Page 1 1 PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB6215 Project Name Nigeria: Sustainable Mgmt of Mineral Resources-add'l financing Region AFRICA Sector Mining and other extractive (100%) Project ID P122828 Borrower(s) FEDERAL REPUBLIC OF NIGERIA Implementing Agency Ministry of Mines and Steel Development Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared February 2, 2011 Date of Appraisal Authorization December 21, 2010 Date of Board Approval March 31, 2011 1. Country and Sector Background The original project, Sustainable Management of Mineral Resources (SMMRP), is an important element of the Government of Nigeria strategy to diversify its economy away from petroleum, which currently accounts to roughly 80 percent of exports and foreign exchange earnings. While the oil industry generated billions of US dollars in revenues over the last decades, it did not contribute much to spread of mechanization, industrialization, or employment and rural development, largely due to enclave nature of the industry. Therefore, as part of its diversification effort, the Government is pursuing to develop its minerals sector, which laid dormant for decades. Nigeria was an important mining destination in the past, before the oil discovery, and has an excellent potential to develop its seven strategic minerals (gold, coal, iron ore, limestone, lead/zinc, tantalite and barites). The project comes at a crucial time, when the world is experiencing a minerals boom. Metals prices have increased rapidly since the project was approved in 2004. As a consequence, exploration investments are increasing and, with the assistance of SMMRP, Nigeria is positioning itself to take advantage of these investments. Estimated production value has increased from some 5.3 billion NGN in 2005 (around US$35 million) to around NGN 20 billion in 2009 (around US$135 million); royalties from solid minerals production have almost quadrupled from the level of NGN 215 million 1 in 2005 to NGN 823 million in 2010 (around US$14.5 million and US$55.5 million respectively); formal employment (in licensed operations) has increased from around 100,000 to 250,000 over the same period. International investors have now shown strong interest in Nige ria’s minerals since the commencement of the project and currently there are over 50 international companies carrying out exploration activities in-country (from a baseline of zero in 2004/5). The first large- scale gold mine is to start production in 2011. Small-scale miners are equally enthusiastic about 1 Excluding US$12 million from the privatization process carried out by the government. Page 2 2 the support offered through SMMRP to improve their livelihoods and reduce poverty in the mining areas. The original project was developed consistent with the Country Assistance Strategy (CAS) of 2005 which in its turn was developed to be responsive to the National Economic Empowerment and Development Strategy (NEEDS) 2003-2007. The CAS reinforced the need to achieve economic growth outside the oil sector, and to improve substantially the competitiveness of the private sector. The original project and the proposed additional financing precisely target these objectives. The project complement the NEEDS and the state-level State Economic Empowerment and Development Strategy (SEEDS) respectively, specifically on the two pillars of (i) empowering people and improving social service delivery, as well as (ii) growing the private sector and focusing on non-oil growth. The project and additional financing remain within the strategic objectives of the new Country Partnership Strategy (CPS) for 2010-2013 (2009) as well. The current CPS provides for two main themes (i) maintaining growth of the non-oil economy, and (ii) improving governance, which is to be addressed through stronger transparency and accountability, better sector governance and capacity development. The project is fully in line with the strategic themes, as it supports development of the mining sector (both local and domestic use, and export oriented). SMMRP contributes to achieving targeted CPS outcomes of an improved environment for private business, improved competitiveness, and better access to finance. 2. Objectives The original Project Developmental Objectives (PDOs) for the project will be maintained for the additional financing as follows: (i) Increase the Government's long-term institutional and technical capacity to manage its mineral resources in a sustainable way; (ii) Establish a basis for poverty reduction and rural economic renewal in selected areas of the country via the development of non-farm income generating opportunities through small-scale and artisanal mining and to diversify away from oil sources of income. 3. Rationale for Bank Involvement This is an additional financing project to scale-up activities building on achievements of the original Sustainable Management of Mineral Resources Project, approved in 2004. 4. Description Component A: Economic Development and Livelihood Diversification A1 - Sustainability of small scale mining and livelihood diversification: (i) Update curricular; training of teaching, administrative and support staff; upgrade remaining Nigerian Institute for Mining and Geosciences (NIMG) campus and provide additional equipment for teaching purposes; (ii) extend institutional capacity building support to a Mining Community Resource Page 3 3 Center and Gemology Center for artisanal and small-scale mining; (iii) continue staff/skills development support to small-scale mining unit at Ministry of Mining and Steel Development (MMSD). A.2 Financing Programs for Business Development in Mining: (i) Scale-up small grants program to artisanal and small scale mining operations and communities; (ii) carry out capacity building support to mid-tier mine operators to develop bankable projects, and to local banks to evaluate mining projects; provide assistance with business development for mid-tier mine operators; (iii) establish and make operational Ibadan Gemstone Platform to support full roll-out of the new and growing gemstone sub-sector; (iv) establish and make operational Dimension Stone Certification Laboratory. Component B: Governance and Transparency in the Mining Sector B.1 Legal and Fiscal Reform: Expand this sub-component to include health and safety regulations, and explosives act and regulations; legal and regulatory framework and standards for the metals sector; finalization and adoption of the establishing acts and regulations for NIMG and Mining Cadastre Office (MCO); as well as update the Mining Act based on lessons learnt, and in consideration of new relevant laws and regulations. B.2 Institutional capacity building. (i) Scale up support to MMSD to strengthen regulatory and compliance enforcement functions, including metals sector licensing and monitoring; additional support for the Mines Inspectorate, including guidelines for health and safety and upgrading of laboratories, and carrying out baseline study of designated mining infrastructure and its requirements in selected mining areas; (ii) conduct a baseline study of local metals plants, design strategies for metals sector development; upgrade testing and research laboratories; strengthen curricula at the Metallurgical Training Institute. B.3 Mining Cadastre. Roll out the mining cadastre system to two regional mining cadastre offices (Jos and Ibadan) to improve efficiency; upgrade existing mining cadastre system to incorporate lessons learnt from the early years of its implementation; design intranet system to improve efficiency between the cadastre offices. B.4 Environmental and Social management . Environmental and social mapping of existing and abandoned mining sites; socio-economic baseline studies of selected mining sites to assess economic feasibility for rehabilitation and alternative use; and development of sustainable development frameworks and community development agreements requirements. Component C: Private Sector Development Strengthening of geological infrastructure . (i) Additional geochemical surveying and geological mapping (based on the priority areas and focusing on strategic minerals as identified in Phases I and II); integrated mineral exploration of targeted mineral sites; archiving and documentation of NGSA publications and geological mapping of selected areas on scale 1:100,000; (ii) development of a national solid minerals information system to promote investment in the mining sector and support to National Geosciences Information Center at NGSA. Page 4 4 Component D: Project Management and Coordination Project management arrangements will remain unchanged; additional funding will be provided for the duration of implementation (through 2015). 5. Financing Source: ($m.) BORROWER/RECIPIENT 0 International Development Association (IDA) 80 Total 80 6. Implementation Implementation arrangements under the proposed additional financing would remain the same as under the ongoing project. The current Project Management Unit (PMU) has been effective regarding the implementation of the existing project. The PMU is fully staffed with a project coordinator and a deputy, procurement staff, financial management and disbursements staff, monitoring and evaluation officer, technical experts (construction engineer, geophysicist, social specialist, environmental specialist, artisanal and small scale mining program manager), and support staff. Ma nagerial and technical staff of the PMU is engaged under consultants’ contracts, with the rest of the team being seconded from within the civil service. The PMU staff and arrangements will be maintained throughout the duration of the original project and additional financing. It is noted, that the scaled up project will require a very strong implementation team as activities will need to be implemented in shorter period of time than during the original project over the next four years. The current team has capacity to carry this out effectively and therefore it is important to maintain current experienced staff. The government has adopted a Project Implementation Manual (PIM) for the purposes of the implementation of the original project. PIM will continue to be used for the scaled up operation with necessary updates to be completed by negotiations of the additional financing. Annual Work Plan and Budgets for each year of the project implementation were being developed by the government, and this arrangement will remain without changes. In line with the recent government’s decision, the financial management functions for Additional Financing as with the original credit will be provided by the Federal Project Financial Management Division (FPFMD), a division in the Office of the Accountant-General of the Federation. 7. Sustainability SMMRP implementation has been a success story; stakeholder reviews and feedback on the project were overwhelmingly positive. The project has established a regulatory framework and institutional structure to a sector which was, in the beginning of the project, generally informal and unregulated. Project design takes into account sustainability issues and lessons learnt from similar sector reforms globally. Going forward, special attention during the implementation of Page 5 5 the additional financing credit will be paid to (i) measures to ensure that all new functions, new departments and agencies established the original project to manage the mining sector as well as expanded capacity of existing institutions are fully covered under the government funding before the end of the project and that professional development of staff continues after the project is completed; enabling legal and regulatory frameworks to assist with this transition towards sustainable operation of the sector are a part of the project design; and (ii) ensuring that all new geodata acquired under the project is available to the investors and regularly promoted to attract private sector investment into further exploration and mining. 8. Lessons Learned from Past Operations in the Country/Sector The Project builds on experience gained from similar mining sector technical assistance operations in many countries, especially in Africa. This includes countries with long traditions of industrial mining like DRC, Zambia and Mauritania, and countries where mining has only recently emerged like Madagascar, Mozambique and Tanzania. Lessons learned are regularly captured in SEGOM analytical work and publications. Recent examples include technical papers on mining cadastres and guidelines for community development agreements in mining areas (see www.worldbank.org/mining ). Project implementation experience has demonstrated that Government ownership is crucial at the policy and project design level for successful outcomes. Consultations were designed to ensure that the project is fully in line with the Government’s development goals and vision, and responds to the expectations of the private sector and civil society. 9. Safeguard Policies (including public consultation) The current Project Environmental Category (B) would not change under the additional financing. The additional finance does not trigger any new policies. To date, safeguards compliance of the project is satisfactory, as was demonstrated by an independent safeguards’ audit carried out in 2010. Safeguards monitoring, especially in the small-scale and artisanal mining areas, will continue to reduce potential environmental damages, to ensure compliance with social and environmental screening, and to address possible displacement of incomes and livelihood after mine closure. Three instruments to guide safeguard activities during project implementation have been prepared and disclosed in the original project, including (i) a Sector Environmental and Social Assessment (SESA), to guide sectoral environmental and social assessments; (ii) a Resettlement Policy Framework (RPF), to address resettlement and compensation; and (iii) a Process Framework (PF), for the mitigation of social impacts due to restrictions in access to natural resources in protected areas. All three documents have been updated to reflect the additional financing and to provide a clearer line between the sector issues and activities supported under the project. The updated documents have been disclosed by the government for public comment on February 2, 2011. 10. List of Factual Technical Documents Page 6 6 Project Appraisal Document on a Proposed Credit in the amount of SDR 80.1 million to the Federal Republic of Nigeria for a Sustainable Management of Mineral Resources Project, November 15, 2004 The Development Credit Agreement (4012 UNI) dated January 24, 2005, between Federal Republic of Nigeria and International Development Association for Sustainable Management of Mineral Resources Project Sector Environmental and Social Assessment, 2004, updated 2011 Resettlement Policy Framework, 2004, updated 2011 Process Framework, 2004, updated 2011 SMMRP Mid-term review, 2008 11. Contact point Contact: Ekaterina Mikhaylova Title: Sr Mining Spec. Tel: (202) 473-4482 Fax: Email: emikhaylova@worldbank.org 12. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Email: pic@worldbank.org Web: http://www.worldbank.org/infoshop