Argentina - Mining Sector Development

Report No. PIC501 Project Name Argentina-Mining Sector Development (@&) Region Latin America & the Caribbean Sector Private Sector Development Project ID ARPA6055 Borrower Government of Argentina Implementing Agency Mining Secretariat Undersecretary of Mining Daniel Meilan Av. Julio A. Roca 651, 2 piso 1322 Buenos Aires, Argentina Tel. 349-3271/4 Fax 349-3273 Final PID Date May 30, 1995 Appraisal Date Oct/Nov. 1994 Board Date July 18, 1995 1. Country and Sector Background: Partially supported by a formidable reform and an ambitious privatization program, Argentina's current macroeconomic program is resulting in price stability and economic growth unknown for decades in the country. As sustained future growth hinges on an expanding and dynamic private sector, the Government's new role is to avoid distortions that repress and misguide private economic activities, and to provide an enabling institutional and regulatory framework for their development, among them mining. A 1993 Bank Mining Sector Review, done with Swedish and Finnish collaboration, showed mining is far below the country's potential (less than 0.5w of GDP, 1 of exports). Sector production is mostly divided between many small non-metallic operations--aost 400 of them in the six provinces of Catamarca, Chubut, Jujuy, Mendoza, Salta and San Juan. Three producers of metallic minerals account for over 80 percent of the country's production; two others account for 75t of gold mined. Argentina has large areas of favorable geology which are largely unknown due to the paucity of exploration activity. To achieve the sector's potential, annual investment in exploration, now less than US$10 million, should be over US$45 million. The Review recommended that: Government encourage private investment and avoid inefficient promotion schemes; the federal and provincial levels define better their responsibilities, divest from mining interests and restructure their sector agencies; legal provisions be revised to provide simple, enforceable procedures and minimal administrative discretion for both the concession of mining rights and the application of health, safety and environmental safeguards; and an independent geological service be established. Three laws approved in 1993 improve the mining investment and institutional frameworks, and create the Geological Survey. Divestment of mining reserves has started. Yet other important reforms are needed to foster environmentally sound, competitive private mining. 2. Project Objectives: The main objective of the project is to  develop and support policy, regulatory and institutional reforms-- including provincial divestiture--that encourage the expansion of private investment in mining in an environmentally sound way. Provinces administer mining rights, hence the project would help, at the federal level and in six provinces: build the capacity needed for a fair and efficient administration of mining rights; establish adequate environmental safeguards; and strengthen the technical infrastructure and services that support mining growth, including the public, transparent provision of precise and reliable mineral information. 3. Project Description: The project has four components. (i) A Policy Development Component, providing consultancies to support the consistency of the mining sector policy with the country's overall economic liberalization efforts, and to review and develop the legal framework and tools to enable its implementation, including rules and procedures for the provincial administration of mining rights, and appropriate environmental norms and standards. (ii) A Policy Implementation Component to develop the administrative capacity and installations of the Mining Secretariat and sector agencies in six provinces, including their cadastral and registry systems and related advisory services, a mining data bank and public information network, and the mechanisms to monitor and enforce environmental management. It would also finance relevant skills transfer, training and divestiture efforts. (iii) A Support Services Component would support private investment decisions by financing: geological and thematic mapping; mineral statistics and promotion facilities; a geological repository and ancillary facilities; and the discrete, focussed strengthening of the mineral and geological laboratory system. (iv) A Project Coordinating Unit (PCU) to oversee project implementation. The project finances consulting services and contract works, computer equipment and software, field and office equipment and vehicles, training, incremental operating costs and the necessary upgrading of facilities. 4. Project Cost and Financing: Total cost of the project is estimated at US$40 million equivalent, of which about 74 percent is foreign exchange. A Bank loan of US$30 million is contemplated, and the Federal and Provincial Governments would finance local costs. 5. Implementation Arrangements: The Secretariat of Mining (SM), at the Ministry of Economy would be responsible for overall project coordination, and for components that strengthen federal policy, legislation and agencies (National Directorate of Mining, Mineral Data Bank and Information Network, Geological Survey, Repository and Lab system). As provinces administer mining rights, they will implement the cadastre and registry systems and environmental control mechanisms. Six provinces will participate: Catamarca, Salta, Mendoza, San Luis, San Juan and La Rioja, the last four under a regional scheme "Nuevo Cuyo", whose aim is to develop a homogeneous mining regulation, cadastre and administrative set-up. The Project Coordination Unit established in SM for preparation purposes will continue to coordinate federal and provincial subcomponents, monitor and supervise, and handle consultancy arrangements, procurement and disbursement. The project would be implemented in five years. 6. Project Sustainability: The project would support competitive - 2-  sector growth by creating appropriate conditions for mining development and to attract long-term private investment. The legal and institutional framework and technical infrastructure and services that it will foster will assist in expanding and diversifying the country's economy and exports. Services provided at the national level will be improved. Selected provinces are ready to do the proposed reforms and strengthen their administrative roles. Once in motion, these activities should catalyze further reforms and sector growth in other provinces as well. 7. Poverty Category: N.A. 8. Environmental Aspects: A Sectoral Environmental Assessment was done during preparation of this environmental category "B" project. Given the limited mining to date in Argentina, there has been little concern for related environmental issues. The Mining Code includes mostly safety provisions, and only two articles deal with environmental protection. However, environmental considerations increasingly permeate local policy and action, and general environmental laws and provisions are being discussed or implemented at all levels, providing an opportunity for establishing a well designed framework for environmentally sound mining. The Project will help develop: (i) an Environmental Management Program for the mining industry as a whole to: set priorities and timetables for establishing standards and procedures and the supporting institutional structure; address how to bring existing mining up to acceptable standards; and establish requirements and procedures for new operations--all with clearly defined reporting and responsibilities; (ii) the provincial administrative capacities to implement and enforce the Program, including requirements that new mines do baseline studies as a reference to measure the impact of mining and prepare mitigation action plans, before mine development is approved; and (iii) environmental baseline studies in each of the six participating provinces. Contact Point: Public Information Center The World Bank 1818 H Street N.W. Washington D.C. 20433 Telephone No.: (202)458-5454 Fax No.: (202)522-1500 Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. - 3 -