Document of The International Development Association Acting as Administrator of thie Interim Trust Fund

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1 Public Disclosure Authorized Document of The International Development Association Acting as Administrator of thie Interim Trust Fund Report No BUR Public Disclosure Authorized Public Disclosure Authorized STAFF APPRAISAL REPORT BURKINA FASO MINING SECTOR CAPACITY BUILDING AND ENVIRONMENTAL MANAGEMENT PROJECT May 29, 1997 Public Disclosure Authorized Africa Region

2 CURRENCY EQUIVALENTS (as of December 1996) Currency Unit = CFA franc US$1 = 500 CFA franc I CFA franc = US$0.002 WEIGHTS AND MEASURES Metric, unless otherwise noted ABBREVIATIONS AND ACRONYMS BUMIGEB - Bureau of Mines and Geology of Burkina Faso CBMP - Comptoir Burkinabe des Metaux Precieux CE/MEM - Environmental Unit in Ministry of Energy and Mines CNM - National Commission of Mines CONAGESE - National Council for Environmental Management CS - Steering Committee DCMP - Central Directorate of Public Procurement DGCOOP - Directorate General of International Cooperation DG - Directorate of Geology DGEF - Directorate General of Water and Forests DGH - Directorate General of Hydrology DGI - Directorate General of Taxation DGMG - Directorate General of Mines and Geology DGPE - Directorate General of Environmental Preservation EC - European Commission EIS - Environmental Information System ENAREF - National School for Financial Administration FDM - Mining Development Fund MEF - Ministry of Economy and Finance MEW - Ministry of Environment and Water MEM - Ministry of Energy and Mines NEAP - National Environmental Action Plan SNIST - National System of Earth Science Information SOREMIB - Societe de Recherche et d'exploitation Miniere du Burkina Faso SYSMIN - Mining Fund of the European Union FISCAL YEAR January 1 - December 31 Vice President: Country Director: Technical Manager: Task Team Leader: Jean-Louis Sarbib Serge Michailof Peter Van der Veen Craig Andrews

3 BURKINA FASO MINING SECTOR CAPACITY BUILDING AND ENVIRONMENTAL MANAGEMENT PROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS Page No. CREDIT AND PROJECT SUMMARY... i 1. INTRODUCTION.1 2. THE MINING SECTOR.4 Geological Potential and New Foreign Investment.4 Performance of the Sector.5 3. INSTITUTIONAL AND LEGISLATIVE ASPECTS.8 Mining Policy and Strategy.8 Legislative Framework Pertaining to Mining.9 Taxation and Mine Investment Code.10 Mining Sector Institutions.11 Environmental Management THE BANK'S EXPERIENCE IN BURKINA FASO.14 IDA Lending to Burkina Faso.14 Lessons Learned from Other IDA Supported Projects.14 Bank Involvement in Mining in Burkina Faso and Other Countries PROJECT DESCRIPTION.17 Project Objectives and Overview.17 Detailed Description of Project Components.18 Project Cost, Administration and Implementation.23 Implementation BENEFITS, RISKS AND SUSTAINABILITY OF PROJECT.28 Benefits.28 Risks.31 Sustainability AGREEMENTS AND CONDITIONALITIES.32 Performance Indicators.34

4 LIST OF TABLES 2.A Evolution of Burkina Faso Gold Production B Comparative Indicators of Gold Mining A Cost Estimates B Financing Plan C Summary of Proposed Procurement Arrangements D Allocation and Disbursement Categories A Projected Contribution of Mining ANNEXES A. Mining and Environment Institutional Structures B. Project Cost Estimates and Financing Plan C. Monitorable Performance Indicators D. Procurement Arrangements E. Estimated Schedule of Disbursements F. Table of Contents of Implementation Manual G. Supervision Plan H. Government Letter of Sector Development Policy I. Map of Mining Titles in Force J. Projections of Contribution to Economy from Mining K. Market Evolution for Gold, Zinc, and Manganese L. Artisanal Mining M. Review of Legislative Constraints in the Mining Sector N. Burkina Faso Mining Sector MAP IBRD NO Thi report is based on thefindngs f a pre-appraisal mission to Burkina Faso in Dec. 1993, and an appraisal mission In Ianh/Fb The appraisal mission comprised of Messrs. Craig Andrews (k Manager, Senior Mining )IENIM Indu Hewawasam (Operations Officer) AFTI and Gotthard Walser (Geologist) IENI. Mr. Leo Maraboll ainm acted as Lead Adviserfor the project and Mesirs. John Barton-Bridges, (MfD, andarogermercier,(aftei),actedaspeerreviewersfortheproec Secretarialand admb,inritive s wpport was provided by Lillana Cruz de Kostner, Sr. Staff Assistant, (IENIM). Mr Serge MIchaofIs the Count Director.

5 iii BURKINA FASO MINING SECTOR CAPACITY BUILDING AND ENVIRONMENTAL MANAGEMENT PROJECT CREDIT AND PROJECT SUMMARY Borrower: Beneficiaries: Amount: Terms: Onlending Terms: Project Objectives: Project Description: Government of Burkina Faso Ministry of Energy and Mines, Ministry of the Envirornent and Water Resources SDR 14.8 million (US$21.4 million equivalent) Standard IDA with 40 years maturity Not applicable The main objectives of the proposed project are to: (a) establish an enabling environment to both promote private investment in mining and to ensure real and sustainable contribution to economic growth; (b) strengthen public and private sector capacity to effectively administer regulations and monitor sector developments; and (c) establish capacity in the country for environmental management. Additionally, the project aims to: (i) stimulate private sector response to the growing need for a variety of mining and environment-related technical goods and services; and (ii) identify and adopt appropriate mechanisms to facilitate the development of small-scale mines, and to improve the social, welfare, health and environmental conditions of artisanal miners. The project will comprise four main components: (a) Regulatory and Fiscal Framework and Training to help: (i) prepare mining and environmental regulations; (ii) strengthen legal skills and negotiating capabilities; (iii) improve administration of the fiscal regime applicable to mining; (iv) build sustainable capacity in mining law and environmental management as well as applied mining taxation. (b) Institutional Strengthening and Resources Management will help: (i) operationalize the roles and improve internal management procedures of key sector institutions: MEM, BUMIGEB, CBMP; (ii) restructure the geo-services currently offered by BUMIGEB; (iii) improve cadastre and mining management services at MEM; (iv) establish and sustain an environmental unit within MEM; (v) upgrade and improve earth science

6 iv information database. (c) Environmental Management will help: (i) build capacity in the relevant institutions to review and formulate environmental policies, strategies and guidelines, and establish capacity to monitor compliance therewith; (ii) assist in the preparation of mining sector specific environmental regulations and monitoring procedures; (iii) establish a national environmental information system and database; (iv) design and implement an environmental education, information, and communication program; and (v) provide training in priority areas. (d) Small-Scale Mining will support activities to: (i) study the socioeconomic, geology and technical specifics of small-scale mining; (ii) support the Directorate of Small-Scale Mining Promotion within the General Directorate of Geology and Mines to design and deliver technical advice, geology information, and extension services to smallscale miners; (iii) assess mechanisms to evaluate financing proposals of small scale mining operators; (iv) establish a pilot mining training center; (v) promote the identification, development and dissemination of small-scale mining equipment through private sector delivery mechanisms; and (vi) design and implement an environmental sensitization and awareness campaign targeted at artisanal miners. Benefits: Risks: The project will establish the regulations and strengthen government institutions to help attract and sustain a level of mining investment that could lead to yearly gold production of tonnes of gold from 1 ton today, worth $ million, over the next ten years. Expert technical assistance will help the Government to avoid mistakes in dealing with private companies which could result in costly litigation or forgone revenues at a later date. The project will help strengthen tax assessment and collection procedures for statutory royalties, license fees, income, dividend, and other direct and indirect taxes. These measures, together with the suppression of the monopoly on gold exports which currently leads to massive smuggling, could yield $25-30 million in fiscal receipts yearly, up from approximately $100,000 today. The project will help establish to put into place environmental regulations, procedures, and monitoring capacity to minimize damage to the environment and the health of rural Burkinabe from large, small and artisanal mining operations. The project provides training and extension services to support the development of small-scale mining as well as to help improve social, health, safety and environmental conditions in the artisanal mining community. Principal risks are: (a) backsliding by the Government on certain commitments to reform and, (b) limited absorptive capacity to implement the project in an effective manner. Care has been taken during project preparation, through extensive policy dialogue with and between government officials and the private sector, to build

7 v commitment for sectoral reforms within the wider political and economic liberalization process. On the issue of backsliding, the Government's commitment to reform is evidenced through monitorable indicators which the Government itself has proposed. These indicators have been agreed to by IDA and will be part of the legal covenants pertaining to the Credit. With regard to absorptive capacity, one of the goals of the project is the development of human skills in both the public and private sectors. The technical assistance will be phased and prioritized so as not to overburden the relevant government departments, and the international consultants engaged will work alongside local counterparts. Estimated Project Cost: a Project Component Local (US$million) Total Foreign Legal Reform and Capacity Building Mining Taxation and Fiscal Training Institutional Strengthening Environmental Management Small Scale and Artisanal Mining Project Coordination Unallocated PPF Total a/ All costs estimated inclusive of duties and taxes. Financing Plan: Local (US$million) Total Foreign IDA Government Total

8 vi Estimated Disbursements: IDA Fiscal Year (US$ million equivalent) Annual Cumulative Economic Rate of Return: Poverty Category: Not applicable. Program of Targeted Interventions. Project ID No.: 283

9 BURKINA FASO MINING SECTOR CAPACITY BUILDING AND ENVIRONMENTAL MANAGEMENT PROJECT 1. INTRODUCTION 1.1 Burkina Faso has a record of satisfactory adjustment under several IMF- and World Banksupported programs. Since 1991, the Government has been implementing a wide range of policy, economic and sectoral reforms. After a period of modest economic expansion and following the 1994 devaluation of the CFA franc, real GDP growth picked up, reaching 5.5 percent in 1995 and an estimated 6.6 percent in Although inflation was slightly higher than expected at 6.1 percent in 1996, this was largely due to higher cereal prices that stemmed from the poor harvest in The most visible area of improvement has been the fiscal position. The primary fiscal balance, moved from a deficit of I percent of GDP in 1994 to surpluses of 1.1 percent of GDP in 1995 and an estimated 1.6 percent in The external account deficit has declined over the period , but it widened since then to an estimated 15.2 percent of GDP in 1996, reflecting an increase in imports, mostly related to the rise in public and private investment. 1.2 Under a second three-year enhanced structural adjustment approved by the IMF in June 1996, the Government has started the implementation of an ambitious reform program. Good progress has been made in implementing public enterprise reform, reducing trade barriers, stabilizing domestic prices, reforming banking and business law, and privatizing the regional railway in support of private sector growth. Efforts have also been made to reallocate budgetary expenditures to critical social sectors--health and education. As results of its adjustment record, the country has benefited from a Paris Club stock-of-debt reduction operation in 1996, involving a 67 percent reduction in net present value of its eligible debt (CFAF 35.7 billion). Burkina Faso is considered for assistance under the neew initiative for heavily Indebted Poor Countries (HIPC). A preliminary policy paper was discussed at Board meetings at the Bank and the Fund. The debt reconciliation process will take place over the next months. The final proposal is likely to be presented to the Boards for decision in early summer Structural reforms have also helped to stimulate private sector activity. Yet, Burkina's medium-term growth prospects depend on the sustainability of the policy reforms. The greatest risk to reform stems from some Burkinabe officials' deep rooted belief that the State should be the predominant actor in the economy. Particular emphasis will have to be given to clearly distinguish the roles of the State and the private sector. This has already started to happen in the mining sector where the Government has moved forward on a number of very significant reforms. 1.4 Mining, if properly managed, can help alleviate poverty, especially in the rainfall scarce northern rural areas of Burkina Faso. Experience in other countries indicates that mining can produce beneficial development effects: increasing a country's yearly value added, tax receipts and foreign exchange earnings; creating local employment and economic spin-offs; contributing physical and social infrastructure; and transfering management and technical know-how. Since the mid-1980's, many governments have become aware that the capital and technology necessary

10 2 to develop their mining industries can only come from the private sector. Competitive regulatory and fiscal conditions, an adequate earth science database, and sound environmental management practices are critical not only for attracting and retaining investment, but also to ensure that mining makes a positive contribution to the economy. 1.5 At present, modem mining is little developed in Burkina Faso and oriented principally towards gold. Yet, exports of gold represent, after cotton, the country's largest foreign exchange earner. Official gold exports from artisanal exploitations were about 1 ton in 1996, valued at $13 million. In previous years, at the height of the artisanal mining boom, 13 metric tonnes of gold were exported through Lome, Togo, a good portion of which was smuggled from Burkina Faso. Productivity in artisanal mining camps has declined over the past two years as deeper depths are exploited and hence the clandestine exports through Lome have decreased. Nonetheless, the magnitude of past production is indicative of the potential. Burkina Faso is well endowed with geological formations known as Birrimean greenstone belts which, in other West African countries (e.g., Mali and Ghana), host major gold deposits. Due to this excellent geologic potential and availability of risk capital in the international equity markets, over 20 international companies--among which are some of the largest mining houses such as Broken Hill Proprietary (Australia), Anglo American (South Africa), Ashanti Gold Fields (Ghana), High River Gold Mines (Canada) and Echo Bay Mines (USA)--are investing approximately $30 million per year in exploration. Based on the geology potential, the level of exploration expenditures, and experience in other African countries, there is every reasonable expectation that mining companies will find and develop mines over the next ten years which could produce tonnes per year of gold with a market value of $ million. 1.6 The Government is aware of the need to sustain the current levels of investment and to maximize the contribution to the economy from mining development. With support from an advance under the project preparation facility (PPF), the Government has undertaken significant reforms during the past two years to remedy systemic deficiencies in the enabling environment for investment. A comprehensive policy dialogue among various stakeholders was conducted which resulted in the adoption by the Council of Ministers (January, 1996) of a letter of sector strategy. Based on this letter a new mining law, consistent with international best practices, has been approved. A new Ministry of Energy and Mines was created in June 1995, and a comprehensive study of the roles and mandates of the Ministry and agencies reporting to it has been conducted. Following an in-depth study of gold commercialization, the Government has abolished the monopoly of the state owned buying office [Comptoir Burkinabe des Metaux Precieux (CBMP)], and has issued detailed regulations for the establishment of private gold buying bureaux. It is now necessary for the Government to deepen and consolidate the reforms. Priority areas include: (a) adopting precise mining, fiscal and environmental regulations; (b) increasing the performance and efficiency of sector instititutions; (c) developing capacity for environmental management; (d) up-grading the availability and quality of earth science information; (e) coordinating various environmental initiatives relative to the sector; and (f) providing significant training to public and private sector officials to effectively monitor sector activities. The proposed project will fund technical assistance to the government to address these areas.

11 3 1.7 In addition to the current exploration activity by major mining companies, good potential exists for small-scale, semi-mechanized, locally-owned mining operations. The letter of sector development policy places emphasis on the rational development of small scale mining. Project fimds will be used to deliver technical assistance, training, extension and financial services to small-scale miners. Artisanal mining using simple hand tools is prevalent at over two hundred sites throughout the country and provides a livelihood for an estimated 75,000 migratory miners, Burkinabe and other nationalities. Health and safety conditions in and around the artisanal mining sites are dismal; children of miners have no educational facilities; itinerant young men away from home contribute to the spread of sexually transmitted diseases; and the artisanal mining process is highly destructive for the environment. Recognizing these serious problems, the Government of Burkina Faso has adopted a policy of attempting to improve living and working conditions in the camps. The proposed Interim Trust Fund project will significantly assist in this effort through an in-depth socio-economic study of artisanal mining and a sensitization campaign regarding environmental, health and safety dangers in the camps.

12 4 2. THE MINING SECTOR Geological Potential and New Foreign Investment 2.1 During the past two decades prospecting activities on a regional scale, funded by various donors, have succeeded in identifying promising mineralized zones in the country. Geologists reason by analogy, comparing known mineral producing zones with the same type of geology in other areas. It is known, for instance, that volcano-sedimentary formations in Burkina Faso 2 [known as the Birrimean greenstone belts (Proterozoic)] cover approximately 70,000 km. These geological formations host major gold deposits in Canada, Australia, Mali and Ghana (see comparative figures, Table 2.B, and Annex N). Thus, there is every reasonable expectation that if sufficient exploration funds from private sector mining companies can be attracted to Burkina Faso mines could be discovered and brought into production'. Considering Burkina Faso's fragile eco-systems, it is even more critical that the type of investors that are attracted are serious companies with technical and financial qualifications who will operate with due regard to environmental safety and health aspects. 2.2 It should be taken as a mark of confidence in the basic geology potential of Burkina Faso that, since 1993, over 20 international mining companies, large and small, have become active in exploration activities in the country. The companies include Anglo-American (South Africa), Broken Hill Proprietary (Australia), Billiton (Netherlands), Gencor (South Africa), Outokumpo (Finland), High River Gold Mines (Canada), Ashanti Gold Fields (Ghana), Channel Resources (Canada), Rand Gold (South Africa), Santa Fe (USA), Geomaque Resources (Canada), North Resources (Australia), and several others (see Annex I, map of exploration permits). Collectively, it is estimated that in 1995 these firms have spent over $30 million on exploration. The firms are at the "grass roots" stages of exploration (trenches, pits, shallow and deep drilling) to identify and test for orebodies. It is still too early for a discovery to have been made; however, preliminary indications are very encouraging. Several factors account for the new interest in Burkina Faso gold potential, including attention now being devoted to Africa in general in international mining circles, availability of good "virgin" exploration ground, liquidity in certain financial markets (Toronto, Vancouver, London, Johannesburg) for risk capital for exploration ventures, and removal of sanctions against South Africa, which allows the large South African mining houses to enter the market. 2.3 Mining, if properly managed, can contribute to economic development. Minerals production can increase a country's yearly value added, tax receipts and foreign exchange earnings. Moreover, mining operations typically spend percent of capital and operating costs on local purchases, employ and train rural based workforces, and contribute to the transfer of industrial know-how and management expertise. Globally, extraction of mineral resources In Mali, for instance, exploration spending by mining companies began on a limited scale in The Syama gold mine (4 tonnes/year) was opened in 1990 and the Sadiola Hill gold mine (11 tonnes/year) was opened in 1997.

13 5 accounts for 3-5 percent of world GDP, 1/5 of world merchandise trade, and employs some 25 million persons. Many countries in Africa, Latin America, and Asia derive substantial portions of their foreign exchange earnings and tax revenues from the export of mineral products. There are very real dangers and concerns related to mining, however. Lack of proper environmental controls and trained personnel to enforce them can leave a bitter and costly legacy for future generations. Procedures and rules must be put into place for dealing with local communities which are affected by mining operations. Proper observance of the human rights of indigenous peoples is often a problem as is dealing with the impacts a modem industrial operation may have on local cultures and traditions. Performance of the Sector 2.4 Declared exports of gold represent one of the largest foreign exchange earners for Burkina Faso. Official gold exports were just over 1 ton in 1996, valued at $13 million, using current world market prices. In addition, even though the production has declined in recent years, undeclared exports from artisanal mines are believed to be substantial, (estimated at 2-3 tonnes per annum, worth approximately $24-36 million). The smuggled gold transits neighboring countries, particularly Mali, Togo, and COte d'ivoire. The incentive to smuggle is a direct result of the government monopoly on gold exports and the fact that the State buying organization, Comptoir Burkinabe des Metaux Precieux (CBMP), pays the artisans only 55 percent of the fair market value of the gold produced. The monopoly on gold exports has been eliminated in July 1996, the role of CBMP is being restructured, and private gold buying offices will be authorized. TABLE 2.A: Evolution of Burkina Faso Gold Production Kilograms Fine Gold (declared) Industrial and Year Semi Industrial Artisanal Total , , , , , ,255 2, ,229 2,295 3, ,502 2, ,365 2, ,268 1, , , ,063 Source: CBMP

14 6 2.5 The Poura Gold Mine, located 200 kms from Ouagadougou, is the only industrial scale mining operation presently in Burkina Faso. Production has declined in recent years and the operation has been in serious financial distress since the early 1990s. In 1994, the Government decided to privatize the Poura mine and seek an international company to take over operations. Ashanti Gold Fields has been selected to define ore reserves in the underground mine and the surrounding surface areas and, if the results are positive, to operate the mine. Current plans are to invest $20 million, of which $6 million will come from private partners and $14 million from the Government via the mining development and stabilization fund (SYSMIN) of the European Commission. Because of the involvement of other donors, the proposed project does not intend to be directly involved in the privatization of the Poura gold mine. 2.6 The Tambao manganese deposit is located in the Oudalan district, approximately 380 kilometers north east of Ouagadougou. The grades and characteristics of the manganese ore are excellent by international standards, although the reserves are modest in size. However, industrial development and operation of the deposit is hampered by lack of infrastructure, principally long and costly transportation routes to seaports. A pilot truck and shovel exploitation of the deposit was started in 1993 by a Burkinabe-Canadian company joint venture. Full commercial development of this deposit will depend on penetrating niche markets and, more importantly, finding an efficient and inexpensive means of transporting the manganese ores to port. 2.7 The Perkoa zinc deposit, located 135 km west of Ouagadougou and discovered in 1982, contains massive sulfides with excellent grades of zinc. The World Bank funded the Perkoa Mining Exploration and Technical Assistance Project in for $7.4 million to assist in the delineation of the Perkoa orebody, to find a reputable foreign mining company, and to negotiate an investment agreement. Subsequently, Perkoa Minerals S.A. was formed, a joint venture in which Boliden (Sweden) owns 65 percent and the Government 35 percent. Exploration has proven good reserves; however, weakness in the prices of zinc on the world market, the financial condition of Boliden, and continuing uncertainties regarding rail transportation to the coast have delayed full development. Recently, Boliden has relenquished its rights to Perkoa and the surrounding areas, opening these zones for new exploration. 2.8 In addition to the current exploration activity by major mining companies, good potential exists for small-scale, locally-owned mining operations. A distinction should be made between small-scale and artisanal mining. Small-scale miners generally use motorized equipment (pumps, compressors, hoists, etc.) and other small power tools to extract and process mineral ores. Use of this equipment not only increases throughput and economies of scale but also allows the miner to reach depths required to mine hard-rock vein mineralization in addition to the alluvial deposits. However, use of such equipment requires at least rudimentary scientific, technical, and mechanical skills. In Burkina Faso such skills, though limited, are either available locally or could be recruited internationally. In many countries (Latin America and Zimbabwe) small-scale miners account for a significant degree of mineral production. It is also easier for the Government to monitor operations and to provide technical extension services to small-scale miners than it is to artisanal miners.

15 7 2.9 The letter of sector development policy places emphasis on the rational development of small-scale mining. Several reforms, supported by the PPF advance, are already underway or will be undertaken during the project. For instance, revisions to the mining legislation have strengthened the legal tenure of the small-scale miner allowing him to invest in motorized equipment, water wells, and other techniques to improve efficiency in operations. Removal of the government buying monopoly exercised through CBMP will allow the small-scale miner as well as the artisan to realize the fair market value for the extracted gold. Local private capital markets need to be analyzed and strengthened, particularly in respect of financial analysis and evaluation of small scale mining projects, in order to help local entrepreneurs mobilize finance. Finally, technical extension and training services could be provided by the Government and private entrepreneurs to support small-scale mining Artisanal mining, on the other hand, makes little or no use of power equipment. This activity is prevalent at over two hundred sites throughout the country and provides a livelihood for an estimated 75,000 migratory miners, Burkinabe and other nationalities. Artisanal miners extract gold bearing ores using simple hand tools, pulverize the material using mortar and pestle, and wash the powder using crude sluices to pick the flakes of gold from the concentrate. Women often play a key role in these mining camps both as workers and suppliers of food, retail and hospitality services. Artisanal mining is fundamentally a result of rural poverty, highlighting a number of interrelated issues. Health and safety conditions in and around the artisanal mining sites are dismal: children of miners have no educational facilities; itinerant young men away from home contribute to the spread of sexually transmitted diseases; and the artisanal mining process is highly destructive for the environment Experience in many other countries would indicate that resolving the problems of artisanal mining is not simply a matter of improving the technical proficiency of the artisans but rather of using an integrated approach to address the social, economic and environmental dimensions. Government programs to provide technical extension services may be marginally useful but the lack of scientific and technical skills limits the capacity of the artisanal miners to absorb modem small-scale mining technologies. Moreover, artisanal camps and mining sites appear to be organized in a manner appropriate to the nature of the alluvial deposits and the limited economies of scale which the working groups are able to achieve. Recognizing this, the Burkina Faso Government has adopted a policy of attempting to improve the living and working conditions in the camps. Sensitization and education programs need to be directly linked to the miner, and greater use must be made of the private sector and/or NGOs to deliver such programs. The proposed IDA project will significantly assist in this effort through an in-depth socio-economic study of artisanal mining, and a sensitization campaign regarding environmental, health and safety dangers in the camps. In this respect, considerable scope exists for cooperative efforts with Bank and other donor-funded projects, specifically the Populations and Aids Control Project, the Environmental Management Project, as well as Danish support for environmental sensitization for rural communities.

16 8 TABLE 2.B: Comparative Indicators of Gold Mining Burkina Faso and Other Countries Country Gold Production Export Value Est. No. Artisans Birrimean (kilograms, declared) US$ million Surface Area (kms2) Burkina Faso (1996) 1,063 US$ , ,000 70,000 Ghana (1993) 40,677 US$ ,000 75,000 Cote d'lvoire (1993) 1,400 US$ ,000-40, ,000 Mali (1993) 7,000 US$ , ,000 43,500 Quebec (Canada) 42,000 US$497 N.A. 30, INSTITUTIONAL AND LEGISLATIVE ASPECTS Mining Policy and Strategy 3.1 As part of project preparation activities, the Government has instituted a number of reforms to modernize the enabling environment for mining investment. The reforms (new mining law, institutional restructuring, suppression of the gold buying monopoly, among others) flow from a comprehensive dialogue conducted among involved stakeholders on mining policy and strategy. The dialogue produced a Letter of Sector Development Policy which was endorsed by the Council of Ministers on 17 January 1996 (see Annex H). The letter recognizes the increased importance of mining for the economic development of the country. In order to foster development of the sector, particular emphasis is placed on creating an enabling environment that will attract and, above all, retain private sector investment in mining. The letter recognizes the responsibility of government institutions to support investment through the development of favorable investment the conditions, maintenance of a climate of confidence between investors and the Government, reinforcement of mining and geology information databases, development of human resources, and encouragement of local expertise. The central administration has already been reorganized through the newly established Ministry of Energy and Mines. The letter clarifies the regulatory mandates of other sector institutions such as the National Mines Commission, the Mining Development Fund, BUMIGEB, and CBMP (see paragraphs ). With respect to the last two agencies, the letter calls for substantial changes to reinforce their roles as supporting the private sector rather than competing with it. The letter recognizes that tax revenues from mining should be increased while, at the same time, maintaining fiscal mechanisms that are competitive by international standards. The letter also states that procedures should be put into place to alleviate existing bottlenecks in clearance through customs of equipment and materials needed for mining operations. The letter recognizes the significant socio-economic impacts that small-scale mining has in Burkina Faso and the role of the State in supporting its rational development through programs of technical and/or financial assistance to

17 9 entrepreneurs. Because mining operations can cause severe damage to the environment, the letter emphasizes the role of the State in protecting and managing the environment. It recognizes the need to reinforce government services responsible for environmental protection, calls for the development of environmental regulations and standards, and requires companies to submit environmental impact statements detailing, among other matters, plans for site rehabilitation and mine closure. Finally, the letter puts emphasis on the requirements to train local personnel in both the public and private spheres. Legislative Framework Mining Law 3.2 The existing mining code of Burkina Faso is contained in articles 448 through 546 inclusive of the Law on Agrarian Reform - RAAF of June 4, 1991, as amended by Decree No. 93 of August 31, Even though the RAAF was passed in 1991 (amended in 1993) the mining code dispositions, in essence, are based on the old Upper Volta mining code of These dispositions reflect the political and economic options taken at that time which are no longer reflective of international best practices in mining legislation. Because of its critical importance, new mining law was drafted during project preparation and was approved by the Council of Ministers prior to negotiations. During project implementation, mining regulations and other enabling legislation will be drafted to complete the basic mining law. 3.3 The new mining law, to be introduced to the National Assembly within one year following credit effectiveness, has addressed several deficiencies in the previous mining legislation (see Annex M). The new law clearly exempts hydrocarbons from the mining code, which is consistent with international best practices. It has reduced the number of types of mining tenements, and strengthened the provisions of consultation to adjudicate disputes between occupants of the surface and title holders of sub-surface rights. The new law reduces excessive government discretionary authority, especially in the prerogatives of the mines administration to grant or withhold exploitation licenses. Greater emphasis is placed in the new law on monitoring compliance with requirements "ex-post" rather than screening mining title applicants "ex-ante". The new law limits government participation in mining ventures to 10 percent (consistent with other West African countries) where previously this had been a matter of negotiation. The new law also strengthens the security of tenure of small-scale and artisanal miners, although artisanal mining authorizations are for shorter duration than regular mining titles. Mining regulations which detail the application of the fundamental mining law, in particular with respect to title and cadastre management, are to be prepared during project implementation. In addition, numerous regulations on health, safety, environment and other matters need to be prepared. Ancillary legislation, such as commercial codes, occupational health and safety, labor agreements, and other legal and quasi-legal instruments, will be updated as these apply to mining operations.

18 10 Taxation and Mine Investment Code 3.4 Administration of the fiscal framework pertaining to mining investments in Burkina Faso is confused and ineffective. This has been identified as a serious impediment to investment, not only in the mining sector but other sectors as well. The fundamental deficiencies in the general fiscal regime concern excessively high rates of taxation of profits (45 percent corporate income tax, 25 percent dividend withholding tax), insufficiencies in depreciation schedules and depletion allowances, and the use of "forfeit" or lump sum payment methods of taxation. Given the pressing need to provide intemationally competitive conditions for mining investment, the government passed a Mining Investment Act in This act was amended in April 1995 to tighten certain fiscal dispositions, reflecting comments which had been offered to the Government by the Bank as well as other donors. 3.5 The Mining Investment Act, as amended, brings the investment conditions for the mining sector, by and large, in line with international best practice. Mining investments are subject to a 35 percent rate of income tax rather than the normal 45 percent. In addition, the dividend withholding tax is reduced from 25 percent to 12.5 percent. No tax holidays or exemptions from these taxes are permitted. Investments benefit from duty-free entry of equipment and materials during the exploration and development phases of the project, and through the third year of commercial production. Corporate registration and stamp duties are exempted as is the valueadded tax on exported products. A decree adopted by the Council of Ministers in October 1996 establishes ad valorem royalties of 3-7 percent depending on the mineral, surface rents (charges per square kilometer of the area held under permit), and mining permit issuance fees. The ad valorem royalties are in line with international practice and the new decree increases the surface rents and permit issuance fees which were previously very low by international standards. 3.6 There are significant problems with the effective implementation of the Mining Investment Act. For instance, in spite of the exemptions, customs and excise taxes are still sometimes assessed on necessary imports for exploration projects. Fees and excise contributions are often arbitrarily assessed on operations as, for example, road taxes and unit charges on the transportation of goods, which have no basis in international practice. The customs service requires guarantees when admitting equipment under temporary admission. While the practice is a reasonable one, the banking system in Burkina Faso is not familiar with bond guarantees and hence the importing company must deposit with the bank the full value of customs due, effectively negating the intended benefit of the customs exemption. In the past the lack of coordination and communication between the MEM and the Directorates of Taxation and Customs of the Ministry of Finance has hindered effective application of the legislation. Improvements in coordination have been made recently. A substantial constraint remains the inexperience and inadequate training of government personnel responsible for taxes and customs with international methods of calculation, assessment, collection, and auditing of fiscal obligations. The proposed project places considerable emphasis on training in applied mining taxation and sets up programs within the National School for Financial Management for such training to be made on a continual basis.

19 11 Mining Sector Institutions 3.7 In the past the Bureau of Mines and Geology of Burkina Faso (BUMIGEB) was the state agency responsible for all policy, administrative, and geology functions with respect to the sector. This confusion of functions posed serious problems of conflict of interest between the role of the state as regulator and its role as direct participant in operations. Beginning in the early 1990s, the Government moved to distinguish these roles: a full-fledged Ministry of Energy and Mines was created in July The Letter of Sector Development Policy also establishes the primacy of the central administrative institutions and delineates the overall functions and mandates of the various sector institutions. The PPF advance has supported an institutional study to further clarify these roles and the preparation of an action plan to render them operational (see annex A). 3.8 Administration of the sector is vested in the Ministry of Energy and Mines (MEM). The Ministry is responsible for: (a) the policy functions--the definition of sectoral policy and strategy, preparation of different legal and fiscal documents, coordination among ministries; and, (b) the administrative functions -- the day-to-day management and application of the policies. The Directorate General of Mining and Geology (DGMG), within MEM, develops and coordinates mineral sector policies, promotes exploration and extraction activities, supervises the meetings of the National Commission for Mines, disseminates documentation, and monitors payments of surface rents and royalties by mining companies. The new organizational structure of DGMG, which includes sub-directorates for geology, mining and small scale mining, is in line with international standards. Also under direct administration of the Ministry are the Mining Development Fund and the National Commission of Mines. Other project offices, such as Perkoa Mineral and the National Office for the Tambao Manganese, are also attached to the Ministry. 3.9 While the new organizational structure of MEM is put into place, the new organizational structure and institutional mandates are the major challenges facing the Government. MEM personnel are mostly mid-level professionals lacking in practical experience. Attracting trained personnel to the directorate is difficult since the general civil service salary scales are grossly inferior to those of the private sector or BUMIGEB. Finally, MEM does not have sufficient infrastructure (vehicles, office equipment, survey devices, computers, etc.) to carry out its assigned tasks The Bureau of Mining and Geology of Burkina Faso (BUMIGEB) was created in 1978 as a quasi-autonomous public enterprise of an industrial and commercial character. BUMIGEB currently employs some 320 persons; its annual budget is around $4 million. In order to raise funds, BUMIGEB has concentrated on the sale of geo-services, to the detriment of basic geology, and earth system data collection and mapping. This means that Burkina Faso does not have complete geological maps which investors require in order to localize exploration research. The Letter of Mining Sector Development Policy more clearly defines the role of BUMIGEB. The agency's principal function will be to provide geological survey services (geology cartography, geophysics and geochemical surveys, hydrogeological reconnaissance), and mineral

20 12 potential inventories over the national territory. BUMIGEB will execute a "contrat plan" with the Government from time to time under guidance from MEM. Additionally, within the tasks given to it by the Ministry, BUMIGEB may assist in diversifying target commodities (other than gold) and assist in development of small scale mining initiatives The Burkina Faso Gold Marketing Board (CBMP) was created in 1986 and is the stateowned entity which previously held the monopoly on the export of all gold, for both small- and large scale operators. A study of CBMP operations and gold marketing in Burkina Faso revealed that since 1990 gold officially handled through CBMP had declined from 3.5 tonnes in 1990 to just over I tonne in The principal reason for the decline was that CBMP would pay the artisanal miners 55 to 60 percent of the world market price for gold. In 1996, CBMP handled 769 kilograms of artisanal gold; a reliable estimate of the amount clandestinely crossing the borders is at least 2 tonnes: The monopoly of CBMP was also viewed as a major constraint by potential private company investors, rendering difficult forward sales of gold and the use of gold loans, standard financing mechanisms for the development of new mines. The monopoly was rescinded by Decree No /PRES/PM/MEM of 3 July CBMP will be restructured to assist artisanal miners to improve working conditions and to monitor the artisanal mining camps. Rules and regulations for the authorization of private gold buying offices have been adopted. Environmental Management 3.12 The National Environmental Action Plan (NEAP), which was developed with Bank assistance, defines the policy framework for environmental management in the country and coordination of environmental activities across sectors. Implementation of the Plan has been hindered in the past by poorly organized and ineffectual government institutions. The Ministry of Environment and Water (MEW) was created in June, 1995 to replace the Ministry of Environment and Tourism. The reorganization of the ministry is an indication of the importance the government attaches to environmental and natural resource management. Of particular significance is the fact that the portfolios of environment and water have been merged to reflect the concerns of the Government with regard to the increasing scarcity of water for domestic, agricultural and industrial consumption To implement a cross-sectoral approach, a National Council for Environmental Management (CONAGESE) has been set up. The Council has the mandate for formulating policies and strategies for environmental management at the national level to integrate environmental concerns into the developmental agenda, and consolidation of data from sector environmental strategies and actions plans. Other departments within MEW include the Directorate General of Environmental Preservation (DGPE), responsible (in close coordination with CONAGESE and sector Ministries) for evaluation of environmental impact assessments (EIAs), Directorate General of Forests and Biodiversity, which is responsible for forests, ecosystems and biodiversity The government enacted an Environmental Code in January This Code replaced the articles pertaining to environmental matters of the Agrarian and Land Reform Act (RAF) of 1991, [Part VII Article, ]. The Environment Code, however, requires some

21 13 modifications to take into account the changes that have taken place in the institutional framework and the new cross sectoral approach adopted by the Government. The Environmental Code also needs to be complemented with sector specific regulations. The Netherlands is considering funding technical assistance to prepare regulations, particularly with reference to EIAs. In addition, the UNDP, UNEP and FAO have selected Burkina Faso as a pilot to carry out a review of environmental legislation and formulate relevant regulations Given the speed with which industrial mining operations are expected to become operational, and the continuing environmental problems of the artisanal miners, the Burkina Faso government will be severely challenged to ensure proper environmental management of the mining sector. For instance, issues to be considered include site rehabilitation and decommissioning, disposal of tailings, handling and storage of toxic wastes, air and water pollution, dust suppression, impacts on flora and fauna, social and local community issues, indigenous peoples issues, resettlement and relocation, provision of social services, and many more. Considerable progress has been made in recent years on developing environmental protection and mitigation technologies and monitoring mechanisms involving public and private sector institutions. Modalities can be put into place for consultation with locally affected communities to identify processes for minimizing environmental damage and where necessary to develop compensation packages for the disturbances caused. Of special concern are the artisanal mining sites in many areas of Burkina Faso. These are virtually devoid of even the most rudimentary environmental protection techniques and are much more difficult to monitor and control. The fundamental problem in Burkina Faso is the critical lack of experience with modem environmental management and, while the Bank and other donors have been active in assisting the government with ad-hoc technical assistance, much remains to be done. The mining companies that are currently active in Burkina Faso have identified the lack of environmental regulations and government capacity to effectively enforce and monitor compliance as a major uncertainty effecting investment The letter of sector development policy recognizes the significant impacts that mining activities will have on the environment. It declares that the state should reinforce the agencies responsible for environmental protection, require companies to submit environmental impact statements, and make provisions for site rehabilitation. Accordingly, an officer of the DGMG has been designated responsible for day-to-day monitoring and supervision of health, safety, and environment aspects specific to mining operations. The officer will be assisted by a small cadre of professional civil servants to form an environmental unit in the MEM and draw upon the Burkina Faso private sector as well as BUMIGEB for specialized services such as laboratory analysis, data collection, and specialized studies including the development of environmental guidelines specific to the mining sector. The unit will be responsible for ensuring coordination with the CONAGESE and supplying sectoral information to CONAGESE as needed The environmental components of the proposed project are designed to increase and reinforce environmental management capacity at the national and the sector levels. Technical assistance, training, and logistical support will be directed towards the CONAGESE, and the directorates within MEW dealing with environmental protection and water management, and the environmental management unit within MEM. The activities to be funded are designed to

22 14 address five critical needs: (a) establish national and sector environmental norms and standards; (b) create national and sector environmental information systems; (c) increase needed skills and capacity to enforce and monitor compliance with environmental guidelines, norms and standards; (d) implement a national environmental awareness program; and (e) review the legal and institutional regimes pertaining to water use and discharge with particular reference to mining operations. Care has been taken to ensure coordination and complementarity of the proposed Bank activities with those of other donors, particularly those of the Netherlands. The division of responsibilities and activities to be undertaken by the different agencies are summarized in Annex A. 4. THE BANK'S EXPERIENCE IN BURKINA FASO IDA Lending to Burkina Faso 4.1 As of April 1997, IDA commitments to Burkina Faso amounted to US$778 million for 50 credits. Of the 12 operations currently under disbursement, 3 are in agriculture, 2 in primary health, 2 in education, and one each in institutional development, urban development, urban water supply, private sector, and transport. IFC has no current investments but is very interested in the potential of mining. In the mid- 1980's relations between the Government and IDA were strained due to disagreement on public investment program priorities, and new IDA commitments to Burkina Faso averaged US$17 million per annum; no new credits were approved in 1986 and Since the political changes of 1987, the Government has sought increased help from the donor community. In response, during the past eight years ( ) IDA has approved 17 credits and quadrupled the size of its program. Lessons Learned from Other IDA Supported Projects 4.2 Because IDA has been involved in Burkina Faso with a significant lending program only since the early 1990s, experience with a variety of lending programs is not as extensive as with other countries of the region. Nonetheless, an assessment (Public Sector Management Review - July, 1995) of institutional development aspects of various projects suggests that the overall performance of these projects has been mixed. This is due to several factors and provides lessons for the design of new projects. The past decade has been one of considerable political effervescence in Burkina Faso. It is not surprising, therefore, that political instability is cited as a cause of poor implementation. Strong ownership and commitment at the highest political levels to the project's objectives, activities and implementation are therefore essential for success. Just as important as the top level political commitment is a broad consultative participatory process used in designing and preparing projects to build ownership of various constituencies. Institutional instability and unclear lines of authority between government departments are also cited as hindrances to effective implementation. It is thus essential that mandates and responsibilities of implementing organizations be clearly delineated. Frequent changes in project personnel, caused in part by the political turbulence as well as poor management skills, point to the necessity of retaining capable and dynamic project staff. Finally, procurement problems and lack of familiarity with Bank procedures are also cited as problems; these deficiencies are being

23 15 improved through project "launch" workshops, and early and effective association with disbursement, procurement and audit functions. 4.3 Care has been taken during project preparation to learn the lessons of previous projects. A broad based participatory approach has emphasized the role of a "working group" composed of senior representatives of relevant government departments and the private sector. The working group has been primarily responsible, with the assistance of external consultants, for the preparation of the letter of sector development policy, the study on gold commercialisation, the formulation of the new mine law, and the institutions study. The project has assisted and will continue to assist, in the definition and effective implementation of the roles and mandates of the sector institutions: the Ministry of Energy and Mines, BUMIGEB and CBMP. The project recognizes the limited personnel and skills available in the government institutions and for this reason emphasizes the use of local and foreign consultants to build necessary capacity. The project supervision plan provides for intensive and regularly scheduled visits to assist local staff in managing the project. A major concern regarding the delineation of responsibilities on environmental management between MEW and MEM has been addressed by ensuring that project activities reinforce the cross-sectoral approach recommended by the Bank and adopted by the government. Technical assistance will be targeted to the specific tasks required by each institution as outlined in Annex A. Finally, care has been taken to liase with other donors involved with the mining sector and/or environmental management. The project activities are complimentary to, and in many cases build upon, these efforts. Bank Involvement in Mining in Burkina Faso and Other Countries 4.4 During the late 1 970s and early 1 980s the government's strategy for development of mining emphasized direct State involvement in exploration, development and operations. A few projects were attempted during this period by State owned entities including the development of the Tambao manganese project by the General Office of the Tambao Project (OGPT), the development through SOREMIB of the gold mine at Poura, the operations of the Burkina Faso Gold Buying Office (CBMP) with respect to artisanal mining, and the regulatory and mineral exploration roles of BUMIGEB. These operations have been only marginally successful at stimulating development of the mining sector. 4.5 A break with this tradition of direct State intervention in the sector occurred in 1988 with the first IDA-supported mining project. Following discovery of zinc mineralization at Perkoa, IDA approved the Perkoa Mining Exploration and Technical Assistance Project (Cr. 1482) in 1984 in the amount of US$7.4 million (see paragraph 2.7). The credit closed in 1991 (3 1/2 years late), timely implementation having been hindered by lack of a counterpart team to carry out promotional work on the deposit. As a result of the Perkoa Mining Project, as well as the interest in the country's mineral potential evidenced in the past two years by private mining companies, the trend away from direct State intervention towards encouragement of private sector investment has accelerated. The number of firms interested, the magnitude of the sums in play, and the type and quality of multi-national companies concerned point to the urgent need to capitalize on the reform process.

24 Over the past 10 years, the Bank has funded mining technical assistance projects in many countries. These projects provide support to governments to reform legislative, fiscal and institutional aspects pertaining to mining, strengthen and build capacity within government supervisory instititutions, up-grade geological databases, put into place environmental regulations and capacity to monitor compliance, privatize state owned mining enterprises, assist small scale mining, and conduct other activities. These projects have demonstrated that with appropriate sector policies and with a sound regulatory environment, governments can attract and retain investments in the mining sector. In Ghana, for instance, reforms initiated in the mid- 1980s have resulted in a four-fold increase in gold production, the privatization of three previously state owned mining enterprises, and an increase in exploration and mining development undertaken by international mining companies. In Mali, private investors have brought two industrial gold mines into production since Argentina, which traditionally has never had a mining tradition, was recently ranked as the first choice by an international mining investment survey. IBRD approved a technical assistance project to Argentina in the amount of US$40 million in mid Successful implementation of these technical assistance projects depends on strong government commitment and support, adequate supervision by Bank staff, dynamic local coordination, and the extensive use of qualified local and foreign consultants. The complimentarity of the Bank's technical assistance projects with the role of affiliated institutions such as the International Finance Corporation and the Multi Lateral Investment Guarantee Agency is critical. In the countries cited above both agencies are active in mobilizing financial and insurance guarantee resources for private sector led mining projects. In Burkina Faso, even though mining projects are not sufficiently advanced to merit serious consideration, the IFC and MIGA have undertaken scouting missions to the country and have maintained close contacts with the companies involved. 4.8 IDA has supported numerous projects in Africa and other regions to formulate National Environmental Action Plans, and to set up the capacity in the countries to operationalize these plans. In West Africa, projects in the Gambia, Benin, Nigeria and Ghana support the setting up of enviromnental institutions, formulation of environmental regulations, guidelines, standards and norms; the setting up of national enviromnental information systems; human skills development to carry out the formulation of guidelines both national and sector specific as relates to environmental management; formulation of guidelines for preparation of EIAs and skills to review EIAs; formulation of environmental education programs and the development of technical skills for sample testing, laboratory analysis, monitoring and evaluation. 4.9 In Burkina Faso, previous efforts by IDA, to support the Government's initiatives in operationalizing the NEAP were thwarted due to ineffective institutions and lack of awareness of international best practices. As indicated in paragraphs , the situation has since changed and the Government has instituted reforms that are in accordance with international practices. The next stage is to support these initiatives by provision of necessary technical assistance and training to establish capacity for operationalizing the reformns. The proposed project provides an opportunity for IDA to collaborate with other donors to provice the assistance needed to initiate the reforms.

25 17 Project Objectives and Overview 5. PROJECT DESCRIPTION 5.1 The main objectives of the proposed project are to help: (a) establish an enabling environment to both promote private investment in mining and to ensure real and sustainable contribution to economic growth; (b) strengthen public and private sector capacity to effectively administer regulations and to monitor sector developments; and (c) establish capacity in the country for environmental management. Additionally, the project aims to: (i) stimulate private sector response to the growing need for a variety of mining and environment related technical goods and services; and (ii) identify and adopt appropriate mechanisms to facilitate the development of small scale mines and to improve the social, health and environmental conditions of artisanal miners. 5.2 Consistent with these objectives, the project will comprise four main components: (a) Regulatory and Fiscal Framework and Training component will support the following activities: (i) prepare mining regulations; (ii) strengthen legal skills and negotiating capabilities; (iii) improve administration of the fiscal regime applicable to mining; (iv) build sustainable capacity in applied mining taxation through special training modules at the National School of Finance Management; and (v) provide continued training in mining law and environment through twinning arrangements with foreign universities. (b) Institutional Strengthening and Resources Management component will support the following activities: (i) operationalize the roles and improve internal management procedures of key sector institutions: MEM, BUMIGEB, CBMP; (ii) restructure the geo-services currently offered by BUMIGEB; (iii) improve cadastre and mining title management services at MEM; (iv) establish and sustain an environmental unit within MEM; (v) up-grade and improve the geology database, including the creation of a National System of Earth Science Information (SNIST); and (iv) reinforce the technical capacities of BUMIGEB to assay and test minerals. (c) Environmental Management component will help: (i) establish capacity for monitoring compliance with regulations by strengthening the relevant institutions; (ii) assist in the preparation of mining sector specific environmental regulations and monitoring procedures; (iii) establish a national environmental information system and database (EIS); (iv) design and implement a national environmental sensitization and awareness campaign; and (v) provide training in areas of environmental policy formulation, monitoring, and management. (d) Small Scale and Artisanal Mining Component will support programs to: (i) study the socio-economic, geology and environmental specifics of artisanal and small scale mining with a view to determining a strategy, including appropriate delivery mechanisms, for providing extension services; (ii) establish a pilot training center for small scale miners, with the possibility to expand to two additional centers in the event the pilot program is successful; (iii) support the

26 18 Directorate of Small Scale Mining Promotion within the MEM to design and deliver technical advice, geology information, and extension services to small-scale miners; (iv) assess mechanisms to evaluate financing proposals of small-scale mining operators; (v) promote the identification, development and dissemination of small-scale mining equipment through private sector delivery mechanisms; (vi) implement in coordination with the MEM, an environmental sensitization and awareness campaign in the artisanal mining communities. Detailed Description of Project Components A. Regulatory and Fiscal Framework and Training: ($4.7 million; Duration:five years) 5.3 Based on the statement of sector development policy, as well as the new mining law, this component will fund technical assistance to carry out the following activities: (a) Mining Regulations and Negotiations Capacity: This sub-component will provide assistance to: (i) prepare enabling regulations under the new Mining Code to cover, in particular, health, safety and environmental aspects; (ii) reinforce the capacity through technical assistance and training of the Ministry responsible for mines to administer and implement mining legislation, including negotiations skills for dealing with the private sector; (iii) fund the participation of Burkinabe public and private officials in studies, seminars, conferences, and other training related activities outside of Burkina Faso; (iv) acquire information on minerals legislation and establish a library for such information; (v) provide for the services of an independent internationally respected mining attorney to assist in negotiations as may be required from time to time by the government; and (vi) fund English language training for negotiators and key government officials. (b) Training Program in Mining and Environmental Regulation. In order to ensure that the government is able to sustain the improvements in administration of the mining sector over the long term, this sub-component will finance an extensive and continuous training program in applied mining and environmental law in-country training, seminars, and workshops will be conducted at least once a year and special short term training courses will be funded. A training arrangement with a foreign university (University of Quebec, Abitibi) is envisaged to assist in the establishment of this program. (c) Mining Taxation: This sub-component will: (i) assist in the preparation of internationally acceptable applications texts and manuals in respect of mining related taxes; (ii) provide in depth training to and upgrade the capacities of government officials in financial and tax analysis, calculation of tax base, asset valuation, assessment and collection of taxes, and general application of the fiscal regime; (iii) fund the participation of public and private sector Burkinabe officials in studies, seminars, visits and conferences concerning mining taxation; and (iv) provide for the auditing services of an internationally recognized mining auditing firm in the event it becomes necessary for the government to engage their services during the course of the project.

27 19 (d) Training Program in Applied Mining Taxation. Building capacity and training for the long term in the application of the mining tax regime is essential if Burkina is to receive an internationally acceptable level of fiscal revenues from the mining sector. This sub-component is designed to provide in-depth training in applied mining taxation, accounting, and finance through the National School for Finance Management. The School, established with the assistance of the UNDP in 1988, provides professional training to approximately 500 students drawn principally from public sector institutions. The sub-component will provide short term technical assistance to train local professors as well as to provide instruction in mining related fiscal training for the student tax inspectors and technical specialists. In addition to long term training within the existing curriculum, one or two special seminars will be organized each year around specific themes. The principal objectives of these seminars is to not only provide refresher training for civil servants but also a means to train private sector consultants and professional specialists. B. Institutional Strengthening and Resources Management: (US$7.0 million; Duration - Five Years) 5.4 Institutional Strengthening. The sub-component will provide technical assistance to MEM and the sector institutions (BUMIGEB, CBMP, CNM) to: (a) operationalize the roles, functions and mandates of each of the institutions as defined in the institutional studies currently underway and the letter of sector development policy; (b) reinforce institutional capacity and, in particular, prepare manuals of operations and internal procedures, simplify organizational lines of authority and relationships, assess staffing needs and prepare descriptions of required skills and work procedures; (c) develop human resources and provide exposure to international best practices through participation at international conferences and seminars; (d) strengthen capacity in the Ministry responsible for mines to effectively monitor safety, health and environmental conditions at mining sites, including artisanal and small scale mining; (e) conduct a country-wide study in high potential areas of requirements for mining related infrastructure (power, water, transport); (f) reinforce the logistical and material capacities of the public institutions to execute their duties; and (g) subject to positive feasibility studies, to reinforce within BUMIGEB the laboratory and the pilot mineral processing unit. 5.5 Mining Cadastre and Permit Management. This program will build and reinforce capacity for the mining title administration within the General Directorate of Mines and Geology to: (a) prepare diagnostic studies, manuals of internal procedures and operational directives relative to mine title and land management administration; (b) design and implement a computerized mining titles cadastre to identify existing titles and potential areas for exploration and to monitor the obligations of title holders (para 7.2 (i)); and (c), finance visits and study tours for relevant and responsible Burkina Faso officials in the application of title procedures and land management. Under this sub-component, suitable data processing equipment, software and equipment required for the cadastre system will be acquired. 5.6 Environmental Protection Unit. This sub-component will provide technical assistance to the environmental protection unit within the General Directorate of Mining and Geology. This unit will complement the environmental monitoring and control functions of MEW which has the

28 20 mandate for overall environmental monitoring of activities in all sectors. Technical assistance to this unit will: (a) build capacity in the relevant institutions to review and formulate environmental policies, strategies and guidelines, and to establish capacity to monitor compliance with the standards and guidelines; (b) strengthen linkages and coordination with other sectoral agencies through the establishment of sectoral networks, meetings, seminars and workshops; (c) formulate procedures and guidelines for issuance of operating permits and licenses; (d) establish and implement a continuous and comprehensive program of environmental monitoring of mining operations; (e) provide training in the mitigation and control of specific mining environmental problems, including site rehabilitation, disposal of toxic wastes, air/water pollution, consultation with local communities; (f) reinforce capacity to assess environmental impact statements; (g) provide training in reviews of plans for mine closure and site rehabilitation; (h) fund the participation of relevant officials in overseas seminars, conferences, and courses related to mining and the environment; and (i) prepare sector specific environmental regulations, norms, technical specifications, and guidelines, in collaboration with the Directorate General of Pollution Prevention. In close liaison with MEW (DGPE, DGFBD), training will be provided under this sub-component on evaluating of environmental impacts, formulating of regulations, and in laboratory skills and trend analysis, sample collection and analysis. 5.7 Mining and Environmental Information Database. Sector specific environmental baseline data do not exist for many parts of the country and, where they do exist, they are poorly organized and not integrated into the land management system. Such data, if available, would also assist the Government and mining companies to design and execute environmentally responsible operations. In order to carry out efficient monitoring of mining operations and to develop environmental norms and standards, the sectoral agencies as well as the MEW need to have ready access to environmental baseline data. Under this sub-component, a data base would be set up in BUMIGEB through an environmental geology service to provide: (a) compilation of hazardous materials including mine wastes, effluents and emissions generated by mining operations; (b) general baseline data, information and statistics such as wind patterns, hydrogeology, flora/fauna, bio-diversity, air, soils and water quality, etc. in and around mining areas; (c) description and status of internationally acceptable technologies for pollution control and abatement; (d) details and status of treatment of contaminated water sources; (e) status of mitigation and land reclamation with regard to artisanal sites; and (f) the collection and investigation of basic environmental information, including hydrogeological assessments of major mining districts. The data base will also list details of environmental action plans, mitigation plans, environmental audits and de-commissioning plans of ongoing mining operations to provide references and monitoring indicators. This database will be closely integrated with the National Environmental Information System to be set up at MEW. Apart from the development of the data banks themselves, the program would result in two main products: (a) a sectoral environmental assessment, and (b) a mining and environment management plan, as fundamental tools to orientate the development of sectoral environmental policies. 5.8 National System of Earth Science Information System (SNIST). This sub-component will upgrade and improve the current geology and mining database developed with the assistance of the UNDP. It will assist BUMIGEB to establish an efficient organization to develop

29 21 consistent data banks and to store, retrieve and disseminate geological information. In particular, the sub-component will: (a) define, install, and put into operation a National System of Earth Science Information (SNIST), responsible for the overall sectoral coordination of data banks and dissemination of information; and (b) coordinate the development of mineral data banks and a system to analyze and produce thematic sets of information based on satellite imagery and available data. C Environmental Management Component: ($3.0 million; Duration: Five Years) 5.9 In addition to support of the project for the environmental unit within the MEM, this component will provide technical assistance, training and equipment to the MEW (CONAGES and the Directorates of Water and Forests, Hydrology, and Environmental Protection) to operationalize the NEAP and to establish capacity in key agencies for environmental management. The component will comprise four sub-components as described below: (a) (b) Establishment of a National Environmental Information System (EIS). The subcomponent will provide technical assistance, training and equipment to assist CONAGES in setting up a national environment information system (EIS). The objective will be to increase availability of core databases, the accessibility and exchange of existing environmental information held or produced by Burkinabe institutions, and to ensure compatibility of different types of data. Technical assistance will target the establishment of an environmental information exchange network, including government services, the private sector and NGOs, the preparation and distribution of a catalogue of existing data, the harmonization of data held by different institutions, the development of in-country capacity to constitute and maintain key databases, and the development of capabilities to analyze environmental information. The EIS will support key activities of CONAGES, including environmental policy formulation, monitoring of sectoral policies, programs and projects, supervision of the EIA process, and the design of environmental education and awareness programs. The EIS will be set up in close coordination with the information gathering and processing activities undertaken by sectoral agencies. Design and Implementation of an Environmental Education, Information and Communication program (EIC). Generating awareness of environmental concerns in the general population is critical to the pursuit of environmental protection and natural resource conservation. To this end, this sub-component will provide technical assistance, training and equipment to CONAGES to: (i) integrate environrental education into the curricula of the primary and secondary schools in coordination with the Ministry of Education; (ii) integrate environmental education into adult literacy programs through the preparation of teachers manuals and training courses; and (iii) design and implement an environmental awareness program for communities, the media, grass roots organizations, local NGOs, women's organizations and special interest groups. The design and implementation of the EIC should be carried out in close liaison and consultation with IUCN and other partners such as the Danish Red Cross, as well as the DGFBD and DGPE of MEW, which have experience in working with communities and with the

30 22 dissemination of environmental education. The sub-component will fund workshops, seminars, and the production of audio and video materials, and promotional materials to be disseminated through outreach programs. (c) (d) Annual Environment Report, Inventory, Hydrology Evaluation, and Industrial Pollution. Technical assistance, training and equipment will be provided to: (i) prepare an annual State of the Environment report; (ii) compile an inventory of ongoing projects and programs in the country and categorize them by potential environmental impact; (iii) conduct a study on environmental economy and analysis of ongoing projects in the country; (iv) support the development of an indigenous goods and services industry with respect to environmental protection through encouraging local consultancy contracts; (v) conduct studies and/or audits of selected operations as a method of "on-the-job" training; (vi) conduct a study on economic valuation of natural resources and biodiversity (DGFBD); (vii) conduct a study on hydrology and availability of water systems in specific areas towards the development of a program of sound management of water use, with particular reference to mining activities (DGH); and (viii) evaluate the situation with respect to industrial pollution and toxic wastes, with recommendations concerning the management thereof (DGPE). Training. This sub-component will provide training, both overseas and in-country, to officials in the relevant departments of MEW and MEM in the following areas: (i) environmental policy, education and economics, and valuation of natural resources and biodiversity; (ii) environmental impact assessments of projects; (iii) screening of policies and programs for possible environmental impact; (iv) formulation of environmental guidelines, standards, and norms; and (iv) environmental accounting. D. Smal Scale and Artisanal Mining Component: ($4.2 million; Duration: Five Years) 5.10 The possibility of developing small-scale, semi-mechanized mines in Burkina Faso is considered excellent. These could, in time, offer an alternative to the extensive artisanal mining in the country which is highly detrimental to the environment and the health and safety of the artisanal miners. Accordingly, this sub-component will support the sector institutions in the following activities: (a) conduct technical, socio-economic and environmental studies of smallscale and artisanal mining areas to determine delivery mechanisms for providing extension services; (b) subject to positive feasibility studies acceptable to IDA, establish one pilot training center in order to promote small scale mining -- a mid-term review of the project will be carried out on the performance of the pilot center; upon favorable evaluation, two additional centers would be funded under this sub-component; (c) review the capacity of local financial institutions to assess proposals of small-scale mining operators with a view to identifying local private financing mechanisms; (d) subject to positive feasibility studies, fund the pilot testing of smallscale mining equipment and dissemination thereof through private sector delivery mechanisms; (e) design and implement, in coordination with the environmental sensitization programs of MEW, an educational campaign directed towards small-scale and artisanal miners in matters such as environmentally responsible mining practices, disposal and use of toxic chemicals, environmental protection and site reclamation/rehabilitation, health (including AIDS prevention

31 23 in association with the Bank-funded program on Population and Aids Prevention), sanitation and safety. Project Cost, Administration and Implementation 5.11 Project Cost Estimates and Financing. The estimated cost of the project is $22.5 million, including local duties and taxes, physical and price contingencies, with a foreign component of $13.1 million, equivalent to 57 percent of total project costs. Costs were estimated on the basis of 1995 prices, and included six percent yearly escalation for consultant services and equipment IDA would finance the consultant services, equipment and supplies, and training associated with the project for a total of $21.4 million, or 95 percent of the total project costs. The Government would finance incremental operating and some other local costs for $1.1 million equal to five percent of total project costs, plus any duties and taxes payable on items procured for the project (estimated at $750,000) through a Project Account. Deposits would be made for this purpose on a periodic basis (para. 5.23). TABLE 5.A: Cost Estimates (Inclusive of Local Duties and Taxes) US$ million) Project Component Local Foreign Total Legal Reform and Capacity Building Mining Taxation and Fiscal Training Institutional Strengthening and Resources Management Environmental Management Small-Scale and Artisanal Mining Project Coordination Unallocated PPF Total

32 The proposed financing plan is as follows: TABLE 5.B: Financing Plan (Inclusive of Local Duties and Taxes) (US$ Million) Local Foreign Total IDA Government Total Implementation 5.14 Project Coordination. The Director General of Mines and Geology has been named Project Supervisor (SP) responsible for the supervision of the project for the Ministry. A local Project Chief (CP) possessing experience and qualifications acceptable to IDA will be recruited for the day-to-day management of the project as a condition for effectiveness (para 7.3 (d)). The CP reports to the Ministry concerning the management of the project and is responsible, inter alia for: (a) coordination of the different components of the project; (b) liaison with the Bank, various departments of the Government, consultants and other vendors, and third parties; (c) organizing various studies, workshops, seminars and conferences; (d) management of project finances, accounts, and audits; (e) procurement of goods and recruitment of consultants. Officials within MEW and the MEF have been appointed to liaise with the CP on implementation matters pertaining to environmental and fiscal components. A Steering Committee (SC) will be established prior to credit effectiveness (para 7.3(b)). This Committee will be responsible for the overall supervision of the project, and will pay particular attention to the progress made in achieving the project objectives. Under the presidency of the representative from the Ministry of Energy and Mines, the Committee will be composed of senior level repesentatives of MEM, MEW, MEF, and possibly other ministries involved with the project. The SC will meet twice a year to examine the implementation of the project and submit to IDA a report of its findings Project Startup. The Project Supervisor and Project Chief would organize a project launch workshop at about credit effectiveness time to bring together all of the participating agencies. The workshop would clarify responsibilities and assist in initiating Project activities, as agreed in the TORs and schedules described in detail in the Project Implementation Manual, including the key performance indicators which have been agreed to during negotiations [paras 7.1 (c)] Annual Work Program and Budget. Annual work programs will be prepared by the Project Chief, with the collaboration of all participating agencies, by December 31 of each calendar year for the duration of the project. The first year's program has been finalized in consultation with IDA during negotiations. Subsequent annual work programs will be based on

33 25 an evaluation of the previous year's experience [para 7.2 (b)]. These reviews will be carried out during supervision activities during the first quarter of each year Mid-Term Review. A comprehensive mid-term review would take place, not earlier than two years, and not later than 2 1/2 years, after effectiveness of the credit. The review would be carried out jointly by the MEM and IDA. Annex C contains a detailed list of project performance indicators; Annex G contains details of the elements to be reviewed at mid-term Procurement. Procurement of goods and services will be in accordance with Bank Procurement Guidelines. Consultants to be financed by the Credit will be selected in accordance with the "Guidelines for the Use of Consultants by World Bank Borrowers" (1996). The main terms of reference for work included in the Project were drafted during preparation and were reviewed during the appraisal (see Annex F, Contents of Implementation Manual). Draft contracts for consultants and consultancy services will follow IBRD Standard Form of Contracts, as applicable. To facilitate management of the various consultants, component activities will be grouped into convenient packages. The Government has been exposed to the Bank's Guidelines and Procedures through PPF implementation. The CP will collaborate closely with the Central Directorate of Public Procurement (DCM) and the Directorate General of International Cooperation (DGCOOP) whose personnel are experienced in Bank procurement methods and procedures Procurement of goods, at an estimated cost of $4.3 million equivalent, includes the purchase of computerwares, furniture, instruments, field and office equipment, and vehicles. The acquisition of small-scale mining equipment, laboratory and mineral testing equipment is conditional subjet to feasibility studies acceptable to IDA related to the pilot mining centers and mineral testing facilities. Specialized informatics and computer equipment, instruments and technical equipment, and small-scale mining equipment would be procured through ICB procedures in packages costing over $250,000. Appropriate after-sales service, maintenance arrangements and spare parts will be procured jointly with such packages. NCB will be used for packages of amounts less than $250,000 whenever local suppliers ensure sufficient competition and foreign firms would not be interested, up to an aggregate amount of $1.4 million. Goods and materials which need to be purchased in packages smaller than $25,000, up to an aggregate amount of $250,000 would be purchased through national shopping procedures acceptable to the Bank, requiring the comparison of price quotations from at least three eligible suppliers. All ICB procurement will be done using the Bank's Standard Bidding Documents. For NCB, standard bidding documents will be developed and cleared with the Bank before use Consultancy. In order to simplify project management and to achieve cost reductions, the various consultancy services to be engaged by the Government will be grouped into packages corresponding to the activities of the various components of the project (see Annex D). Internationally recruited consultants will be responsible for providing workplans, local and foreign personnel, and some logistical support, in accordance with the terms of reference prepared for the component activities. Budgets for recruitment of local consultants have in general been provided under a single arrangement within each component, except as otherwise noted. The proposals will be invited in a phased manner over the lifetime of the project to reflect

34 26 the priorities established by the Government and IDA Training. Establishing capacity in the country for effective project implementation and sustainability are major priorities in Burkina Faso. Towards this end, the project has a major focus on training and skills development in both the public and private sector. The training will include overseas as well as in-country training in areas ranging from mining legislation, mining taxation, environmental regulation, and monitoring, mining and environmental information systems, geological data collection, retrieval and dissemination, environmental economy and quantitative analysis and environmental education. The Government and IDA will review training proposals every six months of project implementation, and provide non-objection. The proposals will indicate candidates of training, where and when the training is to take place, the costs involved and what responsibilities the candidates will assume after the training. The training program for the first year of the project is detailed in the implementation manual. TABLE 5.C: Summary of Proposed Procurement Arrangements (US$ million, inclusive of all local taxes and duties) Project Element ICB NCB Other Total Goods and Equipment (2.5) (1.4) (3.9) Consulting Services Technical Assistance (14.4) (14.4) Training (2.3) (2.3) Miscellaneous 0 & M PPF (0.8) (0.8) Total (2.5) (1.4) (17.5) (21.4) Note: Amounts in (parenthesis) are to be financed by the Interim Trust Fund Procurement Decisions. All contracts for goods and equipment under ICB and contracts with consulting firms expected to cost $100,000 or more, and consulting contracts of $50,000 or more for individual consultants, will be subject to prior review by the Bank. The proposed review procedures will result in a prior review of over 90 percent of total contract value under the project, which is satisfactory. Procurement arrangements for consulting services are summarized in Annex D. The eligibility of certain countries to bid on consultancy and goods contracts under this project, as well as other restrictions, may apply under rules governing procurement for Interim Trust Fund projects.

35 Project Account. The Government will establish a Project Account in CFA francs in a commercial bank for local matching funds. It will make semestrial deposits in advance on the basis of an agreed budget for the project, proposed by the Government and accepted by IDA by October 31 of each year. The first contribution of 125,000,000 CFA will be deposited in the account as a condition of credit effectiveness. [para 7.3 (a)] 5.24 Disbursement. To facilitate project implementation and reduce the volume of withdrawal applications, a Special Account will be opened in CFA francs in a commercial bank on terms and conditions acceptable to IDA. The authorized allocation amounts to 250,000,000 CFA francs and covers about four months of eligible expenditures. Upon effectiveness, an amount of 125,000,000 CFA francs representing 50 percent of the authorized allocation will be deposited in the Special Account. The remaining balance will be made available when the total amount withdrawn from the credit account and/or special commitments issued amount to the equivalent of $ 10 million. The Special Account will be used for all payments below CFA franc equivalent to $100,000. Requests for replenishments will be submitted monthly. All replenishments should be fully documented except for: (a) contracts of less than $100,000 for equipment and consulting firms; and (b) contracts of less than $50,000 for individual consultants and training, which will be claimed on the basis of Statement of Expenditures (SOEs). All supporting documentation for SOEs will be retained for review by periodic Bank supervision missions and external auditors. TABLE 5.D: Allocation and Disbursement Categories (Expenditure Inclusive of all local taxes and duties) Category Credit Percentage of Expenditure Allocation to be Financed (US$ million) 1. Consultancy Services % of foreign and local expenditures 2. Equipment * % of foreign and 80% local expenditures 3. Training % of foreign and 90% local expenditures 4. Unallocated PPF 0.8 Total 21.4 (*) Includes an amount of US$1.4 million to be disbursed following enactment of Mining Code and satisfactory outcome of feasibility studies concerning a pilot mineral treatment test unit at BUMIGEB and a pilot small-scale mining training center.

36 Project Implementation and Reporting. The Government of Burkina Faso will be the Borrower, represented by the Ministry of Economy and Finance. The implementing agency will be the Ministry of Energy and Mines (MEM) Project implementation will be assisted by a Project Supervisor (SP) and a Project Chief (CP) within MEM. Not later than 45 days after each quarter, the CP will submit quarterly progress reports to the Bank. A first project review to be carried out 12 months after effectiveness, and subsequent ones yearly thereafter, will provide a detailed analysis of progress in implementation Accounts and Audits. The CP will engage a private accounting firm to maintain accounts and process payments pertaining to project activities. The recruitment of a private accounting firm, and the setting up of an accounting system satisfactory to IDA, are conditions of credit effectiveness [para 7.3 (c)]. The accounting system will be maintained throughout implementation of the project. In addition, the CP will recruit such professional assistance as may be required to adequately manage project accounts and financial records. Among other specifications, the accounting system should include an integrated database for management of consultancy contracts, integrated budgeting and budget monitoring systems, multiple currency capabilities, and reconciliation of accounts with Bank disbursement categories. The Project Account, the Special Account and all procurement, including Statements of Expenditure, will be audited annually by independent auditors satisfactory to the Bank and appointed for at least three years. Audit reports will be submitted to the Bank no later than six months after the end of the Government's fiscal year. Appointment of an auditing firm acceptable to IDA is a condition of effectiveness [para 7.3 (c)]. All supporting documentation for SOEs will be retained for review by periodic Bank supervision missions and external auditors. Benefits 6. BENEFITS, RISKS AND SUSTAINABILITY OF PROJECT 6.1 Burkina Faso has significant potential to establish competitive industrial scale gold production. Currently, officially declared gold production is just over 1 tonne, contributing $13 million to GDP. Using internationally acceptable parameters and the experience to date in other African countries, production of industrially mined gold in Burkina Faso could reach tonnes per year within 10 years, contributing a value added to GDP of $110-$170 million. In recognition of this potential, the Government has declared as the decade of mining development, and the CAS has identified mining as one of the engines of growth for the economy. An initial interest has been shown in the country's potential by mining investors. However, because Burkina Faso does not have a mining tradition, regulatory and institutional frameworks need to be put into place, and government personnel trained to administer the sector in order to sustain the present levels of private sector investment, and to derive the maximum economic benefits from mining operations.

37 The project supports the establishment of a new mining law and regulations, as well as the building of capacity to administer the regulations which are essential for sustained investment. For instance, a properly designed and administered mining title system and cadastre registry will help to ensure that current levels of exploration expenditure (around $30 million per year) are sustained and that exploration acreage is effectively worked over time by turning the ground over to successive companies. Orderly and transparent mining title issuance is an immediate and pressing need. For this reason, expert technical assistance is being provided early in the project to help the Government avoid mistakes in dealing with private companies which could result in costly litigation or forgone revenues at a later date. 6.3 The project will establish needed skills for monitoring, control and audit of mine operations to ensure satisfactory compliance with financial and fiscal reporting requirements. Assuming strengthened tax assessment and collection functions, total tax receipts (royalties, license fees, income, dividend, and other direct and indirect taxes) on the order of $20-30 million could be anticipated at the 15 tonnes/year level of production. 6.4 The project will put into place regulations, procedures, and monitoring capacity to ensure that industrial pollution (air, water, soil, disposal of toxic wastes) from mining operations is kept within internationally accepted standards. Skills will also be developed to ensure that mine operations are carried out in a responsible manner with due regard to the health and safety of workers and local communities. The project will put into place regulations for adequate technical and financial provisions during mining operations to ensure that mines, once closed and decommissioned, do not leave a bitter and costly legacy for future generations. The project will develop national and sector environmental management databases, establish norms and standards, and increase awareness of environmental issues within the general public. The costs associated with failure to take into account environmental protection during the early stages of growth of the mining industry are difficult to quantify but could easily reach the tens of millions of dollars. 6.5 The project seeks to encourage the local private sector to respond to the requirements of the growing industry for the supply of local goods and services. Based on experience in other countries, assuming the 15 tonnes/year level of production, a reasonable estimate of purchases by industrial operations of local goods and services is $15-25 million/year. These purchases would include reagents and chemicals, construction materials, fuel and lubricants, spare parts, hardware, small equipment, food stuffs, and other materials. Many of these goods would be produced or manufactured locally, adding value to the economy and creating jobs. Even when the materials are imported, they are typically purchased through local distributors, whose profit margins generate value. Estimated wages paid to the largely rural-based work force is $10 million/year. While modern industrial mines are not labor intensive operations, the substantial and regular wages received by a mine worker will typically provide for a large extended farnily in rural areas. In addition, the communities and region where mine operations are located would benefit from social and physical infrastructure which ordinarily is associated with medium- to large-scale mine operations.

38 The project directly supports the development of small-scale mining through the provision of technical extension services and the encouragement of manufacturing of elementary mining equipment. Small-scale mining, ideally suited for local entrepreneurs, will provide substantial benefits to employment and the rural economy. Over a ten-year time horizon, a reasonable estimate is the development of seven small-scale mines, each producing 100 kilograms/year of gold for an aggregate value of production of $8.4 million. 6.7 Finally, by suppressing the monopoly of CBMP on gold exports, artisanal miners will receive a fair market price for their production and clandestine exports of gold will be curtailed. While it is impossible to completely eliminate smuggling of gold, a reasonable estimate is that 70 percent of the currently smuggled gold (believed to be around 3 tonnes annually) would be declared and subject to royalties. The project will also help to improve social and economic conditions in the artisanal mining community. 6.8 Two questions need to be asked when assessing the benefits of the project. First, will the reforms and the improvements in the enabling environment continue anyway without the project? Second, if not, then is project design the most effective use of the funds to deepen the reform process and thereby stimulate investment in the sector? In response to the first question, the reforms would probably continue but would not be complete or strong enough to sustain investment nor would they necessarily be consistent with international best practice. The presence of Bank support, suggestions, and guidance on best practices in the sector during preparation was instrumental in keeping the reform process moving and on-track. Access to international expertise through the project is necessary to continue the reforms and to build human capacity to effectively administer the sector. With respect to the second question, international technical assistance, if properly managed and twinned with local expertise, will be cost effective to assist the Government to effectively administer the sector. The Government's ability to respond quickly to the requirements of private sector developers is becoming more urgent as these companies approach feasibility stage. Important decisions in respect of significant financial commitments and environmental impacts must be made over the next few years. Thus, foreign technical expertise in the project is "front-end loaded". Getting started on the right foot with mining companies, and applying international best practices from the beginning, can avoid mistakes which could prove very costly in the long run. 6.9 Based on experience in other West African countries, reasonable assumptions regarding development of viable projects, and models of hypothetical mining operations based on international parameters, it is possible to estimate high, medium and low case scenarios of the contribution of mining to the national economy. These scenarios are summarized in Table 6.A (see also Annex G).

39 31 TABLE 6.A: Projected Contribution of Mining (US$ million) Scenario Specification Yearly Export Yearly Fiscal Yearly Earnings Revenues Local Expenditures Low 1 medium gold mine Medium 1 medium and 1 large gold mine High 1 medium + 1 large gold mine, Perkoa zinc mine, Tambao manganese mine Risks 6.10 The project seeks to build capacity in a modest cadre of government officials, and encourage the Burkinabe private sector to supply goods and services which have in the past been supplied by the Government. A principal risk to this approach is the ingrained attitudes that perpetuate direct state intervention in all activities, compounded by fears that the Burkinabe private sector will not or cannot respond. Care has been taken during project preparation, through extensive policy dialogue among government officials, to build commitment for the private sector oriented approach. The use of local consultants and training activities for both the public and private sector are key features during project implementation Another risk is excessive government discretionary control over the sector. Care has been taken during project preparation to build ownership for reforms to liberalize the sector. This is evidenced in the letter of sector development policy which is acceptable. Furthermore, the new mining code, the drafting of which was funded by the PPF advance, is in line with internationally acceptable practices. The new mining code has been approved by the Council of Ministers A further risk to the project is confusion as to the roles of the government supervisory institutions, principally BUMIGEB and CBMP. While project preparation activities have funded studies on the mandates and roles of these institutions, care must be exercised during implementation to vigorously pursue the recommendations for restructuring Finally, there is a risk that the on-going UNDP mining sector program, the support proposed by UNDP, UNEP, FAO, The Netherlands and Denmark for environmental capacity building, and the support provided by the European Commission to carry out geological mapping programs will overlap with the program supported by the Bank. Care has been taken during project preparation to maintain close contacts with all organizations to ensure that activities are complementary and do not overlap.

40 32 Sustainability 6.14 The extensive dialogue with the Government, private sector stakeholders and the Bank undertaken during project preparation and through implementation of the PPF has assisted in building Burkinabe ownership for the project. Furthermore, the project places strong emphasis on institution building, training, human capital development and environmental awareness. The effect of this emphasis will be to increase the efficiency of the sector, improve capacity and effectiveness of both the mining as well as environmental sector organizations, increase fiscal revenues and enhance the basis for revenue generation Specific actions to be undertaken during project preparation and implementation include the formulation of a new mining law, enhanced institutional capacity to administer the sector, and close coordination between MEM and MEW. In addition, the project will be managed through existing government bodies rather than a separate project coordination unit Capacity building will be through on-the-job training and technical assistance delivered directly to the line supervisory institutions. Several mining projects are nearing the feasibility study stage and it is, therefore, urgent that internationally skilled technical assistance be quickly made available to the Government in order to ensure that they conform to international standards. It is for this reason that technical assistance in legal, fiscal, institutional and environmental components has been "front-end-loaded" to take place early in project implementation. Technical assistance will also be programmed on a "back-stopping" basis later in project implementation, to ensure sustainability. The consultants' terms of reference will encourage foreign consultants to work closely with local counterparts, and will include precise and specific measurements of the transfer of know-how and local capacity building. Experience in other countries would suggest that these technical assistance programs are sustainable if they are underpinned by a vibrant private sector and community involvement. Once mining companies establish operations, a critical mass is formed among companies, trade associations, ancillary industries, financial institutions, vendors and suppliers, labor unions, community associations and other segments of civil society. The constituencies thus formed articulate demands for a sustained response on the part of the Government and, in certain instances, directly assist in the effort. 7. AGREEMENTS AND CONDITIONALITIES 7.1 During negotiations, agreement was reached in the following: a) adoption of an Implementation Manual incorporating a detailed training plan, and terms of reference for consultancy services consistent with the activities outlined in the preceding chapters; b) terms of reference for project auditors; and c) direct and indirect indicators of project performance, as appended in Annex C

41 During negotiations, agreement was reached on the following project milestones to be achieved during project implementation: a) maintain, project coordination arrangements, as established at effectiveness; b) prepare in consultation with IDA, annual work programs and budgets no later than December 31 of each year; (para 5.16); c) carry out, not earlier than two years nor later than two and one-half years after project effectiveness, a comprehensive mid-term review jointly by MEM and IDA (para 5.17). The review would evaluate the key activities as outlined in Annex G; d) no later than.the beginning of the second year after credit effectiveness, and subsequently at the beginning of each year thereafter, prepare and submit to IDA a report on the progress of the project with particular reference to achieving the project objectives and conditionalities (para 5.26); e) no later than June 30 after the end of each calendar year, prepare and submit to IDA an audit, acceptable to IDA, of the project accounts (para 5.27); f) no later than one year after credit effectiveness, submit to the Assembly of Peoples Deputies (para 3.3), for deliberation and adoption, the new mining code and model investment agreement; g) no later than one year after credit effectiveness, formulate and approve the various application decrees to be prepared under the legal reform components of the project [para 5.3 (a)]; h) no later than one year after credit effectiveness, render operational the institutional structure outlined in the Letter of Sector Development Policy and prepare internal procedures and manuals for the institutions (paras and ); i) no later than two years after credit effectiveness, render operational a computerized mining title and land management system (para 5.5); j) no later than two years after credit effectiveness: (i) render operational an environmental unit within the DGMG; and (ii) promulgate and put into operation mining regulations, guidelines and standards pertaining to environmental protection and consultation with local communities [paras 5.6 and 5.9 (a)]; and k) no later than two years after credit effectiveness, design and initiate implementation of an Environmental Education, Information and Communication (EIC) programs [para 5.9 (b)]; 1) no later than three years after credit effectiveness, establish the National Environmental Information System (EIS) [para 5.9 (a)]; and

42 34 m) no later than four years after credit effectiveness, put into operation the National System of Earth Science Information (para 5.8); 7.3 Prior to credit effectiveness, the Government will provide evidence to IDA of the following: a) confirmation of: (i) establishment of the Project Account (para 5.23 and 5.27); (ii) deposit of the first installment of counterpart funds of CFAF 125 million (para 5.23); and (iii) appointment of auditors for the project acceptable to IDA (para 5.27); b) setting up of a Steering Committee for the project under the auspices of the Ministry of Energy and Mines (paragraph 5.14). c) recruitment of a private accounting firm and the setting up of an automated accounting system satisfactory to IDA (para 5.27); d) recruitment of a Project Chief, possessing experience and qualifications acceptable to IDA (para 5.14) Performance Indicators 7.5 Several direct and indirect indicators of achievement of project objectives have been discussed and agreed between the Government and IDA. The indicators are linked directly to the economic benefits to be derived from the project. The indicators are phased during the implementation of the project and will be reported on a regular basis to IDA. The indicators are summarized in Annex C.

43 35 ANNEX A Page 1 of 9 MINING AND ENVIRONMENT INSTITUTIONAL STRUCTURES BURKINA FASO MINING SECTOR CAPACITY BUILDING AND ENVIRONMENTAL MANAGEMENT PROJECT MINISTRY OF ENERGY AND MINES Ministry of Energy and Mines Mirwster Permarnt nseretry DIreoaeo nr Attced Servics t 1loatGl of Cand Mt F. - Clnra Swv Direeioiate of SORE.'.18 Drrord Mln Dkkf of Planning Gold Mir_ Studi" wnd Poura (DM) _ Direcrftorates of S UMIGEB Dwedond of Geology Dirdw of Povwer Gsokogical Survey (DG) Ad _nwo _ : 1 ~~~~~~~~~~Geo-Servkces end I CBMP Diredtorde of Gold Buying Office alr Mnirng Promobon _(DPPM) Tambao OGPT Mangano PERKOA Perkoa Zrnc Projer

44 36 ANNEX A Page 2 of 9 MINING AND ENVIRONMENT INSTITUTIONAL STRUCTURES BURKINA FASO MINING SECTOR CAPACITY BUILDING AND ENVIRONMENTAL MANAGEMENT PROJECT MINISTRY OF ENVIRONMENT AND WATER Minister Permanent Secretary Delegate Minister (Water Affairs) CONAGES Directorate General Directorate General Directorate General Of Of Of Water and Forests Environmental Hydrology Preservation Directorate of Directorate of Directorate of - Village Forest - Pollution Prevention - Potable Water Directorate of Directorate of Directorate of _ Wildlife and - Urban Improvement - Agro-hydrology Hunting Directorate of Directorate of _ Fisheries - Water Inventory Regional Regional _ Directorates Directorates

45 37 ANNEX A Page 3 of 9 MINING AND ENVIRONMENT INSTITUTIONAL STRUCTURES BURKINA FASO MINING SECTOR CAPACITY BUILDING AND ENVIRONMENTAL MANAGEMENT PROJECT NATIONAL COUNCIL FOR ENVIRONMENT MANAGEMENT Ministry of Environment and Water Minister Permanent Secretary National Council for Environment Management CONAGES Sitting Consultative Interministerial Technical Permanent Court Council Committee Secretariat (consultative) (decision making) (follow-up) (implemention) Division of Technical and Administrative Coordination Division of Legislation, Regulation and Impact Assessment Division of Training Division of Policy and Planning

46 38 ANNEX A Page 4 of 9 Mining Sector Institutions 1. In the past,the Bureau of Mines and Geology of Burkina Faso (BUMIGEB) was the state agency responsible for all policy, administrative, and geology functions with respect to the sector. This confusion of functions posed serious problems of conflict of interest between the role of the state as regulator and its role as direct participant in operations. Beginning in the early 1 990s, a secretariat of mines was established to more clearly distinguish the regulatory from the operational functions. This reform has been reinforced with the creation in July 1995 of a full-fledged Ministry of Energy and Mines. The letter of sector development policy further establishes the primacy of the central administrative institutions and delineates the overall functions and mandates of the various sector institutions. The PPF advance has supported an institutional study to further clarify these roles and the preparation of an action plan to render them operational. 2. Administration of the sector is vested in the Ministry of Energy and Mines (MEM). The Ministry is responsible for: (a) the policy functions - the definition of sectoral policy and strategy, preparation of different legal and fiscal documents, coordination among ministries; and, (b) the administrative functions - the day-to-day management and application of the policies. BUMIGEB, reporting to the Ministry (Directorate of Geology), is responsible for the geological functions - the generation and dissemination of geology and environment database. The Comptoir Burkinabe des Metaux Precieux (CBMP), also reporting to the Ministry, no longer has the monopoly on gold export operations. Henceforth, it will concentrate on providing technical assistance to artisanal miners. In addition to these principal entities, autonomous project offices, such as Perkoa Mineral and the National Office for the Tambao Manganese Project, are attached to the Ministry. 3. The new organizational structure of MEM is in line with international practices. However, the operationalizing of the new organizational structure and institutional mandates is the major challenge facing the Government. MEM personnel are mostly mid-level professionals lacking in practical experience. Attracting trained personnel to the directorate is difficult since the general civil service salary scales are grossly inferior to those of the private sector or BUMIGEB. Finally, MEM does not have sufficient infrastructure (vehicles, office equipment, survey devices, computers, etc.) to carry out its assigned tasks. Central Administrative Institutions The Directorate General of Mining and Geology, within the Ministry of Energy and Mines, has overall responsibility for sector administration and management. The DGMG develops and coordinates mineral sector policies, promotes exploration and extraction activities, supervises the meetings of the National Commission for Mines, disseminates documentation, and

47 39 ANNEX A Page 5 of 9 monitors payments of surface rents and royalties by mining companies. The new organizational structure of DGMG is in line with international standards. The DGMG is sub-divided into three directorates: (a) Directorate of Geology (DG), responsible for overall direction of mineral inventory and geology exploration work, including monitoring compliance with work commitments and expenditure minima of mine title holders; (b) Directorate of Mines (DM), responsible for preparation and application of mine health and safety aspects, monitoring exploitation activities, and overseeing the protection of the environment in collaboration with other relevant ministries, and maintaining files on exploitation activities in the country; (c) Directorate of Small Mining Promotion (DPPM), responsible for preparation and implementation of strategies to promote small-scale mining, training of small-mine operators, assistance in setting up fabrication of local mining tools and equipment, and legal assistance to small-scale miners. 5. A mining development fund (FDM) has been established under DGMG, as is the practice in many countries relying on mining revenues. The fund will receive a portion of permit issuance fees, surface rents, and ad valorem royalties. These funds will be used to finance promotional activities, research programs, purchase of control and monitoring equipment, and general costs associated with the exercise of the surveillance function. 6. The National Commission of Mines (CNM) is a consultative organ under the Ministry of Energy and Mines. Its role is to analyze the economic and regulatory context pertaining to the mining sector, establish sector priorities with respect to the national economy, and review investment applications. The commission is headed by the Minister responsible for mines and includes representatives of the ministries of finance, transport, environment, industry and commerce, health, and labor. Bureau of Mines and Geology of Burkina Faso (BUMIGEB) 7. BUMIGEB was created in 1978 as a public enterprise of an industrial and commercial character. This allows it a certain management autonomy and, in theory, releases it from the normal complex civil service procedures as well as the applicable civil service salary scales. As originally conceived, the role of BUMIGEB was to be the all-encompassing state agency responsible for the sector to: issue mining permits, collect and disseminate geology information, and sell geo-services, such as drilling and laboratory analysis. BUMIGEB currently employs some 320 persons; its annual budget is around $4 million. BUMIGEB is expected to be selffunding but in reality has shown financial losses (approximately $700,000) in recent years.

48 40 ANNEX A Page 6 of 9 8. As a result of its financial difficulties, BUMIGEG has in recent years concentrated almost exclusively on the sale of geo-services, to the detriment of basic geology and earth system data collection and mapping. In order to attract mining companies with the technical expertise and risk capital they can devote to detailed exploration, governments typically supply earth system data and maps on a regional scale. These maps should include information on topography, hydrology, physical infrastructure, agriculture and pastoral features, cadastral and land tenure records, human and animal populations, background levels of pollution and other forms of information necessary for proper land management and environmental control. 9. In spite of funding from internal and external sources, basic earth system maps and information in Burkina Faso are insufficient. For instance, only slightly more than half of the country (13 mapping sheets out of a total of 2 1) is covered by geology cartography at a scale of 1/200,000, the international norm. Tectonic and general geology maps at a scale of 1/1,000,000 need to be updated, using modern techniques and recent information and interpretation theories. Geophysical and geo-chemical surveys have only covered one-half of promising Birrimean zones. During the course of their operations artisanal miners uncover basic geology but, as yet, no systematic effort has been made to map these areas. Geographical information systems currently being implemented in other Government agencies, principally the National Burkinabe Institute of Geography, only treat a portion of the required datasets. The earth system work of BUMIGEB not only needs to be enhanced but also made compatible with, and integrated into, the national environmental information system at the MEW. 10. The letter of mining sector development policy more clearly defines the role of BUMIGEB. The agency's principal function will be to provide geological survey services (geology cartography, geophysics and geochemical surveys, and hydrogeological reconnaissance), and mineral potential inventories over the national territory. BUMIGEB will execute a "contrat plan" with the Government from time to time under guidance from MEM. Additionally, within the tasks given to it by the Ministry, BUMIGEB may assist in diversifying target commodities (other than gold) and assist in development of small-scale mining initiatives. Comptoir Burkinabe des Metaux Precieux (CBMP) 11. CBMP, created in 1986, is the state-owned entity which previously held the monopoly on the export of all gold, for both small and large-scale operators. Faced with the phenomenal expansion of artisanal mining activities partly as a result of the Sahelian droughts, its original objectives were primarily to control fraud and generate income for the Government through royalty payments and taxes. A secondary objective was to organize the artisanal miners. A study of CBMP operations and gold marketing in Burkina Faso, recently conducted by the Government as part of the PPF advance, reveals that, after some initial success, CBMP is now having problems meeting its objectives. Since 1990, the gold officially handled through CBMP from the Poura industrial mine and artisanal workings has declined from 3.5 tonnes in 1990 to just over I ton in 1996.

49 41 ANNEXA Page 7 of 9 CBMP employs 69 persons, and has a network of buying agents at the principal artisanal mining sites in the country. The posted price for gold purchased by CBMP is set periodically in relation to the London Bullion Market. However, because of high overhead charges and numerous intermediaries, the artisanal miners only receive 55 to 60 percent of the fair market value of the gold they extract. It is not surprising that, in spite of policing efforts, a considerable quantity of gold is smuggled to neighboring countries. In 1995, CBMP handled 950 kilograms of artisanal gold; a reliable estimate of the amount clandestinely crossing the borders is at least 2 tonnes. The monopoly of CBMP was also viewed as a major constraint by potential private company investors, rendering difficult forward sales of gold and the use of gold loans, which are standard financing mechanisms for the development of new mines. 12. The letter of sector development policy stated the intention of the Government to rescind CBMP's monopoly on the export of gold. Accordingly, the monopoly was rescinded by Decree No I/PRES/PM/MEM of 3 July 1996, allowing the Government to meet a key condition of negotiations. The decree stipulates that, after a transitional period of one year, during which time CBMP will continue to purchase artisanal gold and assist in the shipment of industrial gold, commercialisation of gold will be done by authorized entities. CBMP will be restructured to assist artisanal miners to improve working conditions and to monitor the artisanal mining camps. A further condition of negotiations was the preparation of detailed rules and regulations for the authorization of private gold buying offices. These regulations have been adopted. Environmental Institutions 13. The environmental components of the proposed project are designed to increase and reinforce the capacity of national and sector institutions in environmental management. The Government recognizes that the adequacy of the institutions in this respect has been lacking in the past and has undertaken a number of reforms and reorganizations to remedy the deficiencies. The principal reform has been the reorganized Ministry of Environment and Water. The new ministerial organization includes the portfolio of water affairs which previously was a separate ministry. Functions of the Permanent Secretariat of the the CONA GES: (a) analysis of current or future environmental policies and the periodic up-dating thereof; (b) preparation and implementation of environmental strategies of sector institutions and non-governmental organizations; (c) coordination of the implementation of various environmental agreements; (d) implementation of the National Action Plan for the Environment (NEAP);

50 42 (e) supervision of the coherence of various environmental legislative and regulatory texts; (f) application of the Environment Code; ANNEXA Page 8 of 9 (g) preparation and application of strategies concerning environmental education and communication; (h) periodic reports and inventories of environmental projects and programs;and (i) dissemination of environmental information. 14. The secretariat is organized into four divisions for: (a) technical and administrative matters; (b) policy and planning; (c) legislation, regulations and environmental impact statements; and (d) development of human capacity and aptitudes for environmental management. 15. A "delegate minister" within the Ministry of Environment and Water is responsible for implementation of the national water policy, the general directorate of hydrology, various services concerned with water and water management, and inter- African secretariat for water. The General Directorate of Hydrology prepares inventories and evaluations of water resources, prepares plans for hydro-agriculture and potable water schemes, executes various water supply and management projects, and supervises the application of water legislation. The General Directorate is composed of: a Directorate of Potable Water, a Directorate of Agriculture Hydrology, a Directorate of Water Resources, an administrative and financial service, a water documentation center, and ten regional hydrology offices. 16. The environmental management unit within the Ministry of Energy and Mines has been created as a condition of negotiations of the proposed Interim Trust Fund credit. This unit will be responsible for the day-to-day management of environmental questions related to the mining industry. These duties include, but are not limited to: (a) advising the permanent secretariat of CONAGES relative to sector environmental policy and strategy; (b) preparing mining specific environmental regulations, norms, standards, and control procedures; (c) analysing and recommending environmental impact statements submitted by proposed mine developments; (d) inspecting and monitoring compliance with environmental regulations at mining operations; (e) developing and collecting environmental baseline data and information related to mining operations to be integrated into the National System of Geology and Earth Science Information (SNIGST); and (f) assisting in the preparation and implementation of sector specific environmental education and sensitization campaigns.

51 43 ANNEX A Page 9 of 9 DONOR ASSISTANCE AND DIVISION OF ENVIRONMENTAL RESPONSABILITIES Ministry of Ministry of Environment Energy and Mines Item Actions Donor Item Actions Donor National environmental NEAP Bank (1993) Sector Develop action plans Bank policy environment policy Legislation and Complete UNDP/ Sector specific Develop sector regs, Bank regulations environment code UNEP/FAO/ regulations standards, norms Prepare environment Bank/lUCN/ regulations Dutch Impact assessments Develop capacity to Dutch Sector and site Develop guidelines Bank evaluate env. impact impact for mining assessments statements environment impact assessments National environmental Design and Bank Sector Design and implement Bank information system implement national environmental sector EIS and GIS EIS and geology information systems Decentralization and Strengthen local Denmark Local Put into place and Bank local consultation consultation process consultation strengthen capacity to explain for local consultation environment code on mining projects Capacity building Strengthen skills in Bank Sector capacity Strengthen skills in Bank MEW, CONAGES, building environment unit in DGPE MEM Environment education Design and conduct IUCN, Artisanal mining Design and conduct Bank national Bank environment environmental, health, environmental education safety training in education awareness artisanal mining areas campaign National water use Capacity building Bank Mining water Develop guidelines Bank and study on water use: sources and and standards for management discharge water usage and discharge by mining operations Training Skills development Bank Training in Train public and Bank on national level mining specific private sector in environment environment analysis and management skills Ik M:\LK\BURKINA\ANNEXA.DOC 05/22/97 9:15 am

52 44 ANNEX B (7 pags) PROJECT COST ESTIMATES AND FINANCING PLAN (Inclusive of all Local Duties and Taxes) BURKINA FASO MINING SECTOR CAPACITY BUILDING AND ENVIRONMENTAL MANAGEMENT PROJECT

53 Sheet6 4 fev 97 _ - - _ rcmounmpcflaioasneftllaries Bid Package Intl Mo-nta -Local Mo-nths -Coat Year IYr2Yr34 " L Raoom Component -1 Ss 422 PFPvaratlOn oflol eds MEMOGMG lcb-cons 1 ApWlcallon Des Td- - MEMODGMG 1CS-Cons *SeniDr Resident Mining Attoniey - ME MIGM lce-cons Junior Atorney MEMIDGMG lce-cons ,W X X - -Regulatory SpecialS _ MEM,VGMG ICB-Conks P Ip,wen nverfwdvvw MEM.DGMG [CS-Cons *Senior SheEt Tenn Attomney _ MEMJDGMG lcd-cons *Junior Attore MEIfGMG lcd-cons 1 la *Regulaor Speclelt MEMIEOGMG - CD-Cons I LCunel,Aft ~ MEM42GMG lcd-cons I -0 - a 0 T a*vinaapkelionof Low MEMIOGMG lcd-cons I _ Huronin Resource Developmnent Speclaant MEMiVDGMG ICS-Cons I - -2 a 54,750 x *Minin Regulaio Apicton Spec MEMCVGMG TCS-Co-ns I_ 4 0 1f31,3927 xx -Local Reglaory speciahi MEMIGGMG Ica-Cons I MeoilooCqieClN MELt/DGMG lc-osa 0 _ 0 _0 -Negocletkon SpesaiNi MSIGM CB-Conks x *Local Neotalon Splhst- imemo3gmg _ CD-Cons LOCa Legal Co,etoe to AinisOY MEMOA,(MG_ NCD-Cons 1 0 _ X X X S S x - -~~~~~~~~~~~~~~ - _ ralnno i Mineend E4 nviomnt Lmw M-7EM-MGMQ C-Cn 0 0 a -Guest lecurers MEMIDGMG jj I z ,048 *Local Conoulafto MEMA)GMG NCB-Cons 4 0 ~ j_ xX In-Courtry SentnrmkwCost MEMIDGMG Othier O!-oT0 50, Lega Reference USrary (6$10,0=0yr 4 yrs) MEM - CS-Cons EhLngugLampTreining(yseamnSO,0/) MM Tain 'O10000 _ X iternlational etai k!r MEM ICS-Cons ,D000x Vehlmlde(2 4,o4) MEM ICB-Gonos I ,000 X Cornputemn, soltare (1-0 untsjvts~ 50 ah E4lDGos itrainingarndstudyvtsts- MEMii -Truei o- S X- i X S-- toncrenrnenal nratin Costs -MEM Other 0 _ 0 100,000 X Page 1

54 Sheelt - ~ ~~~~~~~~~2Sp9,Burkina aso: Project Sch dube ~~~~~~~~~~~Mining and Envrnmna Manag Moit j Eownponent/Specifiesons B-n-fiiarie Sidt Paclkage Intl MontisLcl MotsCs er1- Ya 4Year 4 -- Ye J _01[ C4 f Q MininV Tax Specialist end Mhrnrai EcnI it MMIG CECn _17,250 X -Senior Mining Accountant IMEMWDGI ICE-on X Financial Ann" EMIIDGI ICE-o ns ,250 X -Local Tax Consultants MEM/OGI IC-onr. _ _ PIeparnion ofachnihskativ InstrctiOns MEM/OGI lcs-cons L Mining Tax SpecialIs and Mireral Econoist MEMitGI ICE-Cons , *Senior Mhlhtg Acoountant MEMIDGI ICB-Cons 4 I 0 28, Financial MEM/DGI ICE-Consl 4 22,500D ~ 1 -- *Local Tax Consultants MEM/DGI ICE-Cons X S- InfftfonlsbK"MEM/DGI ICS-Comt MiningTa-SopnIan anld Mineral Economis MM2G ICE-Cons A 1 I X- -FIscal InStUtuions Specialist MM/G CE-Cons 4 _ 1 0 _27,500 X Financial MEliA/OGI ICB-Cons _ -Loal TaitandlnstftutionalCostutants _ MEMt/DGI ICB-Cons4 --- S a _ EM/OGI _ CE---nI4-0-o S0 _ S Mrining Tee/nTasg - - E/G _ ICE-Cons _ 1 -Humnan Ransourc Deveiopnmnnnt Specialist!MEM,1DGI C-Cn Local Mine Taxation Cnn aosmemwdgi ICE-o04 -_ ,887 2 SX Mine Acconedatancy Troenn X _MEM/DGI 21x ICE-ConS4_ _iigtx Specialist anid Mimeral Econostot IMEMWDGI C Co4T_ C - -Senior Mining Accountant MMOI0 107,108 -x x 21X1 FinanciaMEMAnG" ICE-Cons 4 I 22,415 X Local Mine Tanution Consuftants MMGI ICE-Cost ,220 X 21_-< MEM/OGI ~~~~~~~ICB-Cons 4 S _ 0_ -- -Mining Tax Specialist and Mionral Economist imem/ogi ICE-Cn Senior Mining ACCOUntant :MEM/DGl- ICE-Cost 4 1 0X553.2 x~- - Ala_rs MWEM/DGI 9374ICCE-Cons -Local Mine Tasalon Consutants.MMGI ICE-Cons s a I xl x - VNtWi Salscoofr Tax Trainnkg (ENAREF) *Senior TnFPnfessor EllAR-EF V----- I CB-Coms X -Vnting Lecturers ENAREF ICE-Cons x, -Local Tax Specialists and Consuotants 'ENAREF -NCE-Cons 5 ' i -Professional Seminars ENAREF - -Trin 0 0; 40,000 [ 1 -- Equipeent didoiqonu (ordinaleurs a.do-raisuni ENARE-F ICE-Goods x Special Studiesand Twinning Fond - ri,ae operating costs -EIrAREF - Other o 00 F ' 0 ~~~~0 intlauditktainer himem/gi ICE-Conse StudyVisits and Training MwiEM/OGI Train 0 0, 210,000 x 7 xx Yehicules 04) (1 ~MEMWDGI x x ICB-GoodsI 0 0i Computemrwosftwarn MEMJDGI ICE-Goods _108,250,._ X 21, InrmtlOetn ot 1 $000y MEMAOGI Ohr0 o 100,000F _ Page 2

55 SheetO ~~~~~~~~2-Se an.fc: ProetSCdu - - ~~~~~~~~~~~~~~~Mining and EnvironetlMng nt Prjwc - - Comnponent/Spectficatlons Beeficiarie-s Bi akg It mta Lcal Mo-nts Coat -Year Iea Year 3 - Year 4-5Ya ~ i ns n l_component 43 T,049U118 * nstlutional specialistitesm leader ME-M/DGMG ICS-Consl1i 390,958 - S I S- x -Mining edrrnnstntion specialist MEMIDGMOG ICS-Cont; I -- 2 _ T7 - *Sp iost in geolal sursy mnanagement MMGM iccos X xf - - -pciehlh geenenenaaee MEMADGMG ice-coon I X M~~~~~~ EMfDGMG ICE-Consi X x -- x -Locaiconsatants ~~~~~~MEMIDGOG ICE-Cons I _ 0 _ ,20 8 X X X x S S S S X X S Mkrhs TAle a-id Cadentf Administration MEMIDGMG ICS-Cons Sr. morink title spegelist MEMIOGM.G ICS-Cons I ,742 5 X xxx Sr. GIS -Database rmanagement specelest _ ME~MIGMG -CS-Consl X -Jr. CedWsre andgis specialists MEMWtDGMG ICSmC-Ct a ,429 X S S X X S *nisffonntics techeicians MEM/DGMG ]CS-Cons 1 ' nk En4eonwnentaiMnagement MEMWCEM -ICB-Cons S S X X XL-X X- *MhinkVgeinfwntmeal menagement specialist MEMICEM ICS-Corns *Mining envirnmental enigineer - MEMICEM ICE-Cons 5 5 i 170,323 X S S S Natural renouronen manageet elft EILMGE CS--Cots ,212 X S S Sx xitii 0-d-nist )~~~~~~~~~~~~~~~~~~~~EMBMIE CE-Cons x IMEMWEUMIGEE C-os ,810 _ X S S MEM/UMIGE CSCoon X X MEMIEUMIGEE ICS-Cons 5 2,03I S S XV V *Medical doctor 'MSUGE IE-os Minirg enaronmental informetlon sstma spec. MEM/BUPMIGES CS-Cons S *Ofter short tefn spcialists - -MEM/UIE C-osS XX ST National Ear/ Science k1bnstomhnr S~yntir -SWI MEM/BUMIGEE ICS-Cons 0 - _ 00 _ I7 - t MEMJBULMIGEB IICS-ConsS ,8 S I S _Geniogy inforation dae poe-~iss,no specasi ztmem/beumigeb tiecbcosii , ,384 S LLx AL_X X 4 -Other shortleon spectalists ME/UIE CSCot3 1 22,384L X S X X x S- A S * normaiktchtdniclans - -- MEM/EBUMIGIES -CECns5-48F_167, x S I X x x Ser'iCes dapi(laboatoke, *O de irriean, eic) JMEMUMIGEI I_CE-os5 Specialist. geophysique -MEM/BUIMIGEE ICS-Cons I - pec.itisteen tra8emen minerals MEM/UMIGEE - ICB-CoonS ~ C - -Egutinnnt - -- MEM/EUMIGEB 515,000,, I Page 3

56 Sheet _~~~ 0 ~~~ 0 I ~~~~~~~~~~~~~~ Eum and Other Costs-0 *wfnigo OSeda'rlrrdtdtions a_mijgg0 0 0 _ T af. stlady vskes. cours, seminrrars MEMVDGMAG Train _ x -x x - OlIt oquwprent spare parts, rskrtenance MEMIOGMG NCB--Goods ,250 x x *Corrwutes anw software MEMIDGM IC-od _ X X *Work supl, MEM/OGMG NCB-GOods 1I 5,750 *COOfradOSM MEM/DGMIG Nce-C0ns X -Iseriteittal oparahi costs ME~M/GMG Othew pikbr IS/ and CadasfW 5 Ask/srt MEM/OGMG rhko, study vtek, course, sorrsrams MEM/IDGMO Train 0 - ~ Office equipmentt, spare parts. maintenance MEM/DGMG NCIB-Goods 1 a x C-WCrrpfr and softwae MEM/OGMG CE-God 2 - ~ ,250 5x MEM/OGMG NC8-GOOd5 I I_C MEM/DGMG NICB-Cons ,000x * Tehk/er stud JIM) ole ssar E/E r X X -n Office op St retn corts mrtano MEM/CEMG OCtGher 10 23_00 *f Emnne - fand T softwarem r MEM/CEM C-od i L Z Tmwm Vist. Sh mm. emiars EM/CEM CSGodr1ain ,000 5 equiment_spa aintnanc MEM/JCEM NCB-Goods It ,000 C. ompetersand sopertei cssmem/cem OtherG ,5000x VtkSedornvkOrerraOtaaMEMSCEMGE CBo03I 0 _ 0 0 V*hTaM/g std( sisx oressror) MEM(CEMGE Tre-Goos I Ofito. eqimn,saepisrrotos r MEM MICEM 5 INICB-GoOd 5 X ICorenpuesand soprftwarel MEMrBUMIE CO-hood ii 000 g E aba MEM/SUMIGEB C-od TnWWQ 15, SLiy CUr&S Smiam MEM/BLJMIGIEB CT-oos t x umr_ spm_ ars k_ nac MEMWBUMIGEB NCB-GoodlsI _ompukig studysi_cue s 11 - x sore/oae s MEMVBUMIGEB TIau T x W_rk_spp s_ MEM/UMG E ;NCO-Goods 1 0' A o Vshlol&L4!~j)MEM/BULMIGEB ICB-Goodsl ,5- -- MEMIBUtMIGEB NCB-Conssf ,000 - S x, x -Irncremental oparalko coss -- 'MEM/BUMIGEB Othe-r 402,00 S X- 5 - AW10nal System Earth - SNIG$ Schmm MEM/BUMIGEDage tntmoffon

57 Shteet6 Mminin and Envirnmenital Maa*mf~ojc - - ~~~~~~~~~~2-Sep-OS1 --Burkina Faso: Project ScOodule - 1 ~~~~~~~~~~~~~~~~~~~~~~~~L t t - ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ n_ n ie BdPackage _.inti Months -Locat Monti Ct erlya2 fyear 4 Jea-i5 00 n L EnvironmentalCoomponent Cepacffy Budding Envkonnenal Management MEW/MEM- CB-Cons 0 -Human resource devotopmreen specialist MEW/MEM _ C-Cons 0 2 _ 400XX Sp_a n_ nirnmntlacoutig MEI_M_C 3 xx x x _ -Speclahll npdvate sector IM ct ~studies MEWIMEM ICB-Cons ,080 X x X -TralinglIn nvlrnrnemntal management ME-W/MEM IC-oso , X X X X X X X S X S X X x X X x x -x S S- Ensr Natonm ntal management MEWMM TICBCns Personnerdl E ~J ospewils MEW i i TrICSns0 t 2 Y 'I - _ 0 100, M~~~~~~NE-W/MO _ _ [ - 4 E.MniWng ndentol Enmentl eminar MEW/MEM TriCBns - - 0,200 _ V- 7~ - [ ' LoEdcatiConcufamintrs nng - MEWME ICTrains IUCN fleevrnmntaiigmew - x xlxv - IMEM0} 0 - t 'ns LStCtrNGcs for exhonphasemew/me TriCCns, ,0001, NaloalEninnmW nfnratonmene T l IS-on V x~ Cop erardo law'e oehconeo MEWjpMEMtL - = acopolrsaanoegoftare 0 2 0, COt 00 GS I MEWIMEM ICB-Coods 2 0 0s 110,04 _ Envonrroiteraldata sysea mse spcait MEWME -1Yx ICB-Conds a 0 a 26,WOl B G Aomatcquepolan seiandsotwn xt MEWIMEM x ICB-Conds xx 0'3 0I 105,000 ' I Trating mftorltwinned instuionsd compuews nde ls-goos 2 0. x - 0' ,Fh5. L_ochal Cnslocmstrants oiwe M-EW IE -6CB-ondsS S 0290 Vehicles(C0NAGESMEV~ -IM=ow CCS-oons I - Environmentalop Odf - uditi csteilst ~ - -=- ME te X- - f a x -x Loc~lConskant MEWMEM CB-Cns 84 xfx F ~~~~ao

58 -- ~~~~p-961 ~~~~~~~~~~~~Burkina Faso:Project Sc adule s ComponerntSpecilikiions - - ne 9cire idpackage 1-nti ot!oa oii'ot Y Ye ar er2year 3 Year 4Ya ~~~~~~~~~~~~~~~~~~01 02 Q Q304 Q Mining Expert MEMIBUIMIGEB ICS-Cons ~ 0 184,742 - ~ x -x XX -, xc) - - Small Scale Mining Component , Technical SWoISS - MGE CB-_ons -Senior Small Scale/Artinanal L- L asocilogist MEM/BUMIGEB ICB-Cons _ X x -Local Geologists MEMWBUMIGEB ICB-Cons ,000 X X -X -- -Local Mining Engineer MEMWBUMIGEB CITCBOnn ,500X Local S-mall scal/artlisanal mining specialint_- ~MEM/BUMIGEB ICR-6Consg 4 X -. _ -Gold _ marketing - specialist MEMIBUMIGEB ICB-Coons 2_ 3 0 _0 = Lca Geologist MEIPM NR-os- Support to DPPM:Small Scab Mm/ MEMDIPPM NC-Cn12 - -Local Mining Engineer _ MEMIDPPM N -Cn8 0 _ 2 34,373 X X x -Procensing Specialist MEMDPPM NCB-Cons X x X -Mining Eonvronointal Engineer SLJ EMDPM ICR-Cons I mine Safety and Heakh Speciailst MEMJOPM 1CB--COns L- Lc Coonsftents MEMJPPM NCR-Coon soral - - Mfin lnotoi nlssmewidppm X ICB-Coons Economist/Financial Analyst MEM/DPPM ICR-Cons -Sall , Scalo/Comminfty Banking Expoe MEM/DPPM IC-on _ -Local Consuftants ME/PM NCB-Con ,305 tinesscaldemining Equ,pmntoo MannfactureFOtn(ToeMEM/CBMP ICR-Cons Small Scale Minerml Processing Specialist - MEMWCBMP ICR-Cons -Mining equipmont design spocmaiist MEMCOP IR-on 172_ -Local consukants and cantractoms ME/OP _ C-Cn 175, 8 8 Mining Centers and Dissemination X X X S X S IMEMICBMP S x T-x o - -Traimig npecuiahst _MEM/CO-MP I 3 5x _580 -Mining Engmneer -M -EWICBMP5 i Y' 7x Techtnical specialist IMEWICBMP2 5j4 -Local consutants Capx E/RP i En enetisenshtizonio A~ Campa _ MEM/MEW/DPPM NC-osF *AIDS specialist (from PPLS project) - MEMI~MEWIOPPM ~NCR-Cons 2 Il 3,500 ] x -- -Mining hea8th aod safely orxpert MEMWMEW/DPPM NCR-Cons Localtrainers MEMIMEWIDPPM NC-Cns ,6 I GNO X X XVX MEM/MEWrtDPPM X X~ NCR-Cons X Study Visits,semninrm, Cumeso MEMIDPPM -Train F Vehloles ) -- MMfPP -IRGods n 137XF ~ Smat scald mining equipmnt scquistion _MEMIDPPM. JC-Gonods , FadBbis rehtabiriat,on -F x locremnlardl Operating Costs MEMIOPPM - ohr -0- T 0I _X5 X Pae

59 Sheet6 _ 2-Sep-96 _ -0 -~ - 2-Sep -- 9e-_ - _- - Bu Borkina Fas Pjt S dute Mining and Ennironnnentt Managl Mroje ment Component/Specilications - eeiiries Bid Package It Mots oal MonthsCt Year 1 YeYear2 >-r...x Q Q3 Q2 Q Project Coordination t 1 = 56EM8 83,632 SeniorLocalConsuatnts Ju_ni,or L~olCnsuftant MEM NC2Cns3 NCRw-Cons S 252,93 s X 61,6-97 X x X 5: -x _x X S X S X x -X S S X X S- X x x, _ ~x X X _ Vehicles (I 4o4) = MEM _ ICB-Goods 1 _ ,500 X - Equipment (computers, photocopye [ MEM X; NCB-Goods 1 I 0 t 80,500 L_ locmemental Operating Costs (52OO500yr prs)- -- Other 0~x Training. Study ns2is!esr- rasis S ~~~~~~MEM E ri vni 0.00 oo =0 2*- X S PPF =- = ; -- ~t _ -4~l- L---^t t-_xc SUB-TOTAL 2049, Fo > < Unattocated _ - 049,867 GFRAND TOTAL PROJECT - t t, - - Page 7

60 52 ANNEX C Page 1 of 2 DETAILED IMPLEMENTATION AND MONITORABLE PERFORMANCE BURKINA FASO MINING SECTOR CAPACITY BUILDING AND ENVIRONMENTAL MANAGEMENT PROJECT Component Indicator Unit Year 1 Year 2 Year 3 Year 4 Year 5 US$ US$ US$ US$ Us$ Regulatory Sustained Exploration exploration expenditure investment (US$ million) Declared ~~~~~~~~~~~... industrial M Metric,et"''... to...nnes... tonnes... I I... 1 I I...I and artisanal gold production... I Regulatory Advance mining Number of projects feasibility studies, I I Mining Decrees adopted environmental on specific regulations regulations Gold Competitive gold Number of Marketing purchasing operating private offices Land Time required for Days Management issuance of mining title Turnover of Percent of total exploration acreage exploration permit kms I... I.... Compliance with number of site work committments inspections Fiscal Increase in mining US$ thousand taxes equivalent

61 53 ANNEX C Page 2 of 2 Component Indicator Unit Year 1 Year 2 Year 3 Year 4 Year 5 Us$ Us$ US$ US$ US$ Mining taxation Students trained training (ENAREF) Environment Mining sector Percent of total datasets (SNIST) surface area covered by 3 datasets... Health, safety, Number of environmenal country-wide inspections of inspections mining sites. Capacity building State of the I i I Environment Report Environmental... Datasets Information System integrated 0 Environmental Number of Education Delivery artisanal mining communities visited Small-Scale Development of Number of new Mining small-scale mines mines Economic Encouragement of Number of Benefits Private Sector consultancy firms... I I... Job creation in Number of exploration and national mining-related man/months per activities year in private sector companies Expenditure on Total payroll of wages by private private mining companies companies - US$ thousand, equivalent

62 54 ANNEX D Page 1 of 2 PROCUREMENT ARRANGEMENTS BURKINA FAXO MINING SECTOR CAPACITY BUILDING AND ENVIRONMENTAL MANAGEMENT PROJECT Summary of Consultancy Services Component Foreign Local Total Legal Reform Mining Taxation Institutional Strengthening Environmental Management Small-Scale Mining Project Coordination Total 270 1,432 1,702

63 55 ANNEX D Page 2 of 2 Summary of Consultancy Packages Package Agency Components P/M* Internationally Recruited ICB Cons 1 MEM Legal reform, capacity building, 262 instiutional strengthening mine cadastre ICB Cons 2 MEM Inemational Legal Retainer 8 ICB Cons 3 DGI/MEM/ENAREF Mining Taxation and Fiscal Training 127 ICB Cons 4 DGI/MEM International Audit Retainer 8 ICB Cons 5 MEM/BUMIGEB Mine environment management, mine 380 sector environment database, SNIST, evaluation of support services. ICB Cons 6 MEW Environmental capacity building, 196 state of the environment, environmental information system, environmental education ICB Cons 7 MEM/DPPM Small-scale mining: studies, support 365 to DPPM, equipment design, mine training center, mine financial analysis Nationally Recruited NCB Cons 1 MEM Local legal counsel to MEM 60 NCB Cons 2 MEW Contracts, public relations NA NCB Cons 3 MEM/DPPM/CBMP Support for DPPM and small-scale 157 mines, education and sensitization campaign artisanal mines NCB Cons 4 MEM Project coordination 156 NCB Cons 5 CE/MEM Contractors and services for NA BUMIGEB environment unit, database, SNIST NCB Cons 6 MEM Contractors for facilities rehabilitation NA (*) Includes national and international experts Ik

64 56 ANNEX E Page 1 of 1 ESTIMATED SCHEDULE OF DISBURESMENTS BURKINA FASO MINING SECTOR CAPACITY BUILDING AND ENVIRONMENTAL MANAGEMENT PROJECT in US$ million IDA FY Disbursement Cumulative Cumulative by Year Disbursement Disbursement as % of Credit * * Includes PPF

65 57 ANNEXE Page 1 of 1 CONTENTS OF IMPLEMENTATION MANUAL BURKINA FASO MINING SECTOR CAPACITY BUILDING AND ENVIRONMENTAL MANAGEMENT PROJECT I. Introduction II. III. IV. The Project - Project Objectives and Overview - Detailed Project Description - Cost Estimates, Administration and Execution Implementation Arrangements - Coordination - Reporting Requirements - Accounts, Audits, Financial Management - Supervision Plan and Evaluation - Terms of Reference for the Audit Financial Estimates - Total Project Cost by Component - Local and Foreign Costs - Costs by Disbursement Category - Planning and Execution Schedule - Consultant and Equipment Bid Packages V. Detailed Terms of Reference for Consultants - International - National VI. VII. Equipment and Materials Training Program

66 58 ANNEX G Page 1 of 2 SUPERVISION PLAN BURKINA FASO MINING SECTOR CAPACITY BUILDING AND ENVIRONMENTAL MANAGEMENT PROJECT Project supervision will include the following: (a) A Project Launch Workshop would take place as soon as the conditions of effectiveness are about to be met. It would focus on: (i) accounting procedures needed for keeping project accounts and for setting up and controlling the Special Account; (ii) procurement procedures, including the use of the Bank's standard bidding documents; (iii) disbursement procedures, including replenishment of the Special Account, Statements of Expenditure and documentation to be kept and to be forwarded to IDA; (iv) audit requirements; (v) coordination between recipient agencies, including the selection of individuals in each agency to serve as a point of contact; and (vi) progress in the preparation of bidding documents for early procurement action. (b) Regular supervision missions will be carried out three times a year during the life of the project. (c) Mid-Term Review. A comprehensive mid-term review would take place, not earlier than than two years, nor later than two and one-half years, after credit effectiveness. The review will be carried out jointly by MEM and IDA and would evaluate the results pertaining to: (a) the promulgation of a new mining code including mining regulations; (b) the operationalization of the institutional structure described in the letter of sector development policy; (c) the establishment of a computerized mining title cadastre and land management system; (d) the establishment and functioning of an environmental unit within the DGMG; (e) the putting into place of environmental standards and norms specific to the mining industry; (f) progress and results of the pilot mining training center; (g) the initiation of a program of environmental awareness; (h) the performance of consultants under Government contract; (i) project budget and expenditure performance; and (j) work program and budgets for the remaining duration of the project.

67 59 ANNEX G Page 2 of 2 An Implementation Completion Review (ICR) will be carried out jointly by the Government and IDA three months before the project closing date to review the achievements of the project in relation to its objectives. This review would serve as the basis for the Government's ICR report to be submitted to IDA not later than six months after the completion of the project. Tentative Project Supervision Schedule Dates Activity Skills Requirements Staff Weeks July 1997 Project Launch Workshop Task Manager 2 Procurement Specialist 1 Disbursement Specialist 1 Accounting Specialist 1 Oct 1997 Supervision Task Manager 2 Environmental Officer 2 Feb 1998 Supervision Task Manager 2 Jun 1998 Supervision Task Manager 2 Environmental Officer 1 Oct 1998 Supervision Task Manager 2 Feb 1999 Supervision Task Manager 2 Jun 1999 Supervision Task Manager 2 Oct 1999 Supervision Task Manager 2 Mar 2000 Mid-Term Review Task Manager 2 Environmental Officer 2 Economist/Financial 2 Analyst Jul 2000 Supervision Task Manager 2 Nov 2000 Supervision Task Manager 2 Mar 2001 Supervision Task Manager 2 Jul 2001 Supervision Task Manger 2 Nov 2001 Supervision Task Manager 2 Mar 2002 Supervision Task Manger 2 Jul 2002 Supervision Task Manager 2 Sep 2002 Implementation Task Manager 2 Completion Review Environmental Officer 2 Financial Analyst 2

68 60 ANNEX H Page 1 of 10 MINISTRY OF ENERGY AND MINING BURKINA FASO SECRETARIAT GENERAL STATEMENT OF MINING POLICY (Translation from the original version in French) January 17, 1996

69 61 Annex H Page 2 of 10 STATEMENT OF MINING POLICY January Since adoption of the Structural Adjustment Program (SAP) in 1991, Burkina Faso has been engaged in a program of structural reform based on the promotion of private initiative as the driving force in its socioeconomic development. This development strategy was designed to make the private sector a major partner in the country's economic growth, with a pivotal role being assigned to the mining sector. 2. Burkina Faso has over 70,000 km2 of volcano-sedimentary Birimian formations (lower Proterozoic), known for their potential as a source of mineral substances throughout the subregion (Ghana, C6te d'ivoire, Mali, Niger, Guinea, Senegal) and in other parts of the world (Canada, Australia, etc.). Previous geological and mining exploration carried out in Burkina Faso has revealed a large number of prospective mineral deposits, including gold, manganese, zinc, copper, and phosphate. 3. Originally, the Government decided in favor of direct intervention in development of this substantial potential. Several state mining companies came into being, however certain of these subsequently proved unviable. Nevertheless, this provided Burkina Faso with useful experience in the mining sector, particularly as regards the development of national expertise. 4. The economic importance of the mining sector and the need for its harmonious development are such that all necessary efforts and resources must be deployed to ensure its continual growth. The Government continues to encourage and support private initiative, whose presence is key to the sector's development. Exploration is already showing remarkable progress. Many companies of different origins and sizes hold mining licenses (prospection permits, operating permits). By 1995, according to the World Bank, mining investment in Burkina Faso already totaled US$20,000,000. Indicators for the coming years presage a marked rate of growth, not only in expenditure on exploration but also in the opening up of new deposits. 5. New legislative and regulatory provisions have been enacted in support of this objective. A Ministry of Energy and Mining has just been created to design and propose an energy and mining development policy and strategy for Burkina Faso. It is therefore clear that promotion of the mining sector has been one of the Government's main concerns since To expedite the sector's development in light of the ongoing evolution of world economic data, the Government needs to readdress and enhance the effectiveness of its own role. Preparation of a new mining code covering all of the general and specific legal

70 62 ANNEX H Page 3 of 10 provisions (taxation, social laws, the environment, etc.) and definition of the roles of the State (Central Mining Administration, related agencies) and of the private sector are all elements requiring particular attention. 7. This new mining code will also take account of the following factors: * the specific situation of Burkina Faso, a developing country dependent on the mining sector to promote its development within a framework of equity and justice; * the regional and international context; * socioeconomic fallout from development of the mining sector; * development of the provinces; * the phenomenon of alluvial panning; 3 artisanal mining companies; - promotion of small-scale mining operations; development of national expertise; relations between mining license holders and occupants of the land; and 3 environmental concerns. 8. The purpose of this major adjustment is to ensure organization and administration of the mining sector in conformity with the Government's political will and along lines consistent with international best practices. 9. The following chapters review the basic thrusts of Burkina Faso's new mining policy. They cover the Mining Code, the institutions, taxes and customs duty, small-scale mining, the environment, and training.

71 63 ANNEX H Page 4 of 10 I - THE MINING CODE (a) Burkina Faso's mineral resources are the property of the State, which manages them on behalf and for the account of the country's population. (b) The mining sector is open to free enterprise. (c) Any operator wishing to engage in any mining activity on any part of the national territory must first obtain a mining license from the pertinent authorities. (d) The procedures to be followed for the grant of a mining license will be clear, simple and transparent. All technical and financial conditions being equal, licenses will be issued on a "first-come, first-served" basis. A holder of a mining license who fails to comply with the obligations set forth in that license may be required to surrender his rights thereunder. (e) Holders of mining licenses will be required to submit and comply with an environmental protection and management plan. (f) Any transaction in connection with a mining license is free of hindrance; such transactions are submitted for prior authorization by the Minister of Mining and reported to the tax authorities. (g) Mining licenses are assignable and transferable without constraint with a minimum of formalities and subject to compliance with the relevant obligations. (h) The Govermnent reaffirms its entitlement to a free share of not more than 10 percent in the mining companies. (i) The prospecting and working of mineral resources by large, medium-sized or small companies using either domestic or foreign capital are activities encouraged by the Government on a non-discriminatory basis. (j) The exploration permit confers an exclusive right covering all eligible mineral substances specified in the application and existing within the area covered by the permit. (k) If a workable deposit is discovered, the exploration permit will automatically be followed up by an exclusive mining license, subject to fulfillment of the relevant obligations.

72 64 ANNEX H Page 5 of 10 (1) Exploration for and working of mineral deposits are subject to the imposition of certain levies, such as taxes and royalties. They are also subject to aposteriori oversight of financial commitments, work plans, and compliance with obligations in the areas of taxation, security and health, and the environment. (m) The Government will encourage the effectiveness of exploration activities by imposing: * required levels of work and minimum expenditures per km 2; and * progressive surface rents. (n) Any operator failing to comply with such obligations will be required to surrender the area covered by the permit. (o) Investment agreements between the State and the investors may be concluded, provided they supplement existing mining legislation and do not conflict with any of its provisions. (p) The Mining Code will be revised to clarify the powers of the Central Administration, taking account of the possibility of appeal to the courts by a party deeming himself injured. (q) Disputes between the State and an investor will be submitted to one or more arbitrators selected by mutual agreement, in the case of a purely technical dispute, and to other courts of ordinary law or an international arbitral tribunal, in other cases. (r) While keeping a balance among the various existing incentives, both in the investment code and in the present mining code, the legislative revision will take into consideration the supervisory mechanisms essential to the sector's sustainable development and the setting up of appropriate institutions. II - THE INSTITUTIONS (a) The State's principal role in the mining sector will be to provide support for mining investments. To this end, it will: * develop a legal, economic, financial and tax framework favorable to mining investrnents; * strengthen institutional/promotion capacity and establish special measures to that end; maintain a climate of investor confidence;

73 65 ANNEXH Page 6 of 10 maintain and develop basic infrastructures; strengthen mining information and data gathering systems; supervise training activities; and * promote the development of national expertise. (b) At the same time as the Government is making every effort to support domestic private initiative in the mining field, it reaffirmns the necessity to maintain its participation in mining operations over the short and medium term. (c) Support for mining investments will come from the Ministry in charge of Mining, whose essential function is to support and promote development of the mining sector in Burkina Faso with a view to contributing to the country's harmonious economic development. (d) The bodies currently providing institutional support for the mining sector come under the authority of the Ministry in charge of Mining, and comprise: A. The Central Mining Administration B. Other agencies: * The Commission Nationale des Mines (National Mining Commission); * The Fonds de Developpement Minier (Mining Development Fund) * The Bureau des Mines et de la G6ologie du Burina Faso (Mining and Geology Bureau of Burkina Faso); * The Comptoir Burkinabe des Metaux Precieux (the National Precious Metals Exchange). A. THE CENTRAL MINING ADMINISTRATION (a) This body is responsible for administration of all the provisions of the mining code and for promotion of the mining sector. (b) The Central Mining Administration will be provided with the necessary human, material and financial resources to fulfill its functions, and will be entitled, whenever it so deems necessary, to delegate its authority or subcontract its activities. (c) The Central Administration will also be responsible for enforcing the provisions of the mining code, particularly with respect to maintenance of a mines cadastre, and the recording of mining titles and the rights pertaining thereto.

74 66 ANNEX H Page 7 of 10 (d) In addition to its supervisory and oversight functions, the Central Administration will seek to develop a policy of openness and assistance vis-a-vis all actors in the mining industry, focusing in particular on small-scale operators. (e) As part of its commitment to promotion of the mining sector, the Central Administration will ensure the active presence of Burina Faso's mining sector on the national and international scene. To this end, a consultative framework for all actors in the mining sector (State and private sector) will be set up under the aegis of the Ministry of Energy and Mining. The purpose of this consultative framework will be to seek solutions to the concerns both of the Government and of the mining companies. Through its participation in international events (conferences, symposia, etc.), Burkina Faso will be able to maintain its attractiveness within the world mining community. B. OTHER AGENCIES 1. Commission Nationale des Mines (CNM) (a) (b) The CNM is a consultative organ of the Mines Administration. Its functions may be summarized as follows: - analyze the economic and regulatory context within which the mining sector has to operate; and * receive and examine applications for approval of mining investments. (c) In addition to the Ministry in charge of Mining, the following departments will be ex-officio members of the CNM: Finance, Transportation, Environment, Industry and Trade, Health and Employment. Cornmission members are appointed on the basis of qualifications, for a fixed term with provision for renewal. 2. Fonds de Developpement Minier (FDM) (a) The FDM was established principally to provide financing for: * activities designed to promote the mining sector; various programs -- exploration, studies, development, operation -- approved by the relevant departments of the Ministry in charge of Mining; * procurement of the necessary equipment for oversight of the mining companies' prospection activities and operations; and expenditures incurred in the conduct of such oversight.

75 67 ANNEXKH Page 8 of 10 (b) The Government has emphasized its commitment to the maintenance and strengthening of this fund as part of its drive to promote the mining sector. 3. Bureau des Mines et de la Gdologie du Burina Faso (BUMIGEB) (a) BUMIGEB is a strategic institution of the State, possessing a certain level of technical expertise. It performs a public service role, and provides various mining-related services to private sector partners. (b) It will sustain and develop this mandate in the areas of geological and geophysical surveys, geological, mining and hydrogeological studies and works, inventorizing of mining potential, inspection of classified industrial establishments, and any other mining services delegated to it by the Government. (c) BUMIGEB will perform its public service missions under a contrat plan with the Government. (d) Within the framework of the missions entrusted to it, BUMIGEB would be able to develop other activities such as the promotion of substances other than gold, diversification of the target portfolio, and support for development of small-scale mining operations. 4. Comptoir Burkinabe des Metaux Precieux (CBMP) (a) CBMP was established in 1986, with the following purposes: * the purchase and sale of gold and of all other precious substances and stones, in particular platinum, platinoids and diamonds; * participation by all appropriate means in the creation or operation of mining enterprises; and * in general, the carrying on of all kinds of operations directly or indirectly related to its purposes. (b) In the present context of structural reforms, the Governnent wishes to restate its commitment to elimination of the export monopoly on gold produced in Burkina Faso. (c) Today, over 100,000 persons are involved in artisanal operations, working under extremely difficult conditions. It is therefore imperative that the Government attempt to improve their working conditions and to maintain oversight over the workings. The

76 68 ANNEX H Page 9 of 10 agency best placed to play a positive role in the supervision of artisanal workings and in collection of the gold is CBMP. It will therefore be entrusted with developing technical assistance programs targeting artisanal mining operations. sector. (d) CBMP could also develop other activities designed to promote the mining III - TAXES AND CUSTOMS DUTIES (a) The primary purpose of taxation of mining activities will be to increase budget resources deriving from the development of the sector's mining potential, and a number of incentive mechanisms will be proposed to promote mining investment in Burkina Faso, consistent with international best practices. (b) Where customs duties are concerned, an exemption procedure should also be instituted to facilitate the rapid clearance of goods and equipment intended for the mining sector. IV - SMALL-SCALE MINING (a) Burkina Faso offers many opportunities for the small-scale operation of mineral deposits. (b) The Government is aware of the socioeconomic impact of this type of mining activity and views the rational operation of small mines as a development priority. (c) The Government will set up the necessary support structures to provide the appropriate technical and/or financial assistance to private operators. V - THE ENVIRONMENT (a) In the mining sector, one of the most important roles incumbent upon the Government is to promote environmental protection and management and water source preservation, with a view to minimizing the risk of major environmental disturbance. To this end, the Government requires every company wishing to work a deposit to first carry out an environmental impact assessment. (b) The Government will strengthen the departments responsible for environmental protection and management, establish schedules of conditions specific to the mining sector, require the submission of environmental restoration and management plans, and ensure that those plans are implemented by licensees in a manner consistent with their commitments.

77 69 ANNEX H Page 10 of 10 VI - TRAINING (a) To support development of the mining sector, the Government will oversee the development of national expertise, and will prepare a vocational training plan for both public and private sector stakeholders in mining development. (b) The Government will support implementation of this policy for developing a national expertise at both its own and the private sector level.

78 70 MAP OF MINING TITLES IN FORCE (as of December, 1996) ANNEX I Page 1 of 2 BURKINA FASO MINING SECTOR CAPACITY BUILDING AND ENVIRONMENTAL MANAGEMENT PROJECT

79 71 AnnexI Page 2 of2 4w 0 m~~~~~ Li S S S C~~L

80 72 ANNEX J Page 1 of 4 CONTRIBUTION OF MINING TO THE ECONOMY BURKINA FASO MINING SECTOR CAPACITY BUILDING AND ENVIRONMENTAL MANAGEMENT PROJECT 1. Mining, if properly managed, can increase a country's yearly value added, tax receipts and foreign exchange earnings. Globally, extraction of mineral resources accounts for 3-5 percent of world GDP, 1/5 of world merchandise trade, and employs some 25 million persons. Many countries in Africa, Latin America, and Asia derive substantial portions of their foreign exchange earnings and tax revenues from the export of mineral products. Moreover, mining operations typically spend percent of capital and operating costs on local purchases, employ and train rural based workforces, and contribute to the transfer of industrial know-how and management expertise. Governments in Africa have inherited mines established during the colonial period, which has been a mixed blessing in some countries. On the one hand, these operations, subsequently nationalized, have provided funds for recurrent government expenditures. On the other hand, governments have generally not proven adept at stewardship of these colonial operations and have neglected to invest in new plant, equipment, and delineation of new resources. Since the mid-1980's, many governments have become aware that the capital and technology necessary to rehabilitate their mining industries can only come from the private sector. Experience in Africa as well as other countries (Latin America, Asia) indicates that competitive regulatory conditions and an adequate earth science database are critical to attracting and retaining investment. Governments have accordingly moved in the direction of putting into place enabling environments, including the establishment of regulatory, fiscal and institutional frameworks, and earth science databases that are competitive internationally and attractive to private companies. Increasingly, governments in Africa are putting emphasis on sound environmental management of mineral resource exploitation through adoption of regulations and building capacity in supervisory institutions. The Bank as well as other donors are playing significant roles in this effort. The African continent as a whole has considerable geological potential. Given the proper enabling environment and an appropriate level of private sector development, it is reasonable to suppose that the continent could develop a mining sector commensurate with this potential. 2. Using reasonable assumptions concerning the likelihood of finding and developing mines, local Burkina Faso cost conditions, comparators with similar mines in other West African countries, and international parameters it is possible to construct scenarios for the contribution of mining to Burkina's economic growth. These scenarios demonstrate that mining generally makes its greatest contribution to economic

81 73 ANNEXJ Page 2 of 4 development through generation of export earnings and tax revenues with subsidiary spin-off and employment benefits. Basic assumptions and considerations regarding these benefits is as follows: * Export earnings. Virtually the totality of Burkina Faso production of gold, zinc, and manganese would be exported. The price of these commodities, and thus the projected export earnings, is set on the world exchanges or is negotiated with customers based on world market prices. * Fiscal revenues. In Burkina Faso, the Mining Investment Act of 1993 (as amended) and other legislation specifies the following fiscal levies: (a) an ad valorem royalty of 3 percent on gold and zinc, 5 percent for manganese; (b) a corporate income tax levied at the rate of 35 percent of profits (45 percent for the Tambao Mn project); (c) a dividend witholding tax of 12.5 percent (25 percent for the Tambao Mn project); (d) customs, entry duty, statistics and value added taxes, net of exemptions and reimbursements, of 4 perecent of net sales revenues; and (e) income taxes and statutory contributions for employees. * Spin-off effects from a mine [principally from local (as opposed to imported) purchase of goods and services] are difficult to estimate. However, based on West African experience (Mali's Syama and Sadiola Hill mines) approximately 25 percent of the total capital and yearly operating costs of the mine could be spent with locally based suppliers and vendors. * Employment generation in mining is not as great as in other industrial or commercial investments. However, the majority of the jobs created would be in rural areas and the workforce primarily drawn from adjacent towns and villages. Wages and social charges paid to, for instance, 200 local workers at a medium gold sized mine, would be around $4 million per year. In addition to monetary compensation, the workers and their (extended) families would typically benefit from a wide variety of social services built and operated at mine expense including schools, health facilities, housing, and recreational facilities.

82 74 ANNEX J Page 3 of 4 Scenario Specifications 3. High growth scenario supposes during the next 20 years the discovery, development, and operation of one medium and one large sized gold mine 1, the Perkoa zinc project, and the Tambao manganese project. Relevant information for the project is as follows: * medium sized gold mine, production of 4 tonnes fine gold per year, open pit mine life of 20 years, capital cost $80 million, international gold price of $350 per ounce, operating costs of $200 per ounce, amortization of capital assets over 10 years, and free government equity participation in the dividend streams of 15 percent; * large sized gold mine, production of 11 tonnes fine gold per year, open pit mine life of 20 years, capital costs of $210 million, international gold price of $350 per ounce, operating costs of $200 per ounce, amortization of capital assets over 10 years, and free government equity participation in the dividend streams of 15 percent; * Perkoa zinc are derived from the most recent (March, 1993) pre-feasability study, production of 155,000 tonnes zinc 55 percent Zn, mine life of 12 years, investment costs of $554 million, price of $1,250 tonne zinc metal. * Tambao manganese project from the most recent (November, 1992) pre-feasibility study, production of 140, percent Mn, investment costs of $20 million, mine life of 10 years, manganese price US$2. 10 metric tonne unit FOB. 4. Medium growth scenario supposes the development of one medium and one large-sized gold mine over the next 20 years as specified above, with a combined production of 15 metric tonnes of gold. Due primarily to transportation and operating cost problems, the Perkoa and Tambao projects are deleted from this scenario. 5. Low growth scenario supposes the development only of one medium-sized gold mine as specified above, producing 4 metric tonnes of gold per year. * Table N. l below shows the contributions under the high-medium-low growth scenarios for the mining operations in their 10th year following first commercial production. * Table N.2 shows the contributions under the high-medium-low growth scenarios for the mining operations cumulatively over the presumed mine lives. * Table N.3 summarizes the contributions for exports, fiscal receipts and local expenditures for the tenth year of commercial production under the high-medium-low growth scenarios. These estimates for gold mines are arrived at based on similar developments in Mali as well as hypothetical models based on international parameters developed by IENIM.

83 75 ANNEX J Page 4 of 4 TABLE M.1 YEARLY CONTRIBUTION TO THE ECONOMY US $ million for the 10th year of commercial production Specification High Growth Medium Growth Low Growth Total Export Earnings Ad Valorem Royalty Income Tax Dividend Witholding Taxes Govemement Equit Particip Net Customs/VAT/Empl.Taxes Total Fiscal Receipts Wages Paid - Local Employees Local Yearly Purchases TABLE M.2 20 YEAR PROJECT LIFE CONTRIBUTION TO THE ECONOMY (Cumulative US $ million for 20 year project lives) Specification High Growth Medium Growth Low Growth Total Export Earnings 4,232 3, Ad Valorem Royalty Income Tax Dividend Witholding Taxes Governement Equit Particip Net Customs/VAT/Empl. Taxes Total Fiscal Receipts Wages Paid - Local Employees Local Yearly Purchases Table M.3 SUMMARY YEARLY ECONOMIC CONTRIBUTION US$ million for the 10th year of commercial production Scenario Export Earnings Fiscal Receipts Wages/Purchases High Growth (2 gold mines, Perkoa Zn, Tambao Mn) Medium Growth (2 gold mines, 15 tonnes) _ Low Growth (1 gold mine, 4 tonnes)

84 76 MARKET ANALYSIS FOR GOLD, ZINC AND MANGANESE BURKINA FASO MINING SECTOR CAPACITY BUILDING AND ENVIRONMENTAL MANAGEMENT PROJECT ANNEXK Page 1 of 5 1. When considering investments in developing countries, mining companies place emphasis on many factors: quality of the resource base, the regulatory and taxation environment, political stability, anticipated production costs, and market outlook for the commodity in question. A fundamental consideration is the cash costs of production. Companies generally seek a position in the lower quartile of the cost curve for other producers of the same commodity. In the case of gold, for instance, this would mean a cash production cost well under $200/ounce. The reasoning is obvious. Prices of most mineral commodities are set on the international markets, such as the London Metal Exchange, or, for long term-supply contracts with some commodities, in world-wide competition with other producers. These prices fluctuate over both short and long terms. To the extent that a mine is a low-cost producer, it will be better able to weather these fluctuations and meet the financial expectations of its owners and financiers. This is not to say that forecasts of long-term price movements of commodities are not important. While notoriously difficult to predict with accuracy, companies can and do assess these prospects for those commodities of interest to them. 2. In Burkina Faso, given the present industry interests, there are three commodities that merit scrutiny: gold, zinc, and manganese. Market forecasts for these are as follows. 3. Gold. The outlook for gold price through 2005 is robust. Demand will continue to exceed supply by a slight margin, achieving rough equilibrium by The international gold price will show steady if modest growth, fluctuating in the $ per troy ounce range in current dollars. The price in the fourth quarter 1995 was $388 per ounce. 4. This optimistic outlook for gold is due to several factors. The world largest gold producer, South Africa, is still the dominant force in the gold market though its share of world production has decreased from 65 percent of world production in 1970 to 25 percent of production in The lessened importance of South Africa is due to several factors. Production costs are rising (an average increase of 7 percent over the past year) as workers demand and receive increases in wages and benefits, and as the mines reach deeper and costlier levels to extract the ores. Already cash operating costs at some mines near or exceed the international price for gold. It is possible that new technologies will allow the mining of the deep deposits and that reductions in labor costs can be achieved.

85 77 ANNEX K Page 2 of 5 5. But on the basis of present evidence South African will continue its slow decline. Coupled with the gradual decline in South African production is increased production since the mid-1980's from other countries, notably the United States (world's second largest producer), Australia, Canada, and other countries. Production from these countries, basically using low-cost open pit mining techniques and cyanide leaching processes, has increased by 18 percent, 23 percent and 7 percent, respectively, since Overall, world mine production and recycling of scrap gold has increased by 5 percent annually since WORLD GOLD PRODUCTION SELECTED COUNTRIES: (Metric Tonnes Fine Gold) Country Rank Percent of Total 1994 Production 1. South Africa % 2. United States % 3. Australia % 4. Russia 267* % 5. Canada % 6. China % 10. Chile % 11. Ghana % 16. Zimbabwe % Total World Production 1,446 2, % Source: World Bank Commodity Forecasts, 1994 *Entire Soviet Union 6. The largest demand for gold is for fabrication of jewlery, scientific and electronic devices. Total fabrication demand has increased by about 6 percent annually since The excess of demand over supply is forecast to continue, although by 2005 an equilibrium in supply and demand is expected. However, demand for gold is sensitive to price as well as perceptions of anticipated inflation in developed economies. Reduced inflationary expectations since 1989 has led to a net divestment of gold held by governments, central banks, and private parties as investment vehicles. Demand for gold metal is strongest in the Asian (China, in particular) and Middle Eastern countries where it has occupied an essential role as store of wealth for centuries. As economic growth in these countries continues, the outlook is for steady or increased purchases.

86 78 ANNEX K Page 3 of 5 WORLD GOLD SUPPLY AND DEMAND: (Metric Tonnes) Year Total Supply Total Demand Balance ,651 2, ,404 2, ,342 2, ,518 2, ,545 2, ,610 2, ,992 3, ,475 3, Since 1985 the price of gold has fluctuated in the $ per ounce range in current dollars. The average price in 1994 was $384 per ounce; the fourth quarter 1995 average price was $388 per ounce. Actual and projected prices from 1990 through 2005 in current dollars per troy ounce and deflated by the G-7 Consumer Price Index are as follows. International Gold Price: Performance and Projections (US$ per troy ounce fine gold) Year Current US$ G-7 CPI Source: World Bank Commodity Forecasts, 1994

87 79 ANNEX K Page 4 of 5 8. Zinc. The medium term outlookfor zinc is cautiously optimistic. Demand due to the recovery of the industrialized economies continues to exceed supply. Prices should fluctuate slightly around US$ 1, 000/tonne. Cash zinc prices as at July 1995 on the London Metal Exchange was $1,027/metric tonne. 9. Production of zinc metal is mainly from primary souces (mine, concentrates, smelters), with some additions to supply from secondary sources (recycled scrap, stockpile sales, etc.). Primary zinc concentrate production from mines declined by 11 percent ( ), though a number of new mines, adding 328,000 tonnes capacity are due to come on-stream by Between 1995 and 2000, several new projects could produce an additional 482,000 tonnes of zinc. Because of this highly competitive environment, new greenfields projects are unlikely to be considered unless they are in the lower half or bottom third of the cash production cost curve. Recently, Japan announced the closure of two zinc smelters which should remove excess smelting capacity from the market, although toll smelting in the former Soviet Union continues to undercut international smelting/refining charges. Chinese exports of refined zinc (80,000 tonnes in 1992) have declined due to rapid local economic growth. remained stable. Major producing countries include Australia, Canada, USA, Peru, Mexico, and Brazil. Total world refined zinc metal production 1994 was 5.4 million metric tonnes, which is forecast to increase to 5.6 million and 5.8 million tonnes in 1995 and 1996, respectively. 10. Almost 50 percent of zinc metal is used for galvanizing steel products. This market grew by 3.2 percent per year ( ), reflecting the superior anti-corrosive qualities of zinc galvanization compared to competing products in the automobile industry. Other uses of zinc include zinc alloys (a replacement for plastics in some applications), the chemical and pharmaceutical industries. Total world consumption of refined zinc metal was 5.8 million metric tonnes in Demand is forecast to grow to 6.1 million and 6.4 million metric tonnes in 1995 and 1996, respectively. The USA, Japan, and Europe consume two-thirds of world production. The Economic recovery in these countries, together with strong continued growth in the East Asian markets, will contribute to long-term demand growth for zinc of percent per annum. 11. As noted above, the exports of zinc from the former Soviet Union depressed the price of zinc on world markets significantly since However, higher energy and transportation costs, as well as technical inefficiencies of the zinc smelters/refiners in the FSU, have rendered the toll smelting of zinc concentrates barely profitable. Domestic demand for zinc may also be increasing as the economy bottoms out which reduces quantities available for export. Therefore, perturbations on the market from this source are declining. The actual and forecast performance of zinc prices is summarized in the following table.

88 80 ANNEXK Page 5 of 5 International Zinc Price: Performance and Projections (US$ per metric tonne zinc metal high grade) Year Current US$ G-7 CPI ,513 1, ,117 1, ,240 1, , , , ,550 1, ,600 1,033 Source: World Bank Commodity Forecasts, Manganese is an essential ingredient in making carbon or mild- steel. The medium-term price outlook will closely parallel the outlookfor world steel which, in turn, reflects the economic performance in industrialized countries. Pricesfor manganese should remain around $1.80 per tonne unit, depending on manganese content and presence of impurities. 13. South Africa and the former Soviet Union account for over 80 percent of the world's known resources of manganese ore. However, production of manganese is distributed among several other countries including Australia, Brazil, China, Gabon, India, and Mexico. There is no shortage of deposits of manganese. However, many are located at a distance from tidewater ports, or lack other infrastructure to make development economic. In addition, existing producers can increase production relatively easily at marginal cost. Supply of manganese over the next three years is forecast to remain fundamentally in balance with market requirements, although there may be niche markets for producers whose manganese products have special chemical or technical qualities. 14. Metallurgical manganese, ferromanganese, and silicomanganese are used principally in the production of carbon or mild steel. For these purposes manganese has no known substitutes. Other uses are batteries, fertilizers and chemicals. Demand for metallurgical grades of manganese and manganese alloys will parallel the world steel industry. Like other mineral commodities, the price of manganese is set on the international metals exchanges. However, many producers negotiate long-term contracts with customers, and prices may deviate from the spot price.

89 81 ARTISANAL MINING ANNEX L Page 1 of 4 BURKINA FASO MINING SECTOR CAPACITY BUILDING AND ENVIRONMENTAL MANAGEMENT PROJECT 1. Artisanal mining of the type found in Burkina Faso is prevalent in many developing countries of Asia, Africa and Latin America. In its traditional form, artisanal mining is essentially a subsistence activity which requires neither large capital investment nor sophisticated equipment. It is, thus, ideally suited for local private sector investment. In addition, artisanal mining is a source of livelihood for millions of unskilled workers, including a large number of women. However, uncontrolled artisanal mining has several negative side effects such as unacceptable environmnental practices, poor social, health and safety conditions, illegal mining and waste of resources. 2. Governments in the countries where artisanal mining takes place have struggled for many years to master the social, environmental, and health problems that it poses. The results of these efforts to date have been mixed. At a recent (May 1995) International Roundtable on Artisanal Mining sponsored by the World Bank, the essential elements of an integrated strategic approach emerged from the sharing of experiences of delegates from around the world. The conference determined that the contribution of artisanal mining to economic development is limited by three related factors: (i) lack of an appropriate legal framework, and inadequate institutions; (ii) insufficient finance and inappropriate mining techniques; and (iii) poor living, working and environmental conditions in mining sites. A description of these issues as well as proposed actions to address them follows. Baseline Surveys 3. The first step is a baseline survey to assess: socio-economic significance (production, exports, employment, women involvement, income); organizational structures (forms of business organization, family units, artisanal miner's associations); institutional capacity (timeliness and simplicity of registration process, effectiveness of mining inspectorates); technical characteristics (mining and processing methods, labor productivity, equipment used, metal recovery rate); marketing channels (export statistics, pricing, formal and informal marketing channels); environmental, health and safety performance (land degradation, accidents and injuries, and health hazards).

90 82 ANNEX L Page 2 of 4 Improving the Enabling Enviromanent 4. Issue: In many artisanal mining sites, miners are transient peasants who come from far-away villages, regions or countries. They tend to operate in the informal sector without a legal mining tenement to the land. Sometimes, even when the Mining Code provides for an artisanal mining tenement, cumbersome licensing procedures and costly registration pose obstacles to obtaining it. Moreover, the possession of a mining tenement does not always guarantee security of tenure, and the right to sell or transfer a property to a third party. Finally, other deficiencies of government policy or organizaiton are disincentives to the orderly conduct of artisanal mining such as the lack of adequate institutional capability to administer artisanal mining, non-competitive pricing and marketing arrangements, high tax rates and above-market currency exchange rates. 5. Action: Creation of a proper enabling environment for artisanal mining is essential. Reforming the Mining Code to provide security of tenure and streamlining administrative procedures enables the artisanal miner to sell, transfer, or mortgage his claim. This in turn allows the miner to invest in labor-saving devices and technologies to increase productivity and recovery of minerals. Liberalisation of marketing arrangements (i.e. elimination of any state monopoly on the marketing of mineral product and the authorization of private buying offices) introduces competition among buyers and sellers and, if properly managed, curtails fraud. Taxes and other fiscal levies such as royalties, license fees and surface rents, need to be modest, simple to understand and to apply, and rigourously enforced to deter retention of land for speculative purposes. Small-scale mining units created within the Ministry of Mines can be effective to review and approve license applications, monitor compliance with regulations, and provide training and guidance to miners through field offices established in mining districts. Alleviating Technical and Financial Constraints 6. Issue: Most artisanal miners are better at finding deposits than at developing them. Because they lack the technical and financial resources needed to develop their deposits, they become trapped in low productivity which adversely affects their ability to invest in equipment and tools. As a result of low metal recovery and output, artisanal mining is self-limiting and unsustainable. Moreover, the use of crude methods compels miners to concentrate their activities on the richest and most accessible parts of deposits. This, combined with the natural resistance of miners to adopt new techniques, results in high-grading and resource waste.

91 83 ANNEX L Page 3 of 4 7. Action: There is a close relationship between technical, legal and financial issues. Removing legal and financial constraints can improve the miners' ability to acquire appropriate technology and equipment, thus increasing production capacity, output, and metal recoveries. Mine regulations which establish clear legal tenements for artisanal miners can encourage the sale or transfer of artisanal discoveries to those who have the resources and skills to develop them. This should eventually lead to the creation of a local market for small mineral properties through which artisans could capitalize on their comparative advantage of finding mineral deposits. This, in turn, requires that the "rules of the game" ensure the orderly functioning of the market. It also requires that local financial institutions have the capacity to mobilize domestic savings and appraise viable investment projects. 8. The best way to entice local entrepreneurs and local banks to consider investing in small-scale mining is to demonstrate that the reward/risk profile is attractive. Reducing the risks and enhancing the profitability of artisanal mining can be achieved in principle with better knowledge of the geology of deposits and the use of appropriate technologies and equipment to increase productivity. However, finding the appropriate delivery mechanism for the delivery of these types of "technical extension services" has proved a vexing problem in most countries. Some government support for "training centers" and "pilot plants" may be necessary. However, the evidence suggests that long-term success is enhanced by increasing the ownership of the miners themselves in such efforts by having them pay reasonable charges for services rendered, and encouraging the local private sector to supply tools, equipment and training advice. Improving the Enviromnental, Living and Working Conditions of Artisanal Miners 9. Issu: In most cases, artisanal mining sites lack basic social infrastructure and have severe environmental, health and safety problems. Miners leave behind substantial environmental damage as they move on in their search of a bonanza. In abandoned artisanal mining sites, land use has been systematically altered, and the natural features of the area have been replaced with unstable piles of waste, abandoned excavations, and vast stretches of barren land. Spillage or leakage of solvents, reagents, and cyanide compounds are major sources of water pollution. Health risks arise from poor sanitation, lack of ventilation and dust control, and contamination of water in mining sites by fecal matter, silt, mercury and organic materials.

92 84 ANNEX L Page 4 of Action: The enviromnental, health and safety conditions of artisanal mining can be improved by setting realistically acceptable standards, strengthening the miner's ability to operate in a safe and environmentally sound manner, and effective monitoring of operations. Establishing a baseline of environmental information is the first step. Environmental education can take place through extension services operated by field offices of the environmental unit in the Ministry of Mines or an NGO or other community based organization. Social conditions in mining camps can be improved by encouraging miners to set up an authority structure, and to establish a basic governance infrastructure (district authorities, police, health officials, security guards). Funds could be raised by using a portion of mining royalties, levying local taxes and mandating contributions from all stakeholder groups (claim holders, miners, equipment suppliers, financiers and buyers, traders, and vendors). To the extent possible, the camp should be incorporated into other villages to benefit from any public infrastructure programs (water, electricity, roads) planned in the area. ACTORS AND RESPONSIBILITIES Actors Responsibility Governments - improve the enabling environment - commit to macroeconomic and sectoral reform - facilitate registration and mine licensing procedures - provide extension services and training - establish environmental objectives and standards - monitor compliance with environmental, safety, health NGOs, Community and - organize and train miners Small-Scale Miners' - disseminate safe practices Associations - motivate and organize artisanal miners - set up rural credit schemes - initiate environmental management programs Donor Organizations - support for baseline studies - disseminate information on best practices - finance policy reforms - fund the cost of technology transfer - strengthen micro-finance institutions - support NGOs and miners' associations International Mining - build constructive relationship with the local Companies community - concentrate on hard rock mining - service the needs of the local community - demonstrate basic environmental and safety procedures - direct purchase of output from artisanal miners - support of government and NGO initiatives

93 85 ANNEX M Page 1 of 6 REVIEW OF LEGISLATIVE CONSTRAINTS IN THE MINING SECTOR BURKINA FASO MINING SECTOR CAPACITY BUILDING AND ENVIRONMENTAL MANAGEMENT PROJECT 1. There are two main pieces of legislation affecting the mining sector in Burkina Faso. They are the Mining Law (Code Minier) and the Mining Investment Act of 1993 as amended. The following paragraphs outline other deficiencies in the Mining Law in Burkina Faso. * Structural Deficiencies. In most countries, mining legislation is a distinct and separate legal instrument. Separating mining legislation from the RAAF will be a necessary first step to legal reform within the sector. A second problem is that the Mining Law actually contains provisions that would normally be contained in mining regulations. During the reform of the mining legislation, the two distinct legal instruments - mining law and mining regulations - should be prepared. The current legislation applies to hydrocarbons as well as to solid minerals. Most modem mining codes exclude hydrocarbons. The duration of the mining license, valid for only four years (renewable at the discretion of the Government), is not sufficiently long to provide security of tenure for international financing of mining projects. Instead, there should be a single mining license, valid for years. In some countries, the legislation provides even greater security of tenure. In Latin America (Chile and Peru, for instance) a mining title is valid idefinitely as long as fee and work requirements are fulfilled. Also, the distinction between industrial, semi-industrial, and artisanal mining tenements is without practical effect; only artisanal mining should be subject to slightly different exploitation tenement rights. Mining titles are valid only for the substances specified. A better approach would be to issue the title for any and all concessible substances to avoid overlapping of permits for different substances. The legislation does not provide adequate mechanisms to resolve disputes between surface and sub-surface rights. In practice, these conflicts must be resolved by the Ministry of Energy and Mines but no specific guidelines, appeal procedures, or enforcement mechanisms are spelled out.

94 86 ANNEX M Page 2 of 6 * Excessive discretionary power. The mining legislation allows too much discretionary authority on the part of the Government to administer the mine permit system. For instance, the exploration permit holder who discovers a deposit must present "proof' to the Ministry that it is exploitable. In practice, such proof could be subject to considerable interpretation and the title holder, after having invested large sums in risky exploration, could be held hostage to ministerial authority. In most countries, the right of exploration title holders to an mining license in the event of a discovery is automatic and unequivocal, provided that the applicant submits and has approved an environment impact statement and mining plan. Procedures and reasons for cancellation of permits should be clearly spelled out in the law or regulations, and appeal procedures should be specified. The law stipulates that the Minister must "approve" of any surrender of exploration acreage by the title holder. This is without practical effect since the Government could not force a title holder to explore on land it does not wish to work. Renewal of permits should be automatic and not subject to ministerial discretion, provided that the title holder has honored his obligations and paid stipulated fees. The right to transfer exploration and mining licenses should be simple and straight forward. To the extent that the Minister has the right to approve such transfers, such approval should be automatic provided that there is no prejudice to the interests of the state. Finally, in the existing legislation, government and state owned entities have certain "pre-emptive" rights to mining titles. Government entities should not hold mining titles at all, except for purposes of general investigation in the earth sciences. 3 "Ex-ante" Versus "Ex-post" Controls. Governments are understandably concerned that mining titles will be granted to small companies and speculators without the financial or technical resources to effectively work the ground. However, the controls in the present legislation are unworkable in practice. Applicants are required to present financial, technical, and moral guarantees with mining title applications, however, the Government has no means to verify this information even if it is presented. Rather than attempting to screen applications and applicants "ex ante", the Government should emphasize controls "ex-post", i.e., that is strictly enforce compliance by the title holder with the work obligations and expenditure minimums upon which the license was issued. Methods to accomplish this such as periodic inspections, the requirement to relinquish a portion of exploration acreage, and escalating surface rents, are provided for in the legislation but are not rigorously enforced. Also, most modern mining codes provide for exploration permits to be issued on a "first-come, first-served basis", rather than allowing the government to arbitrarily select applicants in the event of competing applications.

95 87 ANNEX M Page 3 of 6 Mandatory Government Participation. The law requires government participation in mining ventures. In practice, investment agreements signed by the government with some companies specify that between 10 percent and 35 percent of the equity of the company formed to exploit the deposit is to be granted to the Government. The equity is by virtue of (i) the granting of the mining title and (ii) the previous exploration deemed to have been carried out at state expense in the title area. A portion of the equity is usually free of financial obligation ("carried interest") and a portion requires the Government to support the financial burdens of the project ("working interest"). Studies by the World Bank as well as other institutions have called into question the utility of government participation, even a minority one, in mining projects. Such participation may not result in the anticipated financial gains, especially not when the state has a working interest. The Government equity participation also confuses the constitutional government role as custodian of the nation's mineral resources with its role as shareholder in a commercial enterprise; the Government cannot be both judge and jury. * Lack of Dispositions Pertaining to Artisanal Mining. There is a vacuum in the mining legislation concerning artisanal mining. Arrete no. 93/01 I/MICM/MDEM/DGEM attempts to deal with this issue but in fact only touches upon some of the conditions of artisanal mining. A fundamental prerequisite for assistance to artisanal mining is to provide for secure title for the miner. Present practice is for the artisanal miner to have only a limited right of occupancy for one year. The uncertainty surrounding the security of title constrains investment by the artisan in new techniques or equipment. The artisanal mining title should also be freely transferable. This would then help to establish a market value for mining permits and encourage more effective working of the land. * Lack of Standards and Processing Delays. Mandatory submission of applications for exploration licenses to the National Mining Commission has led to delays. These applications would be better handled directly by a special unit within the Ministry. In any event, it is essential that clear criteria, standards and procedures, uniformly applied, be used to administer the legislation and to process mining title applications. The lack of guidance relative to procedures and the limited practical experience of Government officials in land management, slows down the process of title issuance. In general, much of the education effort over the years has gone to technical disciplines: mine engineering, geology, and geo-sciences. Comparatively little educational effort has been devoted to the legal, fiscal, or administrative skills necessary to efficiently administer legislation. Burkina Faso lacks a mining tradition and this skills base may take some years to develop. However, the process can be accelerated through extensive training in the deficient disciplines, and enhanced exposure to land management and mine legislation practices in countries outside of Burkina Faso.

96 88 ANNEX M Page 4 of 6 2. Inadequacies in Auxiliary Legislation. Existing commercial codes are based on antiquated French models and do not provide for the types of corporate organization forms (joint ventures, etc.) that are internationally recognized in the mining industry. Because of potential significant tax consequences in their home countries, this issue is an important one for the sophisticated mining houses from North America, South Africa, and Europe. Not only is the law inadequate, but there are few persons, either in the public or private sector, who are experienced and conversant with corporate law. The codes on labor, occupational health and safety, union collective bargaining agreements, and other legal and quasi-legal documents must be studied to ascertain any collateral effects on the mining legislation. Taxation and Mine Investment Code 3. The fiscal framework pertaining to mining investments in Burkina Faso is confused and antiquated. It has been identified as a serious impediment to investment, not only in the mining sector but other sectors as well. The fundamental deficiencies in the general fiscal regime concern excessively high rates of taxation of profits (45 percent corporate income tax, 25 percent dividend withholding tax), insufficiencies in depreciation schedules and depletion allowances, and the use of "forfeit" or lump sum payment methods of taxation. Investors have complained vigorously about the cumulative effects of many of these small "forfeit" contributions and taxes which significantly raise the costs of doing business in Burkina. The initial approach was to negotiate individual investment contracts with each investor, and stipulate in such contracts the tax regime pertaining to the investment. This proved difficult to accomplish in practice, and allowed an element of discriminatory rather than uniform treatment of potential investors. Given the pressing need to provide internationally competitive conditions for mining investment, the Government passed a Mining Investments Act in This act was amended in April 1995 to tighten certain fiscal dispositions, reflecting comments which had been offered to the Government by the Bank as well as other donors.' 4. The Mining Investment Act, as amended, provides a number of guarantees and fiscal advantages in line with international standards for mining investments. The guarantees include the rights to manage operations, freedom of choice in personnel and The relevant legislation is: - Law No. 014/93/ADP of 19 May 1993 on the Mining Investment Act. - Decree No /PRES/ of 16 June 1993 promulgating the Mining Investment Act. - Decree No /PRES/ of 26 April 1995 promulgating modifications to the Mining Investment Act.

97 89 ANNEX M Page S of 6 procurement matters, international arbitration (ICSID), access to raw materials, and the right to transfer (subject to exchange regulations) profits, dividends and capital outside of the country. Fiscal advantages provided for in the initial investment code include: * duty free or temporary admission of equipment, material, oil and lubricants during the period of exploration, and construction of the mine, and for the first three years of commercial production; * exemption during the first seven years of production of the minimum lump sum tax; * income tax at the rate of 35 perceny instead of the statutory 45 percent; * dividend withholding tax at the rate of 12.5% instead of the statutory 25 percent; * exemption from registration and stamp duties and taxes; and * exemption from the value added tax (TVA) on exported products. 5. Specific taxes apply to mining operations and are stipulated primarily in Decree No /PRES/PM/MICM/MDEM of 3 August 1993 relative to fees and payments for mining titles. For instance, the fees charged for the issuance of a mining title vary between $100-$ 1,000. These are modest in comparison with rates charged internationally. In addition to the issuance fees, surface rents per square kilometer of the permit area are assessed. These rates vary depending on the year of validity of the permit ($1.00 to $3.00 per km2) and are also low by international standards. Overseas investors would be able and willing to pay much more for exploration titles. However, local smaller investors may be constrained if fees are raised to international levels. A royalty based on the ad valorem value of the mineral is levied. The rates vary according to the mineral commodity: gold - 3 percent, manganese - 5 percent, diamonds - 7 percent. The rate on gold, for instance, is at the upper limit of international acceptability. The concept of "net smelter return", that is the full market value of the product less intermediary charges such as transport, refining/assaying, insurance, sales commissions, etc. should be applied, but the authorities have no experience in calculating it. 6. The Mining Investment Act, as amended, brings investment conditions in the country, by and large, in line with international best practice. However, there are problems with the effective implementation of this Act. For instance, in spite of the exemptions provided for in the Mine Investment Act, customs and excise taxes are still assessed on necessary imports for some projects. Fees and excise contributions are often arbitrarily assessed on operations as, for example, road taxes and unit charges on the transportation of goods, which have no basis in international practice. Other seemingly minor contributions such as the ONAC and CBC, (contributions at the rates of 0.25

98 90 ANNEX M Page 6 of 6 percent and 0.50 percent, respectively, on the value of imports and exports) which were supposed to have been eliminated under World Bank agreements, re-appear in the government budget under a new label, the "taxe speciale d'intervention." 7. Finally, the "tax statistique" which previously was levied at the rate of 4 percent on the export value of products has been repealed as from January, 1994 (for exports only), removing a very serious impediment to mining investment. 8. There appears to be little coordination or communication between the Ministry in charge of mines and the Directorates of Taxation and Customs regarding the effective application of the legislation. The procedures and paper work required to benefit from the allowed exemptions are burdensome and time consuming. For instance, customs regulations require that companies importing equipment deposit, with a local bank, cash guarantees in the amount of the duties payable, thus effectively negating the intent of the Mine Investment Act to allow such goods duty free entry. Government personnel responsible for taxes and customs lack experience and training with international methods of calculation, assessment, collection, and auditing of fiscal obligations. In order for the mining industry to make the contribution to tax revenues expected of it, the institutional and human capacities of the tax administration need to be strengthened. Ik M:\LK\BURKINA\ANNEXM.DOC 03/28/97 4:49 PM

99 91 ANNEX N Page 1 of 5 THE BURKINA FASO MINING SECTOR MINING SECTOR CAPACITY BUILDING AND ENVIRONMENTAL MANAGEMENT PROJECT Declared exports of gold represent, after cotton, the largest foreign exchange earner for Burkina. Official gold exports were about 1 ton in 1996, valued at $13.0 million, using current world market prices. In addition, undeclared exports from artisanal production are believed to be substantial, estimated at 2-3 tonnes per annum, worth approximately $24-36 million. The smuggled gold transits neighboring countries, particularly Mali, Togo, and C6te d'ivoire. As a result of the Government monopoly on gold exports, the artisans receive only 55 percent of the fair market value of the gold produced. As a condition of negotiations the monopoly, on gold exports has been eliminated. The role of the state buying organization, CBMP, is being restructured and private gold buying offices will be authorized. TABLE 2.B: Evolution of Burkina Faso Gold Production Kilograms Fine Gold (declared) Industrial and Year Semi Industrial Artisanal Total , , , , , ,255 2, ,229 2,295 3, ,502 2, ,365 2, ,268 1, , , ,063 Source: CBMP Poura Gold Mine 0.1 The only industrial scale gold mine in Burkina Faso is at Poura, 200 km from Ouagadougou. Traces of artisanal mining at the site and within the concession area, date back over one century. Industrial mining commenced originally in 1939 and was continued on and off until The mine was then closed but re-opened in 1984 with funding from the Caisse Francaise de Developpement (CFD). The mine is owned and operated by a state-owned company, SOREMIB. After initially producing close to three

100 92 ANNEX N Page 2 of 5 tonnes of gold per year, production has continually declined and the operation has been in serious financial distress since the early 1990s. At the current level of production, the operation has difficulty meeting direct cash operating costs and has no surplus to purchase spare parts, replacement equipment, or consumables. Moreover, important exploration work to identify and delineate new mineral reserves has been neglected. This means that the mining method is "hand to mouth" and that advanced mine planning (and hence ability to raise finance on the basis of proven reserves) is constrained. High-energy costs add to the company's troubles. SOREMIB initially incurred over 18 billion CFA francs ($72 million) in debt for the development of the Poura gold mine, which have since been assumed by the Government. Further debts of 9 billion CFA francs were assumed by the Government in May 1993 as part of an effort to attract an international mining company. In 1994, the Government decided to privatize the Poura mine and to seek an international company to take over operations. Investigations are currently underway by International Gold Resources (USA) to define ore reserves in the underground mine and the surrounding surface areas. Current plans are to invest $20 million, of which $6 million will come from the private partners and $14 million from the Government via the mining development and stabilization fund (Sysmin) of the European Commission, to re-habilitate the mine and prove up additional ore reserves. Because of the involvement of other donors, the proposed Bank project does not intend to be directly involved in the privatization of the Poura gold mine. Tambao Manganese Project 0.2 The Tambao manganese deposit is located in the Oudalan district, approximately 380 kms north east of Ouagadougou. Reserves have been estimated at over 19 million tonnes at an average ore grade of 52.8 percent Mn. The grades and characteristics of the ore are excellent by international standards, although the reserves are modest in size. Furthermore, industrial development and operation of the deposit is hampered by lack of infrastructure, principally long and costly transportation routes to seaports. The shares of Compagnie Miniere de Tambao (COMITAM) are owned 65 percent by Interstar Mining Group Inc. (Canada) and 35 by the Government through the National Office of the Tambao Project. A pilot truck and shovel exploitation of the deposit started in The objective is to produce enough bulk tonnage to deliver to niche markets in Europe and the Far East. During the period, the company produced 28,340 tonnes of ore and is projected to increase this to around 85,000 in Full commercial development of this deposit will depend on penetrating niche markets and, more importantly, finding an efficient and inexpensive means of transporting the manganese ores to port. The privatization and rehabilitation of the railway to Abidjan may be a start in resolving this transport problem, though a spur line will have to be extended to the mine site.

101 93 ANNEX N Page 3 of 5 Perkoa Zinc Project 0.3 Massive sulfide deposits containing excellent grades of zinc were discovered at Perkoa in The deposit, located 135 km west of Ouagadougou, is one of the first deposits of this type to be identified in the Birrimean belts of West Africa. Reserves are estimated at 5.6 million tonnes of ore at a grade of 18.2 percent Zn. The World Bank funded the Perkoa Mining Exploration and Technical Assistance Project in for $7.4 million to assist in the delineation of the Perkoa orebody, to find a reputable foreign mining company, and to negotiate an investment agreement. Subsequently, Perkoa Minerals S.A. was formed, a joint venture in which Boliden (Sweden) owns 65 percent and the Government 35 percent. Exploration has proven good reserves, and the next phase of the project will be to test the orebody through underground development work. Preliminary indications are for a yearly production of 170,000 to 200,000 tonnes of zinc concentrates at an average metal content of 55 percent Zn. However, the expense of this development work is substantial, and the company has delayed taking a final decision due to turbulence in the world zinc markets, the financial condition of Boliden, and continuing uncertainties regarding rail transportation to the coast. Small Scale and Artisanal Mining 0.4 In addition to the current exploration activity by major mining companies, good potential exists for small-scale, locally-owned mining operations. A distinction should be made between small-scale and artisanal mining. While definitions vary, an arbitrary benchmark of output from a small-scale gold mine would be 300 kilograms of gold per year, worth approximately $3.6 million. In many countries, for instance in Latin America and Zimbabwe, small-scale miners account for a significant degree of mineral production. In Burkina Faso, at present, only the CEMOB operation could be considered a smallscale mine. Small-scale miners use small motorized equipment (pumps, compressors, hoists, etc.) and other small power tools to extract and process mineral ores. Use of this equipment not only increases throughput and economies of scale, but also allows the miner to reach depths required to mine hard-rock vein or reef mineralization in addition to the alluvial surface deposits. However, use of such equipment requires at least rudimentary scientific, technical, and mechanical skills. Some of the deposits found by prospectors to date would seem to lack sufficient reserves to justify large-scale industrial mining. These deposits would be ideally suited to small-scale mining by local companies. 0.5 The letter of mining sector development policy places emphasis on the development of small-scale mining which is better adapted to the technical specifics of the deposits likely to be found. Technical and scientific skills necessary for small-scale mining, though limited, are either available locally or could be recruited internationally. Development of small-scale mining will require significant reforms in the Government's approach. A fundamental requirement is to provide for security of tenure through a legal

102 94 ANNEX N Page 4 of 5 right or mining title. Lacking a secure title, the small-scale miner is hesitant to invest in small scale-mining equipment, water wells, and other techniques to improve efficiency in operations. Removal of the Government buying monopoly exercised through CBMP will allow the small-scale miner, as well as the artisan, to realize the fair market value for the gold extracted. Local private capital markets need to be analyzed and strengthened, particularly in respect of financial analysis and evaluation of small-scale mining projects, in order to help local entrepreneurs mobilize finance. Finally, technical extension services could be provided by the Government and private entrepreneurs to support small-scale mining. 0.6 Artisanal mining, on the other hand, does not generally make use of power equipment and tools. Artisans use very rudimentary tools to dig pits, sometimes many meters deep, to expose the mineral bearing layers of subsoil. Ore is hauled to the surface where it is pounded into a powder, and washed and panned using simple bowls, basins and other home-made sluices. Women play a special role in mining activities, picking the flakes of gold from the concentrate or pounding the hard rocks into fine powder to better extract the gold. It is estimated that these artisans recover only 40 percent of the gold in the ore; one-half gram fine gold per day per miner may be a reasonable guess. At international market prices, this would be equal to $6.00; however, the price realized by the miner would be adjusted downwards depending on the purity (carats) and type (powder, flakes, etc.) of the gold. Once the gold is extracted, it is sold directly or through intermediaries to the Government-owned gold export buying office, CBMP. 0.7 It is estimated that between 50, ,000 persons derive a meagre livelihood from artisanal mining at some 200 mining sites, predominantly in the north of the country. Artisanal mining in Burkina, while it has been practiced for centuries, experienced a phenomenal growth in the mid-seventies because the Sahelian droughts decimated agricultural lands and livestock. Exploiting the near surface (easy-to-mine) alluvial gold deposits offered a means of survival to thousands of peasant farmers. In many instances, the allure of quick riches in the mines has caused farmers to move out of farming altogether. Burkinabe and other nationals, mainly young itinerant men, migrate from mining camp to mining camp. Villagers also mine part-time, especially during the dry season when agricultural activities are at a minimum. However, seasonal mining is not as prevalent in Burkina Faso as it is in other West African countries. 0.8 Artisanal mining in Burkina Faso, as well as in most other countries, has substantial negative impacts on the people and areas in which it is practiced. Artisanal miners work and live in appalling conditions. No safety equipment is used; cave-ins and rock falls have killed many. Lack of sanitation and dust control, contamination of water by silt, chemicals, and organic materials, and poor hygiene in the temporary settlements are significant dangers to health. The wind stirs up dusts which carry heavy metals, residual chemicals, and other noxious elements to contaminate wide areas. Anarchic mining destroys forests and grazing lands, further complicating retention of water and