FAQ’s and Briefing Note on Mining and Hydrocarbon Sector

 

(April 27, 2011)

  1. What is Afghanistan’s Present Mineral Production and How Good is Afghanistan’s Mineral Potential?

 

Afghanistan’s current mineral production is very modest by global standards.  In the mining sector there are no large commercial scale mines, although some smaller state-owned coal mines do constitute the highest payer of taxes among all government enterprises nationwide.  There is mostly artisanal and small scale mining for construction minerals, dimension stone (marble) and gemstones. In the hydrocarbons sector there is some modest gas production and some very small oil production.

Afghanistan is considered to have considerable mineral potential with estimates of the value of minerals in the ground in excess of USD1 trillion, but much of that wealth is locked in the ground pending development of supporting infrastructure that will link mines to global markets. 

Afghanistan has two presently known world class mineral deposits – the Aynak copper deposit and the Hajigak iron ore deposit.  Afghanistan also has good potential for other minerals including gold and has substantial gemstone potential; but the country has not realized any modern exploration surveys in more than 30 years and so the information base is antiquated and sure to under-estimate the total mineral endowment. Moreover, Afghanistan does lie within several large regional trends for copper, iron ore and precious metals; and most certainly has the potential for additional world-class deposits in this regard.  Regarding hydrocarbons, Afghanistan has substantial known undeveloped gas deposits at Sherbegon and also some modest oil potential.

 

  1. What are the Expected benefits of Mineral Development for Afghanistan?

Mineral and hydrocarbon developments can be a pillar of future economic growth in Afghanistan creating both direct and indirect employment and income; developing transport and other infrastructure which will help open up areas for overall economic development; and generating not only considerable domestic revenue but also trade and balance of payments benefits.  Simply put, if managed properly, mining in Afghanistan has the potential to be a driver of poverty reduction and sustained economic growth. 

Mines not only directly contribute significant taxes, income and other benefits streams directly to the economy but also contribute indirectly through stimulus of various economic activities.  For instance, in other countries it has been demonstrated that every direct job created by a mining operation can result in as many as five to ten indirect and induced jobs by providing contracts for numerous small businesses and services which supply the mine.  Each of these jobs in turn produces taxes and other expenditures which pass through the economy

Aynak and Hajigak would be, by a wide margin, the two largest investments in the history of Afghanistan.  The mine developments would require US$2-3 billion invest and each mine would also require investment in ancillary infrastructure in the order of US$2-3 billion or more.  A low-impact scenario, based on prevailing market conditions, projects that Aynak and Hajigak could create more than 90,000 direct and indirect jobs, and approximately $500 million in annual fiscal revenues by 2020.
 

  1. What is the Role of the Bank and How Does it Link To Other Donors?

The World Bank, through its Oil, Gas and Mining Policy Division (COCPO) and Country Office, has been working with the Government of Afghanistan, along the extractive industries value chain, since the mid 2000s.  Since the beginning of the new government the Bank has provided guidance, advisory services, and a $40 million grant (SDNRP project) to promote sustainable development of the minerals sector.  The Bank has taken the lead regarding the mining sector and the Bank’s support has helped government establish the legal regime for mining; helped provide training to government mining and geological professionals; and helped strengthen the regulatory institutions with a view to encouraging environmentally and socially sustainable private sector investment in the mining sector. 

The Bank has worked closely with other development partners including providing support for the Afghan Geological Survey (with the British Geological Survey and the United States Geological Survey), work on a new fiscal regime with the IMF and USAID, work on artisanal and small-scale mining with US AID and preparatory work on the Aynak Copper Tender with UK DFID and US AID.  Other development partners have taken the lead in assistance regarding the hydrocarbon sector (Norway and the United States) and development of a new structure and new business plan to help streamline the Ministry of Mines (DFID).  Technical advisors, funded by the Asian Development Bank, the World Bank, and USAID are currently at work planning for railway development needed for transport of mineral products.

 

  1. What are the Main Challenges and Constraints Mineral Development?

Although some progress has been achieved, major challenges (besides improving the security situation) still lie ahead:

First, while the process of building sound licensing and inspection procedures and capacities is well underway it will take many years to reach the point where Afghanistan has strong and sustained capabilities to license and oversee world class mining operations.

Secondly, major mine developments will also require the development of infrastructure to support mining operations including the supply of key inputs such as water and power and the development of transport links to domestic and international markets (roads railways, pipelines). 

Third, it is important that mining and hydrocarbons developments become the stimulus for broader based development which can be achieved by planning for “resource transport corridors” to stimulate the development of several mines and spin-off activities along major geologic trends. 

Fourth, avoiding the resource curse will require the Afghan government and its development partners to make sure that a set of effective policies for good governance and sound and transparent revenue management practices and accountability by the time major operations start production.

Fifth, following international good practice, sufficient means and capacities must be in place to have sound social, environmental and cultural safeguards in place, including monitoring and procedures for non-compliance, accompanied by pro active information dissemination and community communication and consultation as well as adequate benefit sharing arrangements.

 

  1. What Has been Accomplished Under the first SNRDP project and What Will Be Added Under this Second SNRDP project?

The SDNRP plus non- lending technical assistance to support the activities of the National Environmental Protection Agency (NEPA) have provided major assistance in the following areas:

Activity

SDNRP – Achievements

To be addressed by SDNRP II

Sector and Sub-sector Policy Frameworks including transport corridor assessment

New mining law and regulations and mining environmental regulations have been prepared, promulgated and revised 2009 and 2011

Preparation of (i) sub-sector development policies for artisanal and small-scale mining (ASM) and for different commodities; and (ii) policy frameworks for Public Private Partnership schemes for mining-related infrastructure development

Tendering of Deposits

(i) Aynak copper deposit successfully tendered by MoM ; Hajigak tender well advanced, with short list being prepared;

(ii) International Advisory Panel (IAP) established and operational; reviewed Aynak tender process

(i) Establishment of a Secretariat within the Inter-Ministerial Committee to be responsible for all tendering of mineral deposits (including Hajigak);

 (ii) Extend assistance from the IAP

Advancing Geoscientific Knowledge

AGS has received extensive geological training; digitalization has been started of the AGS’s extensive geological data

Completion of digitalization of geo data and development of a comprehensive and user-friendly geo-database; support for new field work to collect additional geological data in order to attract private sector exploration

Cadastre

Mining and Hydrocarbons Title Registry and Cadastre Department established within MoM and became operational; training was provided

Completion of the modernization of the cadastre through up-to-date software and development of a fully computerized cadastre management system and related training for staff

Implementation of a Dynamic Inspection & Contract Compliance Regime

(i) Inspectorate established and operational; training was provided

(ii) Environmental laws and regulations strengthened; MoM Environmental and Social Protection Unit, (including a Liaison Unit with NEPA) established and operational; training provided and coordination between MoM and NEPA improved; 

(iii) a Mining and Hydrocarbons Sector SESA with a strong focus on Aynak and Hajigak initiated

 (iv) Environmental and social monitoring started at Aynak, with support through an international consultant to work on social issues; Resettlement Action Plan has been prepared; compensation agreed and paid for houses and residential land; MoM representative has been placed in Logar Province to work on Aynak at the provincial level.

(v) environmental and social training through Indian School of Mines; (vi)EIA Board of Experts established at NEPA

(vii)Public Consultation and Community Awareness Plan being prepared

(i) Continue strengthening of monitoring and inspection capabilities including establishment of MoM field offices for project monitoring and inspection and training of inspectors in Kabul and the field offices (ii) Strengthening of MoM and NEPA social and environmental monitoring and enforcement capabilities including  developing a national directive for the use of explosives and providing, and providing capacity building for NEPA regarding (a) identification, management and mitigation of project-related environmental and social impacts; (b) preparation, implementation, and review of environmental/social impact assessments and environmental/social management plans; and (c) monitoring and enforcement of environmental and social requirements

(iii)  follow up regarding the results of the SESA when completed

 (iv) environmental and social monitoring of Hajigak and establishment by NEPA of a Contract Compliance Office; and preparation of a Resettlement Policy Framework and grievance redress mechanism at MoM

(v)Implementation of Public Consultation and Community Awareness activities by MoM; support for the NSP to draft stakeholder participation frameworks

Ministry of Mines Mining Institute

External training supported  such as with Indian School of Mines

Establish MoM Mining Institute and continue specialized training

Corporatization of State Minerals Enterprises

Implementation of this component was delayed

(i) Preparation of scoping analyses and corporatization plans for reform of gas, fertilizer and minerals extraction enterprises, including related training

EITI

Afghanistan accepted as candidate country with implementation structure in place

Continue support for implementation and validation, in close collaboration with other donors

Mineral Revenue Management Policy Frameworks

Initial scoping by a consultant

Implement consultation processes and analytical work to develop policy frameworks for mineral revenue management including possible direct use of mining revenues towards benefit sharing and infrastructure

ASM sector, including gemstone subsector

(i) Gemstone subsector policy drafted

(ii) Scoping analysis regarding empowerment of women in the gemstone / jewelry trade

(i) Preparation of ASM policy; establishment of ASM Directorate within MoM and training for staff

(ii) Establishment of a gemstone center and related technical assistance to the artisanal gemstone sector, including  local artisans at Aynak in Logar province

(iii) ASM training in environmental protection and safer and more efficient mining techniques and in market access

Aynak Antiquity Preservation

Emergency support of the archeological assessment of cultural activities at Mes Aynak and a funding assessment for full recovery conducted

Support the implementation of the Archaeological Recovery and Preservation Plan of the Aynak antiquities with emphasis on integration of the artifact recovery plan with the Aynak mining plan, thereby supporting recovery of antiquities in high-priority areas

Program Management Unit / Direct Ministerial Support

PMU established and fully functioning

Same PMU will be used; capacity building for the Ministry of Mines to enable more effective public information disclosure as well as public consultation processes.

 

  1. What are the Main Governance Risks and How ARE They Being Addressed

The fundamental question (raised in the NYT article and elsewhere): is the Afghanistan government ready to receive investors and to develop these deposits? 

The Afghan government is conscious of the resource curse challenges and recognizes that attracting large private sector mineral and gas investments and avoiding the resource curse, will ultimately depend on a modern legal, regulatory, fiscal, environmental, social, revenue collection and expenditure frameworks supported by transparent and accountable actions of the Afghan government, its people, and the operating companies in the country.

The government has made important progress on various fronts regarding the modernization of its mining laws and regulations in line with good international practice, accompanied with the respective capacity building, which should enable the environment for more potential investments. 

The fundamental emphasis of the Government’s mineral development policies, laws and regulations is “transparency”.  For instance, commercial scale mineral deposits for which good geological information is already available will be offered to investors via a tender mechanism to ensure complete transparency and an open playing field to all investors.  Moreover, for large investments, the tender award will be reviewed and confirmed by the cabinet level inter-ministerial committee on mining as well as by an International Advisory Panel established under the SSDNRP which will be maintained under SDNRP2.

The Afghan government has also endorsed the principles of the Extractive Industries Transparency Initiative and has been designated by the Oslo-based secretariat of the EITI as a “candidate” country.   Adherence to the standards of EITI will be also codified in the national legislation. 

While Afghanistan at present has limited revenues generated from its minerals industry, completion of the EITI validation process will set the requirements for all companies to report revenues paid and for the government to report all revenues received from the sector.  Part of the refinements to the Mining Law will be to codify adherence to the standards of EITI in the national legislation.

 

  1. What are the Main Environmental,  Social and Cultural  Risks and How are They Being Addressed

Mining operations anywhere in the world can have significant environmental and social impacts.  Afghanistan has an environmental law which sets out the processes involved with preparation and approval of EIAs and SIAs.  The National Environmental Protection Agency is charged with the responsibility to review these impact assessments and to issue the relevant authorizations.  An environmental and social unit within the MOM is responsible, together with NEPA, for monitoring and evaluation of mining operations with compliance with the environmental and social regulations and guidelines. 

Significant funding has been provided, through the World Bank and Indian government, for technical assistance and training.  For instance, staff of the MOM and NEPA recently attended a two week training course at the Indian School of Mines (ISM) on environmental and social protection in the mining industry.  Additional training will be provided in this respect as well as direct linkages and twinning arrangements with the ISM.

One of the major challenges is to avoid conflicts at the community level, which may arise due to insufficient communication and outreach or through non-compliance to contractual obligations.  Communication and outreach are being improved through the development of a communications plan and appointment of communications professionals to oversee implementation of the plan.  Compliance monitoring will be in place and help to minimize this risk. Extractive resource projects that fail to deliver societal benefits through poor design or weak implementation, often fail.  To reinforce environmental and social sustainability, inclusion of civil society in planning and implementation is being encouraged.  

The government has shown a strong commitment to be guided by World Bank Safeguard Policies and the Aynak contract requires the Aynak development to take place in line with Bank safeguard policies.  SDNRP2 will include preparation of an Environmental Management and Safeguard Framework including a Resettlement Action Plan which will guide future mineral sector developments.

The Aynak site contains some 450 families who will have to be resettled.  The social specialists Bank have been working with the government to get a proper resettlement action plan completed and including public disclosure and consultation with affected communities.  With support from the Bank, the Ministry of Mines (a) has established an ombudsman’s office to receive any grievances that may arise and (b) is engaging civil society organizations at the community level to increase transparency of the resettlement process and strengthen communication with the community.  Compensation for residential land and buildings has been agreed but additional work is needed to determine appropriate levels of compensation for agricultural lands in cases where ownership is not legally documented or is disputed.

The Aynak site contains rich archeological sites including a Buddhist monastery.  A French archeological team has been taking the lead, along with the Ministry of Culture, to document and preserve the antiquities.  The Bank is working with the French team for the assessment, recovery and preservation of the cultural heritage of the Aynak valley (Mes Aynak antiquities) with emphasis on integration of the artifact recovery plan with the Aynak mining plan, and thereafter ensuring recovery of antiquities in high-priority areas.  While this support will provide ongoing immediate assistance, current estimates emerging from SDNRP are for as much as USD 30 million in total funding requirements.  Thus, parallel financing will need to be mobilized from other sources for full recovery and preservation of cultural artifacts.

 

ANNEX A:  COMPONENTS OF TECHNICAL ASSISTANCE

OFFERED THROUGH MINISTRY OF MINES AND NEPA

 

1 – SDNRP Components and Activities

 

Component 1: Developing Regulatory Capacity

To improve the Ministry of Mines’ regulatory capacity and put into operation three new essential departments: (1) Mining and Hydrocarbons Inspectorate, (2) Mining and Hydrocarbons Title Registry and Cadastre, and (3) Environmental and Social Protection Department, under which falls a Liaison Unit, linking MoM to the National Environmental Protection Agency (NEPA):

One of the principal aims of the project is to create appropriate environmental and social management units within MoM, and to train ministry staff to monitor and supervise the environmental performance of the sector. The Environmental and Social Protection Department will develop an environmental/social policy framework for future sector development; establish and assist NEPA in enforcing sector-specific environmental guidelines and procedures; monitor compliance therewith by private companies; and evaluate, jointly with NEPA, environmental impact assessments, environmental management plans, and abandonment plans as may be required under the legislation.

A key function of this department is liaison with NEPA on broader oversight of environmental issues across sectors. Throughout the technical assistance process particular emphasis will be given to training and the development of internal capacity within MoM to carry out these tasks independently.

 

Component 2: Developing Mineral Resources

Promoting the development of mineral resources is the largest component in the project. This component will support activities in the Sector Policy Unit and the Afghanistan Geological Survey.  The Sector Policy Unit will formulate extractive industries policy and undertake market analysis by way of analyzing supply and demand. It will also prepare sector laws, regulations, and guidelines with input from other departments and units.

The Afghan Geological Survey (AGS) will receive technical support for mapping of prospective mineral regions and mineral resource assessments to encourage new private sector exploration investment. The project will also support the development of a geographic information system for internet-based distribution of information and a public information center, building upon the work carried out by the British Geological Survey (BGS) and U.S. Geological Survey in building capacity within the department. The Afghanistan Geological Survey will house a Business Development Unit to design short-term resource development strategies and serve as the interface to the private sector on basic information, MoM activities as defined by sector laws and regulations, and tender of resource properties. The Business Development Unit will promote investment by participating in industry trade shows and conferences and preparing promotional materials.

 

Component 3: Enhancing Sector Governance

The government, through the project, will devise and implement a number of measures to ensure competition, transparency, and adherence to international best practices in respect of authorizing new investments in the sector. To this end, this project will help establish and support an International Advisory Council and the implementation of the principles of the Extractive Industries Transparency Initiative (EITI).  Strong sector policy will assist MoM in the management of benefit streams and ensure that extractive industries benefit those who are most impacted.

The International Advisory Council consists of a number of experts widely recognized in their respective fields for their knowledge of the sector and emerging trends in governance and transparency. They will review procedures for awarding licenses and contracts for all major transactions as well as the negotiated licenses and contracts, and provide a second opinion on the conformity of each transaction with international best practice and the fairness of the deal. The Council will also conduct an annual audit of cadastre functions. The Council will report to the Minister of Mines who will present the Council’s findings to the Inter-Ministerial Committee established by the Mining and Hydrocarbons Laws and the management committee of the Afghanistan Reconstruction Trust Fund.

During negotiations the government has agreed to endorse and implement the principles of the EITI. The EITI supports improved governance in extractive industries through the full publication and verification of company payments and government revenues from oil, gas, and mining. This project will help establish a multi-stakeholder EITI committee, which will agree upon basic EITI procedures and develop a work plan. The committee will draw members from the government, extractive industries, and civil society. The committee will design a reporting template and engage the public in dissemination and discussion of the audit findings.

 

Key achievements of SDNRP:

Drafting of the new mining law, which is about to become effective, as well as the accompanying regulations and the environmental law.  Establishment of a modernized cadastre office to support title management Successful competitive tender process of the Aynak deposit as well as initiation of the contractual compliance monitoring; initiation of the competitive Hajigak tender. A rapid archaeological assessment of Buddhist antiquities in the Logar valley, and the draft of an archaeological rescue plan, with the aim of preserving these relics

Capacities of the relevant regulatory institutions (Mines Inspectorate, National Environmental Protection Agency) strengthened

More effective management and workflow processes within the Ministry of Mines and the Afghan Geological Survey

 

2- SDNRP II – Components and Activities:

 

Component A:  Award of Contracts and Licenses - Access to Resources  (US$12.4m)

Development of Policy Frameworks including Resource Corridor Assessments– preparation of sub-sector development policies by commodity to guide sustainable development. This will include the policy frameworks for artisanal and small-scale mining (ASM), and decorative stones and quarry development. Further, this sub-component will address wider Sector Development Policy to guide EI sector development (with a strong emphasis on creating an enabling environment for major projects with international investors for precious metals, strategic minerals, other ferrous minerals and industrial minerals). It will also assist in the provision of policy frameworks for planning Public Private Partnership schemes for infrastructure development, specifically for railroads, roads and energy, which are an underlying necessity for successful deposit development, especially for iron ore. 

Tendering processes of deposits – establishment of a Secretariat within the Inter-Ministerial Committee that is charged with the processing of the tenders, and the provision of additional advisory assistance through the International Advisory Panel (IAP); also, this activity will continue to execute the ongoing Hajigak tender process.

Advancing Geoscientific Knowledge - collection of new geodata and the digital capture of existing historical geodata for the development of a modern computerized geo-database in order to attract exploration interest that is necessary to sustain discovery of new deposits and sector growth.

 

Component B: Regulation and Monitoring of Operations (US$22.0m)

Modernization of the Cadastre – including the provision of up-to-date software to enable computerized cadastre management and related training for MoM staff.

Implementation of a Dynamic Inspection & Contract Compliance Regime – strengthening of monitoring and enforcement capabilities covering all aspects of mining related activities, including the training of inspectors in Kabul and the decentralized offices, support for NEPA including preparation of environmental and social frameworks and instruments including a Resettlement Policy Framework for Hajigak and an Environmental and Social Management Framework; development of a national directive for the use of explosives; strengthening of contractual compliance monitoring in general, and for Aynak and Hajigak as a specific activity. Since monitoring of mining activities is a multi-stakeholder activity, local communities will also be supported by drafting stakeholder participation frameworks.

MoM Mining Institute - to provide relevant technical and vocational education and training. The Institute will provide up to ten workshops annually after inauguration, including classroom courses, field courses and short courses.

Improving the Business Environment and Reform of State Minerals Enterprises - including first phase reform of gas, fertilizer and minerals extraction enterprises, complemented by appropriate training for relevant staff. This activity will further be supported by a strong communication strategy to make the global investors community aware of the progress in the country.  

Extractive Industries Transparency Initiative— continuing to support for the implementation of the EITI, in close collaboration with other donors. Emphasis will be put on enabling the regular production of independent reconciliation of extractive industries revenues and the subsequent dissemination, as well as capacity building and training for the multi-stakeholder working group

Policy Framework for Mineral Revenue Management —provision of policy frameworks and options in accordance with good governance practices in order to support stakeholder consultation with the goal to find sufficiently flexible rules that will direct use of mining revenues towards benefit sharing and spending on public goods.

 

Component C: Preservation of Aynak Antiquities and Support for Alternative Livelihoods through Sustainable ASM (US$7.6m)

Aynak Antiquity and Artisan craft production – Support the implementation of the Archaeological Recovery and Preservation Plan of the Aynak antiques for the recovery and preservation of the cultural resources of the Aynak valley (Mes Aynak antiquities) with emphasis on integration of the artifact recovery plan with the Aynak mining plan, and ensuring recovery in high-priority areas. The communities around Aynak will also be supported with jewelry making programs, with an emphasis to boost women’s employment.  This sub-component provides ongoing immediate assistance; the GoA is seeking financing  on the order of US$ 30 million from other sources for full recovery and preservation of cultural artifacts.  

Artisanal and Small-scale Mining Directorate – drafting of a strategy for an ASM Directorate within the Ministry of Mine, and the subsequent establishment thereof. Training for staff working under this Directorate will also be included.

Training and Market Access for Gemstones - direct technical assistance to the artisanal gemstone sector to support added value e.g. cutting and polishing, with a special emphasis on women’s employment in jewelry making and gemstone cutting.

Support for ASM Communities and Mining Cooperatives through Technical Training - Training (modern mining techniques, environmental management, small business management) will be tailored according to the type of mineral mines, and can include market access strategies for gemstone and decorative stone miners.

 

Component D:  Project Implementation Support (US$10m)

To finance all the activities of the Project Management Unit (PMU) needed to manage the project activities efficiently and effectively. This will include funds to cover incremental operating costs, PMU staff costs, monitoring and evaluation of project activities, and compliance with Bank fiduciary and safeguards requirements. This component will also finance direct capacity building for the Ministry of Mines to enable more effective public information disclosure as well as related public consultation processes.

 

4 - Expected Outcomes of SDNRP II:

  1. increased capacity at the Ministry of Mines to administer and monitor ongoing sector activities for both the small scale and the large scale mining sub-sectors, to license operations and ensure regulatory and contract compliance, and to manage future resource auctions based on improved quality and availability of geodata and improved linkages to transportation infrastructure and resource transport corridors,
  2. increased capacity at NEPA and strengthened monitoring and enforcement mechanisms to ensure appropriate environmental, social and cultural protection and mitigation standards at mining sites,
  3. contribution to the prompt recovery and restoration of archeological artifacts from the Mes Aynak site, which is of great importance to the Government and people of Afghanistan,
  4. strengthening of sustainability of ASM operations, including establishment of a gemstone centre and providing training for downstream operations for gemstone-based entrepreneurial activities for women.