURRENCY EQUIVALENTS Exchange rate ofthe IndianRupees for US$1.OO Fiscalyear Annual averagerate (Rs) 2000-01 45.6844 2001-02 47.6919 2002-03 48.3953 2003-04 45.9516 2004-05 44.93 15 April 1-March31 FISCAL YEAR Towards SustainableMineral-IntensiveGrowthinOrissa iv TABLE OF CONTENTS EXECUTIVESUMMARY ........................................................................................................................ i MakingCommunity a DevelopmentPartnerThroughBenefitSharing ................................................... ii v The Way Forward: Risingto the Challenge........................................................................................... StrengtheningInstitutionsfor EnvironmentalManagement..................................................................... vii 1 INTRODUCTION . ................................................................................................................................ I. TheBackground.................................................................................................................................. 1 1 I1. The Study............................................................................................................................................ I11The Report Structure........................................................................................................................... . 1 2 2. ENVIRONMENTNALAND SOCIALCHALLENGESOFMINERAL-INTENSIVE ........................................................................................................................ 3 IMineralsandGrowth:EmpiricalEvidence.......................................................................................... .GROWTHIN ORISSA 3 I1. MiningandExternalities...................................................................................................................... 1II.Institutions:The DriversofDevelopment.......................................................................................... 5 - 6 3. MANAGINGTHE ENVIRONMENTALAND SOCIALIMPACTSINTHE MINERAL I.SECTOR ................................................................................................................................................ 8 8 I1 AdoptingGoodEnvironmentaland Social Practices.......................................................................... The Challenge..................................................................................................................................... IIISupportingPeripheralCommunityDevelopmentthrough Benefitsharing ...................................... . 9 15 lV.TheWay Forward............................................................................................................................. 19 4.I.STRENGTHENINGENVIRONMENTINSTITUTIONSTO . I1. MultiplePolicies andInstitutionsto Achieve CommonGoal.......................................................... KeepingPace with the InvestmentBoom........................................................................................ 23 SUPPORT RAPIDGROWTH 23 I11. Respondingto the Demandsof Growth: IncreasingEffectivenessof ConsentMgt System 25 IV. EnhancingAccountabilityfor EnvironmentalViolations ............................................................... . ..........24 27 V. BuildingPublicTrust inEnvironmentalManagement..................................................................... VI Strengtheningthe EnvironmentalRegulator ................................................................................... 3 1 33 VILTowardsStronger andEffectiveInstitutions:An ActionPlan......................................................... . 35 5 A WAY FORWARD . ............................................................................................................................ I EnhancingOpportunitiesforInclusiveMineral-intensiveGrowth.................................................. 37 I1. StrengtheningEnvironmentalManagement...................................................................................... . -37 38 IIIJmprovingLinkagesbetweenEnvironmentaland Sectoral PoliciesandProcesses .......................... 39 TABLES Table 3.1:Opportunities. Challengesof SustainableMiningand Strategic Responses............................... Table 3.2: Risks. Challenges ofDevelopingSustainableMiningand Strategic Responses....................... 9 10 Table 3.4: Benefit Sharing Schemes........................................................................................................... Table 3.3: Relationship betweenSocial CommitmentandMineralRoyalties ........................................... 17 21 Table4.1: Orissa's EconomicGrowth 1980s-2000s (in "/o) ..................................................................... 23 Table 4.2: Key RegulatoryAgencies for EnvironmentalManagementin Onssa....................................... 24 Table 4.3: InspectionandMonitoringSchedulesfollowedby OPCB........................................................ 28 Towards SustainableMineral-Intensive Growth inOrissa V FIGURES Figure2.1: Per capita State GDP. growing gap with the rest o f India.................................................. the 3 4 6 Figure 4.1: Trends in Consent to Operate issuedby OPCB........................................................................ Figure 2.3: Institution and Development ...................................................................................................... Figure 2.2: Orissa's Mineral dependence grows........................................................................................... Figure 4.2: Apportionment o f HumanResources available inOPCB ........................................................ 25 33 Box 2.1: Mining inthe Koenjhar District: limited empirical evidence of impacts....................................... BOXES 6 Box 3.1: Good Practice o f Orissa................................................................................................................ 11 12 Box 3.3: Development Forum Model: PNG Experience............................................................................ Box 3.2: Key EnvironmentalPathways and Safeguards............................................................................. 18 Box 4.1:Mitigating Risks through the Environmental Assessment and Forestry Clearance ..................... 26 Box 4.3: Role o f Bank Guarantee inImproving Environmental Compliance in West Bengal...................27 Box 4.2: SPCB Initiativesto Strengthen Compliance andEnforcement .................................................... 29 Box 4.4: Cooperative Approach for SMEs -good practice example from Kolkata................................... 30 ANNEXES 46 Annex 2: International Experience with Royalty and Benefit Sharing....................................................... Annex 1: Summary o f Good International Practice inMininglegislation....................................... 51 Annex 3. Summary o f Statistical Assessment o fMine ImpactsinKoenjhar................................... 56 REFERENCES .......................................................................................................................................... 58 Towards Sustainable Mineral-Intensive GrowthinOrissa vi ACKNOWLEDGMENTS This report is the product of a collaborative effort between the World Bank and the Government of Orissa, under the overall guidance of the Department of Forests and Environment with significant support from the Department of Steel and Mines. We would like to especially thank Mr. S.P. Nanda, former Principal Secretary (Forest and Environment) and Mr.Bhaskar Chatterjee former Principal Secretary (Steel and Mines) for their support and guidance throughout the study. The team also acknowledges valuable inputs and collaboration by the Orissa State Pollution Control Board led by Dr. L. N. Patnaik, Chairman. Significant contributions by numerous participants from Non Government Organizations (NGOs) and mining and industry sector representatives at several meetings and workshops held at various stages of the study are gratefully acknowledged. The team is thankful to Mr. S. Pani former Chief Secretary, Mr.L.N.Gupta former Secretary (Steel and Mines), Dr. R.V. Singh, Special Secretary (Planning and Coordination) and Mr. H Panda, Principal Secretary (Forest and Environment) for their broad support and guidance during finalization ofthis report. The World Bank team was led by Sanjay Srivastava and Kseniya Lvovsky, and included Richard Damania, Jane Nishida, Adriana Eftimie, Ranjan Samantaray, Priti Kumar, Genevieve Maria Dutta and Vinod Ghosh. Background surveys and studies for this report were provided by ateam of consultantsfrom the Environmental Resources Management led by Susheel Handa; RTI International led by SubhrenduK. Pattanayak; Carolyn Fischer and Verve Consulting led by Ashok Singha. The Centre for Environment Studies led by Mr. Jude Sekar, Director and Special Secretary(Forest and Environment), supportedby Pragnya Bhattmishra and Bikas Mohapatra took lead in planning and publishing a quarterly news letter "Growth and Environment". Peer reviewers were Dilip Ratha, John Strongman and Fernando Loayza of the World Bank. Helpful comments were received from V.J.Ravishankar, Asya Akhlaque, Maitreyi Das, Sameer Akbar, and Tapas Paul. Jeffrey Racki, Acting Sector Director, South Asia Environment and Social Development Department; Michael Carter, former Country Director, Ms. Isabel Guerrero Country Director for India; and Fayez Omar, Senior Manager, India program, guided the overall effort. Towards SustainableMineral-Intensive Growth in Orissa 1 EXECUTIVESUMMARY 1. Orissa is rich in natural resources. It is endowed with an abundance o f minerals, timber, marine resources, and a plentifulsupply o f water. The state is India's main supplier o f numerous valuable minerals such as chromite, nickel ore, coal, bauxite, iron ore and manganese. About 30% o f its area is under forest cover, which provides for the livelihood o f a large and growing tribal population. It is also one o f the richest biodiversity regions in India. 2. Inthe past several years, Orissa has emerged as a dynamic and reformingstate that is poised to turn around its development fortunes, usingas a major driver, an investmentboom in the mineralsector and downstream industries.An initial set o f reforms that has arrested fiscal deficit, improved governance and accelerated economic growth. Building on this success, the Government o f Orissa (GOO) is developing and implementinga comprehensive vision and strategy for sustaining these achievements and ensuring lasting inclusive growth. 3. Given the substantial growth potential o f the economy's natural endowments, there is little doubt that natural resources in general, and minerals in particular, will continue to play a prominent role in shaping the state's development. This increases the demand on the state institutions to enhance their capacity to manage the social and environmental impacts o f a mineral-intensive growth strategy from a wide range o f stakeholders. Given the legacy o f insufficient attention to managing these impacts, it i s particularly important to demonstrate a new, environmentally and socially responsible approach to promoting investments in mineral-intensive industries. An ambitious socio-economic development program o f the GOO,which pursues a broad-based growth strategy, recognizes the need for stronger partnerships between regulators, developers and communities supported by strong institutions that shape the contours o f development and future investments along which adverse social and environmental impacts are controlled and positive effects are reinforced. 4. The design o f this study was informed by the recognition by G o 0 o f a critical importance to develop a strong policy and institutional framework for sustainable and inclusive growth and o f the critical role that closely interlinked environmental and social issues play in building broad-based public support for a mineral-intensive growth strategy. The study's objective was to support the socio-economic development program o f the G o 0 by helping to analyze and formulate practical strategies for strengtheningan institutional and regulatory framework with respect to managing the environmental and social impacts o f investments in the miningand industry sectors. This study, conducted for about a year, focused on two sets o f issues: (i)the need to create mechanisms to share the concentrated benefits o f mineral-intensive investments across the community, and (ii)the need to address the externalities o f accelerated mineral-intensive through improved enforcement and compliance o f environmental and miningregulations. Significant attention was given to the capacity needs o f the Orissa Pollution Control Board (OPCB), as the main agency to monitor and enforce compliance with environmental regulations and standards. 5. This analytical work was undertaken with strong support from the Department o f Environment (DOE),the Orissa Pollution Control Board (OPCB), Department o f Steel and Mines (DoS&M), and the Department o f Industry(DoI). The study followed a consultative process with several focused group consultations and workshops with various stakeholders during the course o f study period. A number o fbackground studies and activities were undertaken, such as capacity needs assessmento f the OPCB; assessment o f biodiversity and socio-economic impact due to miningactivities in select areas; and review o f international experience in benefit sharing in mineral based economies. The study also contributed to environmental awareness creation through supporting a bi-monthly newsletter entitled TowardsSustainable Mineral-Intensive Growth inOrissa ii "Growth and Environment in Orissa". The newsletter was produced by the Center for Environmental Studies (CES) in Bhubaneswar. MAKING COMMUNITY A DEVELOPMENT PARTNERTHROUGH BENEFITSHARING 6. Substantial progress has been made in establishing a comprehensive mining policy framework at the national level in India and at the state level in Orissa. The minerals previously reserved for exploitation by the public sector (iron ore, manganese ore, sulphur, chromite, gold, diamond, copper, lead, zinc, molybdenum, tungsten, nickel and platinum group o f minerals) have been opened for private and foreign investment. Preferential rights o f the private sector are now recognized for the grant o f a mininglease, providedthe party has carried out the actual prospecting. Important policy initiatives have also been taken to address the environmental and social risks posed by the sector, such as the mine closure notification by Government o f India (2003), and the Resettlement and Rehabilitation (R&R) policy o f the Go0 (2006). 7. The mineral resource base in Orissa is mainly spread in the tribal community dominated districts. A pilot assessment o fthe impact o f mine exposure on communities inOrissa, taken up under this study, suggests that further strengthening the policy framework and, particularly, the implementation mechanism is needed to ensure that the benefits o f increased economic activity due mineral extraction fully reach the communities and are not offset by the externalities o f miningsuch as the impactson forest and water sources, on which the communities depend. The assessment also suggests that different companies have in the past practiced different approaches to peripheral development and environmental management within the same area, without a consistent framework, which reduced the effectiveness o f good practices adopted by some companies. The analysis i s based on a survey covering 600 households in the Koenjhor district with highconcentration o fminingactivity featuring a mix o f large and small mines. Its findings can not be directly extrapolated to other areas or new investments, or used to draw definite conclusions on policy prescriptions. 8. Nevertheless, the assessment underscores the importance o f the efforts by Go0 to develop more systematic mechanismsthat extend the benefits of mining to the local communitiesliving in and around the mining affected areas in terms of: (i)accelerating shared growth and job creation; (ii) developing appropriate mechanisms to increase flow o f funds to local governments and/or tribal communities; (iii) improving public service delivery; and (iv) strengthening social protection. As a result o f these efforts, (Orissa has now in place a progressive Resettlement and Rehabilitation (R&R) policy (adopted on May 14, 2006), which is more people-friendly than that o f any other state. This policy stipulates rational criteria for compensating those directly affected by mining.The new R&R policy and a number o f other important government initiatives to share benefits o f the investment boom with local communities are major steps toward a comprehensive and systematic approach to addressing peripheral development issues and programs in mining areas that effectively balances interests o f various players. To succeed, this process needs to be supported by strengthening institutions and implementation record at both the state and local level o f government, in close cooperation and consultation with the target communities. 9. Establishing a comprehensive and operational peripheral development mechanism is inherently difficult because it requires balancing diffused interests against concentrated interests. It asks those affected by mining to trade the certainties o f a known livelihood for the uncertainties o f an unknown system. In principle, the mechanism should ensure the following types o f benefits accruing to the local communities: (i) employment and income-related benefits; (ii)benefits aimed at building local human capital and institutional capacity; (iii) benefits for the community resulting from the development o f infrastructure; and (iv) where necessary, special funds to sustain human and social capital accumulation. Towards Sustainable Mineral-Intensive Growth in Orissa ... 111 10. The challenge, which is not unique to Orissa, is to find ways to operate theseprinciples in a particular cultural, institutional and political setting. International experience, reviewed in this study, points to four key priorities that need to be addressed in designing a benefit sharing program. First, it is necessary to create mechanisms to ensure that legitimate community interests are adequately represented. Unless those affected by mining are legally empowered with adequate and transparent rights and safeguards, there remains a risk that (as in the past) communities will be marginalized, when industrial interests align with those o f decision makers. This calls for far-reaching changes that give effective legal voice to communities through strengthened rights over development decisions. Second, it is important to deliver benefits in ways that are meaningful to communities and generate economic development that can be sustainedbeyond the flnite) life of a mine. Third, the system must be credible and establish trust. If impoverishment or other adverse impact is the anticipated consequence of a mining project, then resistance can be expected to follow, Fourth, the mechanism must be sufficiently adaptable to accommodate diverse needs and interests. This is particularly important for Orissa where the mining areas vary across a number o f dimensions including: the type o f miningactivity, the number o f mines, the size o f mines, topography, density o f population and the assimilative capacity o f the environment. Thus situation rules out one-size-fits all approach; each case will involve a different set o f actors and fine tuningthe mechanism to meet community needs will require a system that elicits information and allows choice. 11. Negotiation andparticipatory approach are therefore preferable toprescriptive "top-down" approaches. A participatory partnership model such as the Papua New Guinea Development Forum provides a promising template that can be adapted to different circumstances. The forum acts as a venue for information sharing and establishes the manner in which benefits from the project are shared. This approach involves communities, government and the mining company who enter into legally binding Memorandums o f Agreement that spell out the forms and level o f benefits from a specific miningproject that will reach the local community. The mechanism i s therefore inclusive, with stakeholders beingpart o f the process and making informed decisions, based on communication, consultation and negotiation. That the agreement has legal underpinningsmakes it credible and offers a way o f bridgingthe trust gap. 12. The manner in which benefits are shared is another important dimension. There are clear advantages to providing benefits through public goods that leave durable development outcomes and promote economic independence. Payment o f cash is most likely to induce immediate consumption instead o f investment and additional income will tend to substitute for labor supply. Cash payments are usually one time payments and should be the last resort in areas that lack service delivery capacity, or where trust o f local institutions remains weak. The ultimate goal o f any benefit sharing agreement is to transform the community from being a beneficiary to becominga stable and reliable partner. 13. Inareas with multiple small industries such as sponge iron plants and mines, capacity constraints might limit the ability of small companies to engage in any meaningfulbenefit sharing. Reportedly, these small companies have been unevenly and partially implementing the peripheral development policy, generally under pressure from local administration or community. Therefore, in such cases, there is a needto establish mechanisms to pool resources from different firms to address collective action problems -anapproach supportedbyGOO.Underthisapproach, localgovernmentsareexpectedtoplayamore active role in service delivery; it would be necessary to match their capacity with these additional commitments. On the other hand, where a single large industry or mine dominates the landscape and local government capacity is over-stretched, it is more likely that the company would take responsibility for providing benefits in the form chosen by communities. However, this approach does not ensure sustainability in the long term. Mining is a temporary activity and if the necessary conditions for sustainable development are not created after closure, the affected community would end up in a worse situation. Towards Sustainable Mineral-Intensive Growth inOrissa iv 14. Determining how much to share is another delicate issue that involves balancing community needs against available public funds and corporate profits. Excessive demands on corporations would be counterproductive and would erode investment. An approach based on voluntary negotiation between the company and the community, with the government playing the role o f a facilitator, provides one solution. This approach, however, would be complicated inthe situation o f many players and companies, typical inmany areas o f Orissa. Furthermore, considerations such as overall fiscal regime for mining, revenue sharing arrangements between central, state and local government, and the effectiveness o f public service delivery mechanisms will all play a role in arriving at an appropriate solution ina particular context. 15. Overall, the analysis and consultations in the course o f the study indicate the need for a flexible approach to benefit sharing that can be tailored to local needs and accommodate diverse industry structures and management capabilities, based on negotiation and voluntarism. In developing locally-specific schemes, the following considerations are useful: 0 Meaningful community representation calls for awarding greater rights to affected parties over development decisions that affect their livelihoods. The Development Forum approach will most likely succeed in small and relatively homogenous communities (such as in many tribal communities), mainly exposed to miningactivities by one large company. 0 Pooling resources to address collective action problems may be effective in areas with multiple small scale mining. 0 Providing benefits through public goods that leave durable development outcomes and promote economic independence should be seen as first preferred option, while cash payments may be the last resort in areas that lack service delivery capacity, or where trust o f local institutions remains weak. 0 Incase of a large miningcompany in an area where local government capacity is over-stretched, the company could take responsibility for supplyingbenefits in the form chosen by communities. It is important, however, to put arrangements inplace that will gradually buildthe capacity ofthe local government and moderate community dependency on the miningcompany. 16. Following the Government o f India notification 2003 about mine closure, further actions to develop successful practices are needed with respect to the environmental problems associated with abandoned and orphan mines. Inthe case o f Orissa, most o f the abandoned mines have naturally been converted into rainwater storage tanks, but the water is often contaminated which reduces its usefulness even in times o f drought and pollution problems occur through acid rock drainage. Mitigation o f the environmental impacts o f mining and the progressive rehabilitation o f the affected surface area is fundamental to modern sustainable mining.It helps in retaining the "social license to operate" implicitly conveyed by the communities most impacted by the mining operation. Enforcement o f Environmental Impact Assessments (EIAs) and agreed Environmental Management Plans (EMPs) are an essential part o f this social compact, andwill be especially important inOrissawith its highpopulation density and intense competition for rural agricultural land. 17. Planning for closure can generate benefits at two levels. First, at the level o f the local community or region; and second, at the level o f the miningcompany. A forward looking approach can simultaneously involve developing viable economic alternatives, transforming mined land for productive purposes such as for growing cash crops, and possibly timing new miningprojects inthe region. 18. The lessons o f local and international experience, outlined above, are expected to help GOO, in consultation with other stakeholders, to build on the recent initiatives and continue developing an effective framework for negotiation with community and broad-based peripheral development. This Towards Sustainable Mineral-Intensive Growth inOrissa V would require a long-term commitment. The Development Forum is now successfully practiced in Papua New Guinea but it took almost 20 years o f effort. Nurturing overstretched government institutions to ensure that policy promises are matched by policy implementation takes time, too. Past experience also plays an important role in shaping expectations. Thus, it is critical to put a major effort into building a good implementation record with new initiatives, such as the R&R policy, which should include consistent delivery o f payments in full and in time and meaningful consultations. In addition, new approaches to peripheral development need to be complemented by improving enforcement and compliance with environmental and forestry regulations, which have often been at the root o f controversy and social tension over miningprojects. 19. It should be worthwhile to extend and detail an empirical analysis of the impact of mineral based sector development, initiated by this study on a pilot basis, to other areas with different mix o f mining and related downstream companies and communities, to provide a fuller picture o f the benefits and impacts, and community needs. The findings could be used for guiding the design o f peripheral development plans. Given the significance o f and close linkages between the environmental and social issues in miningdevelopment, a strategic environmental and social assessment o fthe miningsector would be a useful tool to support the formulation o f a sustainable miningdevelopment framework. STRENGTHENINGINSTITUTIONSFOR ENVIRONMENTAL MANAGEMENT 20. Mineral-intensive growth i s known to create significant environmental externalities and requires strong environmental institutions to effectively reconcile the need for further investment with environmental protection. An example o f this challenge can be seen from a ban by Go0 on locating new sponge-iron industries in six sensitive blocks o f the state, namely, Kuarmunda, Lathi Kata, Rajgangpur and Bonaigarh in Sundergarh district; and Jharsuguda and Rengali blocks in Sambalpur district, that have seen growing levels o f public complaints due to increased air pollution. In this context, this study undertook an assessment of the effectiveness of the existing regulatory and enforcement tools and of the capacity needs of the OPCB to perform its primary tasks in a situation o f rapid growth trajectory and expected massive investments in pollution-intensive industries. The assessment focused on identifying, jointly with the DOEand OPCB and in consultation with Do1 as well as NGOs, specific measures for strengthening: (i)policies, processes and procedures to enhance compliance and enforcement o f environmental regulations, (ii)capacity o f the environmental regulator (mainly OPCB), and (iii)public consultation and participation. The key identified issues and ways to address these are summarized inthe following paragraphs. 21. Considerable progress has been made in establishing the environmental regulatory framework in Orissa. However, much remains to be done to further strengthen application of the regulations, procedures, mechanisms and practices in monitoring, compliance, and enforcement. Among the various governmental institutions, the OPCB plays the main role inensuring compliance with environmental laws and regulations, particularly in the industry and mining sectors. The OPCB is planning important initiatives with regard to improving the consent management system, increasing environmental compliance in the regulated community, promoting effective public participation, and decentralizing environmental functions to the regional offices. 22. Improving the effectiveness of environmental consent management and performance monitoring. Currently, a significant number o f small industries and mines are not covered by the environmental consent management system -a situation observed in many states. An inventory o f all mines and industries operating in the state needs to be performed by OPCB, cross checking and harmonizing the lists o f licenses or registration with the consent database. Once the inventory i s completed, an amnesty program could be established to encourage unregulated units to come into the system while an aggressive inspection campaign should be implemented for those who do not come Towards Sustainable Mineral-Intensive Growth inOrissa vi forward. On the other hand, while the regional offices o f the OPCB have been given a greater role in consent, monitoring and inspection functions, they are facing serious capacity constraints in a time o f increased decentralization and exponential workload that i s expected with the growth o f new investments inthe state. A periodic assessment of workload, capacity and resource needs would be requiredto better support and ensure performance at the central and regional offices. 23. Strengthening enforcement tools and compliance incentives. As highlightedby the National Environment Policy (2006), ability o f state enforcing agencies, such as OPCB, to enforce regulations is constrained by the lack o f adequate enforcement deterrents and compliance incentives to promote good environmental behavior and discourage willful defaulters. To overcome this systemic problem, the OPCB has adopted, on a pilot basis and following the successful experience of West Bengal, a Bank Guarantee instrument (conditioning the renewal o f CTO for willful defaulters on a Bank guarantee that is forfeited in case o f a failure to meet the CTO performance targets) as a tool to strengthen enforcement deterrents. It is important to evaluate and expand the use o f this promising measure, which is particularly suitable for high risk large industries, as well as continue exploring other enforcement mechanisms that have been successfully adopted by some SPCPs. Recognizing that regulatory enforcement alone may not suffice in dealing with Small and Medium Enterprises (SME) sector, innovative regulatory programs and approaches are required for these sources. Such approaches should combine greater involvement o f citizen and local government in monitoring and enforcement with extensive compliance assistance in the form o f knowledge on best practices, capacity building, and financial aid targeting polluting small scale sector (such as sponge iron plants, brick kilns, stone crushers etc) or sensitive areas. 24. Improving public participation for a shared vision of growth. Affected communities are principal stakeholders o f environmental management that are increasingly demanding greater accountability for environmental impacts, and increasingly resorting to public interest litigation. In addition to and as a way o f strengthening the effectiveness o f public hearing process (renamed as "public consultation" by the new EIA notification, 2006), it would be important to develop "community participation" programs by DOEand OPCB aimed at educating and pro-actively communicating with community stakeholders on the impacts and benefits o f the proposed development activities. Such programs could involve smaller and more frequent meetings with communities, prior to a "formal" public consultation, and interactive approaches to educating the public through training sessions and the publication and dissemination o f regular environmental updates. It could also entail designating regional officers to work with the community to better understand local concerns, and adoption o f user friendly procedures to ensure the fullest access to information under the Right to Information Act. It is also important to expand programs for involving citizens in environmental monitoring, building on a reportedly successful OPCB experience o f the five "watch-dog" committee involving a community representative, particularly for small industries and mines. 25. Enhancing the Role of Mining and Industry Institutions. The role and involvement o f industry and mining sector institutions will continue to determine environmentally sound behavior o f industries and mines. For example, a promoter's decision on site location, land or choice o f technology that are crucial determinants o f environmental performance during operation are generally taken in consultation with sector agencies during planning stage, when environmental agencies are not engaged, thus missingthe opportunity to minimizethe environmental impacts at lowest cost. Ensuringenforcement o f environmental regulation is a shared responsibility o f the OPCB and other regulatory sector agencies that directly or indirectly influence the environmental management during operational stages. For instance, identification o f environmental concerns, implementation o f environmental management plan and monitoring o f emissions and mine closure plans is a shared responsibility between OPCB, IBM, and DoS&M. There is a need to improve cross-sectoral coordination in managing the environmental impacts o f pollution-intensive investments. The first step could be sharing o f information between agencies Towards Sustainable Mineral-Intensive Growth inOrissa vii through development o f inventories andjoint inspection protocols to ensure greater compliance with both environmental and miningregulations. 26. It is also important to demonstrate to sector agencies, using real-life examples from rapidly growing good practice examples o f corporate responsibility in India, that environmental regulation should not be seen as a barrier to investment but as an opportunity to improve efficiency, technology and management o f a development project and get public support. A judicious mix o f incentives and penalties linkedto environmental performance and supported by the sector agency, such as IPICOL (building on examples o f environmentally-sensitive industrial policies as found in states like Maharashtra and Gujarat), could significantly facilitate environmental compliance and performance. THEWAY FORWARD: TOTHE CHALLENGE RISING 27. Four key areas of institution strengthening that are critical to enabling sustainable and inclusive growth, envisioned by GOO, have been identified inthis report: (i)developing miningregulators capacity to manage environmental and social performance o f the mining operations; (ii)strengthening enforcement tools and incentives for environmental compliance; (iii)enhancing capacity o f the OPCB to meet the demands of a growing economy; and (iv) improving public consultation and participation. The following specificpriority actions have been identified, in consultation with the Governmentand other stakeholders, to be undertaken in theshort-to medium term: (i) Further building capacity of mining regulators to manage environmental and social performanceof miningoperations: Undertake baseline assessments (including strategic environment and social assessment and mineral resources assessment) and priority action planning to support the preparation o f the sustainable development strategy for the mining sector, and specifically facilitate rational land use planning, community development and benefit sharing o f local and tribal peoples, and the dual use o f designated forest areas with progressive rehabilitation and reforestation; Develop procedures and mechanisms for environmental compliance, mine closure, and addressing legacy issues by different categories o f miningoperations; Prepare guidelines for proper consultation, community development planning and benefit sharing, including a pilot development pladbenefit sharing scheme in selected miningareas; and Strengthen mineral sector agency capacity, primarily at level o f district mineral administration through training, process enhancement and equipment renewal, based on needs assessment. (ii)Strengtheningmechanismsandincentivesforcompliance: 0 Expand the scope o f environment management by bringing unregulated industries and mines under the consent framework through an inventory o f industries and mines (both operational and abandoned), incoordination with DoI, DoSM and IBM, 0 Strengthen incentives for compliance, such as greater use o f the bank guarantee system based on its evaluation, for large and medium industries with hazardous processes, or compliance assistance schemes targeted at small scale industries; 0 Improve procedures and mechanisms for monitoring, inspection and enforcement for polluting industries and mines, building on experience with "watch dog" committees and successful initiatives by other SPCBs; 0 Enhance cross sector coordination through agreed protocols for joint inspection, information sharing, and monitoring onenvironmental issues in industryand miningsectors; and Towards Sustainable Mineral-Intensive Growth inOrissa viii 0 Incorporate environmental considerations in the planning process by requiring that zoning atlas be used to determine the most suitable areas for investment and zones for new industrial and miningprojects. (iii)EnhancinghumanandtechnicalcapacityoftheOPCB 0 Strengthen the capacity o f the central office and particularly regional offices through operational review, more effective stafftraining and improved use o f information technology; 0 Reassess its mandate in line with Water and Air Act provisions and develop a plan for outsourcing activities which do not involve legal obligation; and 0 Introduce a periodic assessment o f capacity and staffing needs in view o f growing workload, resulting in a staffing plan by OPCB that takes into account all possible efficiency gains and focuses on filling the remaining critical staff shortages. (iv) Improvingpublic participation 0 Develop and undertake a sustained environmental awareness program startingwith environmentally sensitive industries and mines by partnering with industrialand mining associations and government corporationshodies; 0 Increase accountability for involving local government and respected community leaders early in the planning process and develop programs for engaging the community through the regional offices; 0 Strengthen the public hearinghonsultation process by providing specialized staff training on effective public participation techniques and skills, and use facilitators, professional or community, to bridge the communication gap; and 0 Consistentwith the Rightto InformationAct, improve the collection, storage, and updating o f informationto ensure a comprehensive environmental database with access by the public and across sector agencies, including developing user friendly procedures for information dissemination. 28. I n conclusion, rapid growth that is projected for Orissa bringspromising future opportunities for economic development and poverty reduction. To benefit from these opportunities requires, among other reforms, the effective management o f environmental and social impacts o f mineral-intensive growth. The challenge is enormous given the legacy o f insufficient attention to these issues in the past, the scale o f expected new investments, and capacity constraints o f government and community institutions. The government has embraced a broad-based growth agenda, and is moving forward in a more environmentally and socially responsible manner than in past, demonstrated by a series o f recent initiatives. Building on this momentum, the study has developed, through analysis and extensive consultation with Go0 and other stakeholders, a set o f specific recommendations to improve environmental management and social integration that can pave the way for an enabling framework for inclusive and sustainable growth. 1. INTRODUCTION I. THEBACKGROUND 1.1 Orissa i s rich in natural resources. It is endowed with an abundance o f minerals, timber, marine resources, and a plentiful supply o f water. The State is India's main supplier o f numerous valuable minerals such as chromite, nickel ore, coal, bauxite, iron ore and manganese About 30% o f its area is under forest cover, which provides for the livelihood o f a large and growing tribal population. It is also one o f the richest biodiversity regions in India and thus presents an important challenge for government, community and investors alike from the point o f view o f ensuring long term sustainable development. 1.2 Orissa has recently begun to turn around its development prospects and has emerged as a dynamic and reforming state, despite being one o f the poorest states in India. Apart from a wave o f domestic and foreign investment in the mineral sector and the downstream industries, fueled by surging demand for steel and other mineral products on the domestic and global markets, there are signs o f accelerated growth in agriculture, allied industries, construction and services. Given the substantial growth potential of the economy's natural endowments, there i s little doubt that natural resources in general, and minerals in particular, will continue to play a prominent role in shaping the state's development. This increases the demand on the state institutions to continue strengthening their capacity to manage the social and environmental impacts o f a mineral-intensive growth strategy. Insufficient attention to managing impacts on the environment and the social fabric observed inthe past has reflected adversely on public support for reform and private investment needed for accelerating growth. An ambitious socio-economic development program o f the Government o f Orissa (GOO),which pursues a broad-based growth strategy and has already met with initial success, recognizes the need for stronger partnership between regulators, developers and communities supported by strong institutions. Such a partnership would shape the contours o f development and future investments along which adverse social and environmental impacts are controlled and positive effects are reinforced. 11. THESTUDY 1.3 This study was initiated in response to a recognition by Go0 and other stakeholders that environmental and social risks o f mineral-intensive growth are closely interlinked, and therefore, developing strategies to carefully manage and mitigate the harmful environmental effects is critical for enabling rapid, sustainable and inclusive growth in Orissa. The study aimed to support the growth objectives o f the Go0 by helping to analyze and formulate practical strategies for managing the environmental and some social impacts o f rapid growth, with a focus on the miningand industrysectors. Specifically this study i s aimed at: 0 Assistingthe Go0 with improving the effectiveness o f environmental institutions, procedures and processes; 0 Supporting the development o f a broad-based partnership between stakeholders for improved environmental management and compliance; 0 Identifying critical institutional and technical capacity needs to manage the environmental implications o f growth, particularly inthe miningand industry sectors; and 0 Assistingthe miningregulators to improve environmental compliance o f the mining industry and develop a benefit sharing framework to address social risks. Towards SustainableMineral-Intensive Growth inOrissa 2 1.4 This analytical work was undertaken with strong support from the Department o f Forests and Environment (DoF&E), the Orissa Pollution Control Board, Department o f Steel and Mines and Department o f Industries. The analytical work to support the development and implementation o f government policies that promote environmental sustainability and sustain livelihoods, was combined with raising awareness and forging dialogue among diverse stakeholders on sustainable development issues. The study followed a consultative process with several consultation workshops conducted with various stakeholders during the course o f about one year. A number o f background studies and activities outlined below were undertaken that are summarized in this report and form the basis for recommendations on institutionaland policy measuresto guide a flexible and efficient response to current and future environmental and related social concerns in key growth sectors. The main background studies included: 0 Institutional needs assessment o f Orissa Pollution Control Board, particularly with respect to monitoring compliance and enforcement with environmental regulations; 0 An assessment o f biodiversity and socio-economic impact due to mining activities in pilot areas; and 0 Review o f international experience with benefit sharing in a mineral-intensive economy. 1.5 The study also supported a pilot program for environmental awareness creation with the help o f a bi-monthly environmental newsletter titled, Growth and Environment. The newsletter has been produced by the Center for Environmental Studies (CES) in Bhubaneswar. Due to its relevance and easy access, it helped create a platform for public discussion in a short time and generated healthy debate among various stakeholders about developing creative solutions to Orissa's environmental problems, through consensus-based approaches that integrate economic, environmental, and social objectives. 111. THEREPORTSTRUCTURE Apart from the introductory chapter, this report has four chapters. These are: Chapter 2: Environmental and Social Challenges of Mineral-intensive Growth in Orissa, This chapter summarize the challenges and needs o f a mineral intensive growth strategy with regard to ensuringenvironmentally sustainable and socially inclusive growth. Chapter 3: Managing the Environmental and Social Impacts in the Mineral Sector. This chapter outlines the key elements and principles o f a regulatory framework that is needed for managing the environmental and social risks inthe mineral sector and enhancing peripheral development, and identifies areas for firther strengthening this framework inOrissa. Chapter 4: Strengthening Environmental Institutions to Support Rapid Growth. This chapter focuses on identifying priority areas and specific measures for strengthening the enforcement and incentive framework for environmental compliance inthe context o f a rapidly growing economic activity, including mineral- and pollution- intensive industry.It also outlines capacity needs and an action plan for the OPCB to keep pace with increasing workload and mandates due to rapidly growing number and changing composition o f pollution sources. Chapter 5: A Way Forward. This concluding chapter summarizes the key findings, messages and recommendations. 2. ENVIRONMENTALAND SOCIALCHALLENGESOF MINERAL-INTENSIVEGROWTHINORISSA 2.1 After laggingeconomic performance for over two decades, Orissa now stands at the crossroads o f success. With the recent boom in the prices o f mineral-intensive products, it has become a favored destination for much o f the country's foreign and domestic investment in steel, aluminum and other mineral-intensive manufacturing industries. The government has undertaken an initial set o f reforms that have arrested fiscal deficit, improved governance and accelerated the rate o f growth. It is developing and implementing a comprehensive vision and strategy to sustain these achievements, further accelerate growth and make it more inclusive. This presents the state with an opportunity to capitalize on its natural wealth and build a prosperous economy where growth benefits are shared equitably among all its citizens. The aim o f this chapter is to identify some o f the generic challenges to converting these investments into inclusive growth and set the context for the following chapters that develop a set of recommendations with respect to supporting sustainable mineral-intensive growth inOrissa. I. MINERALS GROWTH: AND EMPIRICALEVIDENCE 2.2 For an insight into the role o f minerals in the growth and development process, it is useful to examine the experience o f different sates in India. Figure 2.1 provides a simple plot o f per capita state income (State Gross Domestic Product) and the share o f mineral production in State Gross Domestic Product. 2.3 Two broad clusters o f states emerge. There are states like Bihar,Madhya Pradesh and Orissa that have a high level o f reliance on mineral resources, but lower per capita incomes. The other cluster contains the growth successes such as Tamil Nadu, Maharashtra and Gujarat that have low levels o f mineral dependence and higher per capita incomes. Other measures o f development produce an identical pattern - the states with higher shares o f minerals in GDP have consistently poorer human development index scores, lower growth rates and higher levels o f mortality, malnutrition and morbidity. Figure 2.1: Mineral Intensity correlatedwith poor performance i Mineral Share in GDP and Per Capita Income 30000 1 I Guj. 2ooooK 15000 4 e % * Kar. 10000 I Orissa u.P. 5000 41 Bihar I 0~ 0 2 4 6 Percent Share o f Minerals in GDP 8 1 Source: Authors' calculationsbasedon data from Indiastat(www.indiastat.com) Towards SustainableMineral-Intensive Growth inOrissa 4 2.4 Butthere are some notable anomaliestoo. Gujarat and Rajasthanhave similar shares ofminerals in GDP and yet Gujarat's per capita income (GDP) is almost twice that o f Rajasthan. Maharashtra and UP have comparable shares, but per capita income in Maharashtrafar outstrips that inUP. 2.5 The reason to this anomaly is presented in Figure 2.2 which relates economic performance o f each state to the relative size o f its manufacturing sector. Yet another interesting pattern emerges. States with a greater dependence on manufacturing have higher per capita incomes. This also explains the diverging performance o f some mineral dependent states in Figure 2.3. The larger manufacturing base in Maharashtra and Gujarat accounts for their success over Rajasthan and UP. Comparing the two figures it is also clear that on average states with a greater share o f minerals in GDP also have a smaller manufacturing base. Orissa, Bihar and Madhya Pradesh are more mineral dependent and have a restricted manufacturing base, while Maharashtra, Gujarat and Tamil Nadu have a low level o f mineral dependence and a larger manufacturing sector. The latter group is also among the country's strongest performers. It appears that greater access to minerals creates a particular challenge for and requires special government - attention to- the development o fstrong and diverse manufacturing base. Figure 2.2: Size of manufacturing is strongly correlated with success ManufacturingShare in GDP and Per Capita Income Per Capita GDP 30000 7 25000 7 Punjab + I 20000 15000 -I Raj. 10000 - Orissa + M. P. 5000 1 + U.P. Bihar 0~ , 0 10 20 30 40 Percent Share of Manufacturing in GDP Source: Authors' calculationsbased on data from Indiastat(www,indiastat.com) 2.6 Global development patterns also confirm that a high level o f mineral dependence, without developing forward and backward linkages with other sectors o f the economy, retards economic performance. In particular countries that are dependent on point resources - i.e. resources extracted from a narrow geographic base such as minerals - perform poorly across a range o f development indicators. This phenomenonis so widely and commonly observed that it has been labeled the "resource curse". But this outcome is neither inevitabIe nor unavoidabIe. Several developed countries such as Australia, Canada, Norway, and the USA have successfully harnessed their mineral wealth to build modern, productive economies. In the developing world too, countries as diverse as Chile and Botswana have usedminerals to generate growth and development. 2.7 Why does mineral wealth impede development in some economies and not in others? There are several reasons, but there is a broad consensus that turning minerals into engines o f development are particularly demanding on governance and institutions Inparticular, the mineral sector i s typically capital intensive; so there is a need to promote job creation in other sectors. Further, the sector generates TowardsSustainable Mineral-Intensive Growth inOrissa 5 significant negative externalities, so there is also a need to invest heavily in the regulations and institutions to control negative downstream impacts. 2.8 Recognizing these challenges, the Go0 has developed and is implementing a broad based growth strategy spreading across mineral-intensive industry, agriculture and forestry, manufacturing, knowledge industry, IT, tourism, etc. In support o f this strategy, this report specifically focuses on the issues related strengthening institutions to manage the environmental and social impacts (externalities) o f mineral- intensivegrowth. 11. MINING EXTERNALITIES AND 2.9 Most o f Orissa's mineral deposits are in forests that are inhabited by tribal populations, who are heavily dependent on forests for livelihood and have lower adaptive capacity to economic and social changes. Mineral extraction often leaves an "ecological footprint" which may adversely impact on these communities, their economic landscape and the environment (see Box 2.1). Addressing these impacts is a prerequisite for ensuring sustainable and inclusive growth and sustaining the momentum o f economic reforms. 2.10 This is especially important given the scale o f the proposed new investment in heavy industries. Intwo pollution-intensive sectors - irodsteel and alumina - the proposed expansion involves a 35-fold increase in steel production and three-fold rise in alumina plants. An expansion o f such magnitude calls for compensating policy and institutionaladjustments to address three main concerns (i)the infrastructure that is needed to support investment on this scale, (ii) land clearance and resettlement issues, and (iii) the risksErompollution. Indeed, these are amongthe top policy priorities for GOO. 2.11 Itshould be addedthat there are examples ofsocially and environmentally responsible investment and community development activities, such as those by NALCO and Tata companies. However, these are voluntary initiatives by specific companies not amounting to a systematic effort. There is an urgent need for a comprehensivepoZicy framework for attracting responsible investors, facilitating peripheral development and protecting the environment. The Go0 has now started puttingthis inplace. Towards Sustainable Mineral-Intensive Growth inOrissa 6 Box 2.1: Mining in the Koenjhar district: limited empirical evidence of impacts To obtain some empirical evidence of the impacts of mines, a pilot assessment of mining on communities was undertakeninthe Koenjar district of Orissa. A survey covered600 households intwo blocks - Joda block with a high concentrationof mines of different size, status and management practices that was specifically chosen because of the presumedmagnitude of problems, and Keonjhar Sadar block, which i s likely to be mined in the near future. Importantly, this small assessment in a purposely selected area can not be directly extrapolatedto other mining areas or new large-scalemining investment. All the sample villages fall within the "Peripheral Development Zone" of 50 km from the mining area and were selected systematically to ensure sufficient variation and representationof different social groups, especially scheduledcastes and tribes. The survey found that miningbrings benefitsto nearbycommunities-mainly inthe form of better access to roads and the greater stimulus to economic activity that roads generate. Households in Joda that are closer to mines appear to have higher wage incomes and purchase more consumer goods. On the other hand, households in Keonjhar Sadar, currently less exposed to mining activities, fared better on several indicators, including education levels, access to clean water, reported illness, production assets and total cash income. The fmdings illuminate the critical importance of Go0 efforts to improve mechanisms to share the benefits of mineral developmentwith local communitiesandnegatethe risks of exposure to mining externalities. Source: Survey andanalysis undertakenby the study, see Annex 3 for more detail. 111. INSTITUTIONS: THEDRIVERSOFDEVELOPMENT 2.12 Growth-enabling institutions facilitate investment, encourage technological change, and play an important role in shaping the contours o f development along which negative impacts are controlled and positive effects are reinforced. Hence, institutions rather than resources are the key drivers o f growth in most countries. 2.13 Data on the institutionalperformance o f the Indian states is highly fragmented; hence, there is no simple and objective way to measure institutional productivity. But on a variety o f indicators, the performance o f institutions across the states o f India follows the patterns observed elsewhere. Figure 2.3 provides a simple plot o f institutional strength (based on IMF data against per capita state GDP and shows that states with strong institutions perform better. Figure 2.3: Institutions and Development 7- InstitutionalQuality versus Per Capita State GDP g g 20000300001 0e a 10000 - ti 0 , , , 0 0.5 1 1.5 2 2.5 3 3.5 Institutional Quality Index Source: Authors' calculations basedon data from Indiastat(www.indiastat.com) and IMF calculationsfrom Kochhar et a1(2006) TowardsSustainableMineral-Intensive Growth in Orissa 7 2.14 Whether the mineral-intensive investment boom delivers on best expectations in Orissa will ultimately depend on the capacity o f its institutions to address the entire range o f challenges and needs - economic, social, and environmental. As a corollary, mineral-intensive development in countries with strong and accountable institutions has produced positive outcomes (e.g. Botswana and Australia). Where institutions are weak, similar developments have had negative outcomes (e.g. Sierra Leon, Nigeria and Venezuela). 2.15 A review o f the diversity o f outcomes indicates that there is no single recipe for success, but there are certain common themes. Norway and Australia's strong accountable institutions ensure that minerals are exploited judiciously, environmental impacts are minimized and the windfalls are used to sustain broad based development. In the developing world, Botswana and Chile both have robust institutions that recycle mineral rents from a narrow beneficiary base to the wider community. The success stories have all built institutions to addressthe externalitiesand distributethe benefits o f mining ina broadly acceptable way. 2.16 Faced with these challenges and choices, Orissa has embarked on a bold and comprehensive social and economic reform program, aided by the World Bank and other agencies. It has demonstrated its commitment and ability to tackling difficult policy and institutional reforms by restructuring the inefficient power sector, reducing the size o f its fiscal deficit and enacting a range o f reforms to improve efficiency o f its civil service. The Go0 has also promoted legislation to share the benefits o f miningwith affected communities, and recently adopted a new Rehabilitation and Resettlement (R&R) policy that is justly commended for being one o f the most ambitious and advanced in the country. The chapters that follow articulate possible approaches and steps to further and enhance GOO'Sstrategy towards sustainable mineral-intensive growth. 3. MANAGINGTHE ENVIRONMENTALAND SOCIAL IMPACTS INTHE MINERALSECTOR I. THECHALLENGE 3.1 Orissa stands sixth in overall production o f minerals in the country and the mineral sector is growing rapidly. In 1999-2000 miningexports from Orissa --minerals and metallurgicalproducts -were Rs.17.04 billion, accounting for 80% of the exports originated in Orissa with aluminum and chromite being the most important items o f export. In 2004-2005, miningrevenues paid to the State amounted to Rs. 6.7 billion according to the Directorate o f Mines, a nearly 90% increase form 2000-2001, representing about 6% o ftotal revenue by the State and 12% o f State's own revenue. 3.2 With its vast geological potential it is not surprising that there is global investor interest in Orissa's mining potential. Private investors in the mineral sector based industry have signed Memorandum o f Understandings for 43 projects with potential investments o f US$ 3 1.89 billion. In the year 2003 alone, 10 new mining leases and 22 prospecting licenses were granted covering 742.9 ha and 811.5 ha respectively, This is in addition to seven quarry leases for decorative stones covering 23.6 ha. 3.3 Mining is increasingly a global industry competing for the limited amounts of international exploration and development capital which seek the best risk adjusted returns. Over the last two to three decades many developing countries have successfully reformed their mining sectors and attracted significant private investment flows, technology and modern management to develop their natural resources. In Latin America Chile, Peru, Mexico and Argentina have implemented the most comprehensive reforms and produced impressive results. While some established Asian miningcountries like Indonesia and Thailand have become less attractive to mining investors, other countries such as Papua New Guinea, Mongolia and China have enacted reforms and are enjoying considerable investment interest. 3.4 While miningcreates opportunities for development, it is not without challenges and inherent risk that need to be addressed. Improved governance is the key to harnessing the benefits o f mining sector. Table 3.1 provides a summary o f the broad opportunities and challenges o f developing a sustainable miningsector, and the necessary strategic response. 3.5 Successful mining laws typically help to (a) minimize corruption and rent seeking, as well as the duration o f the permitting process by eliminating discretion in the implementation of the law; (b) reduce speculation and encourage active exploration by the use o f properly structured license fees, which also serve to finance an independent and efficient mining cadastre (licensing register); and (c) provide environmental and social safeguards and rehabilitation with adequate risk mitigation and sound benefit sharing. Once a sound legal and regulatory framework is in place, achieving a positive impact o f mining reforms on growth and poverty depends most on competent institutions to manage mineral wealth. While these broad guidelines are stipulated at the national policy level, the enforcement mechanism at the State level needs to be strengthened. Annex 1 provides the benchmarks o f a good practice mining legal framework that successful miningcountries have implemented. TowardsSustainableMineral-Intensive Growth inOrissa 9 ing and Strategic Response Opportunities Challenges Strategic Response Increase awareness of the needs for Optima' use Of the State's Barriers to attracting large new reforms among central and State mineral endowment investments by private and foreign investors. government officials and other I stakeholders Contribution to StateGDP, I Inadequate andoutdated legal Review legal, regulatory and industrial output, fiscal andregulatoryframework and institutional framework revenues, & exports limited institutional capacity. 0 Improve institutional capacity, earnings. Unevenplaying fieldwith SOE's sectoralgovernance andrevenue Employmentand income andreservedminerals likecoal management multipliers, training, & Inadequateminerals inventory, Develop amodemmining cadastre skills transfer and human geologicaldatabase & registry capitalformation. Needfor improvedtransparency 0 Ensure linkagesto local economic Opportunitiesfor down and governance development streamprocessingand Highcost environmentwith few Produce and disseminatebasic industrial development incentivesto processmarginal geological information as a public Investmentin local and rural ores goodto stimulateprivate sector infrastructure(physical and Inefficient investmentpromotion investment interest social) Lack of informed consultation 0 Reduce import duties and maintain SME development& supply with affectedcommunities nominal royalty rates to encourage chain linkages treatment ofmarginal ores 0 Eliminate tax holidays 3.6 For the mineral sector to contribute to growth and development there is a need, as the previous chapter advocates, to ensure that investors address externalities and that there are institutions and policies in place that create the appropriate incentives to attract responsible investors who recognize their rights and responsibilities. Responsible investors would be expected to integrate environmental and community concerns into their business decisions and adopt voluntarily corporate social and environmental responsibilities. This chapter focuses on (i) proper environmental management and rehabilitation; and (ii) peripheral/community development, as an integral part o f the policy and regulatory framework that the Go0 is developing for attracting responsible investors. These are essential to mitigate adverse impacts and ensure sustainable growth. 11. ADOPTING GOODENVIRONMENTAL SOCIAL PRACTICESAND 3.7 As the evidence from Keonjar confirms, most o f the risks o f miningactivities occur at the local level and relate to environmental impacts, social and cultural impacts and increased population pressures due to immigration to mining project areas leading to demands for increased services and infrastructure from provincial and local levels o f government. Some costs are internalized by the miningcompany, but many are not, and these issues must be addressed by miningpolicy inorder to maintain socialjustice, and through it, project security. Table 3.2 provides a summary o f the broad risks and challenges o f developing a sustainable miningsector, and the necessary strategic response which is largely inthe hands o f State government. TowardsSustainable Mineral-Intensive Growth inOrissa 10 Table 3.2: Risks and Challenges of DevelopingSustainableMining and Strategic Responses Risks Challenges Strategic Response Displacement and loss of Lack of informed consultation Adopt credible consultation livelihoods resulting in growing with affectedcommunities framework and implement a regionalpoverty community developmentplan(GOO) 0 Lack of clear sectoral Environmental Risks (water, environmental and social Establishsectoralenvironmental and air, soil) management and mitigation social guidelines (GOO) systems Natural resource degradation Introduce modem mining -deforestation,soilerosionloss Lack of adequate requirements techniques, including Environmental of agricultural productivity, loss for social, health and safety and Management Systems (GOO) of water sheds environmental protection and potential conflict with large scale Formalize small scale mining and Social & Health Risks; mining provide services to help the small scale Safety and work-related risks miners to achieve sustainability (GoI, Lack of accountability and GOO) Risk o f expansion of incentives to enforce regulations informal small scale mining and safeguards Build capacity both at central and local levels for environmental and Institutional erosion: risks socialmanagement(GoI, GOO) of corruption at the lease granting stage, during operation Increase accountability of (noncompliance with environmental agencies to regulations) and misallocation stakeholders(Go0) of mining revenues Clear and non-discriminatory tax High cost to public sector of treatment of mining sector, taking maintaining infrastructure account of the costs of addressing the negative externalitiescreatedby mining (GoI. GOO) ,- Go1- Governmentof India: Go0 -Governmentof Orissa I 3.8 Mitigation o f the environmental impacts of mining and the progressive rehabilitation o f the affected surface area is fundamental to modern sustainable mining development and retention o f the "social license to operate" implicitly conveyed by the communities most impacted by the mining operation. Enforcement o f Environmental Impact Assessments and agreed Environmental Management Plans are an essential part of this social compact, and will be especially important in Orissa with its high population density and intense competition for rural agricultural land. 3.9 Reputable mining companies recognize this and now take their environmental stewardship seriously by adopting and committing to good environmental practices. This is reinforced by balanced environmental legislation, adequately funded mine closure plans, and major international commercial financial institutions some o f whom condition their loans to adhere to the International Finance Corporation (IFC) environmental guidelines/performance standards. It i s important to note that, at least for the larger State and private mining companies operating in Orissa, adopting a good corporate citizenship behavior is becoming more common. Some examples o f good practices in Orissa are provided inBox 3.1 below. TowardsSustainable Mineral-Intensive Growth inOrissa 11 Box 3.1: Good Practice in Orissa There are evidencesthat some mining companies are establishingtrusts for local developmenton a voluntary basis. OrissaMining Corporation (OMC) undertakes informal discussions with local communitieswhen issues of concern emerge and the company takes actions in response which can include contributions for hospitals, schools, etc. In2003, OMC opened four mines in tribal areas inwhich local people participated actively. In its Panchpatmaly mine, NALCO is committed to keep good environmental standards. It has also provided training and jobs for one person in each family of the Panchpatmaly village, built new houses and modern facilities for a tribal community of hunters and gatherers whose quality of life is likely to have improved significantly. Another example is that of Tata Steel which has forged partnershipswith local communitiesat a regional scale. For example, in its Sukinda Chromite mine, socio economic development has beenpromoted in three districts and 42 villages through an autonomous body called the Tata Steel Rural Development Society which provides a mobile clinic, distributes free medicines, and contributes to agriculture extension, forestry programs, and cultural activities. 3.10 However, voluntary approaches are now becoming less effective in Orissa with the arrival o f a large number o f smaller players who are less affected by risks to their reputation and also have limited capacity to address the external costs o f their activities. As the industry expands, these challenges will grow and there will be a need for greater emphasis on enforcement and compliance with environmental legislation. 3.1 1 Orissa has a significant share o f minerals such as iron ore, coal, bauxite, chromites, limestone, graphite and lead, which generate large quantities o f waste/overburden and tailings slimes. The OPCB is responsible for monitoring the onsite and offsite impacts o f miningactivities and compliance verification with the standards prescribed by the Ministry o f Environment and Forests. The onsite monitoring covers liquid effluent and ambient air quality. The offsite impact is monitored through area monitoring programs, such as National and State Ambient Air Quality Monitoring Program, and National and State Water Monitoring Programs. Box 3.2 summarizes some o f the key environmental safeguards in use. There are variations in the data coverage o f the compliance levels and the compliance rates across monitored parameters, ambient quality monitoring units and times, which provide useful information for further focusing and strengthening the monitoring and enforcement effort. Issues related to environmental monitoring and enforcement in Orissa are discussed inmore detail in Chapter 4. Towards SustainableMineral-Intensive Growth inOrissa 12 Box 3.2: Key EnvironmentalEmissionand DischargeStandardsin Mining The following tables indicate the standards imposedin Orissa to address environmental issues that arise with mining. While the disposal of tailings generated during beneficiation of ore, remains a key concern for environmentalmanagement. The IndiaBureauof Mines(IBM) prescribes various options. According to the OPCB, all the mineswhich have ore beneficiationprocesshavetailing ponds inOrissa. There is no comprehensivedata on conditions andperformanceofthese ponds. Parameters* I Time weighted I IndustrialI Residential I Sensitive I Coal Minesof I so2 Annual 80 60 15 80 24 hours 120 80 30 120 NOx Annual 80 60 15 80 24 hours 120 80 30 120 SPM Annual 360 140 70 430 24 hours 500 200 100 600 RSPM Annual 120 60 50 215 24 hours 150 100 75 300 Noise dB (A) day 75 55 50 75*** Night 70 45 40 70 APPLICABLE EFFLUENTDISCHARGESTANDARDS FOR MINES Parameters Inland surface Public sewer Direct Marine Coal Mines of water Irrigation Orissa P H 5.5-9.0 5.5-9.0 559.0 5.5-9.0 5.5-9.0 BOD 30 350 100 100 No COD 250 no no 250 250 TSS 100 600 200 100 100 (200 ifused for irrigation) Oil& Grease 10 20 10 20 10 3.12 Mine closure has become statutory since 2003 only. This is being implemented by the Indian Bureau o f Mines (IBM). Early planning for mine closure is very important because it provides the pathway to addressing issues o f long term community sustainability. Mine closures process represents a continuous series o f activities that begins with pre-planning prior to the project's design and construction and ends with the achievement of long-term site stability and the establishment o f a self-sustaining ecosystem. 3.13 "Beginning with the end in mind" conveys to the local communities that mining is a temporary use o f land, lands will be reclaimed and put to other uses, and that sustainability comes from leaving lasting human capital and infrastructure after mine closure. Human capital is best fostered through education, eitherjob training directly for the mine or the many innovative enterprises that may be needed locally to support the operation. Beginning with the end inmindalso means that shared infrastructure can be designed and operated in a way that it can revert to other uses after mine closure. Inagriculture-based economies, this may include roads and bridgesthat connect to larger markets, clean water systems, and the technology/capacity to monitor spatial and temporal changes o f other natural resources. Towards Sustainable Mineral-Intensive Growth inOrissa 13 3.14 From the perspective o f governments, mine closure presents a complex mixture of environmental, social, economic and development issues. The government must ensure (a) industry has adequately recognized and prepared for over the life o f the miningenterprise; and (b) that the closure plan is carried out to the satisfaction o f the communities involved as also other major stakeholders and government at all levels. 3.15 The accommodation o f all o f these concerns, to the extent possible, results in what is called "comprehensive mine closure". Mine closure should be now considered in a broader context o fthe issues o f "sociaVeconomic equality" and "sustainable development". This will result in greatly expanding the scope o f government responsibilities and needed actions. 3.16 Mine closure planning has strong linkages to environmental concerns and the development o f community management plans. Key components relate to the following: 0 Economic incentive programs for companies to make investments in local small businesses or shared infrastructure. Historically, such contributions have been constrained by a lack o f tax relief or other fiscal provisions that would offset cost to the project. 0 The use o f revenue sharing between government and communities to provide funds for community-based programs (defined in the community management plan). This leads to issues o f shared company /community structures for trusts, foundations, and other community-based financial institutions. 0 Government commitment to education to provide local skill sets appropriate for other industrial activities. 0 HIV/AIDS education and prevention programs. 3.17 Planning for closure can generate benefits at two levels:Jirst, at the level o f the local community or region; and second, at the level o f the mining company. Closure o f mines, in the absence o f any systematic planned closure process, will inevitably have serious consequences for local communities becauseo ftheir dependence on a livelihood providedby the miningactivity. A forward looking approach can simultaneously involve developing viable economic alternatives, transforming mined land for productive purposes such as for growing cash crops, and possibly timing new mining projects in the region. In the case o f Orissa, most o f the abandoned mines have naturally been converted into rainwater storage tanks, but the water is often contaminated which reduces its usefulness even in times o f drought and pollution problems occur through acid rock drainage. 3.18 Indian law requires that a closure plan should be prepared "at the fresh grant or renewal o f the license" (under MCDR Mineral Conservation and Development Rules, 1988), with a financial surety, - defined as Rs. 15,000 per hectare for small mines and Rs.20,000 per hectare for major mineral mine and which can be submitted in different forms - letter o f credit, performance or surety bonds, trust funds or any other guarantees acceptable to the authorities. The closure plan is updated every 5 years and the final one is sent for approval a year before actual closure. According to the guidelines (Circulars no. 14 and 19/2003) the closure plan should address (i)the environmental issues and proposed remediation measures, as well as (ii)social issues, mainly related to employees laid off and socio-economic repercussions and the proposedremedial measures. 3.19 International experience suggests that the closure process in India, applicable to Orissa, can be improved in four main areas. The first is a consultation process with affected communities that should take place prior to closure to enable the communities to have their requirements addressed; for example, to decide on the land-use after closure (remediation measures will depend onthat). Remedial measures for social issues and land-use planning should become part o f the community managementplan. Second, post Towards SustainableMineral-Intensive Growth in Orissa 14 closure monitoring requirements are necessary, with the financial surety extending to the post closure period. 3.20 The third area relates to providing better clarity on how the funds accrued from collecting the financial surety are managed, by what institution and the responsibilities o f that institution. The international practice i s that the financial surety is created as a financial instrument at the disposal o f the competent authority designated to control and monitor the implementation o f closure and post closure works (most o f the time the MinistryDepartment o f Mines or a specially created authority that will eventually contract the execution o f closure/post closure works using funds from financial surety, in case the miningcompany can not do that). 3.21 Fourth and the final area where the closure process can improve is related to the need for complementing the new requirement by the respective capacity building o f the relevant authorities to implement the legislation both in terms of technical and financial capacity, mainly at the level o f field - personnel. Due to lack o f capacity, the statutory authorities are often not ina position to compel the mine management to apply for renewal o f extension even when the action o f the management is against the interest o f conservation o f mineralresources. 3.22 At the level of regulations, there is a need to develop specific environmental and social guidelines for closure. In some countries, to address this need a Mine Closure Manual i s prepared and includes specific mine closure environmental remediation measures and post closure monitoring actions. It also addresses how the communities should be involved in the closure process and the responsibilities o f each main stakeholder in this process. While the necessary changes to the existing policy will require intervention at the Go1 level, the development o f implementation mechanisms to ensure proper environmental rehabilitation o f the closed sites and monitoring on post closure period is largely in the State's hands, as experiences inother countries with similar conditions show. 3.23 Sustainablecommunitiesare the product o f good policies and laws that have been planned and implemented at the local level by competent institutions/organizations, with the active participation o f community members. Resistance to mineral investments is likely to develop if communities perceive threats to livelihoods or exclusion from the development process. Overarching instruments to ensure that local communities benefit from the extractive industries include: a community consultation pamework to assess and assign the roles and responsibilities o f government(s), the company(s), NGOs and donors, and local affected communities on measures to address environmental and social impacts; and a community developmentplan facilitated and coordinated bythe government both at central and local level, in consultation with stakeholders, including the active participation o f communities, to integrate mining and mine closure planning with broader regional economic development plans. The ultimate goal should be to transform the community into a reliable partner from just being a beneficiary. 3.24 One o f the key, most immediate and visible social impact is caused by the need to displace some communities to enable mining operations. Past experience on resettlement and rehabilitation in Orissa suggests that often common property and its dependency for livelihood were ignored. To address this, Go0 has recently introduced a new Resettlement and Rehabilitation (R&R) policy (adopted May 14, 2006) that proposes three different rehabilitation packages: preferential employment to at least one member o f every displaced household'; vocational training to at least one member o f every displaced ' A displaced family is defined as a family having continuously residedinthe project area for at least 3 years prior to the project notification. An affectedfamily is deemedto be one that loses more than 75 percent o f its annual income. Hence a displaced family can be an affected family, but not all affected families will be displaced families. A displaced family is defined as a Towards SustainableMineral-Intensive Growth inOrissa 15 household; and cash assistance when neither o f these options is feasible. This is currently the most progressive and people-friendly policy among India States. 3.25 Orissa's new R&R policy i s a major and most commendable milestone. To achieve the intended impact, it needs to be promptly followed by effective implementation. With overstretched institutions, there is a concern that policy promises may not be matched by policy implementation. There are also some legal ambiguities about the enforceability o f the R&R policies which detracts from policy credibility. There is thus a need to clarify the legal status and enforceability o f the R&R policy. Past experience o f frequent delays in payments or cases o f non-payment further plays an important role in shaping expectations and requires swift action. Another damaging perception is that even when compensation is paid, it i s inadequate. In the absence o f statistical evidence it is difficult to substantiate these claims. But this highlights the need for policies geared towards restoring earning potential (i.e. human capital), rather than simply compensating for lost assets. Most tribal oustees own few productive assets other than their human capital (usually skills that have limited alternative use), so higher reparation for physical assets does not adequately compensate for the economic impacts o f relocation. The form o f compensation - which i s typically cash and one time payment, compounds these problems. The payment o f cash to vulnerable groups with limited access to banking facilities is equivalent to liquidating assets and promotes current consumption over productive saving. 3.26 More importantly -and this is recognized by Go0 -the R&R policy i s the principal tool for addressing negative social impacts, but it is not the only tool needed for preventing nearby communities from being adversely affected by mining activities. As the pilot assessment conducted by this study (see Chapter 2) showed, livelihood opportunities for communities close to mines can be reduced, in part, due to a string o f downstream effects such as lesser livelihood value o f forests, contamination o f water sources, etc. In this respect, one needs to acknowledge the efforts by the GOO,(accompanying the development o f the R&R policy) to share the benefits o f miningthrough a variety o f local development schemes and by issuing the legislation to promote and support peripheral development in mine affected areas. The following section summarizes international experience in this respect that can inform further Go0 initiatives. 111 SUPPORTINGPERIPHERAL COMMUNITY DEVELOPMENT THROUGH BENEFITSHARING 3.27 A comprehensive framework for compensation and benefit sharing that leads to a concerted community development plan between the local community, the government and the mining company is the critical factor in managing miningrevenues for local community development. Compensation will not be effective if the issue o f facilitating the community's transition to a sustainable new way o f life is not addressed. Benefit sharing approaches could be an important tool in transforming a community from just a dependent beneficiary into a strong reliable partner, prepared to manage its own development. 3.28 There is a broad range o f benefits that can be providedto local and tribal communities affected by mining. These include provision o f rural infrastructure, SME development, formation o f human capital through company-sponsored training, providing job skills both directly at the mine, and in secondary support (``spin off") industries. Local and tribal people universally live in remote regions where mining has a large impact on its surrounding environment. In many ways, tribal communities are not that different from other communities located in remote regions, characterized by a dependency on natural resource industries in which economic benefits often accrue downstream. Most often, the natural resource incurrent use is the forest and its surface waters, where potential conflicts may arise and need to be resolved with the proposed mining activities. family having continuously resided in the project area for at least 3 years priori to the project notification. An affectedfamily i s deemed to be one that loses more than 75 percent of its annual income. Hencea displacedfamily can be an affectedfamily, but not all affectedfamilies will be displacedfamilies. TowardsSustainable Mineral-Intensive Growth inOrissa 16 3.29 A comprehensive community benefits package, inprinciple, should include: employmentand income-relatedbenefits which would include employment and income related - opportunities that would be provided to the affected communities during both construction and operating phases including direct employment by the mine and also indirect employment such as local sourcing o f certain supplies and services, spin-off businesses and small and medium enterprise development; benefits aimed at building local human capital and institutional capacity - which would include provision o f training for community members (both for direct and indirect employment possibilities), training for community leaders and capacity building for community institutions and provision o f micro credits to support existing and new businesses (not only those that supply the mine but also other sectors such as agriculture). benefits for the community resultingfrom the development of infrastructure - which would facilitate access to: (i)education (schools); (ii)access to markets for local communities to sell their products (roads); (iii)health (medical facilities); (iv) clean water, etc. that, ideally, should be supported by the investor and the government and managed by the community. Benefit sharing will be effective if the accumulation o f human and social capital is promoted by improving the education and health standards o f the local population and their collective ability to organize themselves, define their priorities, and represent and negotiate effectively their interests with third parties such as the government. trustfunds, efficient mechanisms to sustain human and social capital accumulation, either (a) set up for financing local development initiatives and which should be managed by the community according to its needs; or (b) set up for providing funds for future generations. 3.30 The challenge is to find ways to operate these principles in the specific social and cultural context. The approaches used in countries vary considerably reflecting their individual histories, economy and institutions. Typically the provision o f benefits is funded by royalties. Most mining companies probably prefer that some portion o f royalties, ifpayable, be targeted to affected communities. Because miningcompanies are increasingly concerned about maintaininga "social license to operate" and invest in affected communities, a royalty provides a relatively easy mechanism to channel funds. Direct investments in a community-for example, inroads, schools, medical support, andtraining programs - i s not deductible for income tax purposes in many countries. Royalties are tax deductible in almost all nations. 3.31 The impact o f mineral development on communities is hard to establish without appropriate legislation and an effective government administration. A mining company would prefer paying taxes to an efficient government administration that is able to deliver social services at all levels. However, this is rarely the case for developing countries, where the situation requires that the mining industry commit additional funds for social uplift in the areas that they operate. Reasons differ from country to country and range from government regulation to voluntary contributions to community projects. This leaves the mining industry and its shareholders in uncertain territory and divorced from core business activities. Expectations o f improved services escalate when miningcompanies move into new areas, resulting in the allocation o f additional company resources to fulfill government functions. The return on this social commitment is measurable through the degree o f political stability it affords. Inother words, the company Towards SustainableMineral-Intensive Growth inOrissa 17 i s awarded a social license to operate. Table 3.3 shows examples o f how mineral law can accommodate social contributions. Table 3.3: Relationship betweenSocialCommitmentand Mineral Royalties Description Canada Ghana Namibia Papua Philippines Peru South Tanzania North- New Africa West Guinea Territories State willing to share royalties Yes Yes Yes Yes Noa No Yes Yes (set in law) Mineral royalties: Directly to Yes No No Yes Yesb No YesC No community Payableto State Yes Yes Yes Yes Yes Yes Yes Yes Provision for sharing Yes Yes No Yes Yes Yes No No (a) A higher royalty rate is applicable. (b) Through trust funds, 1 percent minimum contribution. (c) Through the community holding apreferential right. Source: J. Otto et a1(2006) 3.32 The forms in which benefits are transferred to local communities also vary considerably across countries. Often these schemes rely on local governments to provide services that compensate for the impacts o f mining. However, experience suggests that in many cases the outcomes have been disappointing. For instance, several programs contain employment guarantees, but remote communities seldom provide skills suitable for mine employment; so implementation o f these commitments is difficult and raises costs for mining companies. In other cases, royalties paid to the central government do not revert back to the affected region even when the legislation specifies that this should be the case. Finally, many o f these schemes rely on local governments to deliver services, but neglect the fact that they may lack the capacity to discharge these additional functions. 3.33 The essential problem with many o f these initiatives is that the commitments are not realistic and cannot be implemented and so erode trust and credibility inthe system. There are three key priorities that need to be addressed in designing a benefit sharing program. First, the system must be sufficiently adaptable to accommodate the potentially diverse interests and be accountable to local communities. Second it is important to deliver benefits in ways that are meaningful to communities and generate economic development that can be sustained beyond the (finite) life o f a mine. Third, the system must be credible and establish trust. If impoverishment is the anticipated consequence o f mining, then resistance can be expected to follow. 3.34 One promising approach to this problem is the Development Forum introduced by Papua New Guinea (see Box 3.3). It is a participatory model involving government, company, and local community representatives. Till date, the Development Forum has functioned well and has been instrumental in achieving a higher level o f participation by local communities. It has also secured a greater level o f community support for mine development. While one country model can not be directly transferred to another, the key principles o f the Development Forum appear o f broader value and potential interest for Orissa. Towards Sustainable Mineral-Intensive Growth inOrissa 18 Box 3.3: Development Forum Model: Experience of Papua New Guinea The forum has two principal functions. The first is as a venue for the sharing of information on the project from the developer and the State with the landowners on the nature, scope and impacts of the project. The second is to establish how the benefits derived from the project will be shared by the various stakeholders, which are then recorded in a series of project agreementsor Memorandumsof Agreement (MOAS). These agreementsestablish the role and responsibilitiesof all involved parties (government, mining company and community) and include services and benefits that will be provided in the project's affected area. These include the provision o f community infrastructure and the sharing of project's financial benefits. In return for the benefits, the landowners commit themselves not to disrupt the project development and to work together with the government and the developer. It also commits the parties to an ongoing consultation process where development related issues could be discussed and resolved as they arise. This initial consultative process and the establishment of the various agreements take place prior to the DevelopmentlConcessionContract be signed betweenthe Government and the mining company. There are a number of key advantages to such a participatory approach that emphasizes partnerships and mutual obligations. First, it provides a flexible template that can accommodate diverse issues and needs of different communities. Second, the approach remains highly inclusive, with all relevant stakeholders being part of the management and making informed decisions, based on communication, consultation and negotiation. Third, the approach is findamentally participatory and democratic. Affected people have an active role in decision making. This is in stark contrast to the prescriptive policy approach in India where the form and level of compensation is predeterminedby the government. Finally, the Development Forum in PNG has firm legal underpinnings and is enforceable contracts. Consequently they are credible and legally binding commitments that create trust and confidencewhich are neededto rebuild communitiesand enhance economic activity. Source: World Bank - PNG: Mining Sector Technical Assistance Project 3.35 The manner in which benefits are shared is another important dimension. In developed countries with efficient service delivery mechanisms, the benefits from resource rents are typically in the form o f public goods that are delivered by existing institutions. In some cases revenues may be allocated to particular regions to address negative externalities, or to promote certain priorities such as health or education. Beyond such limited earmarking there is little reason to develop parallel structures to deliver benefits. 3.36 However, where institutions are weak, earmarking revenues to specific policy priorities may be an ineffective way o f responding to needs. Where service delivery capacity i s weak, resource benefits are often distributeddirectly in cash and this is done in public to minimize the risks o f embezzlement. Cash transfers ensure direct benefits for citizens and limit the ability to divert funds to undesired endsa2 3.37 Cash transfers can make immediate improvements in lives o f the poor but they are not sustainable on the long-term. There are also important caveats. Where banking and investment opportunities are limited, transfers are much more likely to be spent than saved or invested, makingthem even less likely to spur additional economic development. In both Papua New Guinea and the indigenous communities in Australia the sudden injection o f cash has often been socially disruptive, leading to over-dependence on cash transfers with no visible development benefits for the community. The additional income may also substitute for labor supply. These results are especially problematic when cash transfers are tied to the life o f the mine; afterwards, income drops off without other productive assets being available to pick up the slack. The decline o f phosphate mining on the island nation o f Nauru has left the inhabitants impoverished. * In a widely cited paper Sala-&Martin and Subramanian (2003) argue strongly for distributing all of Nigeria's oil and gas revenue to adult citizens. The goal of this recommendationis to eliminate the corrupting influence resource wealth exerts on Nigerianinstitutions. It is estimated that this would turn Nigeria from a poor to a middle income country with each household receivinga transfer amounting to 43% of per-capitaPPPGDP-resolvingmany of the country's development problems. Towards SustainableMineral-Intensive Growth inOrissa 19 3.38 Determining how much to share will involve balancing community needs with available public funds and corporate profits. An approach based onvoluntary negotiation, with the government playingthe role o f referee between the company and the community, may provide a natural solution. With voluntary negotiations firms would never (knowingly) agree to a package that would make their investments uncompetitive, and affected communities would not agree to one that (knowingly) left them worse off. Hence, a voluntary settlement would be reached only if the agreement is mutually beneficial. This approach, however, would be complicated in the situation o f many players and companies, typical in many areas o f Orissa. Furthermore, considerations such as overall fiscal regime for mining, revenue sharing arrangements between Central, State and local government, and the effectiveness o f public service delivery mechanisms will all play a role in arriving at an appropriate solution in a particular context. IvTHEWAY FORWARD a. Improvingthe Qualityof Investmentand Addressing the Impactsof Mining 3.39 Few economies can absorb the magnitude o f change in the mining sector being envisaged for Orissa, without some undesirable consequences that need to be minimized and mitigated. The establishment o f an integrated system o f risk management is a prerequisite to unlocking mineral-intensive growth in a socially and environmentally sustainable manner. 3.40 To ensure environmental protection and social mitigation, further reforms are requiredto improve the permitting process and strengthen the institutional and administrative capacity o f the public mining institutions. Specifically, the following actions are needed: Support enhancement o f security o f tenure and property rights by reducing ministerial discretion in the allocation, transfer and termination of mining rights with a greater focus on attracting responsible investors that accept their social and environmental responsibilities; 0 Improve access to minerals by streamlining the permitting process, avoiding administrative duplication, and establishing a modem computerized mining cadastre and registry system, centralized in Bhubaneswar with three or four online regional bureaus located at the district offices o f the more prospective areas; 0 Develop guidelines for mine closure, an environmentallsocial impact assessments, environmental/social management plans, to facilitate rational land use planning, community development and benefit sharing for local and tribal peoples, and the dual use o f designated forest areas with progressive rehabilitation and forestation; and 0 Consult and work with the affected community to develop and implement the community development plans, involving also the other stakeholders -the miningcompany and NGOs. b. BenefitSharing 3.41 A flexible benefit sharing instrument is needed that can be tailored to local needs and accommodate diverse industry structures and management capabilities. The mining areas o f the State vary across a number o f dimensions including: the type o f mining activity, the number o f mines, the size o f mines, topography, density o f population and the assimilative capacity o f the environment. This rules out a one-size-fits all approach. Each case will involve a different set o f actors and fine tuning the mechanism to meet community needs will require a system that elicits information and allows choice. Negotiationand participatory approach are therefore preferable to prescriptive "top-down" approaches. Towards SustainableMineral-Intensive Growth inOrissa 20 3.42 I t is vital to strengthen the relationship between mining activities and tribal and local communities,through a sustained dialogue between the state, the tribal and local communitiesand the mining companies. The establishment o f an integrated system o f risk mitigation and compensation and benefits sharing for local and tribal communities can be the key to unlock geologically important areas where miningis currently not accepted. This integrated system would be also the mechanism required for miningto promote sustainable growth at the local area. As said before, the Orissa's miningindustry has been proactive towards the development needs and aspirations o f the tribal and local communities. This i s a valuable social capital asset in which to build on a more efficient system for delivering local development out o f miningactivities. 3.43 A participatory partnership model such as the PNG Development Forum provides a template that can be adapted to different circumstances and harness the comparative advantage o f different groups. In areas with multiple small mines, capacity constraints might limit the ability o f small companies to engage in any meaningful benefit sharing. It may be necessary to pool resources to address problems that need collective action. Inthis case local governments should play a more active role in service delivery and this will call for simultaneous efforts to improve local government capacity and accountability. On the other hand, where a single large mine dominates the landscape and local government capacity is over- stretched, the company would likely take responsibility for providing benefits in the form chosen by communities. However, this approach does not ensure sustainability in the long term. Mining is a temporary activity and if the necessary conditions for sustainable development are not created after closure, the affected community would end up in a worse situation. 3.44 Adequateforms of benefits must be made available. There are clear advantages to providing benefits through public goods that leave durable development outcomes and promote economic independence. The payment o f cash is most likely to induce immediate consumption instead o f investment and additional income will tend to substitute for labor supply. However, cash payments are usually one time payments and should be the last resort in areas that lack service delivery capacity, or where trust o f local institutions remains weak. 3.45 The following Table 3.4 summarizes the options and trade offs that would need to be considered in developing a benefit sharing mechanism. Towards Sustainable Mineral-Intensive Growth inOrissa 21 Table 3.4: Benefit Sharing Schemes Advantages Risks Structure PartnershipParticipatory Consultative, inclusive, accountable, Developeror governmentmay beunwilling to Approachsuch as flexible participate DevelopmentForum Reachmutually beneficialagreement With largeand diversenumbersof firms and Emphasisis on mobilizingtrust and affectedpeopleassuringfair andadequate partnership, ratherthanthe coercive force representationwill bedifficult of law Forms of benefitssharing Employmentand income Communitypreferredbenefit Mininghighly intensive, limiteddirectjobs relatedbenefits Peoplefeel more safe ifthey get ajob available; Small businessescreatedbringingmore Affectedcommunities lack necessaryskills job opportunities either to work for the miningcompany orto set up other businesses Cash Less vulnerableto capture Create cashdependency, promote Easy to target consumptionnot developmentor saving Easy to deliver cash benefitswhen Not effectivein largepopulations institutionsare weak PublicGoods Promotedevelopment Difficult to providepublic goods ifweak Build lastinghumancapital. institutions Create sustainableregionaleconomy after Wastage ifservicesnot desiredby minecloses communities Training for community members(bothfor direct capturedby communityelite andnot all and indirect employmentpossibilities), communitymembershaveequal chances to for communityleaders attendtraining capacity buildingfor community not economically viable smallbusinessesso institutions that credits can notbe returned(to create a provisionof micro creditsto support revolving fund) existingandnew businesses(not only communityinstitutionsunwilling to thosethat supply the mine but also other participate sectors such as agriculture) Trust Funds financing localdevelopmentinitiativesand weak communityinstitutionsnot able to which shouldbe managedby the participateactively in the decisionprocessfor communityaccordingto itsneeds; trust funds management providingfunds for future generations trust funds capturedby politiciandcornmunity elite/localgovernmentsandusedfor other purposes RelevantStakeholdersRoles Companies Large corporationsmayhavebetter Not core businessof the miningcompany, capacity andexperienceinsupplying raises businesscosts infrastructurethan remoteandunder- Create mine dependency funded localgovernments Fosterstrust with mining sector Builds a mining community that is loyalto the mineralsector or firm. StateLocalGovernment Overcomecollectiveactionproblemswhen Lack skills andcapacity, Vulnerableto there are a largenumber ofmines captureby interestgroups who divert benefits Builds capacity of localgovernmentand to other purposes. communities Civil society Provideservices to the affectedcommunity Havetheir own agenda and can easily (training, awareness programs) manipulatecommunities Trustedby communities Represent the interest of the sponsor and not Able to mobilizefunds so muchthe interest of the community Community Knows better what it needs Lack of consensusbetweendifferentgroups Partner inthe developmentagenda Weak communityorganizationsandeasy to Better monitoringof the implementation be corrupted of developmentprograms andtheir Capturedby interestedgroups TowardsSustainable Mineral-Intensive Growth inOrissa 22 3.46 If the right policy, including benefits sharing mechanisms and institutional framework are in place, mining can be a development driver of a mineral resources rich economy. As attested by the growth experience o f developing countries in the last quarter o f the twentieth century, the fastest growing economies o f Latin America and Africa have been the mineral dependent economies o f Chile and Botswana, respectively. Likewise, Orissa has the opportunity to tap into its mineral wealth to close the development gap with the most advanced Indian states. The following chapter discusses the principal elements o f the institutional framework related to managing environmental risks of rapid industrial growth. 4. STRENGTHENINGENVIRONMENTINSTITUTIONSTO SUPPORTRAPIDGROWTH I. KEEPINGPACEWITHTHEINVESTMENTBOOM 4.1 As highlighted in Chapter 2, a sustainable growth strategy for Orissa has to give priority to managing and mitigating the environmental impacts associated with the booming investment in the mineral based sectors, unprecedented in scale anywhere in the country. In addition to mining, Orissa is also becoming a major manufacturing investment destination in India, particularly into mineral based industries, such as steel and sponge iron and aluminum plants. 4.2 A rapidly changing economic profile driven by high demand - domestic and international - in steel and other mineral-intensive products i s also bringing noticeable environmental and social changes on the ground. This i s leading to a two-way pressure on environmental institutions. On the one hand, a growing public awareness and demand for better environmental management, evident across the country, i s escalated by the realization that much o f the I 1 proposed investment in mineral based Table 4.1: Orissa'sEconomicGrowth 1980s-2000s industries i s highly polluting. On the other Annual Growth Contribution to hand, rapid industrial growth results in an Rate* Growth increasing workload for the environmental I 1991-00 regulator to process a larger number of 1980-89 11991-00 1980-89 applications, monitor and enforce compliance Primary 2.8 2.0 41 20 by a larger number o f facilities, and respond to Agriculture & 3.1 0.5 35 1 a larger number o f public complaints. This is compounded by pressures for higher performance with providing environmental clearance as in an efficient and expedient Quarrying manner. Industry 7.1 3.7 22 20 4.3 An example o f the performance Services 7.5 6.6 37 60 challenges facing environmental and sector Total GSDP 5.0 4.1 100 100 institutions can be seen from a ban by Go0 on locating new sponge-iron industries in six sensitive blocks o f the state, namely Kuarmunda, Lathi Kata, Rajgangpur and Bonaigarh in Sundergarh district; and Jharsuguda and Rengali blocks in Sambalpur district, that have featured growing levels o f public complaints relating to increased air pollution. Yet, the state is anticipating a 30-fold increase in steel production and doubling o f the production o f alumina. These challenges are further exacerbated by the fact that nearly 80% o f the industries are in the small scale category with little or no environmental management knowledge, capacity or experience. Among the small scale industrial units3,64% o f the units fall into the highly polluting or red category o f industries and another 7% are the moderately polluting or orange category o f industries. As a result, the ability of state institutions to managethe environmental and social impacts o f a resource led growth strategy will be increasingly tested among a wide range o f stakeholders, including private investors and the general public. Meeting these performance challenges will require strengthening regulatory programs, implementation records, and public accountability. As per the records of OPCB, there are 2461 industries operating in Orissa, out of which 60% fall in red category, 11% in orange and25% in green category. (2005) Towards Sustainable Mineral-intensive Growth inOrissa Study 24 11. MULTIPLE POLICIES AND INSTITUTIONS TO ACHIEVECOMMONGOAL 4.4 The current environmental policy framework in Orissa is derived from various environmental statutes, legislated at the Central level by the Ministry o f Environment and Forests (MoEF). The state primarily relies on the Central government to set environmental policy and has no separate state environmental policy or strategy. Giventhe nature and quality o f efforts for environmental protection in the industry and mining sectors, environmental management is also strongly influenced by policies and initiatives o f a host o f sector institutions, such as Department o f Industries (DoI) and Department o f Steel and Mines (see Table 4.2 below). The G o 0 has adopted an Industrial Policy - 2001 and is currently developing a State Vision for 2020. Under the policy, "The State Government intends to facilitate handling o f environment and social issues involved in setting up o f industrial and infrastructure projects." As many o f the emerging investments are resource and pollution intensive, environment management a key consideration in the State's development policies. Furthermore, the challenge i s to effectively integrate and ensure compliance o f environmental considerations in the implementation o f development policies and projects. 4.5 Among the various governmental institutions, the OPCB plays the major role in ensuring compliance with environmental laws and regulations, particularly in the industryand miningsectors. The purpose o f this chapter is to focus on the primary responsibilities o f the environmental agency, the OPCB. Considerable progress has been made in establishing the environmental regulatory framework in Orissa, but much remains to be done to further strengthen implementation o f the regulations, procedures, mechanisms and practices in monitoring, compliance, and enforcement. In particular, the OPCB is undertaking or planning important initiatives to improve the consent management system, increase environmental compliance in the regulated community, promote effective public participation, and decentralize environmental functions to the regional offices. Environment Orissa PollutionControl Board relatedto industrial pollution. Departmentof Steel and Responsible for regulation and development of the mineral sector in the State. The Mines Directorate of Mines grants prospecting licenses and mining leases for specified minerals and minor minerals, including requiring the submission of environmental management plans. Indian Bureau of Mines Responsible for setting national policies and regulations for the mineral sector and specifically, approval of Mining Plan and Mining Closure Plan under the MMRD Act 1957, MCR 1960 and Mineral ConservationandDevelopment Rules, 1988. Department of Industries Responsible for accelerating economic developmentin the State and facilitating investment in industriesand infrastructure. The basic mandate is derived from Orissa Industrial Policy Resolution 2001 and IndustriesFacilitationAct 2004. TowardsSustainable Mineral-intensive Growth inOrissa Study 25 111. RESPONDINGTO THE DEMANDS GROWTH: OF INCREASINGTHE EFFECTIVENESS OF THE CONSENTMANAGEMENT SYSTEM Consent to Establish and Consent to Operate as a tool for Enforcement and Compliance 4.6 Activities, particularly industrial and mining activities, which would cause environmental pollutants to be released in the air, water, or soil require consent from the SPCB. This is the main instrument o f environmental clearance at the state level, in addition to environmental assessment and forestry clearances provided by central government (see Box 4.1). The purpose o f the consent management system is to ensure that these activities are conducted in a manner that complies with all environmental laws and regulations. A project proponent has to first obtain a Consent to Establish (CTE) for the proposed activity and then a Consent to Operate (CTO) for the facility, which is required to be renewed after a specified period o f time. The responsibility to review and issue CTE and CTO for industrial and miningactivities inthe state is perhaps the single most important mandate o f the OPCB and the one receivingthe most attention. The CTO i s also the primary instrument available to leverage greater compliance; so there is an urgent need to examine its effectiveness and explore complementary approaches to improve compliance while simultaneously reducing regulatory costs. The number of applications for CTOs has been rising steadily inthe past few years (see Figure 4.1). Figure 4.1: Trends in Consent to Operate (CTO) issued by OPCB 2002-03 2003-04 2004-05 2005-06 Years Source: Annual Report, OrissaState Pollution Control Board, 2006 RationalizingConsent Management 4.7 The OPCB has been reforming its consent management system to be more efficient and effective in performing services and protecting the environment. Inthe past two years, several steps have been taken, including a move towards risk-based consent management. Specifically, OPCB is in the process o f linkingthe duration o f CTO to the track record o f environmental compliance and performance. Industries with a good compliance history might be given CTO for 5 years, while violators will continue to be given CTO for one year (or even less in some cases). This has been complemented by the decision to delegate greater responsibility for consent management to regional offices that are now responsible for issuing "consent to establish" (CTE) and subsequent CTO (except for the first one) to green and some small scale orange and red industries. Public notice was issued providing clear guidelines to industries where to apply for pollution management consent in each case. To further support and increase the efficiency o f consent management, computerization o f the central and regional offices i s on-going, and Towards SustainableMineral-intensive Growth in Orissa Studv 26 software specialists have been hired to customize consent management software used by some other PCBs to OPCB needs. 4.8 These new promising initiatives are at the early stage o f implementation, and the system remains under considerable stress which will likely increase with future growth projections. Significant, well- planned capacity building efforts - at the central and particularly regional office level - and long-term government commitment to strengthening these institutions are required to adequately support and safeguard the growth agenda. Box 4.1: Mitigating Risks through the EnvironmentalAssessment and Forestry Clearance The existing regulatory framework for environmentalprotection in industrial and mining sector includesarole of centralgovernmentthrough a system of appraisalby acommitteeof experts, which is responsibleto clear projects basedon assessment of environment and social risks. The requirement for environmental clearance for industrial and mining projects is not only confined to consents from the OPCB at the state level but also includes both forestry and environmentalclearances from the Ministry of Environment and Forests at the central level. Most industrial and mining projects4,which fall into 17 categories of industrial activities and mining activities notified by the MoEF, are required to undertake an environmental impact assessment pursuant to the Environmental ProtectionAct, 1986. As part ofthe environmentalimpactassessment system, the OPCB is requiredto conduct a public hearing and forward the environmental assessment, along with a summary of the public hearing, to the MoEF expert appraisalcommittee inDelhifor environmentalappraisaland decision. Inaddition, forestry clearances are required andprocessedseparately by DepartmentofEnvironment and Forests at both the state and central levels of government. In cases where forest land is impacted by the proposed activity, a separate application for forestry clearance must be submitted and evaluated by the State Forest Departmentbased on assessment of losses by District Forest Officer supported by preparation of estimates for compensatory afforestation levied to the project. In addition to compensatory afforestation costs, the MoEF requiresthe project proponent to deposit net present value of forest with the Forest Department while granting forestry clearanceto the projects. Expandingthe scope of consent management 4.9 Under the consent management system, only 172 mines are covered out o f the approximately 300 legally operational mines in the State. While the Do1has a complete inventory o f all industries in the state, not all small units are covered by the environment CTEKTO system. For example, under the current regulatory scheme, mines with less than 5 hectares are not covered under the consent management system. This may result in smaller mines, which have considerable cumulative impact, operating without proper knowledge and adherence to environmental safeguards. Therefore, it would be useful to strengthen collaboration and coordination between OPCB, DoI, DoS&M and IBM, inreviewing the list o f entrepreneurial activities registered with DoI, DIC, DoS&M, and IBM and cross-verifying with the OPCB compliance management database. Information collected by OPCB from this inventory should be computerized, stored, and accessed in a shared database which would list the type o f business or operation, geographic location or area, applicable registration or licenses, and pollutants or emissions associated with production. The OPCB could also consider establishing an amnesty program that would invite unregulated industries and mines to obtain consent under simplified procedures and legalize their operation. After the amnesty period, OPCB should launch an aggressive inspection program randomly inspecting industriesand mines. Most mineral based industry in Orissaand miningactivities (with mining area more than 5 hectares) would need to go through the EIA process. Towards SustainableMineral-intensive Growth in Orissa Study 21 Iv. ENHANCING ACCOUNTABILITY FORENVIRONMENTAL VIOLATIONS: IMPROVING MONITORING ENFORCEMENT AND Strengthening Reporting, Inspection and Monitoring 4.10 A strong compliance monitoring and enforcement response is fundamental to ensuring compliance with the law and maintaining an agency's effectiveness. A regulatory agency relies on three primary methods to gather information regarding compliance with environmental laws: (i)reported public complaints; (ii) on-site inspection visits; and (iii)environmental reports submitted by facilities such as self-monitoring reports provided by the regulated factories. Although the OPCB has adopted procedures for the filing o f public grievances, consultations with stakeholders revealed that there is limited public knowledge o f these grievances procedures or o f the functions and mandates o f the Board. OPCB estimates that more than 30% o f complaints relate to the matters outside the purview o f the Board. This creates a perception o f irresponsiveness by the Board among some stakeholders, which could be addressed by a program o f better communicating and explaining to the public the responsibilities o f the Board and the type o f grievances it would effectively consider. There is also a scope for better coordination and collaboration between the OPCB, particularly its regional offices and local governments with respect to transmitting and addressing public complaints. At the same time, more can be done to ensure that legitimate complaints within the purview of the Board are addressed in a timely manner and that enforcement actions are publicly documented to provide a strong deterrent for willful and persistent violators. 4.11 Since much o f the technical staff time is taken up with processing consent management applications less time can be devoted to monitoring and inspections. OPCB's inspection schedule is summarized in Table 4.3. OPCB staff had to undertake about 4000 inspections in 2004-05, and the number is set to increase with industrial and urban growth. With the reform o f the consent management described above, hopefully more stafftime can be re-allocated to inspections. Box 4.2: SPCB Initiatives to Strengthen Compliance and Enforcement The Andhra Pradesh Pollution Control Board (APPCB) established a Task Force cell to respond to citizen complaints and provide relief against polluting industries in certain hot spots and other areas inthe State. The Task Force conducts surprise inspections, collects samples for water and air pollution to identify violating industriesand take appropriate actions. As a result of the intensified monitoring by the Task Force, the APPCB has issued show cause notices, enforcement directives, and closure orders against polluting industries based on the severity ofthe pollution problem. (Source: APPCB website) The Gujarat PCB has adopted a series of incentives to promote industries choosing to design and implement environmentalmanagementsystems such as I S 0 14001. These incentivesinclude giving priority environmental approvals within a period of 45 days; extendingthe water consents from 5 years to 6 years; allowing units with ETP to be eligible for 25% fee rebate provided they do not exceedthe water limits under their consent and meet the standards under the Water Act. In addition, the Gujarat PCB has promoted a series of industry-specific guidelines for certain sectors such as aluminum, cement, chlor-alkali, pulp and paper, etc. under the Charter of Corporate Responsibility (Source: GPCB website, ht@://gtxb.gov.in) 4.12 Importantly, there is recognition o f the need for innovative approaches to monitoring o f environmental compliance, particularly involving citizens and local governments. Five "watch-dog committees" involving an OPCB regional office representative, a district collector and a representative o f the local community have been set up inthe past two years, and appear to have had an impact according Towards Sustainable Mineral-intensive Growth inOrissa Studv 28 to regional office staff. Other compliance and enforcement mechanisms, which have been adopted by some other SPCBs in India, could also be explored (see Box 4.2). Table 4.3: Inspection and Monitoring Schedules followed by OPCB Size of Industry PollutionCategory Minimum Frequency Small scale Red Once inayear Small scale Orange Once in3 years Non-polluting small andtiny industries Green Once in5 years on randombasis L&M Red Once in3 months. L&M Orange Once inayear L&M Green Once in2 years on randombasis 4.13 Managing compliance and enforcement data also presents an on-going challenge for regulatory agencies. OPCB's current electronic database system is underdeveloped and of limited value since it includes only basic information regarding regulated facilities. Critical information, including consent management documents and EIA reports, until very recently was filed in the paper archives, but the agency is moving towards a paperless, computerized system. This opportunity should be used to strengthen information management by greatly expanding the database to ensure that all relevant information related to compliance and enforcement, monitoring data, consent management, EIA, as well as specific information on water quality, air quality, land use, and hazardous or toxic waste is available on the system. This is particularly important in light o f the recently enacted Rightto InformationAct. Cross sectoral coordination could also be improved through the sharing o f monitoring and inspection data of regulated facilities. Creatingcredible enforcement deterrents 4.14 OPCB has an important role to play as the prosecuting agency for environmental violations, but it lacks the legal expertise and capacity to develop sound environmental cases for prosecution inthe courts. While the PILs andjudicial mandates have grown in Orissa, insignificant efforts have been made to build the legal capacity and training o f the DoF&E and OPCB. Legal training is needed to address current deficiencies inthe development o f enforcement cases, such as collection o f necessary evidence to convict polluters; negotiating favorable settlements; and dealing with complaints by polluters. Therefore, one of the measures that should be taken to improve compliance and enforcement is to strengthen legal expertise available to the Board. 4.15 In order to strengthen the available enforcement and incentive mechanisms with DoF&E and OPCB, there is a need to complement the current legal system, with additional enforcement deterrents. Recognizing this lack o f credible deterrents, OPCB has adopted a Bank Guarantee System, first introduced in West Bengal (see Box 4.3), conditioning the renewal o f CTO for willful defaulters on a bank guarantee which i s forfeited in case o f non-compliance, as a tool to strengthen enforcement deterrents, along with other strategies such as cutting raw material supplies to non-compliant units. OPCB has used this tool more as a remedial measure to bring willfully and chronic defaulters under compliance. However, the use o f this program could also be explored as a preventive tool to ensure compliance for red category and environmentally sensitive industries and mines. Towards SustainableMineral-intensive Growth inOrissa Study 29 Box 4.3: Role of Bank Guarantee to Improve Compliance inWest Bengal Most State Pollution Control Boards face a major challenge in enforcing environmental compliance with the stipulated environmental emission and discharge standards. Although the prevalent environmental standards stipulate requirementsboth for prevention and control of pollution, the enforcementhas often failed to distinguish between a genuine defaulter and a willful defaulter. Several Pollution Control Boards are now attempting to encourage industries through partnership, commitments and voluntary initiatives, to move beyond compliance throughadoption of clean technologiesand improvementinmanagement practices. Even while voluntary initiatives have helpedseveral critically polluting sectors develop a road map for progressive improvement in environmentalmanagement systems, there are still a number of cases (in most States) where some willful defaulters have failed to comply with the regulatory norms in spite of demonstrated techno-economic feasibility ofpollutionprevention and control as established by other players inthe same sector. Many SPCBs have tried various means to bring such defaulting units under compliance using regulatory means such as legal closure notice; cutting water and electricity supply etc but with limited success as these have in-turngenerated other socio- economic concerns such as loss of production and employmentas well as protractedlegal battle. The West Bengal Pollution Control Board devised and impactsof BankGuarantee in West Bengal(slnce adoptedauniquemethodin 1997to address suchsituation 1997) by asking for a Bank Guarantee from the concerned units indicating the commitmentto the comply to an action in a 180 time boundmanner. The Bank Guaranteesystem does not 160 replacethe stringentrequirementsinthe existing standards 140 and action already takedinitiated for non-compliance and 120 - .~ area-specificrequirements.The experienceof use of such 512 Bank Guaranlee 100 Imposed a system has generated interesting results as most willful c O 80 Forfe,Iureof Bank defaulters have taken appropriate steps to comply with the z ~-G-aranlee-- regulatory stipulations so as to not forfeit the Bank 60 Guarantee money. The following table and graph 40 demonstrates that economic instruments including 20 penalties have strong potential to influence the environmentalbehavior of polluters, warranting its wider application. However, it is clear that this approach has limitations, as it would not be effective for SSIs lacking access to finance and credit. For SSIs, innovative Year regulatory programs combining targeted monitoring with compliance assistance are more suitable. Regulatory Action by WBPCB in 2005-06 TotalNumber Imposing BG 59 Forfeiture of BG 1 Issuanceof Closurenotice 230 Suspension of closure 144 Disconnectionof electricity 222 Restorationof Electricity 146 Imposition of Pollution Fines 46 Towards Sustainable Mineral-intensive Growth inOrissa Studv 30 ProvidingComplianceIncentives 4.16 Compliance assistance is an essential component o f any strong environmental management program. Assistance can be provided in a variety o f forms, including economic and/or regulatory incentives to encourage good compliance, as well as voluntary performance obligations, and informational and/or technical assistance programs targeted to the regulated community. For example, the OPCB has stepped up with an important initiative (followed by some other SPCBs) to institute two awards, Pollution Control Excellence Award and Pollution Control Appreciation Award, to recognize and promote good environmental performance. While this i s a commendable initiative, to have a wide-spread impact on polluter's behavior and compliance levels it needs to be complemented by other programs that provide targeted regulatory and/or economic incentives and technical assistance to different groups of polluters. 4.17 It is particularly difficult is to encourage compliance and good voluntary performance by SMEs and SSIs, such as, for example, stone crushers. These units are generally generating pollution at higher per unit o f production than corresponding larger units, because o f economies o f scale, the use o f obsolete technologies, lack o f financial resources to upgrade, and poor understanding o f environmental management practices. Importantly, the costs o f compliance are relatively higher for smaller units. Thus, incentives need to be built into special regulatory programs for such units/sectors that should include a package o f targeted monitoring and enforcement, extensive technical assistance and outreach, and some financial support. A successful program o f cleaning a cluster o f coal-using small industries in the center of Kolkata (see Box 4.4) is a good example o f a cooperative regulatory approach targeted at SSIs. While coal- burningunitsare not an issue in Bhubaneswar (thanks to a foresight policy decision by the OPCB in early 1990s not to allow operation o f any coal fired boilers in and around the state capital), the WB PCB program is o f interest because o f many elements o f best practice that have broader relevance for others pollution control programs (and/or other towns in Orissa) targeting SSIs. These are: using scientific information to set a regulatory priority and creating a targeted regulatory program, complemented by outreach, and technical and financial assistance, and buildingpartnership with the regulated industry Box 4.4: Cooperative approach for SMEs -good practice example from Kolkata Small scale industries were found to contribute 44% of the overall particulate emissions in a central area of Kolkata. The emissions largely came from the use of older, energy inefficient coal fired units for the manufacturingprocesses, such as small boilers, ceramic kilns, and cast iron foundries. The WB PCB adopted a stricter particulateemission standard and intensified enforcement efforts targeting units locatedinthat area. For most of then units using small coal fired boilers a change to an oil fired boiler (typically using a light oil) was needto meet the standard. Inorder to facilitate compliance, a fund was created at the WBPCB with the support of the India-CanadaEnvironment Facility, to assist small scale industries in financing the cost of measures that would result in meeting the standard, Since natural gas network is not available in Kolkata, a typical measure was to replace a coal boiler with a more energy efficient and cleaner oil fired boiler. The fund provided a matching grant (50% of capital cost) paid after the conversion was implemented.The WB PCB also involved industrial associations that helpedto reachout to the units and provide technical advice. A recent assessment of pollutant emission reduction after the adoption of new standards and establishment of the find showed a reduction of about 98% of the total particulate matter from the units who had completed the conversion from coalto oil fired units. (Source:httr,://www.wbt)cb.gov.id) MainstreamingEnvironmentalAgenda through EnhancedRole of Industrialand Mining Sectors 4.18 The sector institutions have an extremely important role in ensuring better environmental management both through regulatory means and through partnership that may influence the choice o f Towards Sustainable Mineral-intensive Growth in Orissa Study 31 production technologies locations or corporate stewardship. Many o f the industries are represented by industrial associations at the national level and in some states have programs to provide technical assistance and create awareness o f environmental management and pollution control issues by its member industries. For example, the Orissa Sponge Iron Manufacturers Association (OSIMA) has taken a number o f voluntary initiatives such as providing support for monitoring and developing guidelines for compliance. However, not all industrial associations in Orissa are able to provide environmental awareness and technical assistance for its members and a significant number o f SSI units are not active members o f industrial associations. The industry and mining sectors need to take a pro-active role in creating environmental awareness, providing technical assistance, and serving as environmental mentors or stewards. v. BUILDING PUBLIC TRUSTIN ENVIRONMENTAL MANAGEMENT:ROLEOF PUBLIC PARTICIPATION StrengtheningPublicConsultationProcess 4.19 There is a trend o f increasing number o f PILs and court cases5in Orissa, which indicates growing public demand for better environmental quality and accountability. The number o f environmental controversies in the regulatory arena will most likely continue to grow as new investors and developers propose new industrial or miningprojects in the state. Affected communities are principal stakeholders o f environmental management, increasingly demanding greater accountability for environmental impacts and more and more often resorting to public interest litigation. In addition to and as a way of strengthening the effectiveness o f public hearing process (renamed as "public consultation" by the new EIA notification, 2006), it would be important to develop "community participation" programs by DOE and OPCB aimed at educating and pro-actively communicating with community stakeholders on the impacts and benefits o f the proposed development activities. Such programs could involve smaller and more frequent meetings with communities prior to a " f o ~ ~ public ~ ~ ~ a lconsultation; interactive approaches to educating the public through training sessions and the publication and dissemination o f regular environmental updates. It should also allow designated regional officers (and provide them with sufficient time) to work with the community to better understand local concerns, and adoption o f user friendly procedures to ensure the fullest access to information under the Rightto InformationAct. It is also important to expand programs for involving citizens in environmental monitoring, building on the successful experience o f a few "watch-dog" committees, particularly for small industries and mines, where the transaction costs o f monitoring by OPCB through traditional methods are too high 4.20 One immediate measure that can be pursued is to provide specialized training for agency staff in the importance and use o f a variety o f public participation techniques or approaches and how to properly use them. The skills and techniques to be covered would include: issue identification and management, listening and communication, consensus and vision building, community outreach and partnering, negotiation and alternative dispute resolution. If training is not feasible, OPCB should consider employing professional facilitators or engaging respected community leaders to assist with public hearings and serve as a communicationbridgebetween the regulator and community. 4.21 Civil society, particularly vulnerable tribal communities, often lacks the understanding o f the costs and benefits o f proposed projects and how these projects will affect them in economic, social, and environmental terms. This has shown to limit the effectiveness o f the public hearing /consultation, and sometimes enabled the consultation process to be captured by outside interest groups. Increasing the capacity o f civil society to understand these underlying issues by providing training on technical or 'Approximately248 environmental cases have beenfiled till 2005-06 since 1986-87 against polluting units inOrissa. Towards SustainableMineral-intensive Growth inOrissa Studv 32 scientific issues is another way o f ensuring more meaningful and effective public participation and empowering communities inthe decision making process. PublicAwareness and Outreach 4.22 The DoF&E, through the Centre for Environmental Studies (CES) as the nodal agency, had developed some programs for promoting community awareness and increasing community involvement inOrissa. However, these programs have limitedeffectiveness increating public awareness andoutreach. The CES6which is promoting a network o f NGOs and eco-clubs in each of the districts and acts as an ENVIS center, suffers from acute resource and capacity constraints. Also the DoF&E has established District Environment Societies (DES) across all 30 districts in the state, but the DES have been dormant groups and presently do not play an active role inpublic awareness or community involvement. 4.23 The OPCB needs to strengthen mechanisms to undertake information dissemination and mass public education programs as currently mandated. Neither the OPCB nor CES regularly produce or disseminate information on environmental issues, regulatory activities, or give advice to individuals or communities on how they can reduce pollution. Environmental information that is consumer oriented, and not technically focused, should be regularly provided to communities through the local print media, agency newsletter, regional offices, or local community centers. In addition, the OPCB needs to ensure that staff respondtimely to informationrequests and that procedures for dissemination o f information are user friendly. Without these assurances, implementation o f the Right to Information Act will have limited effectiveness inbringingthe intended results. NGOs; and acts as EnvironmentalInformation Collection and Dissemination Center - a country wide system designated by CES has established 150 eco-clubs in each of the 30 districts, forming about 4500 clubs; established a network of about 600 MoEF for the State. TowardsSustainable Mineral-intensive Growth inOrissa Study 33 VI. STRENGTHENING THE ENVIRONMENTAL REGULATOR Securing adequate human and financial resources 4.24 There are significant capacity constraints that OPCB faces currently. The ratio o f available staff to number o f polluting units has been gradually deteriorating due to increased industrial activities and freeze on recruitment to state government agencies in Orissa, while the number o f requests for consent has increased from 644 in 2004 to 668 in December 2005 and is expected to increase further over the next few years. As o f December 2005, the OPCB had 220 sanctioned staff positions7, o f which 58 were technical positions and the remaining technical support or administrative positions. In comparison, some SPCBs have a much higher distribution o f technical versus non-technical staff, according to the Planning Commission evaluation o f SPCB performance nation-wide (for year 2000). For example, the Karnataka PCB had an impressive ratio o f 64:34 technical versus non-technical staff. Many technical resources are assigned for management o f CTE and CTO, which remains one o f the core tools used by OPCB to ensure environmental safeguards both duringplanning and implementation stages o f industrial and miningsector development. Figure 4.2: Apportionment of Human Resources available in OPCB, December 2005 Source: Background Reporton Institutional Capacityneeds assessment, ERM,2006 4.25 There is a broad recognition in Orissa that a critical staffing shortage adversely affects OPCB's capacity to deliver on their core functions, such as consent management and compliance monitoring that are considered critical to the expansion o f the industrial and mining sectors in the state. In light of increasing number o f applications from key sectors, the Go0 has recently approved nine positions for OPCB that will help ensure that critical core functions are performed. This is an important step. Furthermore, with increasing growth and public pressures, a periodic assessment o f capacity and staffing needs at both the regional and central offices will be required. 4.26 In terms o f financial resources, nearly 39% of OPCB revenue' comes from fees charged from renewal o f consent (CTO) and grant o f consent (CTE). The fee charged by OPCB for consents is relatively less when compared with other SPCBs and the fee has not been revised since 1998. For example, the CTE fees charged by OPCB is 15% o f the fees charged by the Maharashtra PCB and 50% o f * During 'Againstwhich only 170 staff are inposition as of December2005. 2004-05, the consent fee collected amountto INR31.78 million out ofthe total revenue of INR 81.52 million. Towards Sustainable Mineral-intensive Growth inOrissa Studv 34 the fees charged by the Karnataka PCB. Given the expected increase in demand for consents from the industrial and mining sectors, the OPCB should re-evaluate the current fee structure and better align it with the expected costs associated with meeting increased demands and expected higher level of scrutiny by the public. OutsourcingNon-coreFunctionsof EnvironmentalResearch and Monitoring 4.27 Inorder to effectively perform its environmental management responsibilities, the OPCB needsto provide comprehensive environmental data to inform decision-making, It has established a Pollution Assessment, Research, Development and Monitoring (PARDM) cell to undertake this mandate. Most o f the cell's focus has been on providing background environmental quality monitoring data, partly because o f the available funding from central agencies such as CPCB and MoEF. The OPCB has infrastructure resources such as monitoring equipment, accessories, and mobile vans for monitoring, but the laboratory resources are generally outdated and cannot effectively perform bio-monitoring, micro-pollutants, and metal analysis necessary for the background environmental quality monitoring program. Constrained by availability o f technical staff resources to perform this mandate effectively, the OPCB has not been able to give priority to this function. To overcome this challenge, functions that do not relate to legal obligations could be outsourced to private consultants or research institutes with expertise in environmental quality monitoring, pollutant standards, alternative treatment technologies, and other specific technical areas. ImprovingEnvironmentalManagementthroughGreater Cross-sectoralCoordinationin PolicyandPlanning 4.28 As Orissa's growth strategy accelerates, the coordination o f cross sectoral agency roles and responsibilities will become increasingly important. There are significant opportunities and a number o f areas where alignment o f sectoral policies and programs with environmental considerations would go a long way in achieving overall improvement in environmental management, particularly in the industry and mining sectors. Examples o f such opportunities exist through Industrial Facilitation Act, proposed Mining Sector Development policy, Single Window Clearance system and Environmental Management Plans in the mining sector. Responsibility for environmental management o f mines is shared between MoEF/OPCB and DoS&M/IBM. The IBMand DoS&M are responsible for the licensing and operations o f mines, while the MoEF and OPCB are responsible for ensuring their compliance with the provisions o f the Air and Water Acts and the EIA clearance process. Cross sectoral coordination could also be strengthened by establishing protocols for inspection, conducting joint inspections, outlining procedures for conflict resolution, and sharing environmental and inspection reports by respective agencies. 4.29 Traditionally, the planning process, including the choice o f location and technological processes, are driven by business requirements and these choices strongly influence the extent and nature o f environmental impacts. Given the fact the most new investments in the state are and will be located in environmentally sensitive areas, the current work by CPCB and OPCB in developing zoning atlas should be extended to all sensitive areas or districts. The Do1 and DoS&M should also encourage the use o f these zoning atlases by planners to decide the most suitable areas for investment and zones for new industrial and miningprojects. 4.30 Another area to be considered in the enforcement arena is the level o f cooperation that is sought and available from other agencies o f government. The G o 0 has already issued directions to district administrations to cooperate with OPCB through a government order. This action o f G o 0 has improved the situation to a large extent. However, with some other utility service providers and raw material suppliers, the OPCB can proactively enter into an agreement or understanding with organizations Towards Sustainable Mineral-intensive Growth inOrissa Study 35 involving its senior management. This will improve the coordination between OPCB officers and utility service providers at various levels. VII. TOWARDS STRONGERAND EFFECTIVE INSTITUTIONS:ANACTION PLAN 4.3 1 Based on this institutional analysis, several recommendations have been proposed for creating stronger and more effective institutions to manage the environmental impacts o f rapid growth in the State inthe following key areas: Accounting for all Critical Polluters in the State and Improving the Effectiveness through Risk BasedApproach 0 Inventory all industries and mines operating in the state to update the consent management database with OPCB, reviewing and cross verifying with the list o f entrepreneurial activities registeredwith DoI, DIC, DoS&M, and IBM Establish an amnesty program to invite unregulated industries and mines to register and obtain consent under simplified procedures and after amnesty period, launch an aggressive inspection program. Improvingthe Effectiveness of Complianceand Enforcement Explore new regulatory approaches and compliance incentives for small-scale enterprises and small scale industries, including financial assistance programs tied to meeting regulatory standards Evaluate, refine and expand the bank guarantee system to strengthen compliance incentives for medium and large highly polluting industries Encourage industries to submit self monitoring data by introducing regulatory incentives, such as reduced inspections, for industries who can demonstrate a consistent record o f compliance Strengthen enforcement procedures for public complaints, monitoring, inspection, collection o f evidence, and prosecution o f cases. Enhancingthe Role of Public Participation 0 Engage affected communities early in the planning process through small and frequent meetings and create an understanding o f both the costs and benefits o f the proposed project * 0 Provide specialized training to agency staff on effective public participation techniques, such as consensus building and alternative dispute resolution, and use professional facilitators or respected community leaders to assist with public hearings 0 Establish user friendly procedures to implement the Right to Information Act and ensure that information on consent management, compliance and enforcement, EIA applications and approvals, and environmental monitoring data i s collected, updated, and accessible on OPCB's database. Towards SustainableMineral-intensive Growth in Orissa Studv 36 Strengthening the Functionsand Capacitywithin OPCB Improve the capacity o f the regional offices for consent management, monitoring and inspection and realign resources, based on current and expected future needs Improve a balance between workload and staffing level through outsourcing o f non-legally obligated functions, such as research and monitoring, increasing process efficiency where possible and hiringadditional staff with required technical skills. Improve Alignmentwith Cross Sectoral Priorities Developjoint protocols andjoint teams for inspection o f the miningsector between DoS&M and OPCB and consult on environmental management plans and inspection reports 0 Expand the development o f zoning atlas to all sensitive areas and districts; link zoning guidelines to granting a CTE, starting with particularly sensitive and/or populated areas, in order to facilitate their use during the planning process to determine the most suitable areas for investment and zones for industrial and miningprojects. 5. AWAY FORWARD 5.1 Orissa now stands at the crossroads o f success, The recent boom inthe prices o f mineral-intensive products has led to a wave o f domestic and foresighted investors in the mineral-intensive industries and presented the state with an opportunity to capitalize on its natural wealth and build a prosperous economy where the benefits o f growth reach all its citizens. The government has acted upon this opportunity and undertaken an initial set o f reforms that have yielded encouraging results, as particularly seen in reduced fiscal deficit and accelerated rate o f growth. It is further developing and implementing a comprehensive vision and strategy to sustain these achievements, hrther accelerate growth and make it more inclusive. Managing the environmental and social impacts o f accelerated mineral-intensive growth is an integral part o f this strategy, and central to lasting success. The improvements in policies, institutions and implementation mechanisms need to be achieved at a pace matching the demands o f rapid growth and massive expansion o f the mineral-based investments, which would require further significant efforts. 5.2 The report has re-emphasized the principal role o f Orissa's environmental agencies, such as the OPCB and the DoF&E, in assuring the sustainability o f growth and strengthening public support o f the economic reform agenda. At the same time, it has also highlighted the important role that sectoral agencies, such as the Do1 and the DoS&M, have in the oversight o f industrial and mining projects, including participating in the development and implementation o f a robust framework for social and environmental risk mitigation. As the state's resource and pollution intensive growth patterns has the potential to disproportionately affect its poorest citizens, particularly tribal communities, creating such a "sustainable growth framework" is necessary for pro-poor and inclusive development path. 5.3 The study findings and recommendations, produced in close cooperation with DoFE, OPCB and DoS&M, and in consultation with other stakeholders, can be grouped into three broad categories (see also Annex 1: Action Plans o f the report, for a detailed list): 0 Enhancing opportunities for inclusive growth and poverty reduction through mineral-intensive investment; 0 Strengthening environmental management; 0 Improving linkages between environmental and sectoral policies and processes. I.ENHANCING OPPORTUNITIES FORINCLUSIVE MINERAL-INTENSIVE GROWTH 5.4 Several o f Orissa's recent policy initiatives represent a significant milestone in the development o f a systematic approach to addressing social and environmental "externalities" associated with the growth in the industry and mining sectors. There appear to be two principal areas on which future efforts should focus: one, increasing the effectiveness o f institutional implementation o f policies and two, restoring the earning capacity o f affected communities. 5.5 A review o f regional and international experience with benefit sharing schemes concluded the following: A flexible benefit sharing instrument is needed that can be tailored to local needs and accommodate diverse industry structures and management capabilities based on negotiation and voluntarism and restoring earning capacity; 0 Pooling resources and addressing collective action problems may be effective in areas with multiple small scale mining. In case o f a large mining company particularly with a local government capacity over-stretched, it is more likely that the company would take responsibility Towards SustainableMineral-intensive Growth inOrissa Studv 38 for supplying benefits in the form chosen by communities. This may however lead to community dependency on the mining company; Supplying benefits through public goods that leave durable development outcomes and promote economic independence should be seen as first preferred option, while the cash payments may be the last resort in areas that lack service delivery capacity, or where trust o f local institutions remains weak; and Meaningful community representation calls for awarding greater rights to affected parties over development decisions that affect their livelihoods. The Development Forum approach will most likely succeed in small and relatively homogenous communities (such as many tribal communities), mainly exposed to mining activities by one large company. 5.6 In the context o f Orissa, governmental departments such as MoS&M, MoI, MoP&C could promote greater social inclusion through peripheral development plans and benefit sharing mechanisms adopted with meaningful community participation. In addition, greater accountability is needed through adoption of a pro-active public engagement campaign by all agencies that increases the informationmade available to the public and integrates community stakeholders earlier inthe project planning and decision- making process. 5.7 The lessons from international and local experience, summarized in the study, are expected to help GOO, in consultation with other stakeholders, to further strengthen the framework for peripheral development in mine-affected areas it has already started putting in place. Based on the emerged lessons Go0 should initiate the design and implementation o f pilot benefit sharing schemes in different settings. It is also important to extend an analysis of the impact of mining development, undertaken in the two districts, to other areas with different mix o f miningcompanies and communities, to provide a full picture o f the impacts and community needs. Given the significance o f and close linkages between the environmental and social issues in mining development, a strategic environmental and social assessment o f the mining sector could be a useful tool to support the formulation o f sustainable mining development framework. 11. STRENGTHENING ENVIRONMENTAL MANAGEMENT 5.8 There are multiple institutions within the policy framework which have a role in environmental management, with both common and unique institutional challenges. The study analysis and stakeholder consultations found these challenges fell into the three primary areas -strengthening regulatory processes and tools, improving information sharing and public consultation, and enhancing capacity o f regulatory agencies. While the specific needs were analyzed and identified in detail for one of the key state-level environmental institutions, namely, the OPCB, the study also pointed to important areas o f strengthening environmental management capacity o f the mining regulator and a scope for greater collaboration between the two regulatory authorities on environmental issues o f common interest and responsibility. In particular, key findings include: The enforcement mechanisms to ensure compliance need to be further strengthened. This includes greater coverage and efficiency in monitoring and inspections practices and complementing the current system o f traditional enforcement tools with innovative approaches, such as the Bank Guarantee System recently introduced by OPCB. While DOEand OPCB have embarked on several very promising initiatives, evaluating, refining and expanding these initiatives, as well as developing additional programs to target different categories o f priority pollution sources are needed. Many industries(or other polluters such as municipal sources) still have rather few incentives to comply voluntarily. Collaborative compliance assistance schemes for small industriesand mines Towards SustainableMineral-intensiveGrowthinOrissaStudy 39 that face particularly high costs of compliance relative to the overall cost of business are needed to be pursued. On the other end of the spectrum, rewarding good compliance and voluntary initiatives by industry through regulatory incentives (such as consent duration, frequency of inspection, etc.), using successful experiences in some other states, is another opportunity to promote better environmental performance. To absorb the magnitude of growth that is expected inthe extractive industry and mining sectors, an integrated system of risk managementis essentialto ensure that development can be sustained in an environmental and socially sensitive manner. This will require the development of procedures and mechanisms for mine closure, the adoption of guidelines for proper consultation, and the preparation of community (peripheral) development plans supported by suitable benefit sharing schemes, which could be initially piloted in selected areas. Strengtheningthe environment regulator to perform its increasing responsibilities effectively and efficiently is critical for supporting new much-needed investments and building a broad based consensus on the Orissa growth strategy. While important first steps have beentaken by the Go0 and OPCB, such as decentralization of regional offices and additional staffing, a period of systematic assessment of - and action upon - capacity and staffing needs including staff skills and training, is necessary. 111. IMPROVING LINKAGES BETWEEN ENVIRONMENTAL AND SECTORAL POLICIES AND PROCESSES 5.9 The regulation of mines involves multiple agencies at both the central and state level of government with different regulatory authority and responsibilities. While the Indian Bureau of Mines has the responsibility to approve production leases and mining plans, including an environmental managementplan, the MoEF has responsibility for EIA clearances and the OPCB for approving consent management.The delineation of roles and responsibilities is sometimesunclear, especially when it relates to the monitoring of environmental conditions and supervision of environmental management plans. Greater cross sectoral communication and coordination is required to ensure that gaps inregulation do not exist and maximize the efficiency of limited resources. To the extent possible, this should involve institutionalizing mechanisms for cross sectoral coordination such as establishing joint protocols and teams for inspection of mines and linking information managementsystems. 5.10 In conclusion, rapid growth that is projected for the state of Orissa brings promising future opportunities for economic development and poverty reduction. To realize these opportunities requires, amongother reforms, a comprehensive1and effective managementof environmental and social impactsof mineral-intensive growth. The challenge is enormous given the legacy of insufficient attention to these issues in the past, the scale of expected new investments, and capacity constraints of government and community institutions. Importantly, the government has embraced a broad-based growth agenda and is moving forward ina more environmentally and socially responsiblemannerthan inpast, demonstratedby a series of recent initiatives, Building on this momentum, the study has developed, through analysis and extensive consultation with Go0 and other stakeholders, a set of specific recommendations with respect to improving environmental management and social integration that can pave the way for continued (medium-to long-term) effort to build an enabling framework for inclusive and sustainable growth z -zE Q 6E Y E 0 .I za c L I c Q) 3; Q .I z 6 v) Y Q M E .I W I .I .I 5a E;: I Q E 0 .I .y c 1 .I c 2 I I 6 kQ E E 0 .I 4 c +CC r 9eE .C 5E T e ci ; 7 cE : .I e c .C ce 6ciE e c 8 1 m a g ! 5e -3 C 1 .I -e 0 .I 0 r 8 c0 S 2i? 5 0 c i Hke .I 3 M 7 .I S E a z C m .I i3 C 0 .I .I c $ L m b C S k -6E .I I VI $ 0 c 0 k a C c 0 cE m wl rn 0 v I H 3 S 2B u g ss c1 m .-c M M C C .I : C c e .I e 4c c h 3 .-3m 6 cc 0 c, Q) 3im 8 Q) 8 E s 3: .I W 8m Y 42 s: -0 D10 Ew9 I m Y 8EEEl a 0 .I c) m a .I V k .I .$ .-e0 we a c, ga V 0 .I s I I V .I b3 Y a L 0 a I e s Q) V .I ¶ I P M 0 > C k H aaama a L z .I E v .I 2. e a 3h 6E i xE &4 c) v1 m 8m 9 M L L E & c, 0 0 -.-a .I *El CI 0 3 0 W C m c) c1 E" d 8e c) 8 C L 3 cc u 0 8 : L .-L &4 m E 3 d i;; C ti .-M a % k 0 I- P .I c, L 4 2 e e Y e Y Annex 1 Summaryof Good InternationalPracticeinMiningLegislation MINERAL POLICY Governance guidingprinciples, includes: ownership o f mineral resources, economic 0 honoring the constitution the policy provides the intent o f the government, contribution o f the and laws and regulations are viewed as instruments for guidance. industry, role o fthe 0 principles may include sustainable development, poverty abatement at the states community level, and self determination. 0 role o f the state as owner o f mineral resources, the role o f minerals in the national interest, and provisions for assigning mineral rights to third parties for investment and development environmental, and 0 defining national, regional and local expectations for resource development- social objectives at guidedby the principles o f sustainable development the regional & local scale, including 0 ensure the framework for addressing social impacts (avoidance, mitigation, community and compensation) for which laws and constitutional protections apply; are consultation and consistent, complementary and mutually reinforcing, o f the community management plans consultation framework and community development plan. 0 ensure that social impact mitigation measures are adequate for community consultation and community development plan to be satisfactory, acceptable to the community, and sustainable. 0 safeguard policies for large and small scale mining mineral access, 0 transparent, non-discriminatory public access to mineral resources through licensing, appeals, the provision o f mineral rights, subject to compliance with the Mining Law and dispute and MiningRegulations resolutions Economic:Business I equal treatment of 0 equal access to mineral resources for both domestic and foreign investors investors, sector through transparent, non-discriminatory sector regulation growth and promotionthrough 0 the state encourages exploration and development through a competitive private sector business climate, international best practices inregulatory and fiscal policies transparency o f the 0 clear procedures for acquiring mineral rights, preference given to licensing process, applications according to the order they are filed. fiscal and regulatory performance 0 stability o f investmentterms, terms o f agreements 0 administrative reforms and institutional strengthening to improve governance inthe sector revenues 0 endorsement o f the extractive industriestransparency initiative, and / or other management and revenues management, transparency initiatives. risk assessment& 0 safeguard the environment through environmental impact assessment and management, health environmental management plans TowardsSustainable Mineral-intensive Growth inOrissa Study 46 & safety, mine 0 requirements for public / community consultation reclamation 0 health & safety standards for workers and affected communities 0 reclamation o f mining lands, including obligations for planned and abrupt closures community 0 a framework for community consultation in mine planning, development, consultation ongoing operations, closure, and post-closure frameworks 0 identification o f stakeholders, assignment o froles and responsibilities linkages between consultation on social / environment assessment and management; and community development plans (and perhaps benefit agreements) resettlement & 0 ensure consistency between social impact management (avoidance, compensation mitigation, and compensation) and community development plans 0 social management i s consistent, complementary and mutually reinforcing o f the community consultation framework and community development plan. 0 social impact mitigation measures and safeguards are adequate for community consultation and community development plan to be satisfactory, acceptable to the community, and sustainable. community well- 0 policies for empowerment o f disadvantaged ethnic groups and/or indigenous being people 0 gender, family, and substance abuse prevention and control land-use planning, 0 integrated mine development planning with regional land-use through the mineclosure community development plan, consideration o f post-closure rehabilitation / planning re-use o f facilities and land 0 retraining and redeployment o f workers, re-conversion o f plant site, community sustainability capacity-building 0 commitment to building capacity within communities and institutions at the education regional and local level local economic 0 policies to foster small-to-medium enterprises at the local level usingmining development as an engine o f growth. integration into the community development plan role o f stakeholders 0 roles and responsibilities o f the state, regional governments, community, NGO's, and company using the stakeholder analysis and community consultation framework 0 possible partnerships and other third-party contributors 0 inter-regional cooperation defined within the community development plan outcomes 0 use the community consultation framework to assign roles and responsibilities in defining sustainability indicators, monitoring, reporting, and adjustment mechanisms as defined within the community development plan HIV/AIDS 0 a policy to address the problems o f HIV/AIDS infected staff and communities, and specific short, medium, and long-term strategies to arrest the spread o f infection TowardsSustainable Mineral-intensive Growth inOrissa Study 41 MININGLAW AND REGULATIONS Introduction purpose & scope o f 0 the role o f private investment, definitions for key terminology, scope o flaw law, objectives, 0 role o f state and objectives in regulating the sector ownership o f 0 provision for state ownership with private sector development resources, role o f the Economic security o f tenure, 0 suitable guarantees against arbitrary actions that would threaten mineral transparent licensing rights framework 0 a licensing framework that grants licenses in the order o f application filed, rightsprovided, to whom, how, and underwhat obligations sector growth role o fthe private sector, economic expectations licensing framework 0 type and issuance o f mineral rights, flexible timing o f programs, the rightto proceed from exploration to exploitation subject to regulatory compliance 0 ability and provisions to file for extensions o f mineral rights, renewal, transfer, relinquishment, withdrawal, termination 0 rules for cancellation o f rights 0 obligations o f mineral rights holders 0 dispute resolution, sharing o f infrastructure, safeguards for the protection o f cultural heritage, vulnerable groups, and communities ingeneral obligations for fees, 0 obligations on holders o f mineral rights to pay taxes, duties, and royalties; duties, royalties authorized agency for collection 0 procedures, schedules for payment, and applicable rates taxation, special 0 authorized agency to provide financial tax provisions, including provisions, and amortization o f pre-production expenses, (accelerated) depreciation of stability capital investments, and loss-carried-forward. 0 authorized agency to provide for financial stability, period, courses o f actions ifstability is involuntarily terminated secondary processing 0 prevailing regulations on secondary sources (scrap, waste, recycling). o f materials 0 provisions to encourage value-added mineral processing informal and small- 0 special provisions for the issuance o f mineral rights, regulatory compliance, scale mining and / or financial obligations o f small-scale and artisanal miners 0 safeguards against child and forced labor, disabled persons, use o f hazardous chemicals, control o f black markets other activities 0 provisions relatingto crafts, gemstones, and fossils fiscal requirements: 0 obligations to provide financial certainty o f funds to cover mine closure closure funds / 0 obligations to provide financial certainty o f funds to cover environmental environmental abatement, mitigation, and clean up in the case o f accidents; and tax guaranty treatment o f instruments used initial closure plan: 0 obligations to provide a comprehensive initial mine closure plan as part o f licensing, including consideration o f impacts and remedies as defined in the environmental and social management plans 0 procedures for the orderly transition o f company sponsored programs on mine closure 0 procedures for regular update and consultation o fthe plan violations, penalties, 0 actions that constitute violation o f the law, references to applicable civil and and Dowers o f criminal penalties, the civil and criminal powers o f the state and TowardsSustainableMineral-intensive Growth in Orissa Study 48 enforcement enforcement powers dispute resolution 0 dispute resolution procedures, including voluntary arbitration, rights o f and appeals recourse to international courts, mechanisms and procedures for filing appeals, and time limits revenue sharing with a provision to share revenues from mining(i.e. royalties and fees) with local communities impacted communities, as defined inthe community development plan 0 mechanisms to direct mining contributions from central accounts to local accounts as defined inthe community development plan EnvironmentalStewr dship risk assessment & 0 safeguard the environment through environmental impact assessment and management, health environmental management plans & safety, mine 0 requirements for public / community consultation reclamation 0 health & safety standards for workers and affected communities, required emergency preparedness plans 0 reclamation o f mining lands, including obligations for planned and abrupt closures mine reclamation requirements for mine area reclamation, rehabilitation, restoration o f flora and fauna, performance standards, and penalties for non-compliance Social: Mining and C mmunities community 0 requirements for community consultation in mine planning, development, consultation ongoing operations, closure, and post-closure 0 requirements for stakeholder identification, assignment o f roles and responsibilities regarding consultation and methodologies to integrate communities into planning and execution o f programs 0 requirements on the company, community, government in linking social / environment assessment and management; and community development plans 0 requirements (ifany) relating to benefit agreements resettlement & 0 requirements placed on the company to ensure consistency between social compensation impact management (avoidance, mitigation, and compensation) and community development plans 0 requirements placed on the company to ensure social management is consistent, complementary and mutually reinforcing o f the community consultation framework and community development plan. 0 requirements placed on the company to ensure social impact mitigation measures and safeguards are adequate for community consultation and community development plan to be satisfactory, acceptable to the community, and sustainable. community well- 0 requirements placed on the company for empowerment o f disadvantaged being ethnic groups and/or indigenous people 0 gender, family, and substance abuse prevention and control economic closure obligations on stakeholders in the preparation and execution o f mine closure (to planning be defined inthe community management plan): 0 requirements for fostering local economic development 0 the transition ofprograms away from the company on mineclosure 0 conditions and provisions for transfer o f infrastructure, facilities and lands environmental obligations on stakeholders in the preparation and execution o f environmental closure planning closure plans, (to be defined inthe community management plan): Towards SustainableMineral-intensive Growth inOrissa Study 49 0 reclamation plans 0 creation o f habitat, biodiversity, and protected areas 0 ongoing monitoring and reporting social closure obligations on stakeholders towards economic sustainability (to be defined in planning the community management plan) 0 re-skilling and redeployment o f labor 0 provisions for education partnerships 0 incentives for re-conversion o f closed facilities informal & small- 0 provision o f the legal status o f informal / unlicensed operators, and scale mining registration processes 0 provisions for assistance on legal & administrative, health & safety, technical training, environmental protection, and access to fair & competitive markets. competent authorities 0 responsibilities o f regulatory offices (Mines Inspectorate, MiningCadastre, Geologic Survey), and protocols for regulatory inspection and controls. misc. provisions 0 the collection and dissemination o f geological and exploration data, and terms o f confidentiality 0 administration o f geological databases and distribution o f geologic information 0 system for the classification o f mineral resources 0 the promulgationo f regulations and treatment o f existing mineral rights and the procedure for repeal of law. 0 the right ofthe state for public inspection 0 authorizations to build and maintain infrastructure, and process, transport, store, and sell mineral products 0 violations, civil, and criminal offenses and penalties. Towards SustainableMineral-intensive Growth inOrissa Study 50 Annex 2 International Experiencewith Royalty and Benefit Sharing' Inmost countries benefit sharing is funded from royalty distributionmechanisms. Everycountry is unique with its own legal system, history, political institutions, interest groups, levels o f economic development and dependence on mineral production. In some cases, royalties are designed along with the other taxes that are imposed on mineral firms as part o f an integrated package. In other countries, such as Peru, royalties are introduced separately, as an add-on to existing mineral taxation. So it is not surprisingthat the size and nature o f royalties are tailored to meet the special needs o f each country. The following are some examples o f royalty distribution mechanisms from three regions: Africa, Asia and Pacific and Latin America. (1) Africa The methods o f revenue distribution and beneficiaries o f mineral royalties vary widely in Africa. Administration is mostly at the national level for the benefit o f the general fund. This implies that mineral royalty funds lose their identity upon entry into the fiscus and are added to the government revenue pool. South Africa i s an example o f having a central fiscus from which funds are distributed to pay for services and for apportioning to lower levels o f government. Mozambique does it differently. Its mining law provides for a percentage o f royalties to be paid directly to lower levels o f government (Mining Code, Law No.14/2002 o f June 26, 2002). Some countries, for example, Ghana and Namibia, have created a minerals development fund (MDF)for distribution purposes. Ghana. Ghana has created a minerals development fund to return part o f the royalty income to communities directly affected by mineral development. Of collected mineral royalties, 20 percent are paid into the fund. Proceeds are then shared among the local government authority, landowner, and communities that are adversely affected by mining. Namibia. Namibia has also created a minerals development fund, but its expenditure is more broadly targeted than inGhana. The NamibianMDF is aimed at the following: 0 Promoting and supporting all aspects o f mining. 0 Broadening the contribution o f the mining sector to the national economy through diversification and by stimulatingeconomic linkages. 0 Providing funds for the development o f training and education facilities and programs. South Africa. South Africa has introduced an alternative revenue distribution with its newly promulgated Mineral and Petroleum Resources Development Act (MPRDA). Although there is no provision for lower levels o f government to benefit through mineral royalties, local communities have the potential to benefit substantially. 0 They are given the option to obtain a "preferent right" "(Mineral and Petroleum Resources Development Act 28 o f 2002, 3 October 2002) over land and minerals registered in their name, which effectively gives such a community negotiation powers equal to those o f the owners o f the mineral rights and fosters community development and social uplift. To receive a preferential right, the community must submit a development plan to the Department o f Minerals and Energy, which 9Extract from "Mining Royalties-A Global Study of Their Impacton Investors, Government, and Civil Society", J. Otto et al. - 2006 Towards SustainableMineral-intensive Growth inOrissa Study 5 1 can be easily renewed for 5-year periods. A preferential rightpermits the holder to either prospect or mine for the benefit of the community or, alternatively, to lease such rights to a miningcompany for a fixed consideration payable directly to the community. 0 The charter to the MPRDA gives preferential treatment, in accordance with black economic empowerment, in mine ownership, procurement, employment, and community inclusion into mine decision-making structures. (2) Asia and Pacific Within the Asia and Pacific regionmostgovernments bringall royalty-typetaxes directly intothe central fiscus, but some allow a more decentralized approach. Examples are provided below from China, Indonesia, Papua New Guinea, and the Philippines. China. China levies two different royalty taxes, one o f which is deposited solely with the nationaltreasury for the fiscus. The second one, called the mineral resources compensationfee (Regulations for the Collection and Administration o f the Mineral Resources CompensationFee, N.150. 1994), is collected by the appropriate level of county, provincial, or city government, with 50 percent o f the amount collected remitted to the central government and 50 percent retained by the provinces and cities. Inautonomous regions the split is 40 percent to the central government and 60 percent to the region. Indonesia. Over the past decade Indonesia has embarked on a major effort to decentralize tax authority. This effort has also affected fiscal revenues derived from the mineral sector. Under current law, State receipts from natural resources, including mining, are distributed in the ratio o f 20 percent to the central government and 80 percent to the region. The latter is split as 64 percent to the regencies and 16 percent to the provincial government. Papua New Guinea. In Papua New Guinea the government levies royalty taxes under its mining Act (Mining Act 1992). Provisions in the Act dictate that owners o f private land receive 20 percent o f the total royalty paid for mining leases on the land. In practice, the amount payable to landowners can exceed 20 percent, such as the OK Tedi and Lihir mines, which pay 50 percent, Mining companies pay the landowners directly and pay the balance to the State, which expedites and ensures payments to landowners, subject to the State checking and endorsingthe landowners' share for correctness. Philippines. In the Philippines, by statute, local government units receive a 40 percent share o f the gross collection from excise taxes on mineral products, that is, royalties, from mines in their territorial jurisdiction (The National Internal Revenue Code o f the Philippines). This amount is distributed as follows: 20 percent to the province; 45 percent to the component city and municipality; and 35 percent to the barangay (village or district). (3) Latin America In Latin America some nations collect royalty centrally, with the amounts going to the general revenue fund for expenditure through the regular budgeting process. However, several major mining countries provide for the royalty to be distributed to a variety o f entities identified in the law. In Argentina, individual States are empowered to levy and collect royalty and to determine how it is to be expended. In Peru, royalty is collected by the national tax authority, and the amount collected is then distributed to Towards SustainableMineral-intensive Growth inOrissa Study 52 statutorily defined parties according to specified percentages. InBrazil, the royalty law also provides that a variety o f parties are to be paid statutorily defined percentages o f the royalty, and most o f these parties are paid directly by the miner. Inherent in any system in which payments go to the central tax authority for later distribution is the risk o f a budget shortfall, so that payment to the other parties, even though set out in law, may be deferred or not made. This has been a recurring problem in some developing nations. Nations that allow entitled parties to be paid directly by the miner avoidthis problem. Argentina. Argentina's constitution vests ownership o f minerals to the province inwhich they occur. It also gives the congress the exclusive power to levy direct taxes but allows delegation o f that power. The premiseis that royalty is a compensation fee payable to the mineral owner, and thus the ability to levy and collect royalty i s given to the provinces. The federal government has an interest inthe promotion o f national interests, so although the state governments have the power to set royalty rates and to collect and spend the royalty, this power has been limited through the mechanism o f a federally imposed upper cap o f 3 percent (Mining Investment Law). The result has been that some provinces have opted to levy the maximum rate o f 3 percent, but others have decided not to impose a royalty. For example, in the case o f Catamarca, a principal mining province, the royalty rate has been set at 3 percent. Of the amount collected by the province, 15 percent is for distribution to the municipalities where the miningproject is located to finance public investment projects; the remaining 85 percent is used to finance provincial projects or public investments in other departments or municipalities. Brazil. In Brazil, taxation authority is set out in the constitution. It also stipulate that, with regard to mineral resources, the States, federal district, and municipalities, as well as the federal government, are assured a "share inthe results" o f mineral resource exploitation in their respective territory. Inaccordance with the constitution, statutory law provides that certain proportions o f royalty are to be paid to lower levels o f government and other parties. The distribution is defined as follows: 23 percent to the States and federal district, 65 percent to the municipalities, 2 percent to the national fund o f scientific and technological development, and 10 percent to the mining and energy ministry, which shall give 2 percent o f its share to environmental protection o f the miningregions. Peru. InPeru, provincial and local community dissatisfaction with perceived non-participation inthe benefits of mining led to political pressure that culminated in a royalty tax being imposed in 2004 (Law o f Mining Royalty). The royalty is paid to the central government and then distributed as follows: 20 percent to the district municipalities where the exploitation takes place (50 percent o f that goes to the communities where the mine is located); 20 percent to the provincial municipalities where the exploitation takes place; 40 percent to the district and provincial municipalities; 15 percent to the regional government; and 5 percent to the national universities o fthe region where the mine is located. As is illustrated above, in some cases the affected communities share directly in royalty revenues. However, such examples remain the exception. It is more prevalent for communities to share in a property tax, that is, a levy based on the book or market value of a mine's capital assets, than to have access directly to royalty. But in more cases there is no direct tax link between mines and communities. z0 FIn z0 Fu) I - z0 z0 Lo Lo Towards SustainableMineral-intensiveGrowth inOrissaStudy 56 Annex 3. Summary of Statistical Assessment of Mine Impactsin Koenjhar TheStudy Area The study was based in the Keonjhar district. Mining for iron ore began inthe 1950s in the Joda-Badabil mining belt in Joda block and some of the planned new mines fall in this district. Two blocks were selected in Keonjhar district: Joda block, with a high concentration of mines, and Keonjhar Sadar block, which is likely to be mined in the near future. All the sample villages fall within the "Peripheral Development Zone" of 50 km from the mining area and were selectedsystematically to ensure sufficient variation and representationof different social groups, especially scheduledcastesand tribes. The sample includes 600 householdsand combines information from householdand community surveys, spatial data on land cover, location of mines and villages, and census data. The study area contains clusters of intensivemining activities of different size, status and management practices and was specifically chosen becauseof the presumedmagnitudeof problems." PathwaysandImpacts The impact of mining on development outcomes is complex and multidimensional. Mining activities provide direct employment and indirect benefitsthrough the economic activity stimulated by the industry. The presence of a mine may also deliver benefits through the creation of infrastructure and public goods such as roads, schools and hospitals. Offsetting these are potential negative impacts: pollution from mines, if not properly managed, could adversely affect health, which in turn may influence school attendance, worker productivity and employability. Mining in forested regions both directly reduces forest cover in areas of active mining and, without mitigation measures in place, indirectly affects the quantity and quality of forests through pollution and potentially through changes in the local economy (e.g., migration, increased demand for fuelwood). The ultimate impact is determined by the balance betweenthe beneficial and the negativeeffects. As a first step in identifying mine impacts, an array of "bivariate tests" are reported to identify possible links between mine exposure and a variety of welfare outcomes. The tests assess whether welfare outcomes vary with mine exposure and provide preliminary evidence of the possible pathways and impacts. Table A3.1 reports tests of differences inmeans over four types of welfare indicators: total cash income, ownership of physical assets (productive assets and land owned), human capital (as measured by healthand education) and livingconditions (defined by the structureofthe home dwelling). Villages inJoda (by design) are significantly closer to mines and belong to the "high" exposurecategory, while those in Keonjhar Sadar are inthe ``low'' mine exposuregroup. The table shows that householdsin Keonjhar Sadar earnaverage cash incomes of Rs.25,305, while those inthe high mine exposure Joda belt have a mean income of Rs. 21,623. This difference ofRs.3,982 is statistically significant. Households in Keonjhar Sadar are also significantly better off in terms of ownership of productive assets. Education levels too are higher for households in Keonjhar Sadar. Householdsin Joda report higher incidences of loThe approachusedto assess mining impacts draws on conventional statistical methods,hencethe usual caveats apply: First, a statistically significant correlation between variables does not imply causation, but when supported by other evidence (e.g. case studies and macroeconomic evidence) it is suggestive of a possible causal link. Second, the results are based on surveys drawn from two areas, so it would be premature to generalizethe conclusions to other mining districts. Impacts will depend upon the spatial configurations of mines, demographic pressures, the assimilative capacity of the environment and the economic characteristicso fthese regions. Towards SustainableMineral-intensiveGrowth inOrissa Study 57 family illness. Separating the sources o f income, wage income for households in Joda i s higher than Keonjhar Sadar, most likely because o f the employment benefits of nearby mines. However, the difference is not statistically significant. Joda (300 Keonjhar (300 households) households) Codation of weighted mean with distance to Variable Mean SD Mean SD mines (Landownedt 0.9 2.3 1.6 2.9 0.134* Towards SustainableMineral-intensiveGrowth in Orissa Study 58 REFERENCES A. Eftimie & M. Stanley, 2005. Background Paper on Government Tools for Sector Sustainability, (Community Toolkit, World Bank and ICMM) Central Pollution Control Board. 2001. "Zoning Atlas for Siting of Industries (Based on EnvironmentalConsiderations)". CentralPollutionControl Board. Chetan Arya, Mihir Seth, Morgan Stanley - India Economic, March 2005, "Orissa: The Bangalore of India's Old Economy?" CII, 2005. Report on "Mineral andMetal Potentialof EasternIndia",, NewDelhi Collier, P., 2000. "Economic Causes of Civil Conflict and their Implications for Policy", World Bank Mimeo Department of Public Enterprises. 2004-2005, "Annual Administration Report". Government of Orissa, Bhubneshwar Dhar. B.B ,February 2005. "Environmental RoadMap for MiningSector'' Paper presented in"National Seminar onPolicy Statutes& LegislationinMines." ERM, April 2006, "Orissa State pollution ControlBoard Institutional Capacity Needs - Assessment", Delhi Fernando Loayza Careaga. 2004. Orissa Growth Strategy Note: Mining and Minerals ProcessingComponent, World Bank Working Paper Fraser Institute. 2006- Survey of Mining Companies, http://www.fraserinstitute.ca/shared/readmore.asp?sNav=pb&id=830, GazetteNotification, April 2003. Ministry of Mines, Government of India - "Amendment to Mineral Conservationand DevelopmentRules of 1998 of Mines and Mineral Act 1957- for the Mines Closure Plan" (10" April 2003) Handbook of Environmental Procedure and Guidelines (for Mining Industry) December 2002 FIMIPublication, WashingtonDC. Human Development Report, Orissa, (2004-2005), Bhubneshwar Isham, Jonathan, Michael Woolcock, LantPritchett & GwenBusby. The Varieties of ResourceExperience: How Natural Resource Export StructuresAffect the Political Economy of Economic Growth (http://are.berkeley.edu/courses/EEP131/fal12006/resourcecurse/Isham.pdf J. Otto et al. 2000. Global Mining Taxation Comparative Study (Second Edition), http://www.natural-resources.or~minerals/law/natlaw.htm J. Otto et al. 2006. Mining Royalties: A Global Study of Their Impact on Investors, Governmentand Civil Society,www.worldbank.org/minind, WashingtonDC Towards SustainableMineral-intensiveGrowth inOrissa Study 59 Kochhar, Kalpana, Kumar, Utsav, Rajan, Raghuram, Subramanian, Arvind and Tokatlidis, Ioannis. 2006. "India's Pattern of Development: What Happened, What Follows"? IMF WorkingPaper 06/22. Kohli Kanchi, and Manju Menon. 2005. "Eleven Years of the Environment Impact Assessment Notification, 1994 - How Effective Has It Been?". Kalpavriksh Environmental Action Group, Just EnvironmentTrust, and EnvironmentJustice Initiative (HumanRights Law Network). Mallik R.M. andN.Panigrahi. 1998. "Non-Timber Forest Produce Collection :BeneJits and Management in Orissa". Nabakrushna Choudhury Centre for Development Studies, Orissa. Mine closure plan-Guidelines (Circulars no. 14 and 19, 2003). (Controller General, Indian Bureauof Mines, Nagpur) Mineral Conservation and Development Rules, 1988 (As amended up to December 24, 2003).(Controller General, IndianBureauofMines, Nagpur), Government of India Mines and Minerals (development Development andRegulations) Act, 1957(As amended up to October, 2004).(Controller General, IndianBureauof Mines, Nagpur), Government of India NayakC.R., and M.C. Dash.2000. "Environment Status of Angul-Talcher Area" OrissaState PollutionControlBoard. Bhubneshwar. OrissaState PollutionControlBoard,Annual Report, (2003,2004 and2005), Bhubneshwar ResettlementandRehabilitationPolicyof Governmentof Orissa, 2006., Bhubneshwar Tata Steel RuralDevelopmentSociety,Annual Report, 2003-2004 and2004-2005) Tata Steel, "Corporate Sustainability Report" 2003-2004, Jamshedpur. UNIDO.(2001) -Annual Surveyof Industries Data. Verve Consulting. 2003. Issues in mining Mining in Orissa , World Bank Working Paper, - Delhi Verve Consulting. 2006 An Overview: State Government Taxes and Expenditure on the Mining Sector, World Bank WorkingPaper Warford Jeremey, ManasingheMohan, Cruz Wilfrido, 1,!997 Mainstreaming Environmental Concern in Economic Policy-Making theAction Impact Approach. World Bank 1998 "Pollution Prevention and Abatement Handbook" - "Iron and Steel Manufacturing ", World Bank, 2005 "Orissa Investment Climate Assessment- Towards a high performing State". Delhi World Bank, 2005, "Orissa Policy Notes", Delhi.