PROJECT INFORMATION DOCUMENT (PID)
CONCEPT STAGE
Report No.: AB5604
Project Name
Region
Sector
Project ID
Borrower(s)
Implementing Agency
Mining Growth and Governance Support Project
AFRICA
Mining and other extractive (100%)
P120825
REPUBLIC OF MALAWI
Ministry of Natural Resources, Energy and Environment
Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined)
Date PID Prepared
Estimated Date of
Appraisal Authorization
April 30, 2010
September 27, 2010
Estimated Date of Board
Approval
December 14, 2010
1.
Key development issues and rationale for Bank involvement
A.
Country Context
Malawi has experienced an improvement in its economic fortunes after years of stagnation but remains one of the ten poorest countries in the world. There have been several years of consistent growth and declining inflation, accompanied by debt relief after reaching the HIPC completion point in 2006. This has been accompanied by other signs of robust economic performance, with lending to the private sector and tax receipts both growing. Nonetheless, these economic gains remain vulnerable, with economic wellbeing overly dependent on rain-fed subsistence farming, publicly funded services supported by donors, traditional exports of tobacco, tea and cotton, and high cost imports of fuel and essential goods.
Sustained export-led growth requires diversification and the removal of binding infrastructural constraints. Mining development has the potential to contribute to economic diversification and alleviating infrastructure challenges, since its requirement for reliable and cost-effective transport and energy on a long-term basis can underpin public investment choices. Moreover,
Malawi’s location as a potential transit route for the increasing volume of minerals being produced regionally, particularly in Tete Province of Mozambique and in Zambia, offers further underpinning for significant infrastructure investment.
Government development strategies in the mid-2000s had established a long term goal of
“increasing the contribution of the mineral sector to GDP by at least 10 percent annually” from a base of less than two percent of GDP. This optimism was founded on assessments by the
Ministry of Natural Resources, Energy and Environment (MNREE) that showed the existence of a favorable geological setting for a range of valuable mineral types. It highlighted several mineral deposits that were already partly or fully evaluated which could, under the right conditions, attract investment from the private sector. Based on current knowledge, Malawi has potential to develop a wide range of internationally traded minerals, however, the full extent of

its mineralization can only be revealed by further geological data acquisition and mineral exploration.
1
In 2009 Malawi’s first significant mine, Paladin’s Keyelekera uranium mine in northern Malawi, came on stream and there is a pipeline of further investments to spur mineral sector growth. The
Bank’s Mineral Sector Review , July 2009 (MSR) sees the value of minerals output reaching some US$250mn annually, if additional planned mine investments come to fruition in the next few years, with potential to double that ten years from now. This will depend, in part, on investors seeing energy and other infrastructure improvements taking place. Minerals would become one of the main sources of FDI, provide up to 25% of export earnings and account for some 5-6% of projected GDP.
B.
Sectoral Context
The growth of the mineral sector on a sustainable basis from its present relatively low-base is, however, not assured. The key strategic challenges for Malawi are the same as those faced across the continent, which the African Union’s (AU’s) Africa Mining Vision 2050 is designed to address, namely: i.
Overcoming the fact that Africa’s geology remains largely unexplored due to insufficient investment in mineral exploration and development compared to other parts of the world. ii.
Harmonizing institutional, policy, and regulatory frameworks to present a more even playing field for investors and avert a “race to the bottom” in a bid to induce investment. iii.
Strengthening the human resource base across the region to take advantage of opportunities for skilled employment and develop technical expertise in managing all aspects of the mineral sector. iv.
Establishing and better enforcing environmental, health, and safety standards in the mining industry which will have domestic as well as regional benefits. v.
Better provision and reliability of infrastructure to support exploration and exploitation of mineral resources. vi.
Encouraging greater backward and forward linkages so that mining ceases to take place on an enclave basis and can better contribute to local economic and social development. vii.
Fostering more sustainable and less environmentally and socially harmful artisanal and small scale mining activities.
A number of Malawi’s neighbors have made progress in addressing the above-mentioned challenges. In most cases, this has required sustained and, in some cases, deep reforms to become attractive destinations for minerals investment. Following a generation of mineral sector reforms, Mozambique, Madagascar and Tanzania are examples of countries previously not noted for mining, which are emerging as significant producers and increasingly focusing attention on securing wider economic benefits of mining sector growth.
It is now recognized that the wider benefits of mining cannot be achieved without good governance of the sector. Clear regulatory mandates and strong institutions are needed which
1 Only limited new data has been acquired since the 1980s yet known mineralization includes deposits of bauxite, heavy mineral sands, rare earths, niobium, copper, nickel, iron ore, gold, gemstones, various industrial minerals, and for energy production - uranium and bituminous and sub-bituminous coals.

operate in a transparent way, and are accountable to stakeholders. Successful reform will minimize the diversion of resource rent along the extractive industries value chain, ensure that rent contributes to sustainable development and cater for the economic and social needs of communities where mining takes place. The World Banks’ approach to policy advice and technical assistance in the mining sector is guided by this vision (known as “EITI++”). In
Malawi’s case, the considerable interest that has been generated in minerals following the start of the Keyelekera mine could result in a situation in which investment flows at a pace that overwhelms the government’s ability to manage such investment wisely, eventually undermining governance in the country. That is the risk the proposed project, inter alia , seeks to address.
World Bank engagement on mining in Malawi started in 2007 with support to the Government in identifying key issues to be addressed in a National Mining Policy. The World Bank prepared the MSR (2009) for this purpose. The MSR provides an assessment of mineral potential and provides recommendations on policy, legal, regulatory and institutional reforms to support growth and good governance of the mining sector. It also incorporates a rapid Social and
Environmental Sector Assessment (SESA) for the mining sector, which focuses on sector-wide mitigation of impacts of mining activities and the generation of tangible economic and social benefits in mining areas.
On April 20, 2010 the Ministry of Finance requested World Bank technical assistance to help undertake the reforms needed to implement the Government’s mining sector growth objectives.
MNREE has completed a draft National Mining Policy and intends to present this to Cabinet shortly. The draft of a new mining law to replace that of 1981 was discussed by stakeholders from industry and civil society at the end of April 2010. The World Bank's engagement in support of the Government is predicated on this reform momentum being sustained and early adoption of the policy is key.
The proposed Project takes into account ongoing dialog with civil society organizations and community representatives that was begun while conducting the MSR. A World Bank/DfID supported NGO Outreach Program will take place in April 2010 to help build information networks around mining issues and this will be further supported during Project preparation and delivery. A stakeholder workshop on mineral revenue transparency issues (Extractive Industries
Transparency Initiative) is also being planned.
The proposed Project is being developed in close collaboration with other donors that have shown interest in supporting the Government in this sector. Under the 10 th
EDF, the EU
Delegation in Malawi is proposing Euro5 million of funding for which a needs assessment has been completed and reviewed by the Bank. The Government of France has opened discussions for support to MNREE, with a focus on mining sector promotion through geological data. DfID is funding the work of a consultant to assist MNREE develop the new mining law and NGO outreach activities. The IMF is providing technical advice on mining tax policy in close collaboration with the World Bank team.
C.
CAS Context

A broad strategy for mining to contribute to economic diversification and development formed part of the Malawi Growth and Development Strategy (MGDS, 2006-2011). The President, upon re-election, declared that mining should be “a priority among priorities”, to be reflected in the successor to the MGDS, which is due in 2011. Within the sub-region, Malawi is party to the
SADC Mining Protocol which seeks to improve competitiveness and governance of the mining sector of members by concerted and harmonized reforms. The National Mining Policy has been benchmarked against the Mining Protocol and aligned with the SADC Mining Harmonization
Framework, whose implementation plan was endorsed by SADC mining ministers in Kinshasa in
November 2009
2
.
The proposed TA Project would contribute to the 2006-2010 Country Assistance Strategy and its successor in (i) promoting long-term economic growth through an improved investment climate and infrastructure development, thereby enabling diversification of export-orientated sectors and
(ii) strengthening economic management and good governance in key areas of the economy.
2.
Proposed objective(s)
The Project’s Development Objective is to improve governance of the mining sector and its linkages to the local economy. The project will contribute to a governance level goal, stretching beyond the timeline of this project implementation, of ensuring sustainable development of mineral resources and the contribution of the mining sector to poverty alleviation through the generation of revenues and integration of the mining sector into broader economic development and planning. The indicators that the PDO is achieved are:
(i) Mining sector growth with strong local economic linkages (measured by number of mineral development agreements entered into that include adequate contributions by mining projects to local economic development)
(ii) An efficient and transparent framework for managing mineral rights and operations
(measured by adoption and consistent application of mining cadastre system)
(iii) Generation of mineral revenues and their transparent management (measured by collection and transparency of revenues from operations started prior and during the project using mechanisms adopted under the project)
(iv) Robust environmental and social safeguards (measured by adoption of adequate sector specific environmental and social regulations and application of guidelines that will be developed under the project).
The beneficiaries will be (i) Malawi at large through the contribution of increased mining sector activity to sustainable economic and social development and regional integration, (ii) the private sector through the improvements in the investment climate and infrastructure provision catalyzed by mining sector investment, (iii) mining companies that will benefit from improved availability of geo-data for making exploration decisions and an improved environment for acquiring and maintaining mineral rights, (iv) mining-affected communities who will benefit from arrangements to provide social infrastructure and local economic opportunities and measures to reduce, mitigate and compensate for mining related risks and (v) government institutions and their staff involved in managing the mineral sector who will benefit from capacity building.
2 Malawi will be hosting their next meeting later in 2010.

3.
Preliminary description
The project is expected to be funded through a $12.5 million IDA Credit. It will be comprised of three major components and a project management component. The detailed preparatory work is commencing with the Government and in coordination with other donors; components’ outlines provided below will be refined at appraisal stage incorporating findings of preparatory assessments and consultations.
A. Framework for Managing Mineral Rights and Operations. The objective of this component is to build a comprehensive set of arrangements for managing the mineral sector on the basis of the
National Mining Sector Policy and the new mining law. This project component will (i) set up the structure and support arrangements for continuous and formalized dialogue among stakeholders on mining policy issues and oversight of policy implementation; (ii) develop a body of regulations to give effect to the new mining law, (iii) build on the rapid Strategic
Environmental and Social Sector Assessment (SESA) in the Mineral Sector Review (MSR) by conducting a full SESA to identify and design appropriate environmental, social and resettlement policies and measures for mining and associated infrastructure development, including regional and community development planning and agreements, to enhance economic linkages and generation of tangible benefits in mining areas and (iv) develop Public Private Partnership (PPP) frameworks tailored to mining-related infrastructure development to build upon the Bank’s other projects supporting PPPs approach, frameworks, and capacity building.
B. Framework for Mineral Revenue Generation and Management. The objective of this component is to support development of the Government’s policy framework for mineral revenue generation and management. This project component will (i) complete standardization of the fiscal regime for mining through design and implementation of suitable royalty and tax regulations, (ii) design and support implementation of revenue transparency measures, and (iii) design and support implementation of policies for the management of mineral revenues.
C. Institutional Strengthening. The objective of this component is to ensure that the regulatory frameworks (Components A & B) are capable of being implemented professionally, sustainably and transparently. this component will provide training and equipment (including IT systems) to units in MNREE to (i) develop a modern mining cadastre system,(ii) conduct field work, laboratory work, monitoring and inspection, (iii) review and monitor EIAs/SIAs, ESMPs,
Resettlement Action Plans and Mine Closure Plans, and develop a social and environmental data registry, (iv) undertake geological data acquisition, interpretation and promotion, (v) carry out
(in cooperation with the Malawi Revenue Authority), functions necessary for physical and fiscal audits of mining operations for revenue administration purposes, and (vi) fulfill public information, communications and stakeholder dialogue functions. Sub-component (iii) would be complemented by programs for the development of CSO and local community capacity to engage in environmental and social management at both impact assessment and at monitoring and evaluation stages. Sub-component (vi) would be complemented by programs for development of CSO and local community capacity to engage in stakeholder dialogue on mining sector development issues during the Project and beyond.

D. Mineral Sector Promotion. The objective of this component is to strengthen the role of government institutions in promoting minerals investment and local economic linkages. This component will (i) improve the geo-data and mineral resource assessments available to potential investors, drawing on the results of an evaluation funded by the PPA of suitable programs of data acquisition, interpretation and promotion which the Bank and other donors can support, (ii) support tertiary educational institutions to supply training in mineral-related domains, and (iii) provide support for formalization and sustainable operating practices of artisanal miners regarding technologies, environmental management, health and safety conditions and community relationships.
E. Project Management. This component will provide support to MNREE to implement project activities, in accordance with the Bank’s fiduciary and other guidelines, including incremental operating costs, equipment for the project support team, training on fiduciary and project management issues, and project audits.
4.
Safeguard policies that might apply
Although the proposed Project is limited to the provision of technical assistance and is not expected to result in any negative environmental or social impact, the proposed project has been classified as Category B, triggering OP/BP 4.01 (Environmental Assessment) because of the potential impacts of follow-on mineral investment projects. Since locations, timing and technical features of follow-on investments are unknown, the Project will not develop Environmental
Impact Assessment (EIA), but instead will prepare and disclose in-country and in the Bank’s
InfoShop prior to appraisal Terms of Reference for environmental and social sector related assignments to be carried out under this technical assistance project. During Project
Implementation the project will (i) undertake full mining sector Strategic Environmental and
Social Assessment (SESA); (ii) revise/ update (and expand where appropriate) existing environmental and social regulations for mining sector, including guidelines and standards, and
(iii) provide capacity building to the government on environmental assessment procedures.
5.
Tentative financing
Source:
BORROWER/RECIPIENT
($m.)
0
International Development Association (IDA)
Total
12.5
12.5
6.
Contact point
Contact: Bryan Christopher Land
Title: Sr Oil, Gas and Mining Specialist
Tel: (202) 458-5391
Fax:
Email: bland@worldbank.org