Argentina - Second Mining Development Technical Assistance Project

Report No. PID6709 Project Name Argentina-Second Mining Development (+) Technical Assistance Region Latin America & the Caribbean Sector Mining Project ID number ARPE55477 Borrower Argentine Republic Implementing Agency Mining Undersecretariat Av. Julio A. Roca 651, 2ndo piso 1322 Capital Federal, Argentina Tel: +54-1-349-3271/74 Fax: +54-1-349-3273 Date this PID prepared December 2, 1997 Project Appraisal date December 15, 1997 Project Board date February 10, 1998 1. Country and Sector Background. Partially supported by a formidable reform and an ambitious privatization program, Argentina's current macroeconomics program is resulting in price stability and economic growth unknown for decades in the country. As sustained future growth hinges on an expanding and dynamic private sector, the Government's role is to avoid distortions that repress and misguide private economic activities, and to provide an enabling institutional and regulatory framework for their development, among them mining. A 1993 Bank Mining Sector Review showed sector performance (about 0.2w of GDP and 0.2w of total exports) is far below the country's potential. Sector production (US$ 492 million, 1994) is mostly divided between many small non metallic operations (91.7w of total production value, 1994). Until 1996, only three producers of metallic minerals accounted for 80t of the country's production and two accounted for 759 of the gold mined. Following the Bank review, the Government implemented a deep reaching sector reform, including the modernization of the legal and institutional frameworks, as well as of the basic geological information infrastructure. Important laws approved between 1993 and 1995 improve the investment environment for mining and clearly define the environmental norms and management set up for sector activities. A first Mining Sector Development Technical Assistance Project, funded by the Government and the Bank is supporting the reform at the federal level as well as in six Provinces of North West Argentina. As a result, the sector performance is drastically improving: US$120 million were invested in exploration in 1996, compared with US$10 million in 1992; and total investment in mining reached more than US$1,000 in 1997, compared with US$10 million in 1992. Yet, the reform remains to be implemented in 17 of the 23 Provinces of Argentina. 2. Project Objectives. The project is a repeater of a successful on-going operation, the Mining Development Technical Assistance Project (Ln. 3927-AR). Its main purpose is to extend the institutional capacity building components regarding administration of mining rights, environmental management and information management to the 17 Provinces which are not participating in the present project. The Project Development Objectives of the proposed operation  are identical to those of the on-going project: to develop and support, through institutional development T.A., the federal and provincial governments' policy, regulatory and institutional reforms which encourage the expansion of private investment in mining in an environmentally sound way. It will help to build the provincial capacities for efficient administration of mining rights and environmental management, develop the understanding of and the capacity to address social impacts from mining, support provincial divestiture and link the Provinces to the National Mining Information Network. 3. Project Description. The Project has two components. (i) A Policy Implementation Component, providing consultancies to support the administrative capacity and installations of the sector agencies in seventeen Provinces, including their cadastral and registry systems and related advisory services, a mining data bank and public information network, and the mechanisms to monitor and enforce environmental and social management related to mining activities. It would also finance relevant skill transfer, training and divestiture efforts. (ii) A Project Coordinating Unit (UCP) to oversee Project implementation. The Project finances consulting services and contract works, computer equipment and software, field and office equipment and vehicles, training, incremental recurrent costs and the necessary upgrading of facilities. 4. Project costs and financing. Total costs of the Project is estimated at US$46.5 million equivalent, of which 69t is foreign exchange. A Bank loan of US$39.5 million is contemplated, and the Federal and Provincial Governments would mostly finance local costs. 5. Implementation Arrangements. The Project would be implemented over a period of 24 months. The Project completion date would be June 30, 2000 and the Loan closing date would be September 30, 2000. The Undersecretariat of Mines (SSM) would be responsible for the implementation of the project. The following 17 Provinces would participate in the project: Buenos Aires, Chaco, Chubut, C6rdoba, Corrientes, Entre RUos, Formosa, Jujuy, La Pampa, Misiones, Neuquen, Rio Negro, Santa Cruz, Santa Fe, Santiago del Estero, Tierra del Fuego y Tucuman. The mining authority (Secretariat/Directorate of Mines (SPM/DPM)), through an officialy designated coordinator, will be responsible for the overall implementation of the project in their respective Province. SSM will strengthen the existing Project Coordination Unit (UCP) to (i) link with the SPMs/DPMs, (ii) coordinate and provide technical assistance to the implementing agencies regarding project implementation, and (iii) manage (a) procurement - including all contracting for works and purchases - and the hiring of consultants, (b) project monitoring, reporting and evaluation, (c) the contractual relationship with the Bank, and (d) financial record keeping, the Special Account and disbursements. Project activities and progress would be overseen by the Federal Mining Council (COFEMIN), a consultative mining policy body representing the Provinces. 6. Project Sustainibility. Based on the foundations of the first mining Project - including the development of the legal, regulatory and institutional frameworks -, the proposed operation will assist in creating conditions to attract long-term private investment for mining development and to establish a self-sustained sector growth. Sustainibility will be enhanced through the Project's strong emphasis on institutional building, training, human capital development and environmental as well as social awareness in the public and private sectors. Institutional and financial mechanisms will be instated in -2 -  order to sustain the activities of the Public Mining Institutions in the long- term. 7. Lessons learned from past operations in the country/sector. [Note: Lessons learned from completed and ongoing projects financed by the Bank and other development agencies.] Lessons have been learned from the ongoing Mining T.A. Project as well as from other countries where the Bank has financed projects to develop mining (e.g. Bolivia, Ecuador, Mexico and Peru) and from a recent Bank review on mining sector reform in Latin America (A Mining Strategy for Latin America and the Caribbean, 1996). (i) The emphasis put in the first project on management capacity development of provincial public mining institutions has proven to be correct and will be repeated in the second operation. (ii) The participation of six Provinces in the first project has been extremely useful in terms of piloting. However, there is an imperative need to extend the reform to the rest country, as difficulties regarding sector management in any of the Provinces have an impact affecting mining development in Argentina as a whole. (iii) Regional implementation units specifically dedicated to overall technical coordination and assistance to the provincial units in charge of the different subcomponent will be strengthened with respect to the first operation, in order to support project implementation and improve ownership when necessary. (iv) [Note: Lessons learned from completed and ongoing projects financed by the Bank and other development agencies.]Centralized procurement and consultant hiring arrangements under the responsibility of the UCP has proven to be highly successful and efficient and would be repeated. Delegation of procurement responsibility to the provincial agencies would cause delays and increase management, without contributing significatively to an improved management capacity of the referred entities. And (v), existing monitoring mechanisms are working well under the first project, particularly in the case of works and consultancy contracts. 8. Poverty Category. N/A 9. Environmental Aspects. The comprehensive Sector Environmental Assessment (SEA) carried out in 1994 has been updated as part of the preparation of this category B operation, reviewing the present status of (i) the environmental legal, regulatory and institutional frameworks; (ii) the evolution of the mining sector, including a description of most of the mining projects in operation or under development; (iii) the potential physical and socio- economic impacts of sector activities on the environment and on the communities, including indigenous populations; (iv) lessons learned resulting from two years of implementation of the first Project, as well as from the application of the Environmental Law for Mining Activities (Law 24585, November 1995) and its regulations and from the initial activities of the Provincial Environmental Management Units (UGAPs); and (v), the technical assistance to support the extension of an efficient and consistent environmental management system to the whole country. Compared with two years ago, the situation regarding environment and mining has changed considerably. A specific Law ( 24585) has been passed and included within the Mining Code, applicable and enforceable for whole country. Regulations have been approved in many of the Provinces and procedures as well as technical manuals are being developed. Application agencies are operative in virtually all Provinces. Hundreds of Environmental Impact Statements (EIS) have been prepared by the mining rights holders and presented to the respective UGAPs, as a result of the enactment of the Law. The EIS have been processed in a satisfactorily - 3 -  manner despite the relatively weak capacity and technical level of the UGAPs. While work will continue under the first operation to develop and improve procedures, environmental guidelines, monitoring processes and work methodologies, the second Project will include (i) measures to enable the UGAPs of the 17 participating Provinces to develop their administrative capacities, facilities, resources and staff training to implement their functions and enforce the environmental regulations; the Environmental Information and Management System (EIMS) currently under development will be implemented; (ii) preparation of environmental baseline studies, to assess natural, social and sector background data in selected areas of each of the participating Provinces; (iii) preparation of pilot socio-economic baseline studies aiming at the definition and implementation of consultation procedures, training requirements and programs, ad hoc institutional strengthening and other related measures. 10. Program Objectives Category. Private sector Development. The Project is a repeater of a successful on-going operation, the Mining Development Technical Assistance Project (Ln. 3927-AR). The Project development objectives of the proposed operation are identical to those of the on-going project: to develop and support, through institutional development T.A., the Federal and provincial governments' policy, regulatory and institutional reforms which encourage the expansion of private investment in mining in an environmentally sound way. 11. Project Benefits. (i) Induced by the project: (a) Increased foreign and local direct investment in mining projects and increased export revenues; (b) development of private service capacity to the mining industry, such as exploration and drilling services, environmental impact studies, laboratories, mining construction works and earth removal, maintenance and others; (c) development of infrastructure related to mining and with a regional development impact (e.g. roads, energy, water); (d) increased income- generating opportunities in areas with high unemployment, increased education opportunities and reduced migration outflow; (e) contribution to the decentralization and to a better regional distribution of productive; and (f), sustainable development and fair benefits for local communities located around mining. And, (ii) as a direct result of the project, i.a.:(a) extension to the entire country of a modern, consistent and homogeneous mining legal and regulatory framework; (b) improved efficiency of provincial public mining institutions (e.g. faster and non-discretionary administration of mining rights) and improved enforcement capacity of environmental, health and safety regulations; (c) improved security of tenure for mining rights through accurate geographical location of concessions; (d) introduction to and training in modern technology as a base for sustainable sector growth; (e) improved knowledge of existing environmental and socio-economic conditions, as a basis for improved management and participation of local communities; (f) protection of the environment from potential damages caused by the mining industry; and (g), generation of baseline information that can be used by all sectors (e.g. water resources). 12. Project Risks. The overall risk of the Project is estimated to be moderate. The main identified risks and their minimization measures included in Project design are: (i) Provincial commitment to reform: a Federal Agreement for the Implementation of the Project will be signed prior to effectiveness, spelling out policy principles (i.a. regarding mining rights administration and environmental management set up) and implementation - 4 -  guidelines; (ii) condensed timing to build-up DPMs' capacity to master new work methods: flexibility in the "module-wise", detailed design of institutional development and in the implementation plan; and proven strong advisory capacity at the federal level to guide and support the development of managerial and administrative capacities; and (iii), consensus building within and between individual Provinces to unify administrative procedures: COFEMIN has assumed an oversight function and is a forum to debate possible conflicts and develop consensus positions. 11. Contact Point. The InfoShop The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone No. (202)458 5454 Fax No. (202) 522 1500 Note: This is information on an evolving project. Certain activities and/or components may not be included in the final project. Processed by the InfoShop week ending August 14, 1998. - 5 -  Annex Because this is a Category B project, it may be required that the borrower prepare a separate EA report. If a separate EA report is required, once it is prepared and submitted to the Bank, in accordance with OP 4.01, Environmental Assessment, it will be filed as an annex to the Public Information Document (PID) . If no separate EA report is required, the PID will not contain an EA annex; the findings and recommendations of the EA will be reflected in the body of the PID. The Environmental Law for Mining Activities as been approved by unanimity by Congress in December 1995. -6-