Document of the International Development Association acting as Administrator of the Interim Trust Fund FOR OFFICIAL USE ONLY Report No. P 7048-BUR MEMORANDUM AND RECOMMENDATION OF THE MANAGING DIRECTOR TO THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION ON A PROPOSED INTERIM TRUST FUND CREDIT IN AN AMOUNT OF SDR 14.8 MILLION TO BURKINA FASO FOR A MINING SECTOR CAPACITY BUILDING AND ENVIRONMENTAL MANAGEMENT PROJECT May 29, 1997 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (December 1996) Currency Unit CFA franc US$1 = 500 CFA franc I CFA franc = US$0.002 WEIGHTS AND MEASURES Metric, unless otherwise noted ABBREVIATIONS AND ACRONYMS BUMIGEB - Bureau of Mines and Geology of Burkina Faso CBMP - Comptoir Burkinab6 des Metaux Pr6cieux CE/MEM - Environmental Unit in Ministry of Energy and Mines CNM - National Commission of Mines CONAGESE - National Council for Environmental Management CS - Steering Committee DCMP - Central Directorate of Public Procurement DGCOOP - Directorate General of International Cooperation DG - Directorate of Geology DGEF - Directorate General of Water and Forests DGH - Directorate General of Hydrology DGI - Directorate General of Taxation DGMG - Directorate General of Mines and Geology DGPE - Directorate General of Environmental Preservation EC - European Commission EIS - Environmental Information System ENAREF - National School for Financial Administration FDM - Mining Development Fund MEF - Ministry of Economy and Finance MEW - Ministry of Environment and Water MEM - Ministry of Energy and Mines NEAP - National Environmental Action Plan SNIST - National System of Earth Science Information SOREMIB - Societ6 de Recherche et d'Exploitation Minibre du Burkina Faso SYSMIN - Mining Fund of the European Union FISCAL YEAR January I - December 31 Vice President: Jean-Louis Sarbib Country Director: Serge Michailof Technical Manager: Peter Van der Veen Task Team Leader: Craig Andrews FOR OFFICIAL USE ONLY 3 BURKINA FASO MINING SECTOR CAPACITY BUILDING AND ENVIRONMENTAL MANAGEMENT PROJECT CREDIT AND PROJECT SUMMARY Borrower: Government of Burkina Faso Implementing Agency: Ministry of Energy and Mines Beneficiaries: Population of Burkina Faso Poverty: Program of Targeted Interventions Amount: SDR14.8 million (US$21.4 million equivalent) Terms: Standard, with 40 years maturity Commitment Fee: 0.50 percent on undisbursed credit balances per year Onlending Terms: NA Financing Plan: See Schedule A Net Present Value NA Staff Appraisal Report No. 16165-BUR Map IBRD No. 28673 Project Identification Number: 283 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. MEMORANDUM AND RECOMMENDATION OF THE MANAGING DIRECTOR TO THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION ON A PROPOSED INTERIM TRUST FUND CREDIT TO BURKINA FASO FOR A MINING SECTOR CAPACITY BUILDING AND ENVIRONMENTAL MANAGEMENT PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed Interim Trust Fund credit to Burkina Faso for SDR 14.8 million, the equivalent of US$ 21.4 million, on standard IDA terms, with a maturity of 40 years, to help finance a project for mining sector capacity building and environment management. 2. Country and sector background. Burkina Faso has a record of satisfactory adjustment under several IMF- and World Bank-supported programs. Since 1991, the Government has been implementing a wide range of policy, economic and sectoral reforms. After a period of modest economic expansion and following the 1994 devaluation of the CFA franc, real GDP growth picked up, reaching 5.5 percent in 1995 and an estimated 6.6 percent in 1996. Although inflation was slightly higher than expected at 6.1 percent in 1996, this was largely due to higher cereal prices that stemmed from the poor harvest in 1995. The most visible area of improvement has been the fiscal position. The primary fiscal balance, moved from a deficit of 1 percent of GDP in 1994 to surpluses of 1.1 percent of GDP in 1995 and an estimated 1.6 percent in 1996. The external account deficit has declined over the period 1990-96, but it widened since then to an estimated 15.2 percent of GDP in 1996, reflecting an increase in imports, mostly related to the rise in public and private investment. 3. Under a second three-year enhanced structural adjustment approved by the IMF in June 1996, the Government has started the implementation of an ambitious reform program. Progress has been made in reducing trade barriers, stabilizing domestic prices, reforming banking and business law, and privatizing the regional railway in support of private sector growth. Efforts have also been made to reallocate budgetary expenditures to critical social sectors--health and education. As results of its adjustment record, the country has benefited from a Paris Club stock-of-debt reduction operation in 1996, involving a 67 percent reduction in net present value of its eligible debt (CFAF 35.7 billion). Burkina Faso is considered for assistance under the new initiative for heavily Indebted Poor Countries (HIPC). A preliminary policy paper was discussed at Board meetings at the Bank and the Fund. The debt reconciliation process will take place over the next months. The final proposal is likely to be presented to the Boards for decision in early summer 1997. 4. Structural reforms have also helped to stimulate private sector activity. Yet, Burkina's medium-term growth prospects depend on the sustainability of the policy reforms. The greatest risk to reform stems from some Burkinabe officials' deep rooted belief that the State should be the predominant actor in the economy. Particular emphasis will have to be given to clearly distinguish the roles of the State and the private sector. This has already started to happen in the mining sector where the Government has moved forward on a number of very significant reforms. 2 5. At present, modern mining is little developed in Burkina Faso. Yet, exports of gold represent, after cotton, the country's largest foreign exchange earner. Official gold exports from artisanal exploitations were about I tonne in 1996, valued at $13 million. In previous years, at the height of the artisanal mining boom, as much as 13 metric tonnes of gold were exported from Lome, Togo, a good portion of which was smuggled from Burkina Faso. Productivity in artisanal mining camps has declined over the past two years as deeper depths are exploited and hence the clandestine exports through Lome have decreased. Nonetheless, the magnitude of past production is indicative of the potential. Burkina Faso is well endowed with geological formations known as Birrimean greenstone belts which, in other West African countries (e.g., Mali and Ghana), host major gold deposits. Due to this excellent geologic potential and availability of risk capital in the international equity markets, over 20 international companies -- among which are some of the largest mining houses such as Broken Hill Proprietary (Australia), Anglo American (South Africa), and Placer Dome (Canada) -- are investing approximately $30 million per year in exploration. Based on the geology potential, the level of exploration expenditures, and experience in other African countries, there is every reasonable expectation that mining companies will find and develop mines over the next ten years which could produce 10-15 tonnes per year of gold with a market value of $110-170 million. 6. The Government is aware of the need to sustain the current levels of investment and to maximize the contribution to the economy from mining development. With support from an advance under the project preparation facility (PPF) the Government has undertaken significant reforms during the past two years to remedy systemic deficiencies in the enabling environment for investment. A comprehensive policy dialogue among various stakeholders was conducted which resulted in the adoption by the Council of Ministers of a Letter of Sector Development Policy. Based on this letter, a new mining law, consistent with international best practices, has been approved by the Council of Ministers. A new Ministry of Energy and Mines was created in June 1995, and a comprehensive study of the roles and mandates of the Ministry and agencies reporting to it has been conducted. The Government is also in the process of privatizing the state-owned gold mine (SOREMIB). Finally, following an in-depth study of gold commercialization, the Government has abolished the state monopoly on exports of gold and has issued detailed regulations for the establishment of private gold buying bureaux. It is now necessary for the Government to deepen and consolidate the reforms. Priority areas include: (a) adopting precise mining and environmental regulations; (b) increasing the performance and efficiency of sector instititutions; (c) developing capacity for environmental management; (d) upgrading the availability and quality of earth science information; (e) coordinating various environmental initiatives relative to the sector; and (f) providing significant training to public and private sector officials to effectively monitor sector activities. The project will fund technical assistance to help the Government address these areas. 7. In addition to the current exploration activity by major mining companies, good potential exists for small-scale, locally-owned mining operations. A distinction should be made between scall-scale and artisanal mining. Small-scale miners generally use motorized equipment and other small power tools to extract and process mineral ores. Use of this equipment not only increases throughput and economies of scale but also allows the miner to reach depths required to mine hard-rock vein or reef in addition to alluvial deposits. It is also easier for the Government to monitor operations and provide technical extension services to 3 these miners. For these reasons, the letter of sector development policy places emphasis on the rational development of small-scale mining. Project funds will be used to deliver technical assistance, training, and extension services to small-scale miners. 8. Artisanal mining, on the other hand, uses simple hand tools, making little or no use of mechanized equipment. This activity is prevalent at over two hundred sites throughout the country and provides a livelihood for an estimated 75,000 migratory miners. Women often play a key role in these mining camps both as workers and suppliers of food, retail and hospitality services. Health and safety conditions in and around artisanal mining sites are dismal; children of miners have no educational facilities; itinerant young men away from home contribute to the spread of sexually transmitted diseases; and the artisanal mining process is highly destructive for the environment. Experience in many other countries would indicate that resolving the problems of artisanal mining is through an integrated approach to address social, economic and environmental dimensions. Recognizing this, the Government of Burkina Faso has adopted a policy of attempting to improve living and working conditions in the camps. The proposed project will significantly assist in this effort through an in-depth socio-economic study of artisanal mining, and a sensitization campaign regarding environmental, health and safety dangers in the camps. In this respect, considerable scope exists for cooperative efforts with the Bank, NGOs, and other donor-funded projects, specifically the Populations and Aids Control Project, as well as Danish support for environmental sensitization for rural communities. 9. Burkina Faso was one of the first countries in Africa to approve its National Environmental Action Plan. However, its operationalization had for many years been hampered by ineffective leadership, a lack of clarity of institutional mandates, and a narrow sectoral approach to environmental management. The Government has requested the Bank and other donors to assist in establishing environmental management capacity. The proposed project will, in addition to capacity building for environmental management within the mining sector agencies, provide complementary assistance to national environmental agencies in priority areas hitherto unaddressed by other donors. For example, UNDP, UNEP, and FAO propose to fund a program of technical assistance to formulate environmental regulations. The proposed Interim Trust Fund project will provide complementary support to develop standards, norms and guidelines. The Netherlands and Denmark are funding capacity building for environmental impact assessments (EIA) and other short-term support for environmental management. The proposed project would provide related training in scientific and other disciplines to ensure effective implementation of the EIA process. The project will also support the development of an environmental education and awareness program, and the establishment of an Environmental Information System. 10. Project rationale. Burkina Faso has excellent geological potential as is evidenced by the interest showed by major international mining companies. However, the Government will encounter difficulty in sustaining this interest and ensuring the maximum contribution to economic development unless the major reforms which have already begun are completed and deepened. Burkina Faso currently lacks a complete regulatory and fiscal framework, and the human and institutional capacity to effectively administer or to ensure adequate environmental management of mining. The proposed project aims to redress regulatory, fiscal and institutional constraints to attract and retain private mining investment, and to 4 develop the needed human skills to ensure its sustainable contribution to economic growth. The support provided by the project to small-scale and artisanal mining addresses the over- riding government goal of reducing rural poverty. Finally, the project responds positively to the country's need to facilitate the implementation of the National Environmental Action Plan. 11. Project objectives: The main objectives of the proposed project are to: (a) establish an enabling environment to both promote private investment in mining, and to ensure a real and sustainable contribution to economic growth; (b) strengthen public and private sector capacity to effectively administer regulations and monitor sector developments; and (c) establish capacity in the country for environmental management. Additionally, the project aims to: (i) stimulate private sector response to the growing need for a variety of mining and environment-related technical goods and services; and (ii) identify and adopt appropriate mechanisms to facilitate the development of small-scale mines, and to improve the social, health and environmental conditions of artisanal miners. 12. Project description: Consistent with these objectives, the project will comprise four main components: (a) Regulatory and fiscal framework and training ($4.7 million), this component will support the following activities: (i) prepare mining regulations; (ii) strengthen legal skills and negotiating capabilities; (iii) improve administration of the fiscal regime applicable to mining; (iv) build sustainable capacity in applied mining taxation through special training modules at the National School of Finance Management; and (v) provide continued training in mining law and environment through twinning arrangements with foreign universities. (b) Institutional strengthening and resources management ($7.0 million), this component will support the following activities: (i) operationalize the roles and improve internal management procedures of key sector institutions: Ministry of Energy and Mines (MEM), Bureau of Mines and Geology of Burkina (BUMIGEB), Comptoir Burkinabd des Mdtaux Prdcieux (CBMP); (ii) restructure the geo-services currently offered by BUMIGEB; (iii) improve cadastre and mining title management services at MEM; (iv) establish and sustain an environmental unit within MEM; (v) create and support a sector environmental database; (vi) upgrade and improve the geology database, including the creation of a National System of Earth Science Information (SNIST); and (vii) reinforce the technical capabilities of BUMIGEB to assay and test minerals. (c) Environmental management ($3.0 million), this component will help: (i) establish capacity for monitoring compliance with regulations by strengthening the relevant institutions; (ii) assist in the preparation of environmental regulations and monitoring procedures specific to the Mining Sector; (iii) establish a national environmental information system and database (EIS); (iv) design and implement a national environmental sensitization and awareness campaign; and (v) provide training in areas of environmental policy formulation, monitoring, and management. (d) Small scale and artisanal mining component ($4.2 million) which will support programs to: (i) study the socio-economic, geology and environmental 5 specifics of artisanal and small-scale mining, with a view to determining a strategy, including appropriate delivery mechanisms, for providing extension services; (ii) subject to satisfactory feasibility studies, establish a pilot training center for small- scale miners, with the possibility of expanding into two additional centers, should the pilot program prove successful; (iii) support the Directorate of Small-Scale Mining Promotion within the MEM to design and deliver technical advice, geology information, and extension services to small-scale miners; (iv) assess mechanisms to evaluate financing proposals of small-scale mining operators; (v) promote the identification, development and dissemination of small-scale mining equipment through private sector delivery mechanisms; and (vi) implement, in coordination with the MEM, an environmental sensitization and awareness campaign in the artisanal mining communities. 13. Project implementation. The Director-General of Mines and Geology has been appointed Project Supervisor (SP) responsible for the supervision of the project for the Ministry. Senior MEW and MEF staff have been chosen to act as liaison with the SP on implementation matters pertaining to environmental and fiscal components. A local Project Chief (CP), responsible for the day-to-day management of the project for the Ministry will be appointed as a condition of credit effectiveness. A Steering Committee (SC), to be established as a condition of credit effectiveness, will pay particular attention to progress in achieving project objectives. The project will make maximum use of local capacity and consulting services. To the extent that local skills are not available, foreign technical expertise will be used in order to rapidly transfer management skills and know-how in particular disciplines. 14. Lessons learned from previous IDA involvement. Experience with similar mining technical assistance projects in other countries indicates that improving the enabling environment increases the ability of the country to attract and retain appropriate private investment. For instance, neighboring Ghana in the late 1980s undertook significant reforms, supported by the Bank and other donors, to improve the enabling environment for private sector investment in mining. The result has been a four-fold increase in gold production, a mining investment climate that is consistently ranked among the best in the world by investors, and the privatization of state-owned mining enterprises. Experience with establishing capacity for environmental management in countries such as Ghana, Nigeria and the Gambia, indicates that the central agency mandated with environmental responsibility needs to establish close linkages with sectoral agencies to implement environmental policies and regulations. Capacity needs to be built within the central as well as sectoral agencies to carry out overall and site specific environmental monitoring and management. Experience in Burkina Faso with technical assistance as, for instance, the Public Institution Development and Private Sector Support projects, suggests that emphasis on beneficiary participation in project preparation, intensive supervision, organization and coordination at the field level are critical for timely and effective implementation. Ownership and political commitment to project objectives are key to ensuring strong local leadership, availability of counterpart funds, and clear delineation of ministerial authority and responsibilities. 15. Rationale for IDA involvement. The Country Assistance Strategy (CAS) for Burkina Faso was discussed by the Board on July 23, 1996. It focuses on three objectives; (a) maintaining a sound macroeconomic environment to foster equitable growth and poverty 6 alleviation; (b) expanding social services, especially in health and education in the poorest regions; and (c) improving productive opportunities to raise incomes and create employment. Two themes are central to the achievement of these goals: community participation and environmental awareness. The proposed project is fully consistent with the CAS. It will contribute to poverty alleviation through employment creation. It will enhance government revenues and improve the capacity for protecting the environment. To date, the Government and other donors (European Union, UNDP, bilaterals) have focused on technical requirements of the sector (geology cartography, geophysics, etc.). The proposed Interim Trust Fund project focuses on priority areas not yet sufficiently addressed, such as: establishing an appropriate regulatory and fiscal regime for the sector; building capacity in supervisory institutions; improving information flows especially in the area of environmental management; and addressing the issues of rural poverty inherent in small-scale and artisanal mining. The project also facilitates the implementation of the National Environmental Action Plan. 16. Agreed issues and actions. Following negotiations, the Government has adopted detailed regulations governing the establishment of private gold buying offices. The special conditions of credit effectiveness are: (i) the establishment of the Special Account and the deposit of the first installment of counterpart funds; (ii) the appointment of auditors for the project acceptable to IDA, and the recruitment of a private accounting firm and the setting up of an automated accounting system satisfactory to IDA; (iii) the recruitment of a Project Chief possessing experience and qualifications acceptable to IDA; and (iv) the establishment of the Steering Committee. 17. Poverty category. The project will help to alleviate poverty, particularly in rural areas. It will build up negotiations and supervisory capacity within the Government to ensure that private mining operations make a maximum contribution to the generation of local employment, quality training, infrastructure development, spin-off industries, social support and development of rural infrastructure and services for local communities. In addition, the project will identify mechanisms and execute measures to help improve social and economic conditions in the artisanal mining community. 18. Environmental aspects. The project is a technical assistance operation that will not involve direct investment in mining activities. It is, therefore, classified as category "C". The project is expected to have a positive impact on the environment by building capacity in the country for environmental management at the national level and within the mining sector. 19. Program objectives categories. The project supports IDA's private sector development, capacity building, poverty alleviation, and environmental management program objectives. 20. Participatory approach. Extensive beneficiary participation during project preparation has been central to building ownership for the project and designing the various components. A Working Group composed of senior Government officials and representatives of private companies was set-up early in the project to assist in preparing the letter of sector policy and strategy as well as the components of the project. During the course of its work, the Group met on numerous occasions with various NGOs, donors, local 7 and foreign businesses, and representatives of the civil society. In addition, numerous site visits, studies, surveys and focus group discussions were conducted with artisanal mining communities. This participatory approach was continued during appraisal with a stakeholder workshop to discuss the components of the project with private sector beneficiaries and other donors. Finally, prior to negotiations, the Government organized mining sector "open door days" in Ouagadougou to explain and discuss progress in the sector with the public and other interested parties. 21. Benefits. The project will establish an enabling environment to help attract and sustain a level of mining investment that could, over 10 years, lead to a yearly gold production of 10-15 tonnes of gold, worth $110-170 million. Expert technical assistance will help the Government to avoid mistakes in dealing with private companies which could result in costly litigation or forgone revenues at a later date. The project will help strengthen tax assessment and collection procedures for statutory royalties, license fees, income, dividend, and other direct and indirect taxes. These measures, together with the suppression of monopoly on gold exports (which has led to massive smuggling) could yield $25-30 million in yearly fiscal receipts. The project will help establish environmental regulations, procedures, and monitoring capacity to minimize damage to the environment from mining operations. The project provides training and extension services to support the development of small-scale mining as well as to help improve social, health, safety and environmental conditions in the artisanal mining community. 22. Project sustainability. Extensive participatory approaches adopted in the preparation of the project, and experience in implementing the PPF advance have helped build ownership for the proposed project. Sustainability will be enhanced through the project's strong emphasis on institution building, training, human capital development and environmental awareness in the public as well as private sectors. Foreign consultants will be expected to work closely with local public and private sector counterparts, and required to transfer knowledge, technical skills, and know-how. If proper regulations and enforcement mechanisms as well as a competitive environment are put into place, minerals exploration and development of mines will become self-sustaining, thus providing a steady stream of revenue and other economic benefits to the country. In pursuance of a common practice in many mining countries, the Government has decided that a portion of mineral royalties and fees should be put into a Mining Development Fund. Proceeds of this fund will be used to finance promotional activities, research programs, purchase of control and monitoring equipment, and general costs associated with the exercise of the surveillance function. 23. Risks. Principal risks are: (a) backsliding by the Government on commitments to reform because of ingrained attitudes of state intervention, and (b) limited absorptive capacity to implement the project in an effective manner. Care has been taken during project preparation, through extensive policy dialogue among government officials, to build commitment for private sector orientation and for sectoral reforms within the wider political and economic liberalization process. This is evidenced by the Letter of Sector Development Policy, the removal of state monopoly on gold exports, and the drafting of the new mining law, all of which have been endorsed at the highest levels of government. On the issue of backsliding, the Government's commitment to reform is evidenced through monitorable indicators which the Government itself has proposed. These indicators have been agreed to by IDA and will be part of the legal covenants pertaining to the Credit. With regard to 8 absorptive capacity, one of the goals of the project is the development of human skills in the public and private sectors. The technical assistance will be phased and prioritized so as not to overburden the relevant government departments, and the international consultants engaged will work alongside local counterparts. 24. Recommendation. I am satisfied that the proposed Interim Trust Fund Credit would comply with Resolution No. 184, adopted by the Board of Governors of the Association on June 26, 1996, establishing the Interim Trust Fund, and I recommend that the President approve it. Gautam S. Kaji Managing Director Washington, D.C. May 29, 1997 9 Schedule A Page 1 of I PROJECT COSTS AND FINANCING PROJECT COSTS (Inclusive of all Local Duties and Taxes) (US$ million) Project Component Local Foreign Total Legal Reform and Capacity 0.9 1.6 2.5 Building Mining Taxation and Fiscal 0.7 1.5 2.2 Training Institutional Strengthening and 2.7 4.3 7.0 Resources Management Environmental Management 1.4 1.6 3.0 Small Scale and Artisanal Mining 2.0 2.2 4.2 Project Coordination 0.6 0.2 0.8 Unallocated 0.8 1.2 2.0 PPF 0.3 0.5 0.8 Total 9.4 13.1 22.5 FINANCING PLAN (USSmillion) Local Foreign Total IDA 8.3 13.1 21.4 Government 1.1 0.0 1.1 Total 9.4 13.1 22.5 10 Schedule B Page 1 of 5 ECONOMIC ANALYSIS AND KEY PERFORMANCE INDICATORS B.1 This type of technical assistance project does not easily lend itself to traditional quantitative investment analysis. A common sense approach as well as examples of similar mining capacity building programs in other countries indicate that the project will have several benefits. B.2 Currently, officially declared gold production in Burkina Faso is I tonne. However, the country has significant potential to establish competitive industrial scale gold production. Mining companies are currently spending an aggregate of $30 million per year on exploration. Given this level of effort, using internationally acceptable parameters, and taking the examples of experience to date in other African countries, production of industrially mined gold in Burkina Faso could reach 10-15 tonnes per year within 10 years, contributing a value added to GDP of $110-170 million. In recognition of this potential, the Government has declared 1995-2005 as the decade of mining development, and the CAS has identified mining as one of the economy's engines of growth. However, because Burkina Faso does not have a mining tradition, regulatory and institutional frameworks need to be put into place, and government personnel trained to administer the sector in order to sustain the present levels of private sector investment and to derive the maximum economic benefits from mining operations. B.3 The project supports the establishment of a new mining law and regulations as well as the building of capacity to administer the regulations which are essential for sustained investment. For instance, a properly designed and administered mining title system and cadastre registry will help to ensure that exploration acreage is effectively worked over time by turning the ground over to successive companies. Orderly and transparent mining title issuance is an immediate and pressing need. For this reason, expert technical assistance is being provided early in the project to help the Government avoid mistakes in dealing with private companies which could result in costly litigation or forgone revenues at a later date. B.4 The project will establish needed skills for monitoring, control and audit of mine operations to ensure satisfactory compliance with financial and fiscal reporting requirements. Assuming strengthened tax assessment and collection functions, total tax receipts (royalties, license fees, income, dividend, and other direct and indirect taxes) in the order of $20-30 million could be anticipated at the 15 tonnes/year level of production. 11 Schedule B Page 2 of 5 B.5 The project will put into place regulations, procedures, and monitoring systems to ensure that industrial pollution (air, water, soil, tailings, disposal of toxic wastes) from mining operations is kept within internationally accepted standards. Skills will also be developed to ensure that mine operations are carried out in a responsible manner, with due regard to the health and safety of workers and local communities. The project will institute regulations for adequate technical and financial provisions during mining operations to ensure that mines, once closed and decommissioned, do not leave a bitter and costly legacy for future generations. The project will develop national and sector environmental management databases, establish norms and standards, and increase awareness of environmental issues with the general public. The costs associated with failure to take into account environmental protection during the early stages of growth of the mining industry are difficult to quantify but could easily reach the tens of millions of dollars. B.6 The project seeks to encourage the local private sector to respond to the requirements of the growing industry for the supply of local goods and services. Based on experience in other countries, assuming the 15 tonnes/year level of production, a reasonable estimate of purchases by industrial operations of local goods and services is $15-25 million/year. These purchases would include reagents and chemicals, construction materials, fuel and lubricants, spare parts, hardware, small equipment, food stuffs, and other materials. Many of these goods would be produced or manufactured locally, adding value to the economy and creating jobs. Even when the materials are imported, they are typically purchased through local distributors, whose profit margins generate value. Estimated wages paid to the largely rural- based work force are $10 million/year. While modem industrial mines are not labor- intensive operations, substantial and regular wages received by a mine worker will typically provide for a large extended family in rural areas. In addition, the communities and region where mine operations are located would benefit from social and physical infrastructure which ordinarily is associated with medium- to large-scale mine operations. B.7 The project directly supports the development of small-scale mining through the provision of technical extension services and the encouragement of manufacturing of elementary mining equipment. Small-scale mining, ideally suited for local entrepreneurs, will provide substantial benefits to employment and the rural economy. Over a ten-year time horizon, a reasonable estimate is the development of seven small-scale mines, each producing 100 kilograms/year of gold for an aggregate value of production of $8 million. B.8 Finally, by suppressing Government monopoly on gold exports, artisanal miners will receive a fair market price for their production and clandestine exports of gold will be curtailed. While it is impossible to completely eliminate smuggling of gold, a reasonable estimate is that 70 percent of the currently smuggled gold (believed to be around three tonnes annually) would be declared and subject to royalties. The project will also help to improve social and economic conditions in the artisanal mining community. 12 Schedule B Page 3 of 5 B.9 Two questions need to be asked when assessing the benefits of the project. First, will the reforms and improvements in the enabling environment continue anyway without the project? Second, if not, then is the project design the most effective use of the funds to deepen the reform process and thereby to stimulate investment in the sector? In response to the first question, the reforms would probably continue but would not be complete or deep enough to sustain investment nor would they necessarily be consistent with international best practice. The presence of Bank support, suggestions, and guidance on best practices in the sector during preparation was instrumental in keeping the reform process moving and on- track. Access to international expertise through the project is necessary to continue the reforms and to build human capacity to effectively administer the sector. With respect to the second question, international technical assistance, if properly managed and twinned with local expertise, will be cost-effective to assist the Government to effectively administer the sector. The Government's ability to respond quickly to the requirements of private sector developers is becoming more urgent as these companies approach feasibility stage. Important decisions in respect of significant financial commitments and environmental impacts must be made over the next few years. Thus, foreign technical expertise in the project is "front-end loaded". Getting started on the right foot with mining companies, and applying international best practices from the beginning can avoid mistakes which could prove to be very costly in the long-run. 13 Schedule B Page 4 of 5 KEY PERFORMANCE INDICATORS Component Indicator Unit Year 1 Year 2 Year 3 Year 4 Year 5 Us$ Us$ US$ USS UsS Regulatory Sustained exploration Exploration 25-30 25-30 25-30 $25-30 $25-30 investment expenditure (US$ million) Declared industrial Metric tonnes 1 1 1 1 1 and artisanal gold production Advanced Mining Number of 2 2-3 5 Projects feasibility studies Mining environmental Decrees adopted 2 2 3 3 regulations on specific regulations Gold Competitive gold Number of 1 2 2 2 2 Marketing purchasing operating private buying offices Land Time required for Days 60 60 30 30 30 Management issuance of mining title Turnover of Percent of total 10 10 15 20 25 exploration acreage exploration permit kms2 Compliance with Number of site 20-25 20 25 25 35 50 work commitments inspections Fiscal Increase in mining US$ thousand 500 750 750 750 750 taxes equivalent 14 Schedule B Page 5 of 5 Component Indicator Unit Year 1 Year 2 Year 3 Year 4 Year 5 Mining taxation Students trained 15 20 20 training (ENAREF) Environment Mining sector datasets Percent of total 20 40 70 90 (SNIST) surface area covered by 3 datasets Health, safety, Number of 2 2 2 2 2 environment, country guide inspections of mining inspections sites Capacity building State of the I I I I Environment Report Environmental Datasets 2 2 3 4 Information System integrated Environmental Number of 3 6 6 6 Education Delivery artisanal mining communities visited Small Scale Development of Number of new 1 2 2 4 Mining small-scale mines small mines Economic Encouragement of Number of 3 5 5 7 7 Benefits Private Sector consultancy firms Job creation in Number of 5000 6000 7000 7000 7000 exploration and national mining-related man/months per activities year in private sector companies Expenditure on wages Total payroll in 1000 1250 1500 1750 2000 by private companies private companies - US$ thousand, equivalent 15 Schedule C Page 1 of 3 PROCUREMENT METHODS AND DISBURSEMENTS (USS million, inclusive of all local taxes and duties) Project Element ICB NCB Other Total Goods and Equipment 2.5 1.8 4.3 (2.5) (1.4) (3.9) Consulting Services Technical Assistance 14.4 14.4 (14.4) (14.4) Training 2.7 2.7 (2.3) (2.3) Miscellaneous 0 & M 0.3 0.3 PPF 0.8 0.8 (0.8) (0.8) Total 2.5 1.8 18.2 22.5 (2.5) (1.4) (17.5) (21.4) * Amounts in (parenthesis) are to be financed by the Interim Trust Fund. 16 Schedule C Page 2 of 3 ALLOCATION AND DISBURSEMENTS CATEGORIES (Expenditure Inclusive of all local taxes and duties) Category Credit Allocation Percentage of Expenditure to be (US$ million) Financed 1. Consultancy Services 12.5 100% of foreign expenditures 2. Equipment (*) 3.9 100% of foreign expenditures and 80% of local expenditures 3. Training 2.2 100% of foreign expenditures and 90% of local expenditures 4. Unallocated 2.0 5. PPF 0.8 Total 21.4 (*) Includes an amount of US$ 1.4 million to be disbursed following enactment of Mining Code and satisfactory outcome of feasibility studies concerning a pilot mineral treatment test unit at BUMIGEB and a pilot small-scale mining training center. 17 Schedule C Page 3 of 3 ESTIMATED SCHEDULE OF DISBURSEMENTS In US$ Million Cumulative Disbursement Cumulative Disbursement IDA FY by Year Disbursement as % of Credit 1998 3.7 4.5* 21 1999 7.5 12.0 56 2000 4.7 16.7 78 2001 2.7 19.4 90 2002 2.0 21.4 100 * Includes PPF. 18 Schedule D Page 1 of 1 TIMETABLE OF KEY PROJECT PROCESSING EVENTS Time taken to prepare the project 3 years Project prepared by : Government First IDA mission : October 1993 Appraisal mission departure January 1996 Negotiations : December 1996 Planned date of effectiveness November 1997 Closing Date : December 2002 Relevant PCRs and PPARs : Not available Bank staff responsible for project C.B.Andrews, Sr. Mining Specialist, IENIM preparation I. Hewawasam, Operations Officer, AFTE1 G. Walser, Geologist, IENIM L. Maraboli, Sr. Mining Engineer, IENIM (Lead Adviser) John Barton-Bridges, COMD2, ( Peer Reviewer) Jean-Roger Mercier, AFTE1 (Peer Reviewer) Status of Bank Group Operations in Burkina Faso IBRD Loans and IDA Credits in the Operations Portfolio (as of May 19, 1997) Original amount in US$ millions between expected Project Loan or Fiscal and actual ID Credit No. Year Borrower Purpose IBRD IDA Cancellations Undisbursed disbursements' Number of Closed Loans/Credits: 38 Active Loans BF-PE-304 CN0070 1997 GOVT OF BURKINA FASO POST-PRIMARY EDUC. 26.00 24.55 BF-PE-297 C27280 1995 GOVERNMENT URBAN ENV 37.00 31.09 2.28 BF-PE-308 C26190 1994 GOVT OF BURKINA FASO POPULATION/AIDS CONT 26.30 21.37 3.56 BF-PE-287 C25950 1994 BURKINA FASO HEALTH/NUTRITION 29.20 22.46 2.93 BF-PE-310 C25190 1993 GOVERNMENT ENGINEERING CREDIT 4.25 1.07 0.97 BF-PE-289 C24720 1993 BURKINA FASO PRIVATE SECTOR ASSIS 7.00 5.12 4.84 BF-PE-303 C24140 1993 GOVT FOOD SECURITY 7.50 2.11 -0.65 BF-PE-301 C23780 1992 GOVERNMENT PUBLIC INSTITUTIONAL 15.00 8.24 7.73 BF-PE-276 C23320 1992 BURKINA FASO TRANSPORT SECAL 66.00 35.67 30.65 BF-PE-282 C22440 1991 BURKINA FASO EDUCATION IV 24.00 3.04 -0.30 BF-PE-290 C22290 1991 BURKINA FASO ENVIRONMENTAL MGMT 16.50 6.61 4.91 BF-PE-285 C 19790 1989 BURKINA FASO AGRIC. SERVICES 42.00 4.10 1.98 TOTAL 0.00 300.75 0.00 165.43 58.91 Active Loans Closed Loans Total Total disbursed (IBRD and IDA) 138.37 507.54 645.91 Of which repaid 0.00 27.11 27.11 Total now held by IBRD and IDA 300.75 449.99 750.74 Amount sold 0.00 1.85 1.85 Of which repaid 0.00 1.85 1.5 0 Total undisbursed 165.43 2.87 168.30 a. Intended disbursements to date minus actual disbursements to date as projected at appraisal. Note: Disbursement data are updated at the end of the first week of the month. Burkina Faso - Statement of IFC Investments Committed and Disbursed Portfolio As of May 23, 1997 (In US Dollar Millions) Committed Disbursed I I I IFC IFC II II FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic There is no existing portfolio for this country. Approvals Pending Commitment Loan Equity Quasi Partic 1997 ECOBANK-BURKINA 0 00 0.26 0.00 0.00 0 Total Pending Commitment: 0.00 0.26 0.00 0.00 t-1 21 Schedule E Page 3 of 3 STATUS OF BANK GROUP OPERATIONS IN BURKINA FASO IMPLEMENTATION ISSUES The Burkina Faso portfolio of Bank Group operations consists of twelve projects for a total IDA commitment of US$300 million. The current undisbursed balance amounts to US$165 million. Unsatisfactory Ratings: Public Institutional Development (Cr. 2378 BUR): This capacity building operation shows real progress in a number of key reform areas - budgetary, info/statistics, and procurement. Yet, it remains a problem project, due principally to blockages in the civil service reform component and difficulties in project management. However, the project was recently restructured. Responsibility for the project has been transferred to the Prime Minister's office and a new management team has been put in place. The project has been extended to September 1998 on the basis of an agreed I 8-month action plan. Private Sector Assistance (Cr. 2472 BUR): Little progress has been made in the last two years, in particular on the privatization component. Disbursements have therefore been very slow and the credit is 75% undisbursed. The current closing date of the project is December 31, 1997. The next supervision mission will examine the conditions for a possible restructuring and extension of this operation. On privatization, the focus will be on restructuring of the institutional setup and analysis of the residual portfolio. Transport Sector Adjustment (Cr. 2332 BUR): The second tranche ($8 million) was released in February 1996. The third tranche release is being delayed by difficulties relating to restructuring of Air Burkina, privatization of airport management and the road maintenance program. 22 Schedule F Page 1 of 2 Burkina Faso at a glance Sub- POVERTY and SOCIAL Burkina Saharan Low- Faso Africa Income Development diamond, Population mid-1995 (millions) 10.4 589 3,188 GNP per capita 1995 (US$) 230 490 460 Life expectancy GNP 1995 (billions US$) 2.4 289 1,486 Average annual growth, 1990-96 Population (%) 2.9 28 18 GNP Gross Labor force (%) 2.0 2.8 1 9 per primary Most recent estimate (latest year available since 1989) capita enrollment Poverty: headcount index (% of population) Urban population (% of total population) .. 31 29 Life expectancy at birth (years) 49 52 83 Infant mortality (per 1,000 live births) 127 92 58 Access to safe water Child malnutrition (% of children under 5) .. .. 38 Access to safe water (% of population) .. 47 75 Illiteracy (% of population age 15+) 81 43 34 Gross primary enrollment (% ofschool-age population) 38 71 105 Burna Feso Male 47 77 112 Low-income group Female 30 64 98 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1975 1985 1994 1995 Economic ratios' GDP (billions US$) 0.8 1.4 1.9 24 Gross domestic investment/GDP 26.1 24.3 22.1 22 8 Exports of goods and non-factor services/GDP 8.3 10.8 14.3 145 Openness of economy Gross domestic savings/GDP 2.5 1.3 6.1 70 Gross national savings/GDP 8.8 10.7 19.8 194 Current account balance/GDP -18.4 -13.6 -13.7 -13.4 Interest payments/GDP 0.2 0.7 0,8 0.8 Savings Investment Total debt/GDP 7.5 35.8 60.7 52.1 Total debt service/exports 3.7 10.1 Present value of debt/GDP .. .. 30.3 Present value of debtlexports .. . .Indebtedness 1975-84 1986-95 1994 1995 1996-04 (average annual growth) -Burkna Faso GDP 4.0 2.7 1.3 4.5 5.6 GNP per capita 0.9 -0.4 -1.8 1.6 3.0 Low-income gmup Exports of goods and nfs 4.7 2.4 -17.2 11.6 5.8 STRUCTURE of the ECONOMY (% of GDP) 1976 1985 1994 1995 Growth rates of output and Investment (%) Agriculture 34.3 37.9 33.0 32.9 fso- Industry 29.2 20.1 26.5 264 oo Manufacturing 19.8 15.3 20.2 201 Services 36.5 41.9 40.5 40.6 0 Private consumption 82.9 85.6 78.3 78 5 5 90 91 92 95 General government consumption 14.5 13.1 15.6 14.5 _GD1 -O-GDP Imports of goods and non-factor services 31.8 33.8 30.3 30.3 1976-84 1985-95 1994 1995 (average annual growth) Growth rates of exports and Imports (%) Agriculture 1.2 3.5 -0.2 41 so Industry 0.8 1.3 2.3 3.9 Manufacturing 2.8 -5.8 1.7 3.9 25 Services 10.3 2.9 1.6 5.2 Private consumption 4.1 3.1 6.1 -4.1 0 A . General government consumption 5.7 1.8 5.9 -3.6 9 si 9 3 5 Gross domestic investment -0.1 -1.9 -36.4 118.4 -s Imports of goods and non-factor services 2.4 0.6 -11.5 17.4 - Exports --0-Imports Gross national product 4.3 2.7 1.0 4.4 Note: 1995 data are preliminary estimates. The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 23 Schedule F Page 2 of 2 Burkina Faso PRICES and GOVERNMENT FINANCE 1975 1985 1994 1996 - Domestic prices Inflation (%) (% change) 30 Consumer pnces 18.8 6.9 25.2 5.0 20 Implicit GDP deflator 8.4 4.7 27.8 8.0 10 Government finance (% of GDP) Current revenue .. 9.8 11.0 11.6 n1 Current budget balance .. 1.8 -1.7 0.0 - GDP def ---CPI Overall surplus/deficit .. -4.4 -11.0 -9.8 TRADE 1978 1986 1994 199111 (millions US$) Export and Import levels (mill. US$) Total exports (fob) .. 136 226 287 so Cotton .. 30 59 94 Livestock products .. 14 57 64 Manufactures .. .. .. . so Total imports (cif) .. 353 365 498 Food . 59 68 86 290 Fuel and energy .. 32 35 47 Capital goods .. 106 80 147 Export price index (1985=100) .. 100 145 170 69 g0 91 92 93 94 95 Import price index (1985=100) .. 100 109 117 Exports ilmports Terms of trade (1985=100) .. 100 133 145 BALANCE of PAYMENTS 1976 1985 1994 1998 1 (millions US$) Current account balance to GOP ratio (%) Exports of goods and non-factor services 88 155 266 337 0 Imports of goods and non-factor services 262 483 563 704 89 9 I 91 92 93 95 Resource balance -174 -328 -297 -367 Net factor income -12 -6 -14 -20 -5 Net current transfers 32 140 56 63 Current account balance, i before official transfers -154 -194 -255 -324 Financing items (net) 147 188 354 451 Changes in net reserves 6 6 -99 -127 -is Memo: Reserves including gold (mil. USS) 77 143 283 468 Conversion rate (local/lUS$) 214.3 449.3 555.2 500.3 EXTERNAL DEBT and RESOURCE FLOWS 1975 1988 1994 1996 (millions US$) Composition of total debt, 1995 (mill. US$) Total debt outstanding and disbursed 63 511 1,126 1,259 IBRD 0 0 0 0 IDA 11 149 518 608 Total debt service 5 29 44 54 IBRD 0 0 0 0 IDA 0 2 6 8 B Composition of net resource flows 608 Official grants 41 87 212 224 372 Official creditors 16 50 79 100 Private creditors 1 -9 0 -1 Foreign direct investment 0 -1 1 0 Portfolio equity 0 0 0 0 C 75 World Bank program Commitments 17 64 91 37 A - IBRD E - Bilateral Disbursements 5 21 79 85 B - IDA D - Other multilateral F - Private Principal repayments 0 1 3 4 C- IMF G - Short-term Net flows 5 21 76 81 Interest payments 0 1 3 4 Net transfers 5 20 73 77 International Economics Department and Country Operations Staff 1116/96 4 2 0 MAURITANIA BURKINA FASO MALI I A NATIONAL CAPITAL - CAPITALE D'ETAT 0* RIVERS GUINEA RIVIERES OUDALAN GUINEA PROVINCE BOUNDARIES Gorom-Gorom r LIMITES DES PROVINCES còT GHANA vC V 0'R E INTERNATIONAL BOUNDARIES Sum LIBERIA. FRONTIERES INTERNATIONALES -S 0Dibo -- ~1a0Dori 0 50 100 150 200 ,OROUM S-E N-O KILOMETERS / KILOMETRES YA E I.. \ NO YATENGA - o- Ouahigouya BAM i Kongoussi YAGHA SOUROU I,SANMATENGA n Tougn Kaa zN l G E R 0TougnKaya GNAGNA SYako -0Bogandé M A L 1 KOSSI P aR oNounoa KOMONDJARI l NAYALA KREWE UBRITENGA BouAsa oZiniaré C) OUAADUGOU Dédougou -.- o Koudou" KADIOGO BANWA MOUHOUN SANGUE BOULKIEMDE Zorgo •GANZOURGOU ýKoupélq G 0 U R M A T AP OA 12 Kombissiri 0Fado-N'Gourma Diapago , 12- BAZEGA LES BALE Mango Tenkodogo KENEDOUGOU Z RO OuO6 BOUtGOU TUY O G KOULPELOGO KOMPIENGA f HOUET Bobo- t S S ILl NAHOURI Pó ,Dioulasso Léo 0- Orodora f B A ,-v Diébougou n o a BOUGOURIBA LERABA BnoaB E N I N COMOE PONI ,Gaoua -- 10h0 -p S DenUnt of(Te wod B- G H A N A e TG CóTE D'IVOIRE TOGO ?,- )0 IMAGING Report No.: P 7048 BUR Type: MOMD