The World Bank
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
INTERNATIONAL DEVELOPMENT ASSOCIATION
1818 H Street N.W.
Washington, D.C. 20433
U.S.A.
(202) 477-1234
Cable Address: INTBAFRAD
Cable Address: INDEVAS
January 20, 2000
Hon. Sir Mekere Morauta, Kt, MP
Prime Minister
Government of Papua New Guinea
Morauta House
P.O. Box 639
Waigani, NCD
Papua New Guinea
Dear Mr. Prime Minister:
Ok Tedi- Risk Assessment of Mine Waste Management Project
When we met last August you requested the Bank’s assistance in interpreting Ok
Tedi Mining Limited’s (OTML) voluminous report on the Risk Assessment and
Associated Documents of the Mine Waste Management Project (hereafter referred to as
the ‘Risk Assessment’). The study, commissioned by OTML, represents the outcome of
extensive studies in engineering, environmental and risk components carried out over the
last two years on the operation of the Ok Tedi mine near Tabubil, Western Province. The
report findings have been disseminated by OTML and BHP, the majority shareholder in
OTML. Report findings have attracted substantial public interest, setting the stage for an
important debate on the future of the mine and the people that depend on it or that are
adversely affected by the impact of its ongoing operation.
In our desk review we have sought to: i) bring to your attention areas which, in the
Bank’s opinion, needed further study or clarification in order for the Government to take
a more informed decision on an appropriate course of action, and; ii) advise on good
practice (at corporate governance and government levels) in preparing for, and managing
mine closure, including the mitigation of environmental and social impacts and associated
risks. We received the reports in late October and a small Bank team undertook the desk
review shortly thereafter. The Bank has had no direct or indirect involvement with the Ok
Tedi mining operation and, therefore, undertook its review from a limited knowledge
base. The analysis of the report has therefore necessitated more time than initially
anticipated.
OTML commissioned the Risk Assessment to assess options available to address
the environmental problems created by operation of the mine. The Risk Assessment
examines specific environmental mitigation proposals within the context of a
comprehensive risk assessment framework. These studies are intended to assist OTML
management and shareholders with the decision-making process regarding a possible
course of action to mitigate the impacts of mine waste disposal. The objective of the Risk
Assessment was to assess the relative risk of different waste management and mine
operation options to minimize the overall risk to OTML shareholders. The risk was
RCA 248423.  WUI 64145  FAX (202) 477-6391
Sir Mekere Morauta
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January 20, 2000
quantified through determination of the total cost that is most likely to be incurred by the
company for each of the scenarios, based on widely accepted techniques of identification,
characterization and quantification of risks. The total cost also includes the opportunity
cost of foregone sales revenue and related profits under the scenarios where earlier that
planned mine closure is being considered.
The Risk Assessment therefore reviews a limited set of technical options from a
shareholder’s risk exposure perspective with the purpose of defining a mine operation
setting that minimizes overall risk to shareholders. While the Bank recognizes the
importance of this report to the Government of PNG as a shareholder in OTML, the
Bank’s assistance is being provided to assist the Government in dealing with the broader
issues of social and environmental stewardship and responsibility which rest with the
Government in relation to the people of Western Province, and not as a shareholder of
OTML.
For all waste management options considered in the Risk Assessment, it was
assumed that a comprehensive mine closure strategy would be implemented in order to
“adequately address the engineering, environmental and social aspects associated with
cessation of operations” and that a 10-year after-care period would follow mine closure.
But the report does not provide any information on the mine closure plan or broader mine
closure strategy. We understand that OTML is preparing such a plan and that it will be
submitting it to Government in the near future.
Given that a mine closure plan is not yet available, we are not able to assess the
appropriateness of social and environmental mitigation measures under consideration and
whether international best practice is being followed. The Risk Assessment highlights the
social problems that would occur if mine closure took place next year but it does not
examine how long is needed to: a) undertake the necessary preparations so that mine
closure could take place in a socially acceptable manner, and; b) build-up strong local
government institutional capabilities to support the mine closure strategy. In this regard,
we understand that removing the dredge could release funds that could be used for other
types of environmental improvements (e.g. in the mill) or for social improvements and
compensation. More information is needed in this regard. Indeed, the report indicates
OTML is expected to be very profitable from 2000-2010 but does not address whether the
proposed level of social spending is appropriate or not. This is clearly the beginning of a
transition period for the Government and Western Province, and both must acknowledge
the importance of beginning to prepare for this transition and the need to establish the
necessary partnerships to make this as smooth a process as possible.
At the outset one should also note that the Risk Assessment confirm the widely
acknowledged view that the environmental impacts of mine operation are significant, and
have been far greater than initially anticipated. The report also confirms the
understanding that the impacts are likely to worsen, and will continue for some time even
after the mine has closed and that the existing and potential future environmental impacts
of the mining operation are directly related to the discharge of tailings and waste rock
from the mine. These discharges far exceed the sediment transport capacity of the river
system downstream of the mine. The Risk Assessment also acknowledges that “none of
the options for mitigating environmental impacts, or otherwise operating Ok Tedi,
Sir Mekere Morauta
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January 20, 2000
provides a clear best alternative forward”. It is therefore in this context of
inconclusiveness that, in the view of the mine operators, the following comments are
provided for your consideration.
The Bank’s technical team that reviewed the report is unequivocal in its overall
opinion: the risk assessment and underlying technical reports are first rate and state-ofthe-art in terms of environmental science and risk assessment methodologies.
Independent peer reviewers and auditors commissioned by OTML to review the work
concur in affirming that the quality of scientific and technical expertise underlying the
reports is of high order. Our technical opinion is provided in the attached Technical Note,
which also includes a number of questions/issues that should be raised with OTML for
further clarification.
The Risk Assessment confirms what one would expect on a purely intuitive basis.
First, the lowest cost to OTML is to continue operating until 2010 under the no-dredge
option. The highest cost option is to close the mine early and forego 10 years of operating
profit. From an environmental standpoint, the best option is to close the mine
immediately. But from a social standpoint this would result in a potentially disastrous
situation because there is no preparedness for mine closure. In addition, little or no
attention in the Risk Assessment was given to the impact of the various options of mine
closure to the economy of the country and province. Since a Mine Closure Plan has yet to
be tabled, it is impossible to determine if it is environmentally and socially sound, which
means that it is also impossible at this stage to judge its final cost. To reiterate, the overall
risk assessment is incomplete in its integration of social and environmental costs and not
comprehensive enough for the government to decide on next steps. Most importantly, the
risk assessment does not adequately address the trade-offs between environmental and
social costs according to the timing of mine closure.
From a purely environmental perspective, the Risk Assessment suggests that the
Ok Tedi Mine needs to be moving towards closure as soon as possible. Preparations for
closure should be initiated without delay given the traditionally long lead time associated
with social impact mitigation measures. In fact, without a draft Mine Closure Plan
supported by a comprehensive and participatory Mine Closure Strategy (which would be
the Government’s and Western Province’s responsibility) addressing environmental and
social issues, immediate closure would appear to carry with it the worst social impact.
The Government must take decisive action in regards to the set of issues for which
it is best positioned to deal with, including:

Consider OTML’s draft Mine Closure Plan including, inter alia: area of impact;
stakeholder identification, participation and perceptions; regulatory and contractual
requirements; environmental aspects; social aspects; compensation; end point criteria
and post mine closure and conflict resolution. Attention should be given to the final
landform of the mine site, and how the plan ameliorates impacts already in evidence
at the mine site, in the Ok Tedi and Fly Rivers and their floodplains. The Mine
Closure Plan should take into account costs of physically closing the mine, the
environmental and social costs and impacts associated with mine closure and should
be based on prevailing best practice in the mining industry not simply historical
practices. Based on the time needed to accomplish mine closure and effectively
Sir Mekere Morauta
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January 20, 2000
mitigate the potential impact on the economy and people of PNG, the mine closure
plan should present a timetable for ramping down commercial exploitation of the ore
body and ramping up expenditures for mine closure;

In parallel, OTML, the Government, Western Province, affected communities and
other stakeholders should initiate, through a participatory mechanism, the preparation
of a Mine Closure Strategy that would also address, from the Government’s
standpoint, how the mine closure fits into the broader picture for Western Province
and its communities and for the economy as a whole. This will therefore require a
robust social and institutional assessment of major stakeholders in the transition to a
different economy when OTML ceases operation;

The Government should undertake an independent review of the proposed draft Mine
Closure Plan, including involvement of the affected communities, NGOs and other
stakeholders in its assessment;

The Government will need to undertake an independent assessment of financial costs
of ameliorating and compensating the impacts of mine closure. It will also need to
determine how funds received from OTML can be managed to generate a sustainable
income stream over the long term (since observed, predicted and unexpected
environmental and social impacts are likely to be long-term). It is clear that significant
investments in the local communities will be required to mitigate the socio-economic
impacts of mine closure, regardless of its timing.
In closing, we welcome and encourage the continued open and frank assessment of
the environmental impacts that the operation of the mine has had on the Ok Tedi and Fly
Rivers. This is no doubt an important and significant step in OTML’s acknowledgement
of the long-standing view that environmental impacts of its operations have been
significant and that the social dimension of these impacts is of great concern to local,
national and international organizations.
Finally, we feel it is critical that stakeholders in this decision-making process are
brought into the picture as soon as possible and that their concerns are fully taken on
board.
Sincerely yours,
Klaus Rohland
Country Director, Papua New Guinea
East Asia and Pacific Region
Attachment
Sir Mekere Morauta
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January 20, 2000
bcc: Messrs./Mmes. Talati, Weise (EASPR); Rahill, Tronchet, Osei (EACNI);
Fossberg, Stephens, (EAPVPX).