Argentina - Second Mining Development Technical Assistance Project

Document of The World Bank Report No: 17227-AR PROJECT APPRAISAL DOCUMENT ONA PROPOSED LOAN IN THE AMOUNT OF US$39.5 MILLION TO THE ARGENTINE REPUBLIC FOR A SECOND MINING DEVELOPMENT TECHNICAL ASSISTANCE PROJECT JANUARY 20, 1998 Finance, Private Sector Development and Infrastructure Management Unit (LCSFP) Argentina, Chile and Uruguay Country Management Unit (LCC7C) Latin America and the Caribbean Region (LCR)  CURRENCY EQUIVALENTS (Exchange Rate Effective January 12. 1998) Currency Unit = Argentina Peso (Arg$) Arg$1 = US$1 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS AFM Federal Mining Agreement BUD Unified Data Bank CAS Country Assistance Strategy COFEMIN Federal Mining Council DPM Provincial Mining Directorate EIMS Environmental Information and Management System EIS Environmental Impact Statement GPS Global Positioning System IDTA Institutional Development Technical Assistance Operation MINPRO Mining Information and Promotion Program MIS Management Information System NGO Non Governmental Organization UGAN National Environmental Management Unit UGAP Provincial Environmental Management Unit PAD Project Appraisal Document PASMA Mining Development Technical Assistance Project PMI Public Mining Institution SEA Sector Environmental Assessment SEGEMAR Argentine Geological and Mining Survey SICM Federal Secretariat of Industry, Mining and Commerce SNIM National Mining Information System SPM Provincial Mining Secretariat SSM Federal Undersecretariat of Mining TA Technical Assistance UCP Project Coordinating Unit Vice President: Shahid Javed Burki Country Director: Myrna Alexander Acting Sector Director: Krishna Challa  Argentina Second Mining Development Technical Assistance Project CONTENTS A. Project Development Objective ..................................................................2 1. Project development objective and key performnance indicators ...................................2 B. Strategic Context ..................................................................2 1. Sector-related CAS goal supported by the project ........................................................2 2. Main sector issues and Government strategy ................................................................3 3. Sector issues to be addressed by the project and strategic choices ............. ..................3 C. Project Description Summary .................................................................4 1. Project components ............................................................4 2. Key policy and institutional reforrns supported by the project .....................................5 3. Benefits and target population ............................................................5 4. Institutional and implementation arrangements ............................................................6 D. Project Rationale ................................................................6 1. Project alternatives considered and reasons for rejection .............................................6 2. Major related projects financed by the Bank and/or other development agencies ........7 3. Lessons learned and reflected in proposed project design ........................... .................7 4. Indications of borrower commitment and ownership ....................................................8 5. Value added of Bank support in this project ........................................................... 8 E. Summary Project Analyses ..................................................................8 1. Economic ............................ ,.8 2. Financial ...9.........................9 3. Technical ............................. 0 4. Institutional ............................ 10 5. Social ............................ 10 6. Environmental assessment ............................ 10 7. Participatory approach .............................11 F. Sustainability and Risks ............................ 11 1. Sustainability ...................... 11 2. Critical risks ...................... 11 3. Possible controversial aspects ...................... 12  G. Main Loan Conditions ........................ 12 1. Effectiveness conditions .................. 12 2. Other .................. 12 H. Readiness for Implementation ........................ 13 I. Compliance with Bank Policies ........................ 13 Annexes Annex 1. Project Design Summary .14 Annex 2. Detailed Project Description .17 Annex 3. Estimated Project Costs .22 Annex 4. Cost-Effectiveness Analysis Summary .24 Annex 5. Financial Summary .27 Annex 6. Procurement and Disbursement Arrangements .28 Table A. Project Costs by Procurement Arrangements .30 Table Al. Consultant Selection Arrangements .31 Table B. Thresholds for Procurement Methods and Prior Review .32 Table C. Allocation of Loan Proceeds .33 Annex 7. Project Processing Budget and Schedule .34 Annex 8. Documents in Project File .35 Annex 9. Statement of Loans and Credits .36 Annex 10. Country at a Glance .39 Map  Project Appraisal Document Page I Country: Argentina Project Title: Second Mining Development Technical Assistance Argentina Second Mining Development Technical Assistance Project Project Appraisal Document Latin America and the Caribbean Regional Office Argentina, Chile and Uruguay Country Department Date: January 12, 1998 Task Team Leader: Gotthard Walser Country Director: Myma Alexander Sector Acting Director: Krishna Challa Project ID: AR-PE-55477 Sector: Mining Program Objective Category: Private Sector Development Lending Instrument: Technical Assistance Loan Program of Targeted Intervention: [ ] Yes [X] No Project Financing Data [X] Loan [ Credit [ Guarantee [ Other [Specify] For Loans/Credits/Others: Amount (US$m): 39.5 Proposed terms: [] Multicurrency [X] Single currency, specify: US Dollar Grace period (years): 5 [ Standard Variable [ Fixed [X] LIBOR-based Years to maturity: 15 Commitment fee: 0.75% Financing plan (US$m): Source Local Foreign Total Government 4.0 3.0 7.0 IBRD 10.5 29.0 39.5 Total 14.5 32.0 46.5 Borrower: Argentine Republic Guarantor: N/A Responsible agency: Federal Undersecretariat of Mines (SSM) in the Ministry of Economy, Public Works and Services Estimated disbursements (Bank FY/US$M): 1998 1999 2000 Annual 2.1 29.8 7.6 Cumulative 2.1 31.9 39.5 Project implementation period: 2 years Expected effectiveness date: 4/01/1998 Expected closing date: 9/30/2000 OSD PAD Form: July 30,1997  Project Appraisal Document Page 2 Country: Argentina Second Mining Development Technical Assistance A: Project Development Objective 1. Project development objective and key performance indicators (see Annex 1): 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 and link the Provinces to the National Mining Information Network. Key indicators: 1. Encourage private sector investment in mining and ensure it contributes to a sustainable economic and social development in participating provinces: a) Improved enabling environment for sector development: b) Improved consultative procedures among stakeholders for decision making (private sector, public authorities, and local, provincial and/or national communities) c) Improved knowledge and/or awareness of modem technology, environmental management and others matters (i.e. fiscal) 2. Extend the mining sector policy, regulations and institutional reform to all participating provinces a) Signing of the Federal Agreement for the Implementation of the PASMAa II Project (PASMA II Agreement) by 17 provinces b) All participating Provinces have adopted the reformed sector regulatory framework c) The unified mining cadastre system is established and operational in all participating Provinces d) The UGAPs and the environmental management system are established and operational in all participating provinces B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (see Annex 1): CAS document number: 16505-AR Date of latest CAS discussion: May 15, 1997 The proposed project supports the following objectives of the Argentina CAS: (i) Enhance social development, including poverty alleviation and human resource development: the project would improve the conditions to develop private sector led mining activities in, ia, regions where mining is one of the few feasible options for economic growth and help to increase income-generating opportunities, either at the mine sites or as a spin-off effect within the region (see for example the Bajo de la Alumbrera case in Catamarca). The socio-economic program included in the project would help to optimize the benefits from mining activities to local communities over the long term. (ii) Improve the performance and institutional capacity of government, particularly subnational governments, to deliver key social, infrastructure and environmental services: the project will allocate most of the resources for institutional development to provincial public mining institutions, including particularly the environmental protection agencies, as a basis for the sound and sustainable development a PASMA (Proyecto de Apoyo al Sector Minero Argentino) is the name used in Argentina for the Mining Development Technical Assistance Project. PASMA or PASMA I refer to the first project and PASMA II refers to this second operation.  Project Appraisal Docunent Page 3 Country: Argentina Second Mining Development Technical Assistance of the mining industry. This includes, inter alia, improved administration, rationalization of staff and divestiture of remaining state provincial interests in mining. It will contribute to widen and to better link federal and provincial sector activities as well as to deepen the reforms. With respect to environment, it will extend to the whole country the provision of environmental safeguards and support for sustainable development of the sector. Environmental baseline studies would also contribute to improve the management of water resources, particularly in areas where it represents a scarce resource. 2. Main sector issues and Government strategy: The Government's mining sector policy is in line with the broader economic policy and is formulated by the Federal Mining Undersecretariat (SSM) at the Ministry of Economy, Public Works and Services. In the past years SSM has resolutely pursued sector reform and its development, in close cooperation with the provincial governments, which administer mining rights according to the Argentine Constitution. In addition, SSM develops the country's geological and mining sector data bases and provides support to the provincial administrations. With support from the Bank, the Government in 1993 and 1994 assessed sector deficiencies and the country's significant geological potential (see the Argentina Mining Sector Review - Report No. I 1 704-AR, 1993; and the MoP for the Mining Development Technical Assistance Project - Report No. P-6617-AR, 1995). The sector's historical poor performance was due to (i) long term macroeconomic instability, (ii) Government's interventionist role in the sector, (iii) weak administration by provincial governments, (iv) difficult access by private investors to large potential mining areas held by the State, (v) outdated legal frameworks and complicated concession and cadastral procedures, and (vi), lack of security of tenure for mining rights. In addition, the lack of sector capacity in environmental and social management was also identified as an issue for sound mining development. The Government developed in 1993 a strategy for environmentally sound private mining development, which aimed to (i) encourage private investments while avoiding wasteful promotion schemes, (ii) better define the respective responsibilities of the provincial and federal mining authorities, divest state owned mining interests and restructure and improve the sector agencies, (iii) modernize the legal framework by amending the Mining Code and promulgating complementary legislation, establish procedures and non- discretionary administration for granting mining rights and enforce environmental regulations; and (iv), create an autonomous geological service to produce the required base line information. Since then, most of the identified issues have been successfully addressed and the response of private companies has been very positive, resulting in a sharp increase in mining investments. However, the issue to develop the institutional capacity of the provincial sector authorities regarding mining rights administration and environmental and social management was only partly addressed, as the first Mining Development T.A. Project (Ln. 3927-AR) was limited to the participation of six Provinces in north western Argentina. Inefficient procedures, limited institutional capacity and lack of environmental management capacities still affect most Provinces of the country, hindering an harmonious and consistent development of the mining industry in many Provinces with a significant mining potential. 3. Sector issues to be addressed by the project and strategic choices: The proposed Project will address the remaining institutional gaps in the 17 Provinces which are not participating in the on-going operation. It will: (i) adjust the organization and work processes of the Provincial public mining institutions in line with the new policy and legal frameworks, and strengthen their capacity; (ii) unify the mining concession and cadastral procedures for the entire country and modernize and improve the administration of mining rights; (iii) develop permitting procedures as well as environmental and social monitoring capacity of the provincial management units (UGAPs), and establish environmental baseline information; and, (iv) link the Provinces to the National Mining Information System. Taking advantage of the implementation and political momentum generated by the on-going T.A. project, the strategy to focus on the regulatory and institutional development of the provincial authorities is critical for the development of the sector in the sense that the Provinces are responsible for the  Project Appraisal Document Page 4 Country: Argentina Second Mining Development Technical Assistance management of their mining resources, according to the Argentine Constitution, and they represent the principal legal interface between the state and the mining companies. C: Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): Component Category Cost Incl. % of Bank- % of Conting. Total financing Bank- (US$M) (US$M) financing A. - Policy Implementation A. I - Institutional Framework Development: reform and Institution- 6.7 14.4 5.8 14.7 strengthen the public mining agencies in 17 Provinces, based building on the institutional model developed under the first T.A project. This includes: organization and staffing of key administrative units, setting-up of efficient work procedures; training of staff in policy, legal and management aspects; provision of adequate office and field equipment; and rehabilitation of facilities. A.2 - Mining Cadastre and Registry System: (i) setup or Institution- 18.8 40.4 16.0 40.5 improve the reference mining geodetic network, survey all building, existing mining concessions using GPS technology, and Physical include data in a modem and accurate Mining Cadastral System; and (ii) introduce unified registering procedures and clear up the backlog of pending concession applications. This includes: provision of field, topogeodetic (GPS) and data processing (hardware and software) equipment; training of staff in GPS and data processing technology. A.3 - Environmental Management: (i) strengthen the capacity Institution- 15.6 33.5 13.8 34.9 of the National Environmental Management Unit (UGAN) to building support Project implementation in participating Provinces; (ii) strengthen the capacity of the Provincial Environmental management units (UGAPs) in 17 Provinces for permitting, monitoring and enforcement of environmental regulations; setting up of unified procedures for the processing of Environmental Impact Statements (EISs); (iii) carry out environmental baseline studies in mining and potential mining districts; and develop a shared federal/provincial Environmental Information and Management System (EIMS); (iv) carry out socio-economic baseline studies in selected mining districts as a basis for development of methodology and capacity to assess and monitor social, cultural and economic impacts of mining on local communities; set up of legal and fiscal mechanisms to ensure an equitable sharing of mineral rents; develop consultation and participatory procedures. This includes: training of staff in environmental and socio-economic management related to mining; provision of infrastructure, field and data processing (hardware and software) equipment. A.4 - Unified Mining Information System BUD): (i) Institution- 3.6 7.8 3.0 7.6 strengthen the information management units in the 17 building, provinces, systematize the development of relevant data bases Physical according to the norms and standards of the National Mining Information System (SNIM); and (ii) develop the Mining Information and Promotion program (MINPRO). This includes: provision of hardware and software, installation of the LAN and connection to Internet and the SNIM; training of  Project Appraisal Document Page 5 Country: Argentina Second Mining Development Tecinical Assistance Component Category Cost Incl. % of Bank- % of Conting. Total financing Bank- (US$M) (US$M) fnacig staff in information, data bases and network management. B. Project Coordination. The project has been prepared by Project 1.8 3.9 0.9 2.3 the Project Coordinating Unit (PCU) of the ongoing TA Management Project (Ln. 3927-AR) which will also be responsible for the implementation of this repeater operation and will be strengthened accordingly. The PCU will monitor, supervise and provide management control for all components and for the overall Project. The PCU will manage procurement, including all contracting for works and purchases, and the hiring of consultants, the contractual relationship with the Bank and the project's overall administration and accounting. Total 46.5 100.0 39.5 100.0 2. Key policy and institutional reforms supported by the project: Policy reform. Through the implementation of the Project, the State will (i) create an enabling environment for a socially and environmentally sound development of the mining sector and (ii) strengthen its capacity as a regulator - in a transparent and non-discretionary manner - of mining activities. Institutional reform. The new role of the public mining institutions (PMIs) has been defined in detail under the first mining Project, including the respective role of the public and the private sectors as well as inter-institutional relationships and mandates. 3. Benefits and target population: Benefits: The following benefits are expected: (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 activities; 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 modem, consistent and homogenous legal and regulatory framework for mining; (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 modem 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 mining; and (g), generation of baseline information that can be used by all sectors (e.g. water resources). Target Populations and Sectors: - Provincial mining authorities; - Local communities in mining districts; and - Private foreign and local mining investors. 4. Institutional and implementation arrangements:  Project Appraisal Document Page 6 Country: Argentina Second Mining Development Technical Assistance Project implementation period: The Project would be implemented over a period of 24 months. The Project completion date would be March 31, 2000 and the Loan closing date would be September 30, 2000. Executing agency: The Undersecretariat of Mines (SSM) would be responsible for the implementation of the project. Participating Provinces: The following 17 Provinces would participate in the project: Buenos Aires, Chaco, Chubut, C6rdoba, Corrientes, Entre Rios, Formosa, Jujuy, La Pampa, Misiones, Neuquen, Rio Negro, Santa Cruz, Santa Fe, Santiago del Estero, Tierra del Fuego y Tucuman. Implementing agencies: Each provincial mining authority, through an officially designated coordinator, will be responsible for the overall implementation of the project in its Province. Apart from the Project's Institutional Development group, DPMs' line units will be established and/or strengthened, including a Mining Cadastre and Registry unit, a Provincial Environmental Management Unit (UGAP) and a Unified Data Bank unit (BUD), and will be directly involved in the implementation of their respective subcomponents. Implementation units for specific subcomponents (UGAN and BUD at the SSM and the National Mining Cadastre Coordination Unit at the UCP) will ensure overall technical coordination and report to the UCP and the provincial coordinators. Project Administration: SSM will strengthen the existing Project Coordination Unit (UCP) to (i) establish a direct 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 Oversight: Project activities and progress would be presented to and reviewed by the Federal Mining Council (COFEMIN), a consultative mining policy body representing the Provinces. Accounting, financial reporting and audits: A computerized financial management system will be used by the project and a private accounting firm will be contracted to maintain accounts and process payments. A summary financial report would be included in the quarterly progress reports. Project Accounts, the Special Account and all procurement, including Statements of Expenditure, would be audited annually by independent auditors satisfactory to the Bank and appointed for two years. The audit reports would be submitted to the Bank not later than six months after the end of each calendar year. Monitoring and Evaluation. The UCP will be responsible for monitoring and evaluation, working in collaboration with the implementation units and the coordinators of the provincial implementing agencies. Not later than 45 days after each quarter, the UCP will submit to the Bank quarterly progress reports covering all project activities, including procurement, and a financial summary report. A mid-term review, 12 months after effectiveness, would provide detailed analysis of implementation progress towards development objectives. D: Project Rationale 1. Project alternatives considered and reasons for rejection: Options which have been considered include (a) participation of a smaller set of Provinces (e.g. 6 to 10) instead of all Provinces (17), and (b), implementation of a repeater operation at a later stage or after completion of the first Mining T.A. Project. Option (a) has been rejected considering that (i) management and implementation complexity would not be significantly different and (ii) the establishment of unified and modem procedures regarding administration of mining rights and environmental protection for the whole country would generate greater synergy in terms of sector development, including for example Provinces with an important potential of non metallic minerals. Option (b) has been rejected considering the favorable momentum presently created by the first mining Project and on the assessment that it is highly likely that commitment to reform - a critical factor - and political support could be maintained at the present level during the next two years. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing  Project Appraisal Document Page 7 Country: Argentina Second Mining Development Technical Assistance andplanned): Sector issue Project Latest Supervision (Form 590) Ratings (Bank-fnanced projects only) Implementation Development Progress (IP) Objective (DO) Bank-financed Argentina: modernize the sector legal framework; Mining Development S HS reform and develop sector federal institutions and T.A. Project (Ln. 3927, in six provinces, include. mining cadastre, on-going) environmental management capacity, mineral resources information data base and set up a national mining information system - Bolivia: modernize the sector legal framework; Mining Sector S S strengthen the capacity of sector institutions, Rehabilitation Project develop the mineral resources data base; transfer (Cr. 2013-BO, state-owned operations to private sector; develop completed 1997) the environmental management capacity - Ecuador: attract private mining investment & Mining Development S S support environmentally sustainable sector and Environmental development through modernization of the legal Protection T.A Project and institutional frameworks; and mitigate damage (Ln. 3655-EC, ongoing) that results from the use of primitive and inadequate technology by informal mines - Mexico: support the govermnent's program to Mining Sector S HS deregulate the mining sector and stimnulate private Investment Loan (Ln. domestic and foreign investmnent through the 3359-ME, ongoing) establishment of an appropriate policy, legal and institutional framework - Peru: assist the government in the institutional Energy and Mining T.A. S S development of the Ministry of Energy and Mines Loan (Ln. 3610-PE, and its related entities to ensure adequate sector completed 1997) contribution to economic stabilization and structural reform (in particular privatization and environment) Other development agencies N/A IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: Lessons have been learned from the ongoing Mining T.A. Project (Ln. 3927-AR) as well as from other countries where the Bank has financed projects to develop mining activities (e.g. Bolivia, Ecuador, Mexico, Peru) and from a recent Bank review of mining sector reform in Latin America (A Mining Strategy for Latin America and the Caribbean, 1996): - 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. - The participation of six Provinces in the first project has be-_n 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. - 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.  Project Appraisal Document Page 8 Country: Argentina Second Mining Development Technical Assistance - 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 the management burden, without contributing significantly to an improved management capacity in the referred entities. - Existing monitoring mechanisms are working well under the first project, particularly in the case of works and consultancy contracts. 4. Indications of borrower commitment and ownership: Commitment of the Borrower is shown by the impressive continuity in both policy implementation and staffing of the institutions and the UCP since the preparation phase of the first mining project in January 1994. With respect to the Provinces, their commitment to implement the policy and institutional reforms which are supported by the Project will be demonstrated by their signing of the "Federal Agreement for the Implementation of the Second Mining Project". Ownership: the Borrower took the initiative in requesting the preparation of a repeater operation extended to all Provinces not participating in the first mining T.A. project. Ownership by the Provinces is indicated by the seriousness of their participation in the preparation of the project so far, including a four-day workshop dealing with an in-depth analysis of sector reforms to be supported by the project and project design in late October. 5. Value added of Bank support in this project: The Bank has been the main provider of assistance to mining sector reform in Latin American countries during the last decade and in this capacity has contributed to the present mining "boom" in the continent (see Technical Paper No.345, A Mining Strategy for Latin America and the Caribbean, 1996). Since 1993, Argentina has made good use of the Bank's experience in sector reform, particularly with respect to sector policy and modernization of its institutional and legal frameworks, as well as for the development of the information systems and data bases. The Bank has been instrumental in the success of the reform, particularly through policy and technical assistance, through the funding of the first Mining Development T.A. project. E: Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (supported by Annex 4): [ ] Cost-Benefit Analysis: NPV=US$ million; ERR= % []Cost Effectiveness Analysis: [X] Other (Comparison of economic indicators) The Second Mining Development T.A. Project will improve the enabling and operating environment to sustain and increase the levels of private sector investment in the 17 provinces. It will also improve the capacity of the federal and provincial governments as well as the private companies and local communities to manage and provide for an equitable sharing of the benefits of mining developments. While this type of technical assistance operation does not lend itself easily to quantitative investment analysis, a number of economic indicators can be projected and compared. The gross value of minerals produced currently in the 17 provinces which would participate in this second mining project is US$440 million (1996), or only 0.06 percent of Argentina's total GDP. Of the total value of production, approximately 90 percent is of industrial and construction minerals. Production of metallic minerals is still small. Exports of mineral products (borate, bentonite, clays and some metal concentrates) from the 17 provinces are presently US$ 30 million. A number of projects - all financed and operated by the private sector - are under construction or at an advanced feasibility study stage entailing expenditures in excess of US$250 million over the next two years. In addition, numerous foreign and domestic companies have active exploration programs with expenditures of around US$28 million per year. Using reasonable assumptions regarding the development of the mining projects presently in the feasibility stage, the value of minerals production in the 17 provinces could increase to US$ 745 million  Project Appraisal Document Page 9 Country: Argentina Second Mining Development Technical Assistance by 2000. This would increase the contribution of mining in the 17 provinces to overall GDP to 0.1 percent. Moreover, since most of this development will be in exportable metallic minerals, exports of minerals from the 17 provinces would increase from the present US$ 30 million to US$235 million, or 0.6 percent of total Argentina exports. Most of the export value would be generated from metals, though significant potential exists in neighboring countries and/or international markets for an increase of sales in selected Argentina industrial minerals. However, the effect of Mercosur on Argentina's competitive position in non-metallics is still difficult to determine. Projection of Mineral Exports for the 17 Provinces of this Second Mining Development T.A. Project Year Gross Export Value Percentage of Total Argentina Exports (US$ million year) 1996 30 < 0.1 2000 235 0.6 Other economic benefits of mining include employment generation in disadvantaged rural areas, training of workforce and dependents, social and physical infrastructure, the development of support industries (manufacture of mining equipment, provision of consulting services, development of capital and commercial markets), and the transfer of technology and management know-how. A major component of the technical assistance project will be to assess the economic and social impacts of mining development, prepare legislation to provide for an equitable sharing of benefits, and train federal and local officials and the local communities in the monitoring of these impacts on a consistent basis. The experience to date of the Bajo la Alumbrera project (Catamarca), Argentina's first large new copper-gold mine is illustrative of the impact of such a project on the local economy. According to input-output matrices developed by the federal government, for every job created directly by the mining enterprise 4 jobs are created among major suppliers of goods and services to the operation (petroleum products, lime, energy, other vendors). Thus, in the year 2005 some 3,700 persons will owe their livelihood directly or indirectly to the mining operations. Total value added from payroll and other benefits of the direct and indirect employment will be approximately US$ 300 million. The company has an extensive training and education program for employees as well as for their dependents. Investments to date in infrastructure (power, water, transport, etc.), to service not only the mine but also the surrounding area, have been in hundreds of millions of dollars. Finally, the new and modem management methods introduced by the mine will have a substantial and long lasting impact on the development of an industrial work ethic in these rural areas. 2. Financial (see Annex 5): NPV-US$ N/A million; FRR= N/A Fiscal impact: The basic legislation with respect to the fiscal regime for mining in the 17 provinces is consistent with what is considered international good practice. A major aim of the technical assistance project is to improve government and private capacity to apply on a consistent basis the tax legislation. The impact on fiscal revenue of mining development has been estimated using a hypothetical model based on the Cerro Vanguardia mine under construction. Premises are: (i) production of 7 tons of gold/year; (ii) a production value of US$300/ounce; (iii) production costs of US$225/ounce and a mine life of 20 years; and (iv) initial capital investment of US$200 million. The fiscal revenues accruing to federal and provincial governments would represent over the life of the mine: income tax: US$155 million; royalties: US$29 million; and VAT taxes (possibly refunded to the producer if product is exported): US$63 million. The total fiscal revenue would thus be in the range of US$180 to 250 million (average of US$9 to 12.5 million/year). These fiscal impacts of a major mining operation are confirmed by the experience to date of the Bajo la Alumbrera project, which is much larger than the Cerro Vanguardia project. For instance, over the 20 year mine life the corporate income tax and diesel fuel tax will aggregate US$ 1,101 million; royalties to the province of Catamarca US$ 513 million. Moreover, the mine indirectly stimulates greater tax payments by suppliers which average US$ 15 million per year.  Project Appraisal Document Page 10 Country: Argentina Second Mining Development Technical Assistance Employees of the company as well as suppliers will pay substantial personal income tax as well as social security contributions. 3. Technical: The introduction and use of state-of-the-art technology ) have been very successful under the first Mining Development T.A Project (Ln. 3927-AR, particularly within the fields of surveying (e.g. Global Positioning Systems (GPS) instruments), data processing and information management (e.g. Geographic Information Systems (GIS), Management Information Systems (MIS), software for support to decision- making). Similar technologies will be introduced in the Provinces not participating in the first project. Minor adjustments would mainly concern the updating of technical specifications for purchases (particularly of hardware, software and topogeodetic instruments). 4. Institutional: a. Executing agencies: The experience and implementation capacity of the provincial sector agencies participating in the project vary. During preparation, these institutions have been grouped into three categories on the basis of their respective needs and capacity, and specific assistance modules have been designed. On the basis of the experience from the first mining project and of the information gathered during preparation, there would not be any major capacity problems in terms of human resources to implement the planned reform and technical programs and to manage the new technologies to be introduced. Key factors for success will be to develop the awareness about the need and benefits of the reform as well as ownership with respect to the programs throughout all staff levels of the institutions. b. Project management: The current Project's Coordinating Unit (UCP) and management set-up are performing in a highly satisfactory manner and will be responsible for the management of the second mining Project. The UCP will have to be strengthened in terms of personnel, to respond to the increased volume of work and number of provincial counterparts. The procurement and supervision of works and consulting services for activities which will cover areas in several Provinces (including topogeodetic and mining survey works contracts; environmental baseline studies and socio-economic impact consultant's services contracts), should be managed by the UCP, in cooperation with the regional coordination units and the interested Provinces. These activities will benefit from the experience gained under the first Project. 5. Social: Social issues related to mining have been reviewed as part of the Sector Environmental Assessment (SEA, see E.6 below). Substantial investment is presently made in Argentina in mining exploration, and several large projects are in the process of development (e.g. Bajo la Alumbrera and Cerro Vanguardia), which will result in socio-economic impacts on the local community. However, assessment of the impacts and involvement of the local community in the consultation process is still at an early stage, due principally to lack of familiarity on the provincial level with the techniques and practices of social assessment as well as an inadequate institutional and regulatory framework to provide for such assessments. A Subcomponent of the Project has been designed and aims to address these issues (see annex 2). 6. Environmental assessment: Environmental Category [] A [X] B [I C The comprehensive SEA carried out in 1995 to design the Environmental Management Subcomponent of the first T.A. Project, has been updated (UGAN, December 1997. It reviews 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  Project Appraisal Document Page 11 Country: Argentina Second Mining Development Technical Assistance 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. Important mining projects are now starting actual production (Bajo de la Alumbrera, Salar del Hombre Muerto). A specific environmental Law for mining activities (Law 24585) has been passeda and included within the Mining Code, applicable and enforceable for the whole country. Environmental regulations have been approved in many of the Provinces and procedures as well as technical manuals are being developed. Application agencies have been established virtually in all Provinces. About 1,300 Environmental Impact Statements (EISs) have been prepared by the mining rights holders and presented to the respective UGAPs, as a result of the enactment of the Law. The EISs have been processed despite the growing but still relatively weak capacity and technical level of the UGAPs. 7. Participatory approach: a. Primary beneficiaries and other affected groups. The basic environmental legislative and regulatory work addressing mining activities has been carried out in consultation and coordination with industry branch organizations, trade associations, the miner's unions and NGOs. This approach, including media coverage informing the public, has continued at the national level and most of the participating provinces. b. Other key stakeholders. Other stakeholders have been involved in and/or informed about the implementation of the first mining project as well as - to varying extent - in the preparation of this second operation. They include, i.a.: (i) national and provincial universities; and (ii), related extra- sector public agencies (for example the Secretariat of Natural Resources and Human Environment and provincial equivalents; federal and provincial water, energy and transport agencies and others). F: Sustainability and Risks 1. Sustainability: Based on the foundations developed under 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. Sustainability will be enhanced through the project's strong emphasis on institutional building, training, human capital development and environmental and social awareness in the public as well as private sectors. Institutional and financial mechanisms will be put in place in order to sustain the activities of the PMIs in the long term. Also, the functions and procedures to be established through the Project will be operational on a routine basis by implementation completion date. 2. Critical Risks (reflecting assumptions in the fourth column ofAnnex 1): Risk Risk Rating Risk Minimization Measure Annex I cell "from Outputs to Objective": (i) Provincial commitment to M A Federal Agreement for the Implementation of the Project reform will be signed by each of the participating Provinces prior to effectiveness, spelling out policy principles (i.a. regarding mining rights administration and environmental management set up) and implementation guidelines (ii) Condensed timing to build-up M Flexibility in the "module-wise", detailed design of DPMs' capacity to master new institutional development and in the implementation plan; work methods proven strong advisory capacity at the federal level to guide and support the development of managerial and administrative capacities (iii) Consensus building within and M The Federal Mining Council (COFEMIN) has assumed an ' The Environmental Law for Mining Activities as been approved by unanimity by Congress in November 1995.  Project Appraisal Document Page 12 Country: Argentina Second Mining Development Technical Assistance Risk Risk Rating Risk Minimization Measure between individual Provinces to oversight function, forming a forum to debate possible unify administrative procedures conflicts and develop consensus positions Annex 1 cell "from Components to Outputs": (i) Continued DPMs' staff M Participative processes to implement the institutional reform ownership regarding project and introduce new work methods; proven strong advisory objectives capacity at the federal level to guide and support the development of managerial and administrative capacities (ii) Staff stability M Provision of necessary staff, resources and conditions to effectively implement the reform are included in the Federal Agreement (iii) Political interference M Project implementation guidelines included in the Federal Agreement aim at minimizing political interference (iv) Procurement delays N All procurement documents are ready; UCP staff has proven experience in procurement procedures and is well- trained. (v) Performance by contracted M Selection, supervision and monitoring functions have been firms and consultants carefully designed, on the basis of positive experience from the first mining project. Overall Risk Rating M Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk) 3. Possible ControversialAspects: The designed Project is mainly dealing with generally accepted institutional reforms and the establishment of technical methodologies. However, it might get indirectly involved - through the activities of implementing agencies participating in the Project and fulfilling their functions - in controversial issues such as the evaluation of potential environmental damages or social impacts by mining operations. The emphasis put on the development of transparent and reliable procedures, including public consultation and information, should minimize the effect of such controversies. Because mining is an incipient industry in Argentina, the publication of information from the environmental and social baseline studies should not prove to be controversial, as it sometimes has been in countries with a long mining tradition. G: Main Loan Conditions Loan conditions are similar to the ones defined for the first Project (Ln. 3927-AR), namely: 1. Effectiveness Conditions. Standard conditions. In addition, the signing by at least eight Provinces of the Federal Agreement for the Implementation of the PASMA II Project (PASMA II Agreement), committing such Provinces to apply common policy principles and implementation guidelines, would be a condition of effectiveness in order to ensure a minimum "critical mass" for the Project. 2. Other: Implementation and disbursement covenants: - Sign the PASMA 11 Agreement: the signing of the Agreement shall be a condition for any of the 17 provinces not included in the first project to be able to participate in the second one. Funds under the loan would be disbursed to finance and implement activities of the project only for the provinces which will have signed this Agreement. - Execute the Project in accordance with the policy principles of the Federal Mining Agreement (May 6,  Project Appraisal Document Page 13 Country: Argentina Second Mining Development Technical Assistance 1993) and the PASMA II Agreement. Financial covenants: - Standard conditions. H. Readiness for Implementation [ ] The engineering design documents for the first year's activities are complete and ready for the start of project implementation. [X] Not applicable. [X] The procurement documents for the first year's activities are complete and ready for the start of project implementation. [X] The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. [ ] The following items are lacking and are discussed under loan conditions (Section G): I. Compliance with Bank Policies [X] This project complies with all applicable Bank policies. [ ] [The following exceptions to Bank policies are recommended for approval: N/A. The project complies with all other applicable Bank policies.] Task Team Leadr: Gotthard Walser Acting Sector Director: Krishna Challa Country Director: Myrna Alexander  Project Appraisal Document Page 14 Country: Argentina Project: Second Mining Development Technical Assistance Annex 1 Project Design Summary Argentina: Second Mining Development Technical Assistance Project Narrative Summary Key Performance Indicators Monitoring and Evaluation Critical Assumptions Sector-related CAS Goal: (Goal to Bank Mission) 1. Enhance social development, including - Private investment in mining will Provincial and federal statistics, - Continued neutral poverty alleviation and human resource contribute to increased employment midterm evaluation, macroeconomic and sector development and increased national and local Implementation Completion policy environment budget receipts Report (ICR) and continued monitoring by SSM 2. Improve the performance and - Improved provincial management DPMs' records, midterm - Continued consensus institutional capacity of government, of the mining sector and evaluation, ICR, continued between stakeholders on particularly subnational governments, to coordination between federal and monitoring by SSM and DPMs realistic and meaningful norms deliver key social, infrastructure and provincial sector authorities and surveys of stakeholders and procedures to be applied environmental services Project Development Objective: (Objective to Goal) 1. Encourage private sector investment in - Improved enabling environment for ICR and continued monitoring - Stable, long-term politically mining and ensure it contributes to a sector development: by SSM; and surveys of neutral macroeconomic and sustainable economic and social - Increased mining investment in communities and other sector policy environment development in participating provinces participating provinces by c-' stakeholders - Reasonably stable world 20% (1996 level: US$56m) by minerals market year 2001 conditions/prices - Maintained/increased exploration expenditures in participating provinces (1996 level: US$28m) after the end of the project - Improved consultative procedures between stakeholders (private sector, public authorities, local and national communities) for decision making at the end of the project (EoP) - Improved knowledge and/or awareness in modern technology, environmental management and others matters (i.a. fiscal) at EoP 2. Extend the mining sector policy, - Signing of the PASMA II Baseline and monitoring reports, Environmental control norms regulatory and institutional reform to all Agreement by 17 provinces, 6 midterm evaluation, ICR and and procedures are participating provinces months after effectiveness (AE) continued monitoring by SSM enforceable and community - All participating provinces have and DPMs consultative processes are adopted the reformed regulatory applicable framework at EoP - Unified mining cadastre system established and operational in all participating provinces, 21 months AE - UGAPs and environmental management system established and operational in all participating provinces, 21 months AE - Information management system established and operational in all participating provinces, 21 months AE - Trained personnel in all participating provinces: land, environmental, fiscal and information management at EoP - "Mining funds" and/or dedicated budget established in all participating provinces at EoP  Project Appraisal Document Page 15 Country: Argentina Project: Second Mining Development Technical Assistance Narrative Summary Key Performance Indicators Monitoring and Evaluation Critical Assumptions Outputs: (Outputs to Objective) A.l Provincial PMls in capacity to A.l No backlog of unprocessed A.l Mining Cadastre logbooks, A.l - Continued Provincial provide timely, reliable and transparent concession applications or EIS in UGAPs' logbooks (EIMS) and commitment to reform administrative services to the sector participating DPMs at EoP DPMs' administrative MISs; midterm evaluation and ICR A.2 (a) Unified mining rights A.2 (a) (i) Cadastral management A.2.(a) Quarterly and annual A.2 (a) - Timing to build-up administration procedures over the whole system operational 21 months AE technical performance review DPMs capacity to manage country (ii) No significant procedural cadastral system according to differences among Provinces at EoP schedule - Continued consensus within COFEMIN to apply unified procedures (b) Establishment of a modem, updated (b) >95% of mining concessions (b) Mining Cadastre data base, A.2.(b) - Timing to build-up and accurate Mining Cadastre in all surveyed and integrated into the technical monitoring and of DPMs capacity to manage Argentine Provinces. mining geodetic reference system, 21 quarterly and annual evaluation cadastral data according to months AE reports schedule A.3 (a) Provincial UGAPs in capacity to A.3.(a.) (i) Environmental permitting A.3.(a) (i) Quarterly and annual A.3 (a) - Timing to build-up process in a timely, technically adequate system operational 21 months AE technical performance reviews, DPMs capacity to manage and administratively transparent way the (ii) Baseline data in participating ICR EIMS according to schedule EIS presented by mining companies, and Provinces available, 24 months AE (ii) Baseline studies reports, ICR - Continued consensus within according to nation-wide comparable (iii) Monitoring system operational, (iii) Quarterly and annual COFEMIN to apply unified criteria. 21 months AE technical performance reviews, procedures ICR (b) Improved social awareness, (b) (i) Pilot baseline studies (b) (i) Pilot baseline studies A.3 .(b) - Continued Provincial conditions for consultative processes and available, 18 months AE. reports, annual social assessment commitment to address the community participation in the reports issue development of mining projects. (ii) Consultative procedures (ii) Annual social assessment - Timing to build-up DPMs implemented, 21 months AE reports, ICR capacity according to schedule A.4 Provincial BUD capacity to process A.4. (a) BUD system operational, 18 A.4. Quarterly and annual A.2 (a) - Timing to build-up in a timely, technically adequate and months AE technical performance review DPMs capacity to manage administratively transparent way mining (b) Mineral markets and statistics BUD system according to information for decision making and to information available, 21 month AE. schedule orient private investment. Project Components/Sub-components: Inputs: (budget for each component; (Components to Outputs) (see Annex 2 for project description) cost include. contingencies) A. Policy Implementation A. Policy Implementation: US$44.7 million A. I Institutional Capacity Development A. I Institutional Capacity Building: A. 1 Institutional model A. I - Continued DPMs' US$6.7 million (organizational charts, staffing, commitment to reform A. 1.1 Implementation of the new A. 1.I US$2.6 million implementation schedule), - Continued project ownership institutional model: organization, contracts and procurement - No political interference staffing, financial resources and work records, monitoring reports - No procurement delays methodology A. 1.2 Equipment and Works: upgrading A. 1.2 US$4.1 million of facilities A.2 Mining Cadastre and Registry A.2 Mining Cadastre and Registry A.2 Procurement records, A.2 - Staff stability System System: US$18.8 million monitoring reports, training and - Continued project ownership A.2.1 Implementation and training A.2.1 US$0.9 million technical performance - No procurement delays coordination and technical assistance evaluation reports - Satisfactory performance by team; contracted firms; A.2.2 Topogeodesic and cadastral survey A.2.2 US$14.2 million works; A.2.3 Equipment; upgrading of facilities A.2.3 US$3.2 million A.2.4 Implementation of the Cadastral A.2.4 UJS$0.5 million Management System  Project Appraisal Document Page 16 Country: Argentina Project: Second Mining Development Technical Assistance Narrative Summary Key Performance Indicators Monitoring and Evaluation Critical Assumptions A.3 Environmental Management A.3 Environmental Management: A.3 Contracts, procurement A.3 - Provincial line staff US$15.6 million records, monitoring reports, continued A.3.1 Implementation and training A.3.1 US$0.9 million technical and training environmental/social coordination and technical assistance performance evaluation reports awareness related to mining team (strengthening of UGAN) - Staff stability A.3.2 Environmental management A.3.2 US$4.1 million - Continued project ownership capacity: upgrading of facilities. - No political interference implementation of the EIMS and training - No procurement delays programs - Satisfactory performance by A.3.3 Environmental baseline studies A.3.3 US$7.0 million contracted consultants A.3.4 Socio-economic impact of mining: A.3.4 US$3.6 million pilot baseline studies, development of consultative procedures, development of assessment criteria, training and institutional strengthening A.4 Unified Mining information System A.4 Unified Mining Information A.4 Procurement records, A.4 - Staff stability System: US$3.6 million technical and training - Continued project ownership A.4.1 Implementation of the BUD units: A.4.1 US$1.1 million performance evaluation reports - No procurement delays organization, staffing, financial resources and work methodology A.4.2 Works and equipment: upgrading A.4.2 US$1.2 million of facilities A.4.3 Training A.4.3 US$0.4 million A.4.4 Mineral markets and Statistics A.4.4 US$0.9 million program B. Project Coordination, Monitoring B. Project Coordination: US$1.8 B. Quarterly and annual reports, B. - Staff stability and Evaluation million contracts and procurement - No political interference - Hire and supervise staff records, and audits - Manage procurement - Contract accounting and auditing - Prepare quarterly and annual reports and annual operation plans - Monitor progress and evaluate results TOTAL COSTS: US$46.5 million  Project Appraisal Document Page 17 Country: Argentina Project: Second Mining Development Technical Assistance Annex 2 Second Mining Development Technical Assistance Project Project Description Project Component A: Policy Implementation - US$44.7 million (96.1% of project total costs) Project Subcomponent A.1: Institutional Capacity Development - US$6.7 million (14.4% of total Project costs). The broad sector legal and institutional frameworks have been reformed during the last four years, as part of the policy to reduce the role of the State and to adapt public mining agencies to better-defined functions, eliminating most of their past widespread overlapping and modernizing their capacity to administer the sector. A careful and in-depth analysis has been carried out under the preparation and implementation of the first mining Project (PASMA I) with representatives of federal and provincial agencies. The respective role of such agencies and of the private sector and their inter-relationships have been identified. As a result, a detailed institutional model and implementation plan have been designed and are currently being implemented at the federal level and in the six Provinces participating in the PASMA I Project. This institutional model should now be incorporated by all remaining Provinces. Overall, this subcomponent's tasks will be coordinated by the Undersecretariat of Mining (SSM( with the help of the UCP and the support of the COFEMIN. Two programs are included: A. 1.1: Implementation and Adjustment of the New Institutional Model Program - US$2.6 million (38.8% of Subcomponent costs). This program aims at specifically adjusting the overall institutional model defined under the PASMA I Project to the Provinces participating to this Second Mining Development T.A. Project (PASMA II) one, and to implement it. The model will be adjusted through a participative process (workshops and seminars) and implemented through on-the-job training under the supervision of an institutional implementation team, operating on a nation-wide basis in order to ensure proper coordination and consistency. Work will include the detailed and ad hoc design of the institutional model in each of the Provinces, including organization, staffing, budget and identification long term financial sources for core responsibilities; the setting up and implementation of efficient work procedures; and on-the-job training of staff in policy, legal and management matters. Work includes also a detailed inventory of the infrastructure needs (facilities and equipment) to be funded under the Institutional Infrastructure program (A. 1.2). Provisions include the financing of about 20 specialist-months of international and about 120 specialist-months of local consultants, of incremental recurrent costs related to travels of the implementation team and to training and of the purchase of minor equipment (computer and presentation/training equipment). A. 1.2: Institutional Infrastructure Program - US$4. I million (61.2% of Subcomponent costs). Based on the results of Program A. 1.1 above, funds would be provided to upgrade facilities at the participating Provincial Mining Directorates (DPMs). The Program will provide funds for office rehabilitation, purchase of basic core office equipment (including administrative hardware and software not included in other subcomponents), vehicles, purchase of legal and technical literature, and the publication of information and legal and administrative procedures. Project Subcomponent A.2: Unified Mining Cadastre and Registry System - US$18.8 million (40.4% of total Project costs). A priority objective of the Government's mining sector policy is to establish a nation-wide well-informed, uniform and interactive cadastral system. Based on the model developed under the PASMA I Project. The PASMA II will finance the transformation of the physical registries of participating Provinces into proper mining cadastres. The cadastre will provide reliable information about the precise location of mining rights in the territory, expressed in Gauss-Kruger coordinates - which is obligatory in Argentina and can be translated and expressed in any other coordinate system - and also about the legal status of mining rights. The procedures required in order to apply the cadastre process will be transparent, public, of general application and non- discretionary. In addition, the cadastre will cover both the mining rights requested and granted after it becomes effective, and already existing ones as well as the ones that have been simply requested. Hence the cadastral procedure will have stages, instances and resources to allow owners of acquired mining rights to adequately  Project Appraisal Document Page 18 Country: Argentina Project: Second Mining Development Technical Assistance defend their rights in accordance with the provisions of the Mining Code. Older rights which are not inserted into the new cadastre must be legally canceled in order for the information resulting from the cadastre to be correct and useful in practice. Four Programs are included: A.2. 1: National and Regional Coordination Team - US$0.9 million(4.8% of Subcomponent costs). To ensure consistency and homogeneity in the carrying out and supervision of the geodetic and cadastral surveys (Program A.2.2 below) and in the implementation of the cadastral and registry systems (Programs A.2.3 and 4 below), the Cadastral Coordination team already working under PASMA I will be strengthen and will operate on a nation- wide basis in cooperation with the participating DPMs and under the supervision of the UCP. Provisions include the financing of 96 specialist-months of local consultants, administrative assistance and purchase of minor equipment (computer) as well as incremental recurrent costs related to travels to the Provinces. A.2.2 7Topogeodesic and Cadastral Survey Works - US$14.2 million (about 75.5% of Subcomponent costs). The cadastre is related to the terrain's topographical features, and hence it will be necessary to complement and/or improve some geodetic networks and cartography, both of which have serious deficiencies in Argentina. On the basis of the upgraded geodetic networks, the existing exploration and mining concessions will be surveyed using up-to-date technology, benchmarks will be set up and the data incorporated to the cadastral information system. Provisions under this Program include the financing of a set of about three regional works contracts (about 87.5% of the Program costs), as well as the verification of such works, also to be contracted out, to a different firm (about 7.5% of Program costs). Also, it includes the financing of incremental recurrent costs (about 5% of Program costs) related to the participation of the respective Provincial mining authorities, as defined under the Mining Code to certify the location of the mining rights. As demonstrated under the PASMA I Project, such participation implies a very effective on-the-job training of DPMs' staff in the use of modem topogeodetic technology. A.2. 3: Equipment - US$3.2 million (about 17. 0% of Subcomponent costs). This Program includes the purchase of modern hardware and software, topogeodetic instruments (including GPS instruments), vehicles and the provision and furnishing of adequate field and office facilities for the cadastre and registry functions. A.2.4 Mining Cadastre Management System: Implementation and Training - US$0.5 million (about 2.77% of Subcomponent costs). Based on the experience of the PASMA I Project, implementation of the computerized Mining Cadastre System in the participating Provinces and on-the-job training is strengthened. Project Subcomponent A.3: Environmental Management - US$15.6 million (33.5% of total Project costs). The general objective of this Subcomponent is to extend to the participating Provinces the set up of a preventive environmental protection system for mining activities, currently under implementation under the PASMA I Project. This system should bring together the respective mining administration agencies at the national and provincial levels as well as other public and private environment entities. The Subcomponent will: (i) strengthen the capacity of UGAPs in 17 Provinces for permitting, monitoring and enforcement of environmental regulations; setting up of unified procedures for the processing of Environmental Impact Statements, as developed under the PASMA I Project; (ii) develop a shared federal/provincial Environmental Information and Management System (EIMS); (iii) carry out environmental baseline studies over mining and potential mining districts; (iv) carry out socio-economic baseline studies over selected mining districts as a basis for development of methodology and capacity to assess and monitor social, cultural and economic impacts of mining on local communities; setup of legal and fiscal mechanisms to ensure an equitable sharing of mineral rents; develop consultation and participatory procedures. It includes: training of staff in environmental and socio-economic management related to mining; provision of infrastructure, field and data processing (hardware and software) equipment. The Subcomponent includes four Programs: A.3.1: Strengthening of the UGAN- US$0.9 million (about 5.8% of Subcomponent costs). This Program aims at temporarily strengthening the existing capacity of the UGAN - as a federal coordinating unit responsible for the development of an adequate and consistent nationwide environmental regulatorya and monitoring framework - to a The development of the legal and regulatory framework, as well as the setting up of procedures and production of technical manuals are financed under the first Mining Development T.A. Project (Ln. 3092-AR).  Project Appraisal Document Page 19 Country: Argentina Project: Second Mining Development Technical Assistance deal with the coordination of the institutional and management capacity development, including training, of the participating UGAPs, as well as the supervision of the baseline and socio-economic studies to be carried out under the Project. Provisions include the financing of 120 specialist-months of local consultants, administrative support, minor purchase of equipment (office equipment, hardware and software) as well as incremental recurrent costs related to travels in the participating Provinces. A. 3.2: Environmental Management Capacity Building of UGAPs - US$4.1 million (about 26.3% of Subcomponent costs). This Program is specifically directed at the participating UGAPs and includes the establishment and strengthening of Provincial capacities by, i.a., the implementation of environmental regulations, norms and standards, the application of methods and routines for issuing environmental permits (including evaluation criteria to assess the Environmental Impact Statements (EIS)) and the establishment of appropriate monitoring, supervision and control within the sector regarding such programs. It includes three Subprograms: (i) works and equipment which will upgrade office and field facilities (rehabilitation works, purchase of vehicles and office and field equipment) (about 49% of the Program costs); (ii) implementation of a unified Environmental Information and Management System, an inter-related set of data bases aiming at administer permitting procedures as well as compile and process baseline and monitoring data (about 18% of Program costs); and (iii), environmental training (about 33% of Program costs). A. 3.3 Environmental Baseline Studies - US$7.0 million (about 44.8% of Subcomponent costs). Baseline studies are carried out to obtain comprehensive information regarding the existing natural and social conditions in areas influenced by mining activities. This Program will: (i) generate the specific information and data to support decision-making regarding the location of infrastructure, mining and processing facilities; (ii) develop multidisciplinary research methodologies to be applied in environmental analysis; and (iii), strengthen the research capacity and human resources in environmental issues related to mining activities. The program will finance an environmental baseline study for each of the participating Provinces and will proceed on a schedule of priority areas which has been determined by the location of environmentally sensitive areas. Work will make selective use of existing data from available sources, through field and source compilation, revision, supplementation, and comprehensive interpretation of such data. Such work will include, i.a., (i) the study and determination of water resources: watershed areas, rain statistics, resource modeling, and water sampling and analysis (results will also be documented in and be compatible with Geographical Information System (GIS) currently under implementation by UGAN); (ii) evaluation of the areas' environmental vulnerability; and (iii), determination of mining impacts regarding existing or past operations. Close cooperation with the respective UGAPs will be established. Provisions include the financing of international consultancy services contracts. A.3.4 Training and Institutional Strengthening in Assessment of Socio-Economic Impacts of Mining Investments - US$3.6 million (about 23.1% of Subcomponent costs). Argentina lacks the mining tradition of countries like Chile, Peru or Bolivia. Nonetheless, substantial investment is being made in exploration and several large projects (for instance, Bajo la Alumbrera and Cerro Vanguardia) are in the process of development. Development of these projects has focused attention on the likely socio-economic impacts on the local community. However, assessing these impacts and involving the local community in the consultation process has been neglected. This is due principally to lack of familiarity on the provincial level with the techniques and practices of social assessment as well as an inadequate institutional and regulatory framework to provide for such assessments. This component of the project aims to remedy these deficiencies. Pilot baseline studies will be conducted in selected provinces to; i) identify the likely social, cultural, macro and micro economic, financial, fiscal, and other impacts of mining; ii) identify principal groups of local and regional stakeholders in the project, such as the workforce, suppliers and vendors to the enterprise, company owners and shareholders, non-government organizations, infrastructure, and the local and provincial governments; iii) devise statistical and other performance indicators to objectively assess the costs and benefits of the impacts for each group of stakeholders; iv) evaluate and assess the key questions and issues to be addressed; and v) make concrete recommendations and devise an action plan for subsequent activities. The baseline studies in the selected provinces will serve as templates for subsequent work in other provinces. Part of the concrete output of the studies will be recommendations and proposals pertaining to consultation procedures, training requirements and programs, institutional strengthening, and monitoring and feedback of performance of the operations. It is important to note that these aspects pertain to the public as well  Project Appraisal Document Page 20 Country: Argentina Project: Second Mining Development Technical Assistance as the private sectors. A policy paper will be prepared to be endorsed by the national and provincial governments and a set proposed regulations pertaining to assessment and social impacts will be prepared for the both the national and provincial levels. A series of training programs and seminars will be conducted nationally and provincially, for public and private sector participants. This training will focus on consultation procedures and continual monitoring and evaluation of socio-economic impacts using numeric and other performance indicators. Project Subcomponent A.4: Unified Mining Information System (BUD) - US$3.6 million (7.8% of total Project costs). An essential tool in the development of private sector mining and the correct administration of the sector is the rapid and efficient access to accurate information. An integrated information data bank - the National Mining Information System (SNIM) - is currently being developed at the national level and in the six Provinces participating in the PASMA I Project, and is managed by a federal and provincial BUD units located in the respective DPMs. Similar units are already established in a number of other Provinces. The Subcomponent is aiming at: (i) strengthen the information management units in 17 provinces, systematize the development of relevant data bases according to the norms and standards of the SNIM; and (ii) develop the existing Mining Information and Promotion program (MINPRO) in the participating Provinces. It includes: provision of hardware and software, installation of the LAN and connection to Internet and the SNIM; training of staff in information, data bases and network management. The Subcomponent includes four Programs: A.4. 1: Implementation of BUD units at the Provincial Level - US$ 1.1 million (about 30.6% of Subcomponent costs). The objective of the BUD is to systematize the collection and interpretation of sector information at the Provincial level and to link it to the SNIM, making use of state of the art technology to gather, store and provide the information to interested parties in a timely fashion. The BUD will also be responsible for integrating the cadastral and environmental information systems into a DPMs-wide management information system (MIS), particularly with respect to administrative, permitting and monitoring functions. The Program will be coordinated and implemented by a specially designed task force of specialists located within the federal SSM. Provisions will include the financing of 126 specialist-months of local consultants, of incremental recurrent costs related to travels to the Provinces and operation of the system, as well as of communications and software license fees. A.4.2 Works and Equipment - US$1.2 million (about 34.5% of Subcomponent costs). Equipment to be procured includes, i.a., hardware and software specifically dedicated to the SNIM functions. communications devices and accessories. Software requirements include programs in administrative system and database management, processing, communications and editing. In addition, subscriptions to various local and provincial electronic databases, and Internet will be funded. Some rehabilitation work, in particular network cabling and connections, up-grading of electrical supply and computer security in government offices will be provided. A.4.3: Training - US$0.4 million (about 10% of Subcomponent costs). A training program aiming more particularly to the implementation and use of the MIS will be carried out. A. 4.4: Mineral Markets and Statistics - US$0.9 million (about 26.9% of Subcomponent costs). This Program is an extension to the participating Provinces of the Mining Information and Promotion Program (MINPRO) implemented within the framework of the PASMA I Project at the federal level. The BUD is collecting, synthesizing and distributing information in general, while MlNPRO is particularly focusing on the processing, interpretation and distribution of data for sector analysis and promotion. The skills needed to successfully implement an information and promotion campaign are specific and different from those required for the BUD. Hence the MNIPRO activity will be separate, but will draw extensively on information generated by the BUD. The Project will finance equipment (some specific hardware and software), training, incremental recurrent costs and promotion publications. Project Component B: Project Coordinating Unit (UCP) - US$1.8 million (3.9% of total Project costs). The Project was prepared with the strongly committed support of the Coordinating Unit of the PASMA I Project., which will continue to operate throughout implementation of the PASMA II Project. The UCP links with SSM's line agencies - particularly the UGAN and BUD units - as well as the Provincial agencies participating in the Project., and, during implementation, will monitor, supervise and provide management control, by Components, Subcomponents and Programs and for the Project as a whole. The UCP will be strengthened accordingly and will  Project Appraisal Document Page 21 Country: Argentina Project: Second Mining Development Technical Assistance manage procurement - including all contracting works and purchases - and the hiring of consultants, the contractual relationship with the Bank and the Project's overall administration and accounting - which includes managing the Project's Loan Account and its other funding. UCP staff have attended Bank procurement seminars and satisfactorily implemented procurement under the PASMA I Project. As under the currently on-going Project, an accounting firm will be retained with UCP funds to carry out the main accounting tasks during Project implementation. The UCP will be responsible for preparing and submitting to the Bank quarterly reports dealing with Project implementation, and for contracting under TORs acceptable to the Bank, the yearly audits of the Project including the timely submission of such audit reports to the Bank. The Project will finance the contracting within the existing UCP of an alternate General Coordinator, an assistant in charge of monitoring and control, project and administrative support. Funding is also provided for the unit's operational costs, as well as some minor additional office equipment.  Project Appraisal Document Page 22 Country: Argentina Project: Second Mining Development Technical Assistance Annex 3 Second Mining Development Technical Assistance Project Estimated Project Costs Project Component Local Foreign Total -----------------------US $ thousand-------------------- Consultant Services 513 400 913 Equipment 5 85 90 Incremental Recurrent Costs 1,059 454 1,513 Consultant Services 170 0 170 Contract Works 1,768 442 2,210 Equipment 81 1,534 1615 Consultant Services 445 0 445 Equipment 2 28 30 Incremental recurrent Costs 270 115 385 Contract Works 2,584 10,336 12,920 Incremental Recurrent Costs 476 204 680 Consultant Services 90 0 90 Equipment 141 2,689 2,830 Incremental Recurrent Costs 196 84 280 Consultant Services 170 0 170 Training 154 66 220 22 )A3U42U~AN~ ,,i5~ ,j2)t, 2N= E> Consultant Services 480 0 480 Equipment 5 120 125 Incremental Recurrent Costs 230 100 330 Consultant Services 0 105 105 Contract Works 136 544 680 Equipment 60 1,195 1,255 Incremental Recurrent Costs 476 204 680 Training 260 920 1,180 Consultant Services 0 6,800 6,800 A)A oiaR Ei iiArssPiWi~n ~6 ~ ~ 9 i'i): '34  Project Appraisal Document Page 23 Country: Argentina Project: Second Mining Development Technical Assistance Consultant Services 990 0 990 Incremental Recurrent Costs 805 345 1,150 Training 840 360 1,200 w .t-_ AI4.1 Implementation of BUD Provincial Units 830 185 1,015 Consultant Services 400 0 400 Incremental Recurrent Costs 310 135 445 Training 120 50 170 A.42 Works and Equipment 85 1,105 1,190 Contract Works 34 136 170 Equipment 51 969 1,020 A.4.3 Training 238 102 340 Incremental Recurrent Costs 119 51 170 Training 119 51 170 A-4.4 Minerat Markets and Statistics 544 391 935 Equipment 9 161 170 Incremental recurrent Costs 416 179 595 Training 119 61 170 Consultant Services 1,205 0 1,205 Equipment 7 133 140 Incremental recurrent Costs 310 135 445 Physical Contingencies 100 1,000 1,100 Price Contingencies 100 500 600  Project Appraisal Document Page 24 Country: Argentina Project: Second Mining Development Technical Assistance Annex 4 Second Mining Development Technical Assistance Project Economic and Financial Assessment Summary A. Economic Contribution of Mining The gross value of minerals produced currently in the 17 provinces which would participate in this Second Mining Development Project is US$440 million (1996). Of the total value of production, approximately 90 percent is of industrial minerals (borate, feldspar, mica, bentonite, barytine, kaolin, salt, diatomite, semi- precious stones) and application minerals (marble, aggregates, etc.). Production of metallic minerals is still small; only lead, zinc and silver are produced in sizable quantities. The Cerro Vanguardia project (Santa Cruz) is under construction and should produce US$ 100 million-year of gold beginning in 1998. A number of projects - all financed and operated by the private sector - are in an advanced feasibility study stage (Manantial, Espejo, Pirquitas) or in a detailed exploration/ pre-feasibility phase which could be in production over the next several years. In addition, numerous foreign and domestic companies have active exploration programs (expenditures of US$28 million-year) which could easily result in the discovery of a new major orebody. The value of current mining production represents less than 0.06 percent of Argentina's gross domestic product of US$300 billion (1996). However, with the new projects anticipated to come on-stream in the 17 provinces over the next several years this should increase to 0.1 percent. Of significance is the increase of mining in the 17 provinces to export earnings. Currently, approximately US$ 30 million-year, principally of industrial minerals plus some metal concentrates, are exported, representing 0.1 percent of Argentina's total exports. By the year 2000 with the anticipated increase in metals mining this should increase to US$ 235 million, or 0.6 percent of total exports. These exports would generate foreign exchange or, if the metals would be consumed locally, would save on foreign exchange required to import metals. In addition to metals, potential exists in neighboring countries and/or international markets to expand exports of selected Argentina industrial minerals (bentonite and kaolin, for example). The effect of Mercosur on Argentina's mineral exports is difficult to determine. On the one hand, removal of various tariff and non-tariff barriers could significantly enhance the penetration of certain mineral commodities in neighboring countries. On the other hand, access to Argentina's domestic market of cheap foreign imports could weaken certain local producers burdened with high cost structures (marble, for example), whose productivity would have to improve significantly to compete. Table A.5 - 1: Projection of Mineral Exports for the 17 Provinces of this Second Mining Development T.A. Project Year Gross Export Value Percentage of Total Argentina (US$ million year) Exports 1996 30 0.1 2000 235 0.6 Table A. 5 - 2: Production of Minerals from the 17 Provinces of this Second Mining Development T.A. Project Commodity Gross Production Value (US$ Gross Production Value million) (US$ million) 17 Provinces All Argentina Metals 34.7 40.3 Non Metals 110.2 149.3 Semi-precious stones 0.2 1.5 Construction Materials 295.9 351.8 Totals 440.9 542.8  Project Appraisal Document Page 25 Country: Argentina Project: Second Mining Development Technical Assistance Other economic benefits of mining include employment generation in disadvantaged rural areas, training of workforce and dependents, social and physical infrastructure, the development of support industries (manufacture of mining equipment, provision of consulting services, development of capital and commercial markets), and the transfer of technology and management know-how. A major component of the technical assistance project will be to assess the economic and social impacts of mining development, prepare legislation to provide for an equitable sharing of benefits, and train federal and local officials and the local communities in the monitoring of these impacts on a consistent basis. While these benefits are difficult to quantify, the experience to date of the Bajo la Alumbrera project (Catamarca), Argentina's first large new copper-gold mine is illustrative of the impact a mining project can make on the socio- economic development of local and regional. According to input-output matrices developed by the federal government, for every job created directly by the mining enterprise 4 jobs are created among major suppliers of goods and services to the operation (petroleum products, lime, energy, other vendors). Thus, in the year 2005 some 3,700 persons will owe their livelihood directly or indirectly to the mining operations. Total value added from payroll and other benefits of the direct and indirect employment will be approximately US$ 300 million. The company has an extensive training and education program for employees as well as for their dependents. Investments to date in infrastructure (power, water, transport, etc.), to service not only the mine but also the surrounding area, have been in hundreds of millions of dollars. Finally, the new and modem management methods introduced by the mine will have a substantial and long lasting impact on the development of an industrial work ethic in these rural areas. B. Analysis of Fiscal Regime for Mining The Mining Investment Law No: 24196 passed in 1993 provides for several incentives for mining investments. These include, inter alia: - tax stability for 30 years (excluding VAT tax) - double deduction for exploration and feasibility work - accelerated depreciation for capital investments - exemption of capital gains taxation on the value of equity transfers - exemption from assets tax, due to be abolished in June 1995 - exemption from import duties, taxes, and statistical tax - provincial royalties maximum of up to 3 percent of "mine mouth" value - special allowance of 5 percent of operating costs for environmental fund In most respects, the legislation is consistent with what the Bank would consider international "best practices": i) no discrimination is made between foreign and domestic investors; ii) the accelerated depreciation provisions provide for rapid pay-back of capital invested; iii) production costs are not burdened by excessive import or other taxes; iv) the VAT tax is recoverable when products are exported; v) provincial royalties are not only capped at 3 percent but also assessed on "mine mouth" value reducing the effective rate to an equivalent industry standard of around 1-2 percent of net smelter return; vi) environmental cleanup costs are properly considered operational costs, and an allowance of up to 5 percent of operational costs can be deduced in the calculation of income tax to fund environmental work; vii) tax losses can be carried forward for five years; viii) the basic rate of income tax (30 percent) and absence of dividend withholding taxes are very attractive by international standards. An illustration of the fiscal impacts of a major mining operation is the experience to date of the Bajo la Alumbrera project, Argentina's first large copper-gold mine. Over the 20 year mine life the corporate income tax and diesel fuel tax will aggregate US$ 1,101 million; royalties to the province of Catamarca US$ 513 million. Moreover, the mine indirectly stimulates greater tax payments by suppliers whichi average US$ 15 million per year. Employees of the company as well as suppliers will pay substantial personal income tax as well as social security contributions. The effects of the tax regime on a mining investment in the 17 provinces were estimated by the appraisal mission  Project Appraisal Document Page 26 Cotmtry: Argentina Project: Second Mining Development Technical Assistance on the basis of the Cerro Vanguardia which will enter production in 1998. The premises in this estimation are: (i) production of gold would average seven metric tons per year; (ii) the yearly value of production would be US$85.8 million at an international gold price of US$300/ounce; (iii) production costs are an international average of US$225/ounce, the mine would have a life of 20 years; and (iv) the initial capital investment required would be US$200 million. The fiscal revenues accruing to federal and provincial governments are summarized in the following table: Income Tax over the mine life US$155 million Mine Mouth Royalty over the mine life US$29 million VAT taxes over the mine life (possibly refunded to US$63 million the producer if product is exported) Total government taxes over life of mine US$184 to 247 million  Project Appraisal Document Page 27 Country: Argentina Project: Second Mining Development Technical Assistance Annex 5 Second Mining Development Technical Assistance Project Financial Summary Years Ending December 31 (US$ million; 1998 base year) Implementation Period Operational Period 1998 1999 2000 Total 2000 2001 2002 2003 2004 Project Costs Investment Costs 12.7 26.1 0.7 39.5 0.3 1.0 1.0 2.7 1.1 Recurrent Costs 1.3 5.2 0.5 7.0 4.4 5.2 5.4 5.6 5.8 Total 14.0 31.3 1.2 46.5 4.7 6.2 6.4 8.3 6.9 Financing Sources (