1. Key development issues and rationale for World Bank...

1. Key development issues and rationale for World Bank involvement
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> The Papua New Guinea (PNG) mining sector continues to be a very important sector for the economy, contributing about 60% of exports and 20% of fiscal receipts. Over the last three years, PNG’s mining industry has experienced a resurgence in exports and profitability largely fueled by the recent commodity price boom. As a result, the earnings from mining have been a key contributing factor in the increases in government revenues and of foreign exchange reserves to record high levels. Continued engagement in the sector will help raise the quality of sector governance as well as improving the standards of environmental and social stewardship and contribute to rural livelihoods and improved social service delivery. The successes achieved under the Mining Sector Institutional Strengthening Technical Assistance Project (2000-2006), lay the basis for the proposed project which will both address new issues (Extractive Industries Transparency Initiative - EITI; mining on Bougain!
> ville; and seabed exploration and licensing), and scale up successful pilot activities trialed under the first TA Project (tax audit and collection; Women in Mining; and artisanal and small-scale mining - ASM).
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> The proposed project, which is essentially a repeater project, fits well with the preliminary objectives of the new CAS which is presently under preparation. It supports the over-arching CAS objective of poverty alleviation in three ways. First, the assistance to the Mineral Resources Authority (MRA) and Internal Revenue Commission (IRC) and the support for possible participation in the EITI will all help to improve sector governance and increase government revenues from commercial scale mining. Second, the support for ASM together with initiatives to improve economic linkages of commercial scale mining to local communities will help to improve rural livelihoods. Third, the support for implementing the Government’s Women in Mining 5 Year Action Plan (2007-2012) combined with preparation of the proposed mining sector Gender Equity Policy will help to improve service delivery by both government agencies and civil society groups in mining communities and will also provide !
> policies and initiatives that can be potentially be replicated in other sectors and throughout the country.
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> The project was originally requested by the Minister of Mines during a meeting with the Acting RVP in March 2006. However, subsequent preparation was delayed by internal difficulties in PNG which were resolved in late 2006. Support for the project was confirmed by the Minister as well as the newly appointed Acting Secretary of Mines, members of the MRA Board, and the Department of National Planning and Monitoring (DoNPM) during missions in January 2007 and March 2007. Mines Department Officers have been actively engaged in developing the proposed project scope and identifying champions for project sub-components.
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> The Bank is in a unique position to integrate mining sector reform with broader macro economic and fiscal management issues and ensure results are shared with other sectors. The Bank has followed the development of the PNG mining sector over the past decade and knows both DoM and IRC very well and is positioned to ensure that institutional strengthening takes place in a fully consistent manner and is integrated with larger institutional and governance reforms in PNG. The other donor agency working on mining in PNG is the European Union which is providing physical infrastructure including new offices for the MRA, ASM training centers and supporting airborne geophysics and geological mapping.
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> 2. Proposed objective(s)
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> The proposed project development objectives are (i) to support the institutional strengthening of the main mining sector agencies for administering the mining sector to improve sector governance; and (ii) to build the capacity of the affected communities, especially women’s organizations and youth, to better benefit from mining sector activities.
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> If successfully implemented, the project will assist the Government of PNG to achieve the following outcomes:
> • improve the quality and effectiveness of governance in mining sector regulatory agencies;
> • attract additional exploration and mining investment from good quality investors;
> • improve the benefits both to the nation as a whole and to individual mining communities with special attention to the distribution of benefits between men and women;
> • improve economic opportunities for youth in both small scale and large scale mining areas;
> • improve the environmental and social performance of mining operations, both large and small scale, including sound mine closure practices;
> • achieve safer ASM activities with better environmental and social outcomes;
> • increase tax collections from the sector so that more revenue is available for Government to provide social services, reduce poverty and raise incomes; and
> assist the Autonomous Bougainville Government to establish a functioning Mining Department.
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> 3. Preliminary description
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> The proposed project would consist of six components as follows:
> • Support for MRA to become fully operational and fulfill its responsibilities including licensing and overseeing ASM activities and monitoring mine closure work (USD4 million)
> • Support for the Autonomous Bougainville Government to review previous legislation and to develop the legal, regulatory and institutional framework for mining (USD1 million)
> • Support to the DMPGM to complete a revised mining legal framework and a Sustainable Mineral Development policy; and to develop an offshore mining policy (USD 2 million)
> • Support to the IRC to investigate and audit mining companies and to possibly extend IRC experience in mining to petroleum projects (USD5 million)
> • Support to Women’s Associations and Youth in six mining communities and regions and the National Council of Women (NCW) (USD 4 million)
> • Support to the Government to Adopt and Implement the EITI (USD1 million)
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> The implementing agency is the Mineral Resources Authority (MRA). The MRA will assist with coordinating implementation sub-components in both the DoMPGM and the IRC. Rather than an external stand-alone Project Implementation Unit, the project is proposed to be implemented through a Special Projects Unit (SPU) being established within the MRA and staffed by the MRA. Some consultant support for the SPU may be required initially, e.g. to assist with developing capacity to manage procurement activities.
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> The proposed financing takes account of the lead role that the Bank has regarding the mining sector. Co-financing will be sought from the EU for the ASM aspects of the MRA component and from Australia for the IRC and Women in Mining components. A TA instrument was chosen because the core of the activities are capacity building.
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> The total project cost is estimated at approx. of USD17.5 million including the foreign exchange cost of USD16 million and local currency cost of USD1.5 million. An IDA Credit of USD11 million is proposed to finance the direct foreign exchange cost together with US$5 million co-financing. The balance of the cost will be provided by the Government.
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> 4. Safeguard policies that might apply
> [Guideline: Refer to section 5 of the PCN. Which safeguard policies might apply to the project and in what ways? What actions might be needed during project preparation to assess safeguard issues and prepare to mitigate them?]
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> The project is proposed to be rated as category B for environmental purposes. The project will not involve direct investment in mining activities but through its policy and regulatory strengthening it could have indirect environmental impacts by encouraging increased commercial scale mining and ASM activities in the future. Since there is no direct investment in mining operations there is no resettlement involved in this project nor is there any requirement for an resettlement plan.