William T. Onorato
Peter Fox
John E. Strongman
December 18, 1997
ABSTRACT
An important role of the World Bank Group is to assist member countries to identify and implement the reforms necessary to foster minerals development on an efficient and sustainable basis and to make a substantial contribution to mobilizing the financing needed for minerals development in developing countries. The World Bank Group consists of five specialized multilateral agencies, namely:
International Bank for Reconstruction and Development (IBRD); International Development Association (IDA); International Finance Corporation (IFC); Multilateral Investment Guarantee Agency (MIGA); and International Center for the Settlement of Investment Disputes (ICSID).
The World Bank Group provides a broad range of advisory services, technical assistance and financing to governments, public institutions and private enterprises in its client countries. IBRD provides loans to Governments at market-related terms and IDA is the "soft" loan window providing credits to Governments at concessional terms for the poorest countries. IFC finances private sector projects and offers financial services to private companies. MIGA provides political risk insurance for private sector projects and ICSID provides facilities for the conciliation and arbitration of investment disputes. The agencies of the World Bank Group collectively provide: insight and advice to member countries on economic and policy issues, including mining sector and related environmental and social issues at the sectoral, national and global levels; financial support, concessional and non-concessional, to members who need to finance macro-economic and/or sectoral adjustment programs, including mining sector reform and enterprise restructuring and/or privatization; technical assistance to members on the legal and regulatory framework, including environmental protection, necessary to implement mining sector reform programs; project finance, concessional and non-concessional, to governments and State-owned entities for specific investments including mining projects; debt and equity capital on commercial terms to the private sector to assist specific investment in mining and other projects in developing countries; long term political risk insurance and special guarantees of basic government project commitments to facilitate private investment in developing countries including mining; and advice to member countries on strategy and other matters, including mining sector related issues, based on the results of broad based comparative research and strategic studies.
The strategy of the World Bank, that is IBRD and IDA, towards non-fuels minerals recognizes that state enterprises have performed poorly in the mining sector, as in other productive sectors, and that there is a growing willingness of private sector banks and other lenders to finance private sector non-fuel minerals development in developing countries. Thus, in the late 1980s the World Bank shifted its focus away from project financing for non-fuel minerals, and examples of World Bank investment loans to fund the development of large scale non-fuel minerals projects are comparatively rare now. Instead, the World Bank today provides financial and technical support to its member countries to enable them to undertake the necessary regulatory and institutional reforms, including privatization of State-owned mining assets, to establish the conditions to attract private sector finance for non-fuel minerals development. This includes shifting the focus of state activities away from ownership and operation of mining projects and towards regulation and administration of the mining sector. It also includes modernizing mining environmental and social protection regulations and strengthening associated institutional capabilities to help bring about sustainable mining development. The World Bank's mining sector technical assistance projects contribute to IDA's primary mission of reducing poverty in the world's poorest countries by stimulating economic development through increased private sector investment in the mining sector. World Bank support to regularize informal mining can also help reduce poverty by providing employment opportunities for local communities and thereby provide livelihoods for a greater number of people and their families. There are important differences between coal and non-fuel minerals which make it more difficult to create the necessary conditions to attract either domestic or foreign private sector in investment for coal and lignite. The approach of attracting foreign investors or international mining companies will not work without first redesigning the domestic industries to produce a competitive coal market. Thus, the World Bank continues to have a substantial role in (a) providing investment finance to support coal mining operations as part of a broader reform program for developing countries which have rapidly growing coal industries; and (b) in helping finance sectoral adjustments as part of a reform program for countries in transition with significant excess coal production capacity. The main thrust of World Bank involvement is to encourage the development of a competitive market place for coal; support initiatives to make coal mining more socially and environmentally sustainable; support studies to reduce and mitigate the harmful environment and social impacts of coal use; support the privatization of state-owned coal mines and private investment and ownership for coal mining; and assist with cushioning the social impacts of the downsizing of coal industries with substantial structural over capacity, especially in the countries of the Former Soviet Union. The World Bank contributes to the process of developing policy responses to development issues in the minerals sector by collecting and disseminating knowledge about topical minerals development issues. It does this, not only through its involvement with member countries in its operations, but also by participating in and sponsoring seminars, conferences and industry roundtables. Examples of conferences and roundtables which the World Bank has sponsored or co-sponsored include a 1994 Seminar on Coal Industry Restructuring; a 1994 Mining Legal Roundtable; a 1996 Clean Coal Initiative Roundtable; a 1996 Artisanal Mining Roundtable; a 1997 Conference on "Mining -The Next Twenty-Five Years;" and a 1997 conference on "Mining and the Community." IFC is a substantial financier of minerals projects in developing countries and acts as a catalyst for the investment of additional private sector debt and equity funds in the projects which it finances. The loans and investments which IFC makes are not guaranteed by any government. IFC's operational and constitutional requirements require that the projects which it finances must: (a) be in the private sector in developing countries; (b) be technically sound; (c) benefit the local economy; (d) have the promise of producing profits; and (e) comply with World Bank social and environmental policies and with IFC guidelines. IFC will invest in both small and large scale projects and in both "greenfields" and expansions. IFC provides advisory services to private companies in developing countries regarding project finance. IFC also provides governments with advice on privatizations, can assist in privatization transactions and help finance the new investments of privatized corporations. The Foreign Investment Advisory Services (FIAS) is a joint-effort of IFC and IBRD to advise governments on attracting foreign private investment. IFC can help finance private mining projects through equity and loan investments for its own account and through mobilizing additional loan funds from commercial banks through its B Loan scheme. Through its financing operations, IFC is often able to play a helpful informal role as an "honest broker" between investors and governments, and it can assist governments to establish an appropriate framework to attract investment. MIGA is mandated to encourage foreign direct investment (FDI) for economic growth in its developing member countries. MIGA supports investment in mining and other projects by providing: (a) guarantees (i.e., insurance) against the political (non-commercial) risks of transfer restriction, expropriation, breach of contract, and war and civil disturbance; and (b) technical assistance to developing member countries to improve their ability to attract foreign investment. MIGA also helps arrange coinsurance and reinsurance to supplement coverage from existing insurers. MIGA provides investment marketing services to assist its developing member countries in formulating strategies and techniques to attract FDI in particular sectors, including mining. MIGA undertakes mining sector related capacity building activities such as strategy workshops and training programs for senior level public sector officials in mining ministries or other agencies charged with identifying and attracting foreign investors. MIGA also catalyzes mining investments by organizing investment conferences and missions and by disseminating information on investment opportunities, business partners, and the legal and regulatory environments pertaining to foreign investment in developing countries and transition economies. ICSID was established in 1966 through the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. Under the Convention, ICSID provides facilities for the conciliation and arbitration of investment disputes between States parties to the Convention and nationals of other States parties. ICSID is also authorized, under a set of Additional Facility Rules, to administer certain types of proceedings between States and foreign nationals that fall outside the scope of the Convention. In addition to its dispute-settlement activities, ICSID undertakes research, advisory and publications work in the fields of arbitration and foreign investment law. |
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