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From Risky to Responsible Business

Jean-Michel Happi's picture
Also available in: Русский

Responsible Mining in ArmeniaIf I had to pick one critical source of exports and a key driver of economic growth for Armenia, I would pick mining.
 
But mining is a risky business and is fraught with hurdles. Exploration often comes up empty. Investments are very large, in excess of hundreds of millions dollars. Commodity prices can change dramatically and governments can change policies and taxes. Moreover, there can be large environmental and social risks associated with things like tailings, dams, and resettlement policies.
 
A risky business does not, however, mean that mining is or should be an irresponsible business. Many of these risks can be mitigated or eliminated. This requires proper policies, laws, regulations, careful implementation, and planning for life when the mine closes – all of this even before the mine opens.  Supporting policies, such as easy access to updated geological information and predictability in transferring licenses, reduce the risk in exploration.


Investment risks can be mitigated by governments and companies working together to lower infrastructure costs, in a way that also benefits other producers and consumers.  Policy stability and predictability also greatly reduce risks by allowing all the stakeholders to work within known parameters.
 
Environmental performance of industrial mines is another matter of concern. The instruments to reduce these risks should include much stricter mining codes, financial assurances for reclamation or environmental damage by mining companies, modern technologies, and robust monitoring and evaluation systems.
 
Mitigating social risks is also a priority, given the impact of mining on communities   and the need to ensure equitable benefits besides direct employment.
 
Strong laws and regulations are often not enough to mitigate all these risks. Governments must also increase their regulatory capacity and technical competency.  Finally, when there are disputes about risks, including who should bear them, it is important to have strong dispute resolution mechanisms or institutions that are accessible to all.
 
In the end of March, for the first time, government officials, local authorities, community leaders, mining companies, and civil society organizations have discussed the best practices of responsible mining in Armenia. The conference provided an opportunity to review Armenia’s practices through the lens of international experience.
 
Over the past few years, the World Bank has supported Armenia in developing a new mining code aligned with international standards. Major changes were introduced in the fiscal regime. As a result, fiscal revenues from mining royalties reached US$39 million in 2012 and US$45.3 million in 2013, thanks also to favorable commodity prices. In 2011, these royalties were only US$17.9 million under the old taxation regime.  
 
The Bank is also supporting the government in developing another critical legislation - the Law on Environmental Impact Assessment. This new legal framework has already attracted new investors, including the IFC. The World Bank Group looks forward to expanding this partnership.
 
The discussion in this conference, while productive, should not be an end in itself. My hope is that it will trigger a permanent consultative process among stakeholders. Consequently, I would recommend establishing a Chamber of Mines to formalize and institutionalize this dialogue.

Comments

Submitted by Bart on

Thank you for this interesting blog. I would like to add integrity risk as another very important area to focus on when considering investing in the mining industry. We frequently see crony corruption by public officials who capture mining rights, including by selling them to off-shore companies they (or their cronies) own. Proper policies, laws, and regulations, while necessary, do not necessarily mitigate against these risks, and need to be complemented with significant due diligence.

Submitted by Bill on

Bart, corruption in the country, including public officials' involvement in private businesses is not a matter of integrity. It's a matter of rule of law that is the job of the citizens of the country, not the investors or the international organizations. Off-shore or on-shore, what matters is that the local companies pay their taxes in Armenia, that they employ locally having a huge multiplies effect on the economy and comply with industry best practice requirements. And that is what the blog is about. Thousands of famous international companies operate in off-shore locations to meet the different requirements of multi-national shareholders. What matters is that their operations are registered locally and pay the local taxes according to the law. Being off-shore doesn't imply any negative connotation per se. Murky business can be conducted on-shore or off-shore, as well as inside the country and it's a whole different discussion that doesn't have much to do with issues discussed in the blog.

Submitted by Anne S. Orlando on

We would like to remind Mr. Happi about the World Bank's debacle regarding the financing of the Chad-Cameroon oil pipeline. There again, neither environmental consequences nor human rights (land rights, right to health, to self-determination, etc.) were considered in the decision of building the pipeline. Sir, please visit your native Cameroon today and observe the disaster that is left behind and will remain there for many generations to come...Mining companies do not remediate the land, they just extract and transport the resources leaving the waste behind, leaving forever poisoned waterways, groundwater and a desert.
The Greens Union of Armenia

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