Docxmemt of The World Bank FOR OMFCLAL USE ONLY' MICROFICHE COPY Rev,rt NO. p- 5784-MLI Type: (PM) RepwftNo. P-5784-MLI RNepESt N- PX35038 / J9073/ AF5IE MOANUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATTONAL DELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMT CREDIT IN THE AMOUNT OF SDR 4.4 MILLION TO THIE REPUBLIC OF MALI FOR A MINING SECTOR CAPACITy-BUILDING PROJECT MAY 18, 1992 Ths document has a restnce distibuion and may be used by recipients ouy in the perforance of tbeir offcial dutiest its cMoetes may not otberwise be disclosed witout Would llt auotion. .,~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~d .s . - - . ... Cuncy Unit = CFA Fnac (CFAF) US$ 1.00 = CFAF 274.8 CFAF 1 million = US$3,639 SYSEM OF WEIGHTS AND MEASURES Metric System 1 tonme = 1000 kilogms (kg.) 1 tonne = 32,154 troy ounces (oz.) FISCAL YAR January 1 - December 31 ABBREVITIONS AND ACRONYMS BHIP-UTAIH The BHP-UTAH Minerals International Grotp of the Broken Hill Prpietay Company DNGM Diretion Nationale de la GEologie et des Mines GDP Gross Domestic Product IFC eenational Finance Corporation LCB Local Conmetitive Bidding MMHE Minist2re des Mines, de l'Hydaulique et de l'Energie SPF Special Project Preparation Facility UNDP United Nations Development Program FOR OFFICIL USE ONLY IUPELIC Ot AL MIqINN ECOR CAIEACECIBffGi PROlEC CREDIT AND PROJECT SUMMARY Borrower: Government of Mali Beneficdaries: Ministry of Mines, Hydralics and Energy Credit Amount: SDR 4.4 million (US$6.0 million equivalent) Terms: Standard IDA terms, with 40 years maturity Onlending Terms: Not applicable Fnancng Pla: Government 500 - 500 IDA 240 5760 6000 Econondc Rate of Retun: Not applicable Staff Appraisal Report: Report No. 10577-MU Maps: IBRD Nos. 23625 and 23626 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 RUECOMMENATION OF THE PRESIDENT OF THE INTRNATIONAL DEVELOPMENT ASSOCITION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDfT TO THE REPUBLIC OF MAU FOR A MING SECTOR CAPACITY-BUIWING PROJECT 1. I submit for your approval the following memorandum and reco ion on a pred development aedit to the Republic of Mali for SDR 4.4 mfllion, equivalent to US$6.0 million, on standard IDA terms with a maturiy of 40 years to help finance a Muiing Sector Capacity-Building Project. A. 2. Mali is a resourcepoor country with nearly 80% of its population dependent on agrcture, which accunts for roughly half of GDP and two-thirds of exports. Its other resources include minerls, in particular gold and possibly diamonds that, if developed, could mak an Important contribution to the economy. Considerable geological work has been undertaken in Mali largely with foreign aid, confirming that Mali has promising mineral potentia. This potentia has not been developed, however, because not enough exploration and development investment by the private sector has been forthcoming. This is largely the result of deficient government policies, weak sector instittions, and the fact that the large amount of geological data gnerated has not been properly organized, synthesized, and made readily available to pote investors. At present, the country produces about 4 tonnes of gold per year and no diamonds. Gold is being produced by artisanal miners and by an industrial-scale mine nanced and run by a foreign investor. The 'missing-middle', small- and medium-scale mines financed and rn by local entrpreneurs, does not exist in Mali. 3. Artisanal gold mining is important in Mali, as it has been for centuries, and is a source of living for an esdmated 100,000 seasonal miners, a large proportion of whom are women. However, artisanal miners operate under unsafe conditions, with very rudimentary methods and equipm that now leave more than 50% of the gold in the ground. -wlay are constrained from evolving to small- and medium-scale mining by a lack of access to more efficient and safer technology and cannot benefit from larger-scale gold discoveries that they cannot mine on their own because they are not eligible to hold mineral rights under the present mimg code. 4. Industrial-scale mining, on the other hand, has been stymied by an inadequate mineral data base, by lack of a clear mining policy and strategy, by dysfunctional public enterprises, and by sector instutions that have been guided by an outated interventionist philosophy and weakened by corruption. It was only in the late 1980s that the sector was opened to foreign private investors. One such investor, a well-known multinational mining company (BHP-UTAH), opened a gold mine at Syama in southern Mali In 1990. The mine produces 2.5 toames of gold per year, worth approximately US$30 million anmually, representig 8.5% of Mali's tota exports in 1990. This promising start is a result of consierable promotional efforts by the Mimisty of Mines, Hydramlics and Eegy (MMHE). However, much more needs to be done by the Government to promote growth in the sector. ITs includes successful -2 - implementati A of macro-economic adjustment programs and effective private sector-oriented policies that would allow for stable and transparent regulations, a ompetitve and well structured tax regime, and easy access to good and well oanized geological data. The Government has launched an adjustment program supported by IDA, and is preparing a project that would pdmarily focus on fosterig the development of the private sector. The Ministry of Mines, Hydraulics and Energy, which is responsible for the sector through its Dlrecdon Nadonale de la GEologle et des Mls (DNGM), is committed to taig more vigorous actions to stimulate private invesm in the sectr but operates with no clear, detailed sector policy or strategy to guide it. Moreover, it is not orgaized to actively promote mining to the private sector. The Mining Sector Capacity-Building Project will complement the proposed Private Sector Development Project and focus on attracting local and foreign investment to mining through the development of clear mining sector policy and straegy, modification of the institutional and legal framework, provision of better geological information, and strengthening of the Government's institutional capacity. 5. The main objectives of the project are to strengthen the capacity of the Govermnent to attract more investment to the mining sector and to help develop a vibrant idstry consisting of large as well as small- and medium-scale mines finced with both foreign and local capital. 6. The project wi comprise two main components. The Policy and Strategy ComponXt will consist of several studies, audits and advisory services to help the Governmt of Mali design and implement a new policy and strawte for the mining sector. The studies will cover the legislative, economie, fiscal, institutional, artisanal and environmental aspects of the mining sector. Implemeion of the segy will Involve restructuring the institutional framework of the sector, revising the legislation and procedures, and closing and/or selling the public enterprises and their holdigs in the sector to private investors. Strategy implementation will also involve strengthenng thfe Ministry of Mines, Hydraulics and Energy through the provision of a long-term expert, and tran Government officials in mining finance and economics, negodatg techniques, metallurgy, and mine management, operation, and technology. The lnv_tment glumoIoLmn = fzt will consit ofprovidig consulting services, equiment, and some works to the Ministry of Mines, Hydraulics and Energy to: (a) organize the domnion center's information and rehabilitate its facilities; (b) synthesize existing geological data and improve the geological information system; (c) fill the gaps in the geological, geochemical and geophysical data coverage of prospective mining areas of the country; and (d) promote specific mineralized areas to potential investors. 7. The project will be carried out over 4 years. It is esfimated to cost US$6.5 million equivalent net of taxes and duties, wifth a foreign exdcange component of about US$5.8 million (90%). The fiancing plan includes an IDA credit of US$6.0 million as shown in SceeA, which will finance all of the foreign exchange costs and some local costs (UJS$0.24 million eq aent). Amounts and methods of procwement and of disbursements, and the disbutsement schedule are shown in Scedul B. A timetable of key project processing events and the stats of Bank Group operations in Mali are ghien in Schedules C and D respectiely. The Staff Appraial Report for the project is No. 10577-MLI, dated May 18, 1992. -3- 8. The Ministry of Mines, Hydraulics and Energy will be responsible for project Implementtion, assisted by a project coordinaor. The Ministry has had experience with the implementation of projects financed by IDA, UNDP and other donors with a reasonable amount of success. It has a pool of well-rained geologists, geophysicists and other technicians. It does lack financial and o tional management skills, however. The project, therefore, will make available a long-term consultant to help the Ministry of Mines, Hydrulics and Energy coordinate project activities. *~bw W 0|SWNH 9. To ensure uat activities required for contnued support of sectoral growth are carried out after project completion, the project will place a strong emphasis on institution- buflding, human capital development and adequate fiuding of the sector instittions' operating costs. The project will also take into account the needs and culture of the beneficiaries and make use of the Malian tradition of consensus-building to achieve lasting policy reforms. This will involve an analysis of policy alternatives by experts, and the organization of workshops where these alternatives will be debated by representatives of the various ministries concerned and interested local leaders before policy options are adopted. The project will also aempt to demonstate how the mining legislation can recognize and preserve the traditional organization of arsanal mins while providing the miners with mineral rights. I_W Lemed 10. 1Te Mining Sector Capacity-Building Project will be the second project involving the nisty of Mines, Hydraulics and Energy. Approved in ApriI 1981, the first project (Credit 1134-MLI) dealt with petroleum exploration promotion and met thc project objectives by =aacting foreign investment in the evaluation of part of Mali's hydrocarbon potential. (See the Project Completion Report No. 7908, dated June 30, 1989.) The Ministry has highlighted the major deficiencies which need to be addressed by the project (including weaknesses in the law, in the negoating capacity of the Ministry, in the state and exent of the geoiogical information that could be made readily available to investors, etc.) and has had active input in project preparation, providing a strong basis for Government ownership of the projec Extensive preparation of the project was also done wih the help of expert consultants, and discussions with the UNDP and with pote mining investors who have experience in Mali, including IFC. aone afor JIDA Il ment 11. The project fits both IDA's and the Government's strategy to promote sustainable economic growth in Mali by supporting the development of its natural resources. IDA has financed a SPPF to assess the importance of arisanal mining and suggest actions to be taken to assist tha sub-sector in Mali, as well as in the neighboring countries of Burkina Faso, Niger, and Senegal. The project will involve a range of sensitive policy and strategy issues, in particular, in the use of a private sector and economic liberalization approach, which has been the center of Bank/Fund discussions with the Governent of Mali, as well as issues relating to the environment and alleviaion of rural poverty. It will also complement the proposed Private Sector Development Project. -4- 12. A letter of the Govement's comma ment to prvate sector-led developmem in the minig sector and a comprehensive taining plan were submitted by the Govermene before negotaions. Agreement has been reached during negotiation t acreage will be promptly made vilable to other investors, once an exploration pemi has expired or If work commitments hae not been met; at a tansparent and competitive method wfll be put into effect to award exploaicn and exploitatio permits; that the Govement will take steps toward itatig the acquis ion of mineral rits by artisanl miners; and tgat the Govemeat-owned mine, Kalana, will be sold to private investor. It was also agreed that e Government will revise and streamne the institional stucre and procedures for the sector; dat operatig budgets for the restuctued Institutions will be reviewed at mid-term and adjusted, if necessay; and that the Govermeat wil desigp and Implement a scheme for retiring excess public service personnel in the mining sector. In addition, it was agreed that the Government will prepare enomnental, health and safety regultons and notms, and implement them; and that it wil modify the mining code and model agreemest to reflect the new mining sector policy and strgy. Agreement has also been reached durin negotiations Ihat the MMHE will be provided with project countpart fwnds to be deposid quartedy In an advance revolving fund account; ta a joint IDA and Governmt annual suprvision meeting will be held, to agree on an annual work program and budget for the project, as well as a mid-term review. It was dso agreed that a long-term expert consult_a and her/his support staff be hired to assist MME in projectoordination. Conditions of effecdveaess Include: (a) that the Government will sign a contract, acceptable to IDA, with the long-rm xpert who will be In charge of project coordinaon, and hire basic support stff to help codne the project; (b) that the cun ar for actrvities to be started withn 6 moths of project effctiveness will be designated; (c) tha the counterpart funds covering the first quaer will be depoited in the advace revolving fund account for use by the project; and (d) that ind audios, acceptable to IDA, will be appointed who will audk the project's accouns anually Icincordan with apropriat auiting principles. 13. Ara mining in Mali uses very rudimntay medhods that do not raise any major envionm iues, however the problems of health and safety risk to miners need to be addressed. Largescae commercial mining, on the other hand, raises a broad range of environmenl issues such as land roeamation, and was manment and disposal. The project will dre these issues by providing techical assistace to establish criteria, install piate control ms, and train pesonnel who will monitor environmena, health and saety condidons in the mining sector, and safeguard archeological culura property in the minin areas. A Country En aStrategy Paper has been completed as a frst step towards a National E nvironmentalAcdon Plan, which wil include actions that wil be taken under this project. 14. The poject will attempt to reduce the counts dependency on the agrcur and livestock sectors. It will aim at providing support to policy and regulatory reforms ta will promote private sector growt in the mning inustry and natural resources development. will also atempt to Improve ge social and economic status of miers and women, and help reduce e wvironmen~ hazards. 1S. The activities financed by the project wil help strengthen the institutional capacity In the couy for a sector that has a promising potential. Ihey are also exected to result in increased foreigp and local investment devoted to mining in Mali in the medium term. Available geological inormtlon reveals that the country has the potental to increase gold producdon sipgficantly beyond the 4.3 tonnesit produced in 1990, provided private sector investment is hcoming exploration and developmen. (Rog esimates for resultig exports withia the next 5 to 10 years range from 10 to 15 tomnes of gold per year, whose value would represent 34% to 51% of Mali's total 1990 exports.) There is also a potetal for the prduction of diaonds. Mining coud thus become an Imotant source of foreign exca', and tax revenue for Mali's economy. Furthermore, helping artisanal miners, many of whom are women, could reduce poverty over a large rural population in the western and southern regions of the country. 16. While the Government has made the commiment to pursue private sector development, an important project risk involves its implementation by sector institions that opere in a "governmentcontol" mode. The project is designed to address this concern. There is also the risk that promotional eforts would not succeed in atcting investors. The sector is lnown to be of inrest to foreign mining companies, but several potenti investors are holding back due to WAX\ of confidence in the policy environment and sector istiions. The work on mining policy, capacity-building, and improvement of geological data will help set the enabling environment that will lower ihat risk. _eaodains 17. I am satisfied that the proposed Credit will comply with the Articles of A of the Association and recommend that the Executive Directors approve the poposed C;redit. Lewis T. Preston President Attachmnt Washington D.C. May 18, 1992 SdheduleA Page 1 of 1 REEUC OF MAU ItROJEa COSIT ET lNANCIN SWM&NC (icm ooO' of 118 oquivas t) EsFAtdM Projeet CostS: 1. PoUcy and Strategy D)evelopment * Management consltancy - 835 835 * Training - 500 500 * Expert long-erm consultan 120 - 120 * Local personnel 70 - 70 * Opetional support 255 S0 305 O Vehicles and equipment - 260 260 Sub-tota l445 1645 2090 2. Investment Promotion ° Geological data synthesis and thematic mapping 2600 2600 * Ihvestnt promotion - 450 450 * Local personnel 60 - 60 * Vehicles and equipment - 50 50 * Civil works 70 - 70 _l 530 3100 3230 Total Base :esS575 4745 5320 3. Conngendes 0 Physical 70 405 475 * Price 95 610 705 Sub-total 165 1015 1180 Total Propet c:osts 740 5760 6500 ED IUDG ITTAL Government 500 - S00 IDA 240 5760 6000 Page 1 of 2 IZU3C OFR ML GSO=Y} CAMMEMEMMENGPllJEC plQC MENM O]ODS AD nuw. (i us S wili evalet) 1.~~~~ ~ 1. ro Md Sh2t_ * Ma_eniAt coesuny 1.00 1.00 (1.00) (1.00 * Talinlg 0.70 0.70 (0.70) (0.70) * Eix*tlon-gMm coauua 0.12 0.12 (0.12) (012) * Lcd paronel 0.08 0.08 (0.00) (0.00) * Opeutonald uPot 0.45 0.45 (0.22) (0.22) * Veoue and equipment 030 0.30 (0.30) (0.30) * Goolod daa qntwh and thm mapi 3.00 3.00 (3.00) (3.00) * naemawd pommtion 0.60 0.60 (0.6) (0.60) * Locd al pruosis 0.0 0.09 (0.00) -00) * Vebi and equipmet 0.06 0.06 (0.0* (0.06) * Civilwork 0.10 0.10 (0.00) (0.00) TOtAL 0.46 6.04 6.50 (0.36) (5.64) (6.00) (1) P:gm in p_rad_a tad emauab to be financed by IDA SichedWg B Page 2 of 2 REPC F MA MM=G SECTOR CAPACILT-BUILfl2 ERQJAM Caton mnt 9 of Expenditure to be finaed Consultant services 4.00 100% of expenditures Training 0.50 100% of expenditures Vehicles and equipment 0.31 100% of expenditures Operation support 0.11 35% of expenditures Unalocated TOrAL 6.00 Elima Dsmntba: M f9 EX Fy9 Fy21 Annual 500 1,000 2,500 1,500 S00 Cumuative 500 1,500 4,000 5,500 6,000 c RE1PUBLIC QF MAUI MINING CR CMPACrTY-BUILDING PROJEC la-ABLE O KEY PROIECr PROC-&SJG BVENIS (a) Time taken to prepae 12 months (b) Prepared by Government with IDA assistance (c) First IDA Mission October 1991 (d) Appraisal Mission Febnry 1992 (e) Negotiations May 1992 (f) Planned date of Effectiveness September 1992 (g) List of relevant PCRs and PPARs Petroleum Exploration Promotion Project (Credit 1134-MUI) PCR No.7908, June 30, 1989 Ibi eport is bhd c the findin8s a Word Bank n thath vied MAi fm Februi 1 to 15, 1992 conadng ofcMidline Madher(AFflE; atbluA. Mnes (AFSIB) Pew N?mn (Camuatdaogs and lotbad Walse (Consultant Geologist)Mr. PWau L Dyson (ASfflO) acted aspeew reviewr and (r. John EL Streagnin (AFTIB) as advse. Some mserearlal was prvided by IL Mude Edonard (A1 1 Page 1 of 2 RPlCOP MALI }MNIN SBCYOR CAPACr4Y3IULDING PROJBCr SrATUS OF BANK GROUP OPERATIONS (Asof March30 1992) IAn or Fiscd Bo_war Ppose Bank IDA Undia- Closg Cd No. Yew bus,,d Dat 33 Credits closed 346.69 CFWO7-MU 1984 Mai Water Supply I 6.30 1.07 06130/92 C14030-MLU 1984 Mali Gasobh (Bianss) 7.60 0.53 06130192 (R) C15970-Ml 1985 Mai Mopd Ana Developmet 19.50 11.05 06/30192 (R) C16290-CM 1986 Mali Highways V 48.60 25.37 12131/93 (R) C16S40-MLI 1986 Mali Foretry I 6.30 0.24 12/31/92 (R) C16770-MUL 1986 Mai Udban II 28.00 7.94 03/31/93 CA03SO-MLI (S) 1988 MaSi Office Du Niger U 9.00 4.72 06/30/92 C19060-ldLI (S) 1988 Mali Office DIu N'iget H 39.80 35.53 06/30/97 C19380-MUI 1988 Mali PJE. Invstment Dev. 9.50 3.11 12/31/94 C19980-MI 1989 Mali POWer i 33.00 28.30 12f31f95 C20540-MIJ (S) 1989 Mlai Humn Rescuce SECAL 26.00 18.72 12131/94 C21630-MLU (S) 1990 Mai AG SECAL 53.00 27.50 12/31/96 C2188CMULI (S) 1991 Mlai SAL I 70.00 46.50 06/30/93 C22170-MLI 1991 MaHi HEaWiCtPoplabidon/Ru 26.60 26.22 12/31/97 C223SO-MLI 1991 Mali AG Srvices 24.40 22.86 09/30195 Tota Number of Cmdit= 1S 407.60 259.66 Totda 754.2 of w iA veps7d 13.95 740.34 Toed hold by B}ank uv IDA AuizmtmM of aich =Psw Toeld Udilmrsed 259.70 * Not yet eflfive 4 Not yet igde Total Approved, Repayments, and Oustandig balm rpre both activ and and mactive Lan and Crdits (R) Indiate fornmaly ievised Closing Date (5) Indicates SAUSECAL oans ad CrditsL The Net Approved and Bank Repayments are btorical valu, al odt#S are market valu 2&-Apr-O Pap 2 of 2 STATWENT OF IWC W(VESMENTS (As of Match 31,1992) Ye Type of Bus_e Lon Equity Total -s i$ Milo) 1978 Ste. Mamadou S. Diallo (eneal 0.64 0.00 0.64 1/ & Fres (SOMACI) c g 1982 Ste. Ind. do Kaite Sheamut 1.85 0.45 2.30 V du Mali (SIKA) Pocessng Total Gross Commitments 2.49 0.45 2.94 Less Ccelions, write-off and repam ts 2.49 0.45 2.94 Not Commitments hold by IFC 0.00 0.00 0.00 1991 Labo-Mali Medical Laboratory 0.10 0.00 0.00 1991 Bak of Afirica-Mali Bunking 0.00 0.22 0.22 1992 Ste. Miniere de Sya Mining 0.00 23.20 23.20 31 (SOMISY) 0.10 23.42 23.42 1/ SOMAa's loan has beon flly repaid. 2/ SIKA's loan has been written off. 31 Coosists of renunirated (LIBOR +2%) sbareholders' advances of US$21.7 milion and eqity of US$1.5 mill 23-Apr92 MA L I KNOWN MINERAL OCCURENCES AND DEPOSITS 6 , Mining Sector Capaciy-Building Project Fe ZPmcuE L'Adror des Iforas Mn M 4GN! , ASu 'lt UCCu Cr ~~~~~~~~~~~~~~~~~~~~~~~~~ T~~~~~~~~~~~'im&tnne Cu83 In Drset C CN aiCEL U UR ,CuiD3 Au Fe A ?EROWUEMSDRHOLE | ,Mn u MRG WmWG mON osmcr A , A PErROLEusUMTJCnxRE Au GOL W U D OWAlOD PVED I Kidol D oeposr Pt KAgTUN PARA eT0>l,YRUCTOU REG ISON / Tomoguileft 219U - s 6 R. ~ ~~~ pO '3 U Somit Z Cu COPPER - RECG4ON B - B BMJXTT! > - onb1ENON SOUND B p PNBPAES / 21 ~~~~~~~~~~~MAURITANIA Cu A_\ \OM *Cu Cu~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~u E r ys Cum N I G E R * Fe * < Se74so w \ r W c-/ > o ,,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ o 100 ISO n 2m05 e,aAu 59; Sadol *iu Lou Fe F UIAu M auon I BB Au 0Au~~~~~~~AuMURDQA M L West Mali Au AuE~~~~~~~~Li bo Kod Au AuKLi MO on 06donodo f4f toGE paeml rt of Thw b oo Foulaba bugo GoW 0= oenoooSc us GUINEA South Mali COTE DIVOIRE GUINNA ALGERIA |j .g~ , a, r otr des If or aS| MAU*TA ali g