Managing Extractive Industries in Mauritania

April 11, 2008 —  In view of the decline in petroleum production and runaway commodity prices, Mauritania is attempting to put in place sound management mechanisms for its natural resources. The World Bank is providing support to Mauritania through the Extractive Industries Transparency Initiative (EITI) and the EITI++.

Mauritania ’s growth prospects (5.7 percent in 2008) are closely linked to sound management of resources from its extractive industries. The country has strong geological potential with regard to the high value mineral resources available, including iron ore, gold, copper, oil, natural gas, and phosphate.

A promising sector with serious challenges

Since the 1960s, the mining sector has been one of the main sources of revenue for the Mauritanian government. In addition to traditional iron ore mining activity, copper and gold production began in 2006.

During the same year, Mauritania began to produce oil. At the Chinguetti oilfield, which began production in February 2006, the average was 54,000 barrels per day during the first three months.

However, technical difficulties have considerably reduced production, which dropped to an average of just 18,500 barrels per day in May 2007.

With respect to financial returns directly linked to the operations of extractive industries, some data help to measure Mauritania’s interest in better managing its resources.

National Industrial and Mining Company train

The additional tax revenue from the mining sector related to the new gold and copper projects will be equally modest, and will be derived mainly from royalties, totaling between US$4 million and US$5.5 million annually by 2010.

The country’s oil production has been more modest than initial expectations. However, oil revenues, which stood at US$47.5 million in the second quarter of 2007, play a key role in the country’s economy, including growth.

This growth, revised downward by a recent International Monetary Fund (IMF) mission in March, will be 5.7 percent.

Production at the Chinguetti oilfield is projected at 12,000 barrels per day for 2008, and no other field is expected to begin production before 2010.

However, sustained investments in the area of exploration and drilling by Petronas, the new Drilling Block A operator, should confirm the presence of natural gas reserves, increase oil production, and earn significant revenue.

With regard to sound management of resources from the extractive industries, recent political developments are significant. At the beginning of this decade, Mauritania deviated from its long-standing prudent practices and lost its reputation as a country with solid performance.

Following the bloodless coup d’état of August 2005, the transition government began to re-establish a stable macrofiscal framework, and launched an ambitious reform program that focused in particular on public finances.

The new democratically elected president and his government took office in April 2007, determined to continue the reforms underway.

While the country has a history of growth based on revenue maximization and a political system characterized by clientelism and political favoritism that constitute challenges for the effective management of extractive industries, there are very encouraging signs.

• The Second Mining Sector Capacity Building Project(PRISM2) has been underway since 2003 and emphasizes capacity building in the mining sector. The scope of PRISM2 was widened in 2006 to offer technical assistance in the oil sector, in response to strong demand from Mauritanian authorities.

A transparency-based approach

In 2005, during the transition period, the government adopted the principles of the Extractive Industries Transparency Initiative (EITI). Since then, the authorities have begun to disclose mining and oil revenues earned by the National Hydrocarbons Fund through a single and separate account at the Central Bank of Mauritania.

The scope of PRISM2 was widened in 2006 to offer technical assistance in the oil sector in response to strong demand from the Mauritanian authorities.

During his visit to Mauritania in January 2008, World Bank President Robert B. Zoellick was impressed by Mauritania’s desire to implement transparent and comprehensive management of extractive industries to promote sustainable development.

He declared his readiness to encourage the country to implement a new initiative intended to develop good governance and transparency across the value chain that is from access to resources, the establishment of the legal and regulatory framework, supervision of mining and oil operations, and revenue collection, to budget implementation. 

This initiative, designed to strengthen the contribution of extractive industries to governance, transparency, and sustainable development, is also known as the EITI++. 

During the meeting on the World Bank portfolio, which was held on February 29, 2008 in Nouakchott, this proposal was shared with and approved by officials from the Mauritanian government. 

At the beginning of March, a World Bank mission visited Mauritania, and worked in close collaboration with the resident mission on support mechanisms for the Mauritanian authorities.

Along with the government officials, the mission analyzed the main issues surrounding the management of extractive resources in Mauritania:

• Identification of priority actions that will allow extractive industries to make an optimal contribution to national and regional development, as well as the intervention strategy allowing the Bank and the other partners to support these actions; and
• Inventory of actions already undertaken to ensure transparency at the different stages of the value chain, ranging from the awarding of concessions to revenue utilization.

For each of these stages, the mission used well-established criteria to not only evaluate the actions, but also the gaps, which it will pull into an “inventory matrix” from which it will set out a prioritized action plan.

The main outcomes of the mission will be a strategy document setting out the entire process and the intervention framework, the above mentioned matrix, and a prioritized action plan. This documentation was finalized for distribution at the IMF/ World Bank Spring Meetings  in Washington in April 2008.