IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA IDA IDA-3754A) ON A CREDIT IN THE AMOUNT OF SDR 23.2 MILLION (US$ 32 MILLION EQUIVALENT)

Transcription

1 Document of The World Bank Report No: ICR2208 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA IDA IDA-3754A) ON A CREDIT IN THE AMOUNT OF SDR 23.2 MILLION (US$ 32 MILLION EQUIVALENT) AND AN ADDITIONAL FINANCING CREDIT IN THE AMOUNT OF SDR 5.3 MILLION (US$ 8 MILLION EQUIVALENT) TO THE REPUBLIC OF MADAGASCAR FOR A MINERAL RESOURCES GOVERNANCE PROJECT December 21, 2012 Sustainable Energy, Oil, Gas, and Mining Unit Sustainable Development Network AFCS4 Africa Region i

2 CURRENCY EQUIVALENTS (Exchange Rate Effective September 30, 2012) Currency Unit = Madagascar Ariary (MGA) MGA 2, = US$1 US$ 1.00 = SDR FISCAL YEAR ` January 1 December 31 ABBREVIATIONS AND ACRONYMS AAA AF AFD APSM ASM BAM BCMM BGN BPGRM CAS CEM CNM CSR DCPE DCA DG DGEM DMG DIR EA EIA EIS EITI EMP FA FDI GIS IBRD ICB ICR IDA IGM ISN ISR LIL M&E MAP Analytical and advisory activity Additional Financing French Development Agency Private Sector Promotion Agency Artisanal and Small-scale Mining Mining Administration Bureau Madagascar Mining Cadastre Bureau National Geological Survey Mineral Resources Governance Data Bank Country Assistance Strategy Mining Environmental Units National Committee on Mines Corporate Social Responsibility Document Cadre de Politique Economique Development Credit Agreement General Director of Mines General Directorate of Energy and Mines Mines and Geology Directorate Regional Directorate Environmental Assessment Environmental Impact Assessment Environmental Impact Statement Extractives Industry Transparency Initiative Environmental Management Plan Financing Agreement Foreign Direct Investment Geographical Information System International Bank for Reconstruction and Development International Competitive Bidding Implementation Completion Report International Development Agency Madagascar Gemology Institute Interim Strategy Note Implementation Status Reports Learning and Innovation Loan Monitoring and Evaluation Madagascar Action Plan ii

3 MEM MRGP MSRP NCB NGO OP OMNIS ONE PAD PDO PPF PIU PP PRSP SAC SAFTE SEA SESA SME TA UPCM USAID WWF Ministry of Energy and Mines Mineral Resources Governance Project Mining Sector Reform Project National competitive Bidding Non Governmental Organization Operational Policy National Office for Mines and the Strategic Industries Office National de l Environnement Project Appraisal Document Project Development Objective Project Preparation Facility Project Implementation Unit Project Paper Poverty Reduction Strategy Paper Structural Adjustment Credit Sub-Saharan African Energy, Transport, and Extractive Industries Sector Environmental Assessment Sector Environmental and Social Assessment Small and Medium Enterprise Technical Assistance Mining Project Implementation Unit United States Agency for International Development World Wildlife Fund Vice President: Makhtar Diop Country Director: Haleh Bridi Sector Manager: Christopher Sheldon Project Team Leader: Remi Pelon ICR Team Leader: Remi Pelon ICR Primary Authors: Dorian Vasse/Sabine Cornelius iii

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5 MADAGASCAR Madagascar Mineral Resources Governance Project Data Sheets A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph Content 1. Project Context, Development Objectives and Design Key Factors Affecting Implementation and Outcomes Assessment of Outcomes Assessment of Risk to Development Outcome Assessment of Bank and Borrower Performance Lessons Learned Comments on Issues Raised by Borrower/Implementing Agencies/Partners Annexes Annex 1. Project Costs and Financing Annex 2. Outputs by Component Annex 3. Economic and Financial Analysis Annex 4. Bank Lending and Implementation Support/Supervision Processes Annex 5. Beneficiary Survey Results Annex 6. Stakeholder Workshop Report and Results Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Annex 9. List of Supporting Documents MAP iv

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7 A. Basic Information Country: Madagascar Project Name: MINERAL RESOURCES GOVERNANCE PROJECT Project ID: P L/C/TF Number(s): IDA-37540,IDA ,IDA-3754A ICR Date: 12/23/2012 ICR Type: Core ICR Lending Instrument: SIL Borrower: REPUBLIC OF MADAGASCAR Original Total Commitment: XDR 23.20M Disbursed Amount: XDR 28.30M Revised Amount: XDR 28.47M Environmental Category: B Implementing Agencies: Ministry of Mines Cofinanciers and Other External Partners: French Development Agency (AFD) The United States Agency for International Development (USAID) B. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 10/24/2001 Effectiveness: 09/22/ /22/2003 Appraisal: 11/25/2002 Restructuring(s): Approval: 05/13/2003 Mid-term Review: Closing: 12/31/ /30/2012 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Borrower Performance: Moderately Satisfactory High Moderately Satisfactory Moderately Satisfactory v

8 C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Moderately Unsatisfactory Quality of Supervision: Moderately Satisfactory Implementing Agency/Agencies: Satisfactory Overall Bank Overall Borrower Moderately Satisfactory Performance: Performance: Moderately Satisfactory C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Performance (if any) Potential Problem Project No at any time (Yes/No): Problem Project at any Yes time (Yes/No): DO rating before Closing/Inactive status: Moderately Satisfactory Quality at Entry (QEA): Quality of Supervision (QSA): None None Rating D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration Mining and other extractive Theme Code (as % of total Bank financing) Decentralization Environmental policies and institutions Micro, Small and Medium Enterprise support Participation and civic engagement State-owned enterprise restructuring and privatization E. Bank Staff Positions At ICR At Approval Vice President: Makhtar Diop Callisto E. Madavo Country Director: Haleh Z. Bridi Hafez M. H. Ghanem Sector Manager: Christopher Gilbert Sheldon Peter A. van der Veen Project Team Leader: Remi Pelon Paulo De Sa ICR Team Leader: Remi Pelon ICR Primary Author: Dorian Vasse vi

9 Sabine Cornelius F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) 1. Strengthen transparency and governance in mining. 2. Promote key institutional reforms for the decentralized management of mineral resources 3. Promote private investments and value-added in the sector. Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s) Indicator Original Target Values (from Baseline Value approval documents) Four Mining Administration Bureaux (BAM) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Indicator 1 : Value quantitative or Qualitative) Date achieved 05/13/ /31/ /29/2012 Comments 50% achieved. 2 mining administration centers were created in the Ilakaka and (incl. % Vatomandry areas, which had experienced frequent rushes of thousands of achievement) sapphire and ruby miners, respectively, prior to the Project. Indicator 2 : Creation of a one-stop shop for exports of gemstones. Value quantitative or Qualitative) No Yes Yes Date achieved 05/13/ /31/ /29/2012 Comments 100% achieved. The one-stop shop is in place and jointly run by Mining and (incl. % Customs administration staff. achievement) Indicator 3 : Collection rate of mining royalty increases as a result of the decentralized tax collection procedure Value quantitative or Qualitative) 10% 80% 97% Date achieved 05/13/ /31/ /30/2012 Comments (incl. % achievement) Indicator 4 : 100% achieved. 97% increase in collection rate throughout the Project thanks to measures like the one-stop shop, but also due to the effect of industrial mining coming on stream Number of Community development plans that include management of mineral resource vii

10 Value quantitative or Qualitative) Date achieved 04/17/ /31/ /30/2012 Comments (incl. % achievement) Indicator 5 : 100% achieved. Project supported the integration of mineral resources and gold and gemstone revenues into 16 local development plan and budgets; and participatory budgeting in 3 communes affected by industrial mining. Decentralization of mining administration increases fiscal revenues from mining for provinces and communes Value quantitative or Qualitative) N/A 50% N/A Date achieved 04/17/ /31/ /29/2012 Comments (incl. % achievement) 100% achieved. National statistics not available, but sample artisanal and industrial mining communes show a range of increases. Budget of the commune of Ampasy Nahampoana near the QMM ilmenite mine multiplied by 22 between 2006 and Annual declared exports of gold and gemstones from small scale mining increase Indicator 6 : Value quantitative or Qualitative) Date achieved 04/17/ /31/ /30/2012 Comments 30% achieved. Value of exports rose from US$18 million in 2003 to US$40 (incl. % million in Exports decreased following the 2008 ban on rough stones achievement) exports and increased after ban was lifted in Indicator 7 : Average annual investments in mining increase Value quantitative or Qualitative) US$10 Million US$85 Million US$ 2.9 b Date achieved 05/13/ /31/ /29/2012 Comments (incl. % achievement) 100% achieved. Last official figure available is the 2.9 billion investment in 2009 (Central Bank), but cumulative investments from QMM & Ambatovy from 2006 to 2012 have reached more than US$ 6.5 billion (companies' sources). (b) Intermediate Outcome Indicator(s) Indicator Original Target Values (from Baseline Value approval documents) Special regime for gemstones viii Formally Revised Target Values Actual Value Achieved at Completion or Target Years Indicator 1 : Value (quantitative no yes yes or Qualitative) Date achieved 04/17/ /31/ /30/2012 Comments 100% achieved. New regime constituted by: i) smaller mining squares size; ii) (incl. % artisanal miners associations; iii) one-stop-shop; v) steps taken to transfer mining achievement) title allocation for small entrepreneurs to local authorities.

11 Indicator 2 : BAM created in four target areas. Value (quantitative or Qualitative) Date achieved 04/17/ /31/ /30/2012 Comments (incl. % achievement) 50% achieved. 2 BAM created, 3,000 artisans trained, 100 cooperatives formed, local authorities and communities trained in 30 communes. Pilots fulfilled their role and informed formulation of ASM regulations. Indicator 3 : Creation of small exchanges and quality control of gemstones and one-stop shop for the export of gemstones. Value (quantitative or Qualitative) Most is informal no Fully Achieved Date achieved 04/17/ /31/ /30/2012 Comments (incl. % achievement) Indicator 4 : 100% achieved. Gemology Institute created with international certification. 260 exchange market days. Quality control, certification and export control capacity created. One-stop-shop and streamlined export procedures. Collection of mining taxes rising from an average of 10 % in 2000 to 80% by 2008 Value (quantitative or Qualitative) No Yes yes Date achieved 04/17/ /31/ /29/2012 Comments (incl. % achievement) Indicator 5 : 100% achieved. 97% of expected royalties based on number of "laissez passer" issued (for formal artisanal mining) and on projected production (industrial mining) are collected. Training and certification of small scale miners in modern gem processing techniques. At least 20 individuals certified each year of project implementation. Value (quantitative or Qualitative) No yes yes Date achieved 04/17/ /31/ /29/2012 Comments (incl. % achievement) Indicator 6 : 100% achieved. 195 miners trained by Gemology Institute. Capacity built of local authorities and communities in 55 communes, and 409 administration staff involved in mining; 12 Masters and 8 PhDs at French universities. - Six Environmental Units established in the Provinces. - SESA completed by the mid-term review. - Four studies completed in the pilot regions by project end. Value (quantitative or Qualitative) Fully Achieved Date achieved 12/31/ /31/2008 Comments (incl. % achievement) 100% achieved. 1 central and 6 decentralized Units created. SESA at inception and updated Project Environmental and Social Management Plan updated in studies conducted in pilots regions Indicator 7 : Declared exports of Gold and gemstones at US$ 50 million by 2008 Value (quantitative N/A n/a ix 60% Achievement (80% achievement

12 or Qualitative) before the crisis) Date achieved 04/17/ /31/ /30/2008 Comments (incl. % achievement) US$40 million in 2006 (80% achieved). Decrease after 2008 ban on rough stones exports (US$ 12 million). Recovery started after lifting of ban in US$ 30 million expected in 2012 (60% achievement) Indicator 8 : Percentage of Value added to gemstones in the country. Value (quantitative or Qualitative) N/A +50% Possibly 100% Date achieved 04/17/ /31/ /29/2012 Comments (incl. % achievement) Indicator 9 : Value (quantitative or Qualitative) Possibly 100%. No data available. Informal observations only: the increasing number of jewelry and gemstones shops in Antanarivo, when there was very few before. 100 new businesses were created by Gemmology Institute's graduates. Backlog of overdue application not exceeding 5% of all permits. N/A 5% 30% achieved. Date achieved 04/17/ /31/ /29/2012 Comments (incl. % achievement) 30% backlog in April If Madagascar mining cadastre was a model in Africa until the political crisis and permits allocated relatively efficiently, it currently suffers from a de facto moratorium imposed on permit allocations. Indicator 10 : Territorial conservation practices in small scale mining areas. Restitution of previous environmental conditions after the end of mining exploration period. Value (quantitative or Qualitative) No Yes Partially achieved Date achieved 05/13/ /31/ /31/2006 Comments (incl. % achievement) Indicator 11 : 70% achieved. Substantial progress: i) legal provisions make rehabilitation plans a mandatory environmental requirement of permit allocation, and ii) improvement of practices in pilots areas (3,000 artisanal miners trained). Added at Additional Financing approval. No later than 18 months after date of effectiveness, updated hydrocarbons law and regulations, addressing environmental concerns prepared in line with international practice and a draft law submitted to Parliament Value (quantitative or Qualitative) no yes Not applicable Date achieved 08/31/ /28/ /29/2012 Comments (incl. % achievement) Indicator 12 : Not applicable. Indicator pertains to Govt. of Norway's parallel financed Oil for Development project. IDA successfully facilitated policy dialogue before 2009, which led to widely discussed and advanced draft hydrocarbon law. Added at Additional Financing approval No later than 18 months after date of effectiveness, the fiscal framework for mining, including large scale investments, has been reviewed to include adjustments to optimize fiscal revenues. Value (quantitative or Qualitative) no yes Partially achieved Date achieved 08/31/ /28/ /29/2012 x

13 Comments (incl. % achievement) Indicator 13 : 50% achieved. Comprehensive assessment of fiscal framework for mining conducted. Political crisis prevented passage of act and adoption of reforms but detailed legal and fiscal analysis provides valuable guidance to Government. Added at Additional Financing approval. No later than 18 months after date of effectiveness, methodologies to control ASM rushes and to manage conflicts between ASM activities and protected areas have been developed and ready for implementation. Value (quantitative or Qualitative) no yes yes Date achieved 08/31/ /28/ /29/2012 Comments (incl. % achievement) Indicator 14 : 100% achieved. ASM policy recommendations and toolkit for rush management produced in 2012 with strong focus on mining in or near protected areas. Recommendations are practical and implementable at relatively low cost. Added at Additional Financing approval. Within 24 months from the date of effectiveness, the National Geological Survey and the integrated sector data bank and information systems have been established and are operative. Value (quantitative or Qualitative) no yes Partially achieved Date achieved 08/31/ /31/ /29/2012 Comments (incl. % achievement) Indicator 15 : 50% achieved. Mineral Resources Governance Database, the core element of National Geological Survey was set up. Survey was not formally institutionalized, but comprehensive feasibility study undertaken in Added at Additional Financing approval. No later than by December 2009, financial mechanisms for long term sustainability of mining institutions have been established and are operative. Value (quantitative or Qualitative) no yes Partially achieved Date achieved 08/31/ /31/ /29/2012 Comments (incl. % achievement) 50% achieved. Sustainability studies for National Geological Survey, Mining Inspectorate, Madagascar Gemology Institute completed and recommendations produced. No immediate decisions taken because of Transition Government. G. Ratings of Project Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements (USD millions) 1 11/20/2003 Satisfactory Satisfactory /09/2004 Satisfactory Satisfactory /14/2004 Satisfactory Satisfactory /02/2004 Satisfactory Satisfactory /19/2005 Satisfactory Satisfactory /26/2006 Satisfactory Satisfactory /20/2006 Satisfactory Satisfactory xi

14 8 07/31/2007 Satisfactory Satisfactory /18/2008 Satisfactory Satisfactory /15/2008 Satisfactory Satisfactory /29/2009 Satisfactory Satisfactory /29/2009 Moderately Satisfactory Moderately Unsatisfactory /28/2010 Moderately Moderately Unsatisfactory Unsatisfactory /22/2010 Moderately Moderately Unsatisfactory Unsatisfactory /26/2011 Moderately Satisfactory Moderately Satisfactory /12/2012 Moderately Satisfactory Moderately Satisfactory H. Restructuring (if any) Not Applicable I. Disbursement Profile xii

15 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal 1. Country context. At the time of Project appraisal, Madagascar was one of the poorest countries in the world with an annual per capita income of US$260 in 2002, nearly 70 percent of the population in poverty and nearly half of the children malnourished (Project Appraisal Document, World Bank, 2003e, henceforth cited as PAD). Between 1997 and 2001, following decades of economic stagnation and downturn the country had sustained four years of positive real growth and low inflation, and the public deficit was under control. However, following the contested first-round of elections in December 2001, Madagascar plunged into a deep political crisis at the beginning of 2002, which had a significant negative impact on national income for 2002, in the form of foregone direct investments, physical destruction, and losses resulting from the cessation of tourism, transport, export processing industries, and mining activities (PAD). At the time of appraisal, Madagascar showed signs of a promising new beginning under the newly elected Government of President Ravalomanana, which embarked on unprecedented public sector and governance reforms in order to gain the confidence of private investors. 2. Sector background. Madagascar is richly endowed with minerals and precious stones, such as sapphire and rubies. At the time of appraisal, 2,300 mining operators were active in the sector, generating employment for about 100,000 miners and seasonal employment for an additional 500,000 workers (PAD, p. 3). Between 1996 and 2000, the value of official mining exports, mostly of precious stones, had more than doubled from US$16 million to US$37 million. However, poor governance and corruption discouraged formal investments and led to the smuggling of precious stones out of Madagascar with very little value added created in the country (PAD, p. 3). The value of illegally trafficked precious stones was estimated to be in the US$ million range, at the time equivalent to 10 percent of GDP per year. In addition to most of the artisanal and small-scale mining being conducted outside the formal channels, a series of mining rushes in gemstone mining exacerbated social conflicts, environmental damage, and the substantial loss of fiscal revenues. At the time of appraisal, the Government thus considered formalizing mining operations a key step towards improving internal revenue generation in Madagascar, which, in turn, was considered a key prerequisite to financing anti-poverty and service provision programs (PAD, p. 4). 3. Rationale for Bank assistance. At the time of Project approval, the World Bank had been: (i) the leading provider of technical assistance in mining countries in Africa and Latin America and a contributor to the significant expansion of mineral activities on both continents; and (ii) the prime supporter of mineral sector reforms in Madagascar through the Bank-funded Mining Sector Reform Project (MSRP). This Learning and Innovation Loan (LIL), implemented between January 1999 and December 2002, succeeded in establishing an investor-friendly legal and regulatory framework, including mining-related environmental regulations; and a Mining Cadastre, which was a major milestone as it awarded and managed mining rights in a transparent and non-discretionary way. As a result of these successful sector reforms, along with its involvement in other related operations, the World Bank was uniquely positioned to support the Government in addressing persisting institutional constraints, such as: (i) the lack of capacity to enforce the new mining code, considered a prerequisite to integrating artisanal and small-scale mining into the formal economy; (ii) serious governance issues in the management of mineral resources, notably the mining of gold and gemstones, at the sub-national level; and (iii) limited availability of geological information which hindered private investments in the sector. The Bank s involvement was further expected to play a catalytic role in attracting additional support from bilateral Development Partners. The Mineral Resources Governance Project (henceforth 1

16 referred to as the Project ), which built on the achievements and lessons learned from the LIL (see Section 2.1), represented one of the priority instruments in the Government s post-crisis recovery strategy. 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 4. The Project Development Objective (PDO) as stated in the main body of the Project Appraisal Document (PAD) and the Development Credit Agreement (DCA) 1 was: to assist the Government of Madagascar in implementing its strategy to accelerate sustainable development and reduce poverty in Madagascar through the strengthening of governance and transparency in the management of mineral resources, with special emphasis on small-scale and artisanal mining (PAD, p. 2). The wording of the development objectives in the Project Design Summary in Annex 1 of the PAD differs substantially from that in the main text of the PAD: 1) Strengthening transparency and governance in mining; 2) Key institutional reforms for the decentralized management of mineral resources; and 3) Promote private investments and value-added in the sector. The development objectives in the Additional Financing (AF) Project Paper (PP) (World Bank, 2007b, henceforth cited as AF PP) were the same three PDOs as the ones stated in Annex 1 of the PAD. The assessment of the Project s performance in this ICR will be based on the three PDOs and Key Performance Indicators listed in Annex 1 of the PAD, given that: (i) the Project Design Summary in Annex 1 was an integral part of the Board-approved PAD; (ii) the Boardapproved Additional Financing Project Paper cited them as the original Project objectives that would remain unchanged under the Additional Financing (AF PP, p. 2); (iii) and they are more focused on outcomes for which the Project could reasonably be held accountable, compared to the higher level objectives of accelerating sustainable development and reducing poverty stated in the main text of the PAD, DCA and Financing Agreement for the Additional Financing. Table 1 below shows the PDOs and related Outcome/Impact indicators as defined in Annex 1 of the PAD. Table 1: Original PDOs and Outcome Indicators (PAD, p. 28f.) Project Development Outcome/Impact indicators Objectives PDO 1: Strengthening 1. Four BAM (Mining Administration Bureaus) created. transparency and governance in 2. Creation of a one-stop shop for exports of gemstones. mining PDO 2: Key institutional reforms for the decentralized management of mineral resources PDO 3: Promote private investments and value-added in the sector 3. Collection rate of mining royalty increases from 10% today and 80% at the end of the project, as a result of the decentralized tax collection procedure. 4. Number of Community development plans that include management of mineral resource (minimum of 10); 5. Decentralization of mining administration increases fiscal revenues from mining for provinces and communes by 50% 6. Annual declared exports of gold and gemstones from small scale mining increase from about US$ 21 million today to US$ 50 million at the end of the project. 7. Average annual investments in mining increase from about US$ 10 million today to US$ 85 million at the end of the project. 1 The exact wording in the DCA was: to assist the Borrower in the implementation of a strategy designed to accelerate sustainable development and reduce poverty in Madagascar through the strengthening of governance and transparency in the management of mineral resources, with special emphasis on small-scale and artisanal mining (DCA, Schedule 2, p. 15). The wording of the first part of the PDO in the Financing Agreement (FA) for Additional Financing (AF) was: to assist the Recipient in the further definition and implementation of a strategy (FA for AF, Schedule 1, p. 6). 2

17 1.3 Revised PDO and Key Indicators, and reasons/justification 5. The PDOs were not revised. At the time of approval of the Additional Financing Credit (IDA Credit ) in 2007, 13 new indicators, comprised of nine mining-related, and four petroleumrelated indicators, were proposed in the Additional Financing Project Paper to measure the Project s performance in relation to its expanded scope of expected outcomes (AF PP, p. 13). The Financing Agreement (FA) for the Additional Financing contained five of these as performance indicators (FA, p. 10), which were primarily output indicators. Given that the Financing Agreement was the legally binding of the two documents, the assessment of the Project s performance will include the five (intermediate results) indicators listed in the Financing Agreement. The purpose of the Additional Financing was to finance additional activities, within the existing Project components, in order to respond to the surge of large-scale mining projects and oil exploration in Madagascar at the time (PP for AF, p. 4). 6. The additional performance indicators, comprised of four mining-related and one petroleumrelated indicator were (FA, Schedule 2, p. 10): (i) No later than 18 months after the date of effectiveness, updated hydrocarbons law and regulations, also addressing environmental concerns have been prepared in line with of international practice, and a draft law has been submitted to the Parliament. (ii) No later than 18 months after the date of effectiveness, the fiscal framework for mining, including large scale investments, has been reviewed to include adjustments to optimize fiscal revenues, while maintaining a competitive edge to investments, and a draft law has been submitted to the Parliament. (iii) No later than 18 months after the date of effectiveness, methodologies to control ASM rushes and to manage conflicts between ASM activities and protected areas have been developed and are ready for implementation at central and decentralized level; (iv) Within 24 months from the date of effectiveness, the National Geological Survey and the integrated sector data bank and information systems have been established and are operative; (v) No later than by December 2009, financial mechanisms for long term sustainability of mining institutions have been established and are operative. 1.4 Main Beneficiaries 7. The Project s main beneficiaries included: Government agencies, who were to benefit from activities aimed at strengthening their capacity to implement the new mining-related legal and regulatory framework; Public mining agencies at provincial, municipal and communal levels, who were to benefit from training aimed at making the administration of mining rights more efficient and the enforcement of mining-related regulations more effective; Private foreign and domestic mining investors, who were to benefit from the nondiscretionary award of mining rights, security of tenure, and the accurate geological location of concessions; Gemstones cutters and polishers, who were to benefit from an enhanced capacity to add value to Gemstones locally and from improved access to markets ; Gemstone buyers and exporters, whose businesses were to benefit from improved export, certification and control procedures; 3

18 Artisanal miners, who were to benefit from improved awareness of mining regulations, environmentally more benign technologies, and occupational health and safety precautions, as well as from enhanced access to mining titles and markets; Local Mining Communities, who were to benefit from improved access to health and education services as well as basic infrastructure as a result of a better regional distribution and local generation and use of mining-related revenues. Madagascar s population in general, which was to benefit from improved protection from mining-related environmental damage and the enhanced provision of basic infrastructure and social services as a result of increased mineral sector tax/royalty revenues. 1.5 Original Components (as approved) 8. The Project comprised the following four components (PAD, pp. 8ff.): Component 1: Strengthening transparency and governance in mining (US$ 6.22 million, about 16 percent of total Project cost at appraisal) was to support measures to improve governance in the management of mineral resources, with particular focus on curbing gemstone smuggling in the artisanal and small-scale mining sub-sector. Activities under Component 1 included reforming the mining sector's legal and regulatory framework; supporting the establishment of decentralized mining administration offices close to exploitation sites; and creating a program for the certification and quality control program of gemstones, including a one-stop shop for gemstone exports and gemstones exchanges with specific focus on strengthening private sector associations. Component 2: Key institutional reforms for the decentralized management of mineral resources (US$ 8.63 million, about 22 percent of total Project cost at appraisal) were to advance the decentralized management of mineral resources through re-organizing and strengthening public mining agencies at the provincial and communal levels, and by empowering communities to play an active role in the management of mineral resources. The Project was to create six provincial-level offices aimed to oversee the environmental management of mining titles at the provincial level, extend access to cadastre information to the municipal level, and pilot decentralized tax collection in ten communes. Component 3: Promoting private investments and value-added in the sector (US$ million, about 52 percent of total Project cost at appraisal) was to entail the creation of a Mining Sector Promotion Agency (Agence de Promotion du Secteur Minier) and the strengthening of geo-scientific information though airborne geophysical surveys, geological and geochemical mapping and associated Data Bank to attract private sector investment. Furthermore, this Component was to improve the Government s capacity to coordinate interventions related to artisanal and small-scale mining, including certification procedures, administration of a small grants program, dissemination of information, environmental management, and extension services. Component 4: Project coordination and management (US$ 2.67 million, about 7 percent of total Project cost at appraisal) was to support the existing Project Implementation Unit (PIU) responsible for the day-to-day management of Project implementation, including procurement, financial management, reporting, monitoring and evaluation, coordination of Project activities with the Steering Committee and other public entities. 4

19 Figure 1: Original IDA-funding by Project component Component 1 Component 2 Component 3 Component 4 PPF 1.6 Revised Components 9. The Components were not revised. 1.7 Other significant changes 10. Changes in Implementation Schedule. The Project was approved by the World Bank s Board of Directors on May 13, 2003 and became effective on September 22, Its closing date was extended twice, by a total of 42 months (3.5 years): (i) from its original December 31, 2008 closing date to December 31, 2010 in conjunction with the approval of an Additional Financing credit on April 23, 2007 (without restructuring) by the World Bank s Board of Directors to assist the Government of Madagascar in [the] continued sustainable management and good governance of the mineral resources (PP for AF, p. 3), and to coincide with the Additional Financing credit s closing date; and (ii) through June 30, 2012 (without restructuring) per approval by the Vice President of the World Bank s Africa Region in October Changes in funding allocation. The project was financed by an IDA credit in the amount of US$32 million equivalent, and an Additional Financing IDA credit in the amount of US$8.0 million equivalent was approved in April The Government was to provide a counterpart contribution in the amount of US$4.45 million to the original IDA credit, and in the amount of US$0.8 million to the additional IDA credit. The purpose of the latter was to finance: (i) additional/scaled up activities to be carried out within the realm of the original components (see paragraphs 12 and 13 and activities highlighted in italics in Table 2 below) in order to increase Project impact and to meet the Government s expanded focus to include large scale mining and broader objectives for the extractive industries (PP for AF, p. 3); and (ii) cost overruns. 12. Under Component 3, the actual contract value for the airborne survey exceeded the budget estimate by US$1.63 million (see Section 3.3), mostly due to increases in fuel prices as well as commodity prices as a result of risen demand for services associated with the exploration boom in the industry globally (Reallocation Memo, December 7, 2007). Furthermore, additional geological and geochemical analyses had to be conducted to harmonize the work and interpretations provided by the three main geological survey contractors covering the country. Under Component 4, operational expenses exceeded original forecasts mainly because of the three and a half year extension of the Project duration (see Section 3.3) as well as the internalization of the set up and operational costs of key institutions, such as the Gemology Institute of Madagascar, the Mineral Resources Governance Data Bank and the Large-Scale Mining Investment Commission whose attainment of autonomy and financial independence took longer than expected. 5

20 Figure 2: Summary of estimated Component costs for Original and Additional Financing Additional Financing Initial Credit 13. Changes in the scope and scale of planned activities. The originally identified Project activities addressed overall mineral sector issues, with a clear focus on support to the artisanal and small-scale mining (ASM) sub-sector, in accordance with Government priorities at the time of Project approval. However, in order to respond to the new development of large-scale mining projects in Madagascar, the sector strategy was adjusted in 2005, which necessitated an adjustment of Project activities. The additional activities added a different yet complementary layer to the original Project scope in pursuit of the same PDOs as under the original credit. In addition, in response to increasing oil prices, oil exploration in Madagascar had increased sharply. The extractive industry s institutional structure thus faced more pressure overall and, in spite of earlier successful reforms, required more comprehensive integration, in line with the Madagascar Action Plan (MAP), which represented the Government s development strategy for As shown in Table 2 below, the following activities were added to the original scope of activities under the existing components under the Additional Financing: Component 1 was expanded to include further reforms of the policy, legal and regulatory framework, including adjustments to the mining code, fiscal reforms, and the introduction of the Extractives Industry Transparency Initiative (EITI). Component 2 was expanded to support additional institutional reforms needed to improve the public mining agencies governance and management capacity, including environmental management skills related to large and small-scale mining. Component 3 was to be reinforced through activities aimed at strengthening mining entities and agencies that fell under the responsibility of the Ministry of Mines. A National Geological Survey entity and a Mineral Resources Governance Data Bank were to be set up, and the Geological and Mining Information System was to be enhanced. 6

21 Table 2: Original and Additional Financing: Estimated total cost by Project Component Project Components and Sub-Components To be funded under Original Credit* (US$ million) To be funded under Additional Financing Component 1: Strengthening Transparency and Governance in mining Adjustment of the sector's legal and regulatory framework Support to decentralized management of mineral resources Program for the certification and quality control of Gemstones Strengthening of private sector associations Policy, Legal and Regulatory framework reforms 0.42 Component 2: Key institutional reforms for the decentralized management of mineral resources Institutional adjustment and capacity building of the decentralized public mining institutions Training program Communication campaign Set-up of an Intranet and Internet network within the mining administration Support to integration of large-scale mining projects into regional development 2.6 Management of potential conflict between environmental protection and large /small-scale mining Improved governance and management capacity of small-scale mining activities Component 3: Promoting private investments and value-added in the sector Assistance to the creation of a Mining Sector Promotion Agency (APSM) Strengthening of Geo-scientific Information Infrastructure Institutional restructuring and strengthening of the extractive industries public sector under the Ministry of Mines 1.30 Component 4: Project Coordination and Management Allocation under original Credit 2.67 Allocation under Additional Financing Credit 0.6 PPF(Project Preparation Facility) 0.95 Contingencies 1 Total Baseline Cost * Estimated Project cost comprised IDA financing, Government counterpart funding and parallel financing from USAID and the French Agency for Development (PAD, p. 1) Parallel financing and partnership arrangements. According to the PAD (p. 1), parallel financing was anticipated from the French Agency for Development (US$1.2 million) to support the geological mapping of one of the initially defined blocks, and from the US Agency for International Development (USAID) (US$1 million) to support the provision of equipment and capacity building for the Gemology Institute of Madagascar. In addition, the Government of South Africa provided US$0.5 million in parallel financing to support the expansion of the scope of the geological mapping to additional blocks. The latter was not foreseen at the time of appraisal and thus not included in the PAD. 7

22 16. In light of the Government s broadened focus on the extractive industries agenda, as documented in the 2007 Additional Financing Project Paper, the Bank coordinated with the Government of Norway, which was to provide US$5 million (NOK36.1 million) in parallel financing to improve the legal and regulatory framework and strengthen institutional capacity pertaining to Madagascar s petroleum resources (Aide Memoire (AM), July 2008 mission). The Norwegian parallel financing became effective in However, following the unconstitutional regime change in March 2009, the Government of Norway suspended its operations in Madagascar, which it did not resume. 17. Changes in implementation arrangements. Given that the implementation arrangements under the original credit proved to be effective, as evidenced by the fact that implementation had been progressing well and that the Project was in compliance with all fiduciary requirements, they remained the same under the Additional Financing credit. The Project Implementation Manual was updated to reflect the additional activities to be funded from the Additional Financing credit; a separate procurement plan was prepared and approved by the Bank; and the Project s chart of accounts was reviewed to reflect the new activities outlined in the Project Paper to satisfy reporting requirements under the Additional Financing (PP for AF, p.11). 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry 18. Project Preparation. For the most part, the PAD correctly identified the prevailing conditions in Madagascar s mining sector. As consistently stated in the PAD, the key sector issues were persistent governance problems and the lack of capacity to effectively manage the dynamism and complexity of informal small scale mining at the provincial and commune level, notably the rushes in the gemstone area and the smuggling of gemstones out of the country (PAD, pp. 3ff.). Given the second PDO s focus on the decentralized management of mineral resources, particularly the tax collection at the provincial level (PAD, p. 9) the PAD could have contained a more detailed analysis of the state of decentralization at the time of appraisal. An Environmental Management Plan, which was prepared and disclosed in 2002, contained an appropriate analysis of the judicial, institutional, operational and financial constraints to the effective environmental management of the mining sector (GLW, 2002). 19. Incorporation of lessons learned. Project design incorporated lessons learned from the Banksupported Mining Sector Reform Project, which closed in 2002, such as: (i) new sector regulations can only be enforced if governance issues and institutional shortcomings are addressed concurrently; (ii) pilot operations are crucial to identifying viable ways of improving governance when baseline data and institutional capacity are lacking; and (iii) beneficiary participation in all phases of the Project cycle is critical for timely and effective implementation (PAD, p. 16). Furthermore, lessons learned from the Bank s experience with capacity building in the mining sector in other parts of Africa (including Algeria, Burkina Faso, Ghana, Guinea, Mali, Mozambique and Tanzania) and in Latin America were incorporated into Project design. Experiences in these countries have shown that enacting the necessary legal, fiscal and environmental policies and establishing strong mining institutions to enforce them are key prerequisites for a country to attract and retain significant private investment (PAD, p. 16). 20. Assessment of Project objectives, design and components. The Project s PDOs, components and proposed activities were highly relevant at the time of appraisal. The Project represented one of the priority instruments in the Government s post- (2002) crisis recovery strategy. With its focus on the promotion of private sector growth as well as on curbing illegal mining activities the 8

23 Project was to avert a crisis-induced withdrawal of private investment and preempt delays in the establishment of good governance in the mining sector (World Bank, 2002, p. 7). The Project s development objectives directly targeted two of the three axes of the Government s 2003 Poverty Reduction Strategy Paper (PRSP): (i) the creation of an institutional framework of good governance to foster fast, sustainable and inclusive development; and (ii) the revitalization of the private sector and promotion of the development of high potential growth sectors (World Bank, 2003d). 21. The Project also featured prominently in the Bank s Interim Country Assistance Strategy (I-CAS) as a new lending instrument (World Bank, 2002, p. 12) aiming to support the Government s efforts to improve governance and reduce corruption in the high growth potential mining industry. Furthermore, the Project s development objectives were fully aligned with the objective of the Bank s subsequent CAS, which was to support the Government s PRSP efforts of improving governance - considered the best way to support poverty reduction in Madagascar (PAD, p. 3). The PDOs continued relevance was confirmed during the Project s Midterm Review. While the PDOs could have been defined more concisely, it was laudable that, unlike many Projects of its generation, the PDOs stated in the Results framework were clearly distinguished from higher-level objectives beyond the purview of the Project, such as poverty reduction. 22. The Project s design was relevant to its objectives, as the components and activities were consistent with what was internationally considered a good practice approach at the time of appraisal. While the PAD did not specify a particular theory of change upon which Project design was based, it was noted that it implicitly anticipated the World Bank s value chain approach for supporting extractive industries, which since then has marked the evolution from the emphasis on merely increasing investment to promoting environmentally and socially sustainable development (McMahon, 2010). A minor shortcoming of the otherwise sound Project design was the fact that the Support to Decentralized Management of Mineral Resources sub-component of Component 1 could have been more clearly delineated from and linked with related activities under Component 2, which also aimed to strengthen the decentralized management of mineral resources. Project design would have benefited from a more prominent gender-sensitive approach to small-scale mining, given that the PAD only vaguely mentioned that the Project will also address gender and infant labor issues in artisanal mining without specifying how (PAD, p. 14). 23. Innovative Project design. Project design was innovative and inspirational for similar operations in other sub-saharan countries. Whereas traditionally most technical assistance projects tended to approach the mining sector from a national and central point of view, the Project put a lot of emphasis on the decentralized management of mineral resources, which turned out to be a successful strategy in Madagascar and other countries with similar projects. The piloting of a range of approaches to address challenges associated with artisanal mining, including formalization and value addition in the supply chain, which may now be regarded as almost common was very creative at the time of project preparation. 24. Implementation arrangements. Implementation arrangements were appropriately designed. The Project was housed in the Ministry of Energy and Mines (MEM), and the existing Project Implementation Unit (PIU), which had successfully managed the implementation of the Project s predecessor operation, was to be responsible for the procurement of all goods, services, and works under the Project (PAD, p. 14). In addition, a Mining Sector Promotion Agency was to be established within the Ministry of Mines to promote private investment and mainstream pilot activities in the artisanal and small-scale mining (ASM) sector (including operating the small grants program). The Promotion Agency was ultimately intended to provide business 9

24 development services to entrepreneurs, as well as social intermediation services to build social capital and basic skills in Project-supported communities (PAD, p. 13). 25. Adequacy of Government commitment. Borrower commitment was evidenced by the fact that the mining sector was considered a priority instrument in the Government s Interim-PRSP (PAD, p. 18) and by the successful implementation of the Project s predecessor operation, the Mining Sector Reform Project. The Government demonstrated commitment to sector reforms throughout this Project s implementation period and also reacted promptly to mitigate the negative impact of the rushes on gemstones (MSRP ICR, p. 12). Furthermore, the Government s ability to meet all of the mining related conditions of the Second Structural Adjustment Credit, and the seriousness of its participation in the preparation of the Project are indications of Government commitment (PAD, p. 18). 26. Stakeholder involvement and participatory process. Recognizing the importance of beneficiary participation for timely and effective Project implementation was one of the key lessons learned from the Project s predecessor operation. Multiple stakeholder groups, which had been involved in the implementation of the previous Project, also participated in the preparation of this Project. These included the National Council of Mines, small-scale and artisanal miners and mining associations which were to be directly associated with Project preparation through the creation of a Consultative Committee. NGOs and private firms who had participated in the predecessor project were to be involved in the discussion of environmental and social issues. It was noted that consultation on environmental and social issues, which was mandatory under the 2002 mining law, was to be a permanent feature of the Project (PAD, p. 23). Formal consultations began with the disclosure of the Environmental Management Plan in October Associations of small-scale miners, civil society, private mining companies and representatives of the central, provincial and municipal administration, and consultations with local NGOs took place during Project appraisal (PAD, p. 23). 27. Assessment of Risks. Overall, the list of identified risks was comprehensive and the risk ratings, including the Significant overall risk rating, were appropriate. However, the country risk, especially in a post-crisis time, was probably underestimated. 2.2 Implementation 28. Mid-term review. During the time period between Project effectiveness in September 2003 and the Midterm Review, which was conducted in February 2006, implementation progress and progress towards achievement of the development objectives had consistently been rated Satisfactory in supervision reports. The Project had achieved particularly good results with regard to the establishment of the Gemology Institute of Madagascar and in strengthening geological information (MEM, p. 7). At the time, 44 percent of IDA funds had been disbursed and 90 percent had already been committed. Therefore, no changes were made to the Project s development objectives. The Midterm Review did, however, prepare the way for the Additional Financing in that it emphasized the promotion of large-scale mining as a priority in addition to improving governance in artisanal and small-scale mining. This was motivated by the decision made by Rio Tinto/QMM in August 2005 to invest US$800 million 2 (AM, September 2005 mission), and the global increase in commodity prices. The Midterm Review also identified the need for financing to support the Government s efforts in reforming and promoting the petroleum sector, in addition to the ongoing mining sector reforms. 2 As it turned out, one billon US$ was eventually needed. 10