Ghana - Mining Sector Rehabilitation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 16731 IMPLEMENTATION COMPLETION REPORT GIANA MINING SECTOR REHABILITA TION PROJECT (CREDIT 1921-GH) June 19, 1997 Industry and Mining Division Industry and Energy Department World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY AND EQUIVALENT UNITS Currency Name = Cedi US$1.00 = 2,020 Cedi WEIGHTS AND MEASURES I troy ounce (oz) = 31.1 grams I gram (g) = 0.032 troy ounces I metric tonne (mt) = 32,1 1 troy ounces = 2,20i pounds I short ton (T) = 2,000) pounds I carat (ct) = 0.2 grams I gram = 5 carats FISCAL YEAR January I to December 31 ABBREVIATIONS AND ACRONYMS ADB -African Development Bank Caisse Centrale -Caisse Centrale de Cooperation Economique CDC -Commonwealth development Corporation CIDA -Canadian International Development Agency DMC -Diamond Marketing Corporation EDC -Export Development Corporation (Canada) EIB -European Investment Bank ERP -Export Rehabilitation Project ERPTA -Export Rehabilitation Technical Assistance Project GCD -Ghana Consolidated Diamonds GNCB -Ghana National Commercial Bank GOG -Government of Ghana GNMC -Ghana National Manganese Corporation MC -Minerals Commission MLNR -Ministry of Lands and Natural Resources PPF -Project Preparation Facility RIC 11 -Reconstruction Import Credit 11 SGMC -State Gold Mining Corporation UJNDP -United Nations Development Program VRA -Volta River Authoi ity Vice President : Jean-Louis Sarbib Director : Serge Michailof Division Chief/Manager Peter van der Veen Staff Member Leo Maraboli  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT GHANA MINING SECTOR REHABILITATION PROJECT (Cr. 1921-GH) TABLE OF CONTENTS PREFACE ...................... EVALUATION SUMMARY .................... ii PART I: PROJECT IMPLEMENTATION ASSESSMENT ......................................1 A. Background ......................................I B. Project Description .....2................................2 C. Achievement ofProject Objectives ..................................... 3 D. Major Factors Affecting the Project ......................................5 E. Project Sustainability .....................................7 F. Bank Performance .....................................8 G. Borrower Performance .......................................9 H Assessment of Outcome ......................................9 1. Future Operation ..................................... 10 J. Key Lessons Learned ...................................... II PART II: STATISTICAL TABLES APPENDICES Appendix A: Missions' Aide-Memoire Appendix B: Borrower Contribution to the ICR Appendix C: Map This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   Implementation Completion Report Glhana Mining Sector Rehabilitation Project (Cr. 1921-GH) PREFACE 1 This is the Implementation Completion Report (ICR) for the Mining Sector Rehabilitation Project in Ghana, for which Credit 1921-GH in the amount of SDR 29.3 million was approved on 14 June 1988. The Credit became effective on 4 March 1989. The Credit was closed on 31 December 1996, three years after the original closing date. Final disbursement took place on May 6, 1997, at which time a balance of SDR 7,191.67 was canceled. Cofinancing for the project provided by the European Investment Bank (EIB) was in the amount of DM 23,230,000, which was fully utilized. Additional cofinancing made available by the African Development Bank (ADB) in the amount of US$ 34.5 million and by the Caisse Centrale de Cooperation Economique (Caisse Centrale) in the amount of FF 72 million (US$ 13 million equivalent) was not utilized. 2. The ICR was prepared by a World Bank team from the Industry and Mining Division, Industry and Energy Department and the Environment Group of the Africa Region. The ICR was reviewed by Serge Michailof, Country Director, Ghana; James Kerr, Senior Mining Engineer (COMD2); and Jerome Chevallier, Project Advisor. During the final supervision mission an initial evaluation of project performance was carried out by a World Bank mission with key staff of participating agencies. Mr. L. Maraboli (IENIM); Ms. 1. Hewawasam (AFTEI); and Mr. P. Dyson (Consultant) Is'.1   ii IMPLEMENTATION COMPLETION REPORT GHANA MINING SECTOR REIABILITA TION PROJECT (Cr. 1921-GH) EVALUATION SUMMARY Introduction 1. In the early 1980s the initial thrust of the Government's policy under the Economic Recovery Program was to concentrate on the agricultural sector of the economy which had the greatest potential for the short term increase in exports. By the mid- 1 980s the Government started to put increasing emphasis on the mining sector which was recognized to have significant potential for exports in the medium to long term. IDA support for rehabilitating the mining industry in general, and the gold mining sector in particular, started in 1984 with the Export Rehabilitation Credit (CR 1435-GH). This support was continued with the Export Rehabilitation Technical Assistance Credit (CR 1436 GH) and was followed by this operation - the Mining Sector Rehabilitation Project (CR 1921-GH). Important elements of these operations focused on the rehabilitation of the mines operated by the State Gold Mining Corporation (SGMC). A parallel objective of Cr. 1921-GH was the privatization of SGMC. Project Objectives 2. The objectives of the project were to continue to support the rehabilitation of the mining sector by (i) rehabilitating certain existing, economically viable state-owned mines; (ii) helping to attract private investors to the mining sector; (iii) strengthening the main governmental agencies involved in the administration of the sector; and (iv) increasing national benefits from small-scale gold and diamond mining activities. 3. The IDA Credit of SDR 29.3 million equivalent to US$ 40 million was fully disbursed except for SDR 7,191.67. About 2/3 of the proceeds of the credit was assigned for the rehabilitation of the State owned gold mines and the balance including the borrower's contribution of US$ 0.3 million was assigned primarily for institutional strengthening of key sectoral agencies.  iii Implementation Experience 4. The Period prior to the divestiture of the mines. The Credit provided much needed support for rehabilitation of the mines enabling them to continue operations. The funds under the Credit helped arrest the drain of public resources by significantly reducing the downward trends in production and efficiency at all three mines. However, the Government and the cofinanciers realized that joint venturing of SGMC's mines and downsizing and restructuring of SGMC would be necessary in order to fully arrest the operating losses being incurred. Accordingly, agreements were reached to fund activities necessary to attract prospective investors and proceed to divest all of SGMC's mines. The rehabilitation of the mines improved their potential for divestiture. In recognition of the Government's responsibility for the adverse environmental, health and safety problems resulting from past mining operations, agreements were reached to utilize funds from the IDA Credit to address related priority problems at the mine sites. 5. Technical assistance was provided to SGMC to increase its efficiency through restructuring and rehabilitation. Technical assistance was also provided to the Minerals Commission (MC), Mines Department (MD) and the Geological Survey (GS) to upgrade their capacity to enable the agencies to play a more effective role in promoting the sector. The support provided under the Credit helped uplift the morale of the workforce of these institutions by an infusion of equipment, technical assistance and training. 6. The Credit was also responsible for initiating policy dialogue relating to the formalization of small-scale mining and the liberalization of controls affecting small-scale gold and diamond mining. These efforts led to the organization of small-scale miners and encouraged these miners to operate within the formal sector under the Small-scale Gold Mining law of 1989. 7. The period after divestiture of the mines. The IDA Credit facilitated the divestiture of the three gold mines formerly owned by the Government. Upon transfer to private ownership, the mines have started contributing revenue to the Government through royalties and taxes. At the Dunkwa and Prestea mines taxes have been deferred. At Tarkwa, production and productivity have increased with investments and new management. These have delineated major amounts of additional reserves. The Credit has therefore facilitated the realization of very high potential for growth at Tarkwa and enhanced the potential for growth at the other two mines: Dunkwa and Prestea. The Credit has also facilitated attracting new investments in mining and increased opportunities for employment and skills development in related industries. The renewed mine operations have also led to the growth of economic activities in the region with related income generating activities in adjacent communities. 8. During the various co-financiers' meetings to review progress of the project and issues affecting its implementation, agreements were reached to provide support for the remediation of priority environmental health and safety problems resulting from past mining operations. The remedial work included the alleviation of environmental health and safety problems at all three mines (Tarkwa, Prestea and Dunkwa) and resulted also in improving socio-economic conditions affecting adjacent communities - particularly at the Dunkwa mine.  iv 9. The divestiture process facilitated by the IDA credit provided opportunity for increased collaboration and coordination with labor unions and community representatives. 10. Actual costs for the project were close to those estimated in the SAR. Cofinancing was secured as follows: (a) African Development Bank (ADB) with US$ 34.5 million; (b) Caisse Centrale de Cooperation Economique (Caisse Centrale) with $13 million (FF 72 million); and (c) European Investment Bank (EIB) with DM 23,230,000. 11. Total available cofinancing was thus approximately US$ 62 million equivalent. The only cofinanced funds to be disbursed were those from the EIB as the Government felt the terms and conditions attached to the ADB and Caisse Centrale funds were too restrictive. Nevertheless the reform process was assisted by all cofinanciers through the dialoging and negotiation process that took place at four cofinanciers' meetings. Implementation of the project fell significantly behind schedule at the start when effectiveness was delayed by seven months as the Borrower was slow in putting in place satisfactory management arrangements for SGMC and in appointing an investment advisor for assisting in the joint venturing of the SGMC mines. Once the project was effective, annual disbursements increased to approach the schedule foreseen in the SAR. Nevertheless the project closing date was extended twice for a total of thirty six months to enable rehabilitation work associated with the privatization of SGMC to be completed. 12. The decision of the Government to proceed to privatization of the SGMC mines during project implementation was a positive step in keeping with evolving international trends relating to State-owned enterprises. However the lack of experience in privatization of state-owned entities in general and mining companies in particular, led to slow decision making at both high and working levels. 13. The Bank was faced with the need to supervise a project against a rapidly evolving sector policy. While the policy changes were positive, it made supervision of the project complex. With regard to the SGMC mines, the incorporation of the private sector into management functions resulted in a new orientation of attitudes and priorities. The resulting set up, due to its complexity and need for broader consensus among larger number of stakeholders, led to slow process of decision-making. The Bank was required to maintain maximum flexibility towards project implementation within the original project scope. As a consequence some covenants became irrelevant but were not formally abandoned. The Borrower was faced with an increasingly difficult task to comply with convenants, as the privatization of SGMC progressed, but made every effort to comply with the requirements for execution of the project.  v Key factors affecting project achievement 14. Several factors affected timely credit implementation. Some of the key factors were: (i) the slow decision making process at high as well as working levels; (ii) the lack of exposure to privatization of State owned enterprises; (iii) a steep learning curve involving considerable discussion and controversy exacerbating the delays; (iv) highly centralized management culture which slowed operational decision making process. Key institutional issues involved: (i) inappropriate skill mix in key institutions; (ii) insufficient skilled manpower resulting from high turnover of staff; (iii) the lack of coordination between key agencies; and (iv) insufficient commitment to strengthen and restructure MD and GS. The lack of coordination between a parent company and subsidiary companies of the joint venture partners also affected the smooth implementation of divestiture related activities. 15. The transition to private ownership of the mines resulted in increased awareness within communities living adjacent to mine sites of social, environmental and tenurial issues. This situation needs attention by policymakers and appropriate policy, regulatory and institutional measures need to be identified to avoid potential for further conflict. Sustainability 16. All of the gold mines formerly owned by the Government were privatized. Experience relating to privatization indicates that the economic, financial and technical viability of all 3 gold mines are well assured. However, with regard to environmental sustainability, the Government needs to establish sufficient capacity and coordination to ensure the realization of long term goals. The social impact with regard to the expansion of private investment needs to be assessed carefully and appropriate policy interventions formulated. 17. The primary focus of the project was in rehabilitating the SGMC mines and attracting private sector investment. Some emphasis was placed on strengthening the key institutions related to sector development. Additionally, SGMC was provided necessary support and technical assistance to rehabilitate the mines and facilitate their divestiture. Equipment, technical assistance and training were also provided in limited amounts to MC, MD and GS. Project implementation experience identified the need for major institutional strengthening and technical assistance to enable the Government, to meet evolving and potential requirements of the country with regard to increased private investment and the growing importance of environmental as well as social issues. The increasing growth of the small-scale mining sub-sector also required additional study and support. In recognition of these priority issues the Government and the Bank formulated a follow-on project which aims to strengthen institutional capacity; promote further private investment in mining and mainstream environmental aspects into mining sector development. The project also aims to support the small-scale mining sub-sector, and at the same time mitigate environmental consequences of these activities.  vi Bank and Borrower Performance 18. Bank performance was satisfactory throughout the project cycle. The Bank mounted a total of 8 full supervision missions during the project. These missions provided timely and effective guidance to the Government and to the implementing agencies. During the course of project supervision efforts were made to expose key staff of participating agencies to international best practice, particularly with regard to divestiture of state-owned mining companies and to trade liberalization process. Guidance was provided with regard to negotiation with joint-venture partners and also in dealing with adverse environmental impacts associated with past mining operations. The project which was formulated during the mid-I 980s did not place adequate emphasis on environmental aspects. Flexibility in project design and discussions and agreements reached during successive cofinanciers' meetings allowed the project task team to start addressing environmental, health and safety issue in a systematic manner. The Borrowers' performance was also generally satisfactory and responsive, except in situations where continuous changes and turn over in key management positions, particularly in SGMC, led to inordinate delays in decision-making process. Project Outcome 19. The project is rated highly satisfactory since it has met all its main objectives: rehabilitation of state-owned gold mines; attracting private investment into the sector; strengthening of the policy and regulatory capability of main sectoral agencies; and the regularization of small scale gold and diamond mining. The Credit initiated policy dialogue with regard to the liberalization of trading of precious minerals. Under the reformed policies of the Government, significant growth of private investment in the sector was realized and Government ownership in the largest gold mine in the country - Ashanti Goldfields - dramatically reduced. Over $400 million was raised through public offerings between 1994 and 1995. The public today, holds 51 million, or 47% of the total capitalization of the company, while Lonrho and the Government hold 36 million and 21 million shares, respectively. 20. The Credit was also instrumental in bringing the small scale gold and diamond activities into the formal sector, thereby increasing the levels of formal trading and exports of both these minerals. The project has even exceeded its stated objectives, in that it has facilitated the successful divestiture of all 3 gold mines previously owned by the Government. In doing so, the drain on public resources was arrested and the mines are currently operating soundly; they are expanding; and are making effective contributions to the national economy. 21. However, increased private investment in mining has resulted in some adverse ramifications including social conflicts within affected communities. In addition, the potential for environmental and safety problems needs to be closely monitored. Furthermore, it is widely recognized that the Government needs to identify and implement appropriate measures to ensure that the benefits of mining are more equitably distributed and reaches affected communities.  vii Summary of Findings, Future Operations, and Key Lessons Learned 22. Findings. In accordance with evolving Bank and Government policy, needed steps were taken for the rehabilitation and restructuring of SGMC. A series of measures were implemented at SGMC aimed at improving its efficiency. These included a series of cost cutting' and downsizing measures which finally led to the divestiture of the 3 mines and the virtual dissolution of SGMC by end of March, 1997. The Government is currently taking necessary steps for the liquidation of SGMC. As the above-mentioned mines transferred from the public domain to private ownership, the potential for conflicts within labor unions and in affected communities increased significantly. While all parties should recognize the need for adjustment to meet the changed circumstances, the Government needs to identify and implement appropriate measures that would address such issues in a satisfactory manner. The Government should also define pro-active policy and regulatory mechanisms to dissolve and mitigate the potential for such conflicts. 23. Future Operations. The implementation experience of the Credit revealed the need for technical assistance, training and equipment in several different areas related to the growth and sustainable development of the sector. For example, the efforts related to institutional strengthening revealed the need for major capacity building support for all mining sector agencies, in order to carry out policy formulation, geological information and other sectoral data gathering and promotional activities. Institutional strengthening was also needed for monitoring and enforcement of health, safety and environment aspects. The regularization of small-scale mining and the studies undertaken with regard to small-scale mining identified the need for technical assistance, extension services, training and equipment to improve these activities. Such support needed to be complemented with the introduction of environmentally sensitive approaches and technology. 24. Lessons learned. Implementation experience demonstrated that an appropriate policy, legal and institutional framework is essential for sustainable development of the mining sector. The privatization of state owned mines could not have taken place without these elements. 25. Based on current experience with regard to the reform of state owned enterprise, it is unlikely that IDA funds would be targeted on the rehabilitation of existing facilities. Instead the funds would be assigned to provide expert technical advice on attracting private investment and facilitating the speedy divestiture of the enterprises. Additionally, it is likely that IDA funds would be assigned to address environmental, health and safety problems resulting from past mining operations, that are determined to be clearly the responsibility of the Government. 26. Open lines of communication and constructive working methods had contributed to successful project implementation leading to almost complete disbursement of the IDA Credit. It was recognized that a higher level of commitment and strong leadership within Government, including timely decision making, coordination and realistic target setting are needed elements for privatization of State owned enterprises. The process of investigation clearly indicated the need for a one-stop-shop within Government to promote and attract private investment and joint venture partnerships. Another important lesson was the need to strictly adhere to environmental  viii regulations in order to ensure that separate and costly mitigation programs will not be needed upon changes of ownership. The incorporation of comprehensive environmental impact assessments and audits will assist both the private sector and Government agencies in monitoring and managing adverse environmental impacts of mining development. 27. Implementation experience revealed the need for skills enhancement within sectoral agencies as well in the private sector. An urgent need exists for the development of technical, economic, legal and environmental skills pertaining to mining, within the public as well as the private sector. 28. As Bank and Government policy related to privatization and private sector development underwent significant changes during the life of the project, the project design also needed complementary modifications. The flexibility in project design was a major factor which allowed the achievement of all stated project objectives. It also enabled the implementation team to make necessary improvements in the project design to meet operational realities on the ground. 29. Implementation experience revealed the need for better clarity and delineation of responsibilities between the mining sector agencies and the environmental as well as other sector agencies. In particular, with regard to social issues, implementation experience revealed an urgent need to formulate sound policies, regulations and guidelines to address situations where relocation or resettlement of communities would be involved.   Project Implementation Completion Report Glhana Mining Sector Rehabilitation Project (Cr.1921-GH) PART I. PROJECT IMPLEMENTATION ASSESSMENT A. Background 1. In the early 1980s the initial thrust of the Government's policy under the Economic Recovery Program for Ghana was directed towards the rehabilitation of the agricultural sector, particularly cocoa and timber. However by the mid 1980s it was decided to expand the Economic Recovery Program to the mining sector which was the second largest foreign exchange earner after cocoa. In 1986 the mining sector had exports of US$ 126 million, approximately 26% of Ghana's foreign exchange earnings. Gold accounted for about 85% of these earnings. Gold production had fallen from about one million ounces a year in the early 1960s to only 277,000 ounces in 1983. This decline had been caused by: (a) a fixed dollar price for gold in the 1960s and early 1970s; (b) the over-valuation of the Ghanaian currency, the cedi, during much of the period; (c) a severe shortage of foreign exchange in the country; (d) a shortage of technically qualified management in the mines; (e) the exhaustion of known ore bodies and the failure to develop new ore bodies; and (f) an investment climate perceived as unfavorable by outside investors. 2. In the three years leading up to the decision to prepare the Mining Sector Rehabilitation Project, the outlook for the mining sector started to improve as the Economic Recovery Program began to take effect. IDA had provided major support for the recovery program with the Export Rehabilitation Credit (Credit 1435-GH/SF-9-GH), the Export Rehabilitation Technical Assistance Credit (Credit 1436-GH), and the Second Reconstruction Imports Credit (Credit 1573-GH) all of which contributed in some manner, to support, and reform the mining sector. In particular the main positive factors which evolved from these projects were: (a) the mines were permitted to retain a portion of their foreign exchange earnings; (b) the over-valuation of the cedi was significantly reduced; (c) infrastructure, including the Western Railway line which served the mines was rehabilitated  2 (d) encouraged by the Economic Recovery Program, new capital started to flow into the mines from IDA, IFC, the Canadian International Development Agency (CIDA), and private sources; (e) a new Minerals and Mining Law of 1986 was enacted thereby providing a new framework for investments in the sector; and (f) the Government became receptive to foreign investment. 3. Against this background the Mining Sector Rehabilitation Project was prepared to support the continuing improvement of the mining sector which was again starting to contribute to the economy. B. Project Description 4. The objectives of the project were to continue the support for the rehabilitation of the sector by: (a) rehabilitating certain existing, economically viable mines; (b) assisting to attract private investment into the sector; (c) strengthening the governmental agencies responsible for the administration of the sector; and (d) increasing the national benefits derived from small-scale gold and diamond mining. 5. In accordance with these objectives the project was largely directed to the rehabilitation of the state owned mines of the State Gold Mining Corporation (SGMC). Approximately 85% of project cost was directed to this component. The rehabilitation of the SGMC mines aimed in the short term to stem the drain on the public budget which was being used to provide subsidies to the company. In the medium term this component of the Credit was used to improve the productivity and cost structure of the operations to the extent that private sector investment in the mines or joint ventures could be attracted. 6. A second component of the Credit aimed at improving the regulatory framework for private sector investment by assisting the GOG to develop clear, non-discretionary regulations for the implementation of the Minerals and Mining Law (1986). It also provided technical assistance to strengthen the principal agencies responsible for sector administration - the Mines Department(MD) and the Geological Survey (GS), both within the Ministry of Lands and Natural Resources (MLNR) and the Minerals Commission (MC). 7. Some support of the Credit was also assigned to increase the benefits of small scale mining by reviewing the legal framework for this sub-sector. A small amount of technical assistance was provided to assess technical, environmental and social conditions prevailing in the sub-sector.  3 8. The project was an important component of the World Bank's strategy to support the Government's liberalization efforts and to develop a viable mining sector that would generate significant revenue and employment benefits. The institutional component supported improvements in Governmental capacity to monitor sectoral development and implement appropriate policy reforms. C. Achievement of Project Objectives General 9. The project clearly achieved all its main objectives: rehabilitation of state-owned gold mines; attracting significant private investment into the sector, strengthening the policy and regulatory capacity of main sectoral agencies; and the regularization of small-scale gold and diamond mining. The Credit initiated policy dialogue with regard to the liberalization of trading of precious minerals and under the reformed policies of the Government, significant growth of private investment in the sector was realized. Government ownership in the largest gold mine in the country - Ashanti Goldfields - has been reduced dramatically. Over $400 million was raised through public offerings between 1994 and 1995. The public today, holds 51 million, or 47% of the total capitalization of the company, while Lonrho and the Government hold 36 million and 21 million shares respectively. Ghana is now viewed as a model by other African countries for attracting private investment into the mining sector. 10. The mines of SGMC were rehabilitated thereby preventing their imminent total collapse while at the same time improving their productivity and cost structure to enable their divestiture. As support for the privatization process, the project funded remediation of the poor environmental situation at the SGMC mines which had resulted from lack of appropriate consideration for environmental impacts in the past. 11. Sectoral institutions, particularly MC, started functioning more efficiently following technical assistance, extensive training and some upgrading of their basic equipment. During the course of the project, MC's capabilities as promoter of private investment into the sector, policy maker and regulator were developed significantly. MC developed satisfactory capability to negotiate several complex agreements with investors for new mines and with joint venture partners for state-owned mines. Some support was also provided to the Geological Survey and to the Mines Department to improve their capacity. The assistance provided under the Credit, revealed the need for further support and skills development particularly in technical specialties. 12. The Credit facilitated the regularization of the small-scale mining sub-sector. This project was the first project in Africa where the complex, inter-disciplinary issues related to small-scale mining were assessed. This project set the stage for the design of the follow up project which aims to improve the economic, technical, social and environmental conditions pertaining to the sub-sector. The findings of the studies carried out under this Credit also set the stage for follow-up projects in other parts of Africa as well as in other regions.  4 Achievements since Privatization 13. Since their transfer to private ownership the former SGMC mines - Dunkwa, Prestea and Tarkwa - have ceased to constitute a recurrent drain of public resources. The losses incurred by the mines prior to divestiture were quite significant. For example, the losses incurred by the mines in 1992 exceeded US$ 12 million. Production at each of the three mines has duplicated when compared to the lowest output levels since the late 1980's. Environmental, health and safety aspects have been assessed and priority problems addressed at each of the mines. 14. Current Status of the Mines. The Tarkwa mine has been managed by Goldfields since July 1993. Production has reached 47,450 ounces of gold in 1996, which is about 75% higher than prior to divestiture. Reserves of 13 million ounces of gold have been identified with considerably larger potential established. Expansion has been planned. Dunkwa has been with Continental Construction and Mining Company Limited since July, 1995. Production has reached 5,548 ounces in 1996 which is 66% higher than prior to divestiture. Dredges are rehabilitated and operational. The company has identified main areas where dredge operation can be technologically improved and is taking steps to effect these improvements. Production continues to increase, reflecting such improvements. Prestea has been with JCI since June 1996. Production reached 34,151 ounces in 1996 which is 26% higher than in 1995, enhancing its financial performance. The shaft repairs are well advanced. Reserves are increasing from ongoing exploration efforts aimed at establishing larger reserves, which would support the establishment of increased production capacity. This revitalization of the mining operations has led to the growth off economic activities in the adjacent regions with related improvements in living conditions in the affected communities. A further benefit of the Credit was support provided for the remediation of priority environmental problems resulting from past mining activities at all three mines and the setting of operational and monitoring standards for current and future operations. 15. Improving capacity in sectoral institutions. The technical assistance provided to MC, MD, and GS has started the capacity to build within these institutions thereby enabling these agencies to play a somewhat a more effective role in the administration of the sector. While the direct benefit of the Credit was the provision of technical assistance, equipment and training. Additionally, an important indirect benefit was a major improvement in the morale of the work force. The focus of the institutional strengthening efforts was aimed at MC while only minimum support was directed at MD and GS. The reason for this decision of the Government was the need to establish MC as the focal point to orchestrate and execute activities leading to the growth and development of the mining sector. The main thrust of the Credit was to support the Government's efforts to establish an enabling environment for attracting private investment into the mining sector. 16. In-country capacity in mining as well as in management has been enhanced through recurrent flows of staff from public mining sectoral institutions. The Credit funded training programs in management, accounting and technical specialities related to mining, through seminars, on-the-job practical training and targeted overseas programs. Some of these trainees were actively sought by the recently established private mining companies. Although this  5 turnover represented a constraint as regards project implementation, on the positive side, it resulted in widespread improvement of in-country capacity which proved to be invaluable to the growth of private sector led mining. 17. Small Scale Mining. The Credit facilitated policy dialogue pertaining to the formulation of small-scale mining. This resulted in the enactment of the small-scale gold mining law PNDCL.218 of 1989. Subsequent implementation resulted in the regularization of small-scale mining activities. Several studies were undertaken to assess the technical, economic, environmental and social conditions of small scale mining. Vehicles were provided to mine wardens. The Government established 6 regional and district centers to support small scale mining activities. Dialogue was initiated and continued throughout implementation of the project regarding the liberalization of Government monopoly on the trading of gold, and by project closure the Government had abandonned its monopoly and liberalized trade in both gold and diamonds. It is anticipated that the Government will formally close its gold and diamond buying facilities - the Precious Minerals Marketing Corporation (PMMC) - in the near future. Environmental Aspects 18. At the time when this project was designed, awareness of environmental issues and criteria to address them were limited at best, when compared to current approaches. Under the circumstances, environmental aspects were dealt with only in a peremptory manner and interventions were limited to safety aspects within the mine sites. Surveys were funded under the Credit to assess the air and water quality and characteristics of effluents within the mine sites. 19. During the various cofinanciers' meetings to review progress of the project and issues affecting implementation, the need to address environmental aspects was emphasized, reflecting the evolution in awareness and international concern for environmental, health and safety issues affecting eco-systems and communities. Consequently, agreements were reached to fund environmental audits of the state-owned gold mines and to finance priority areas. IDA funds were assigned to fund mitigation activities including the containment of tailings; transformation of on-dredge processing facilities using mercury to a single centralized plant located on land; reclamation of mined-out land; and pollution abatement of a roaster stack emitting arsenic and sulfur dioxide fumes. D. Major Factors Affecting the Project 20. Project Management. The project was mainly managed by SGMC, under the general supervision of the Ministry of Mines and Energy and MC. Much emphasis was placed on strengthening the administrative and technical capabilities of MC. During the latter stages of implementation, with the progressive downsizing of SGMC, MC assumed an increasing role in project management, coordination and closure.  6 21. The effectiveness of SGMC during the initial stages of the project was undermined by the following factors: a) the dilemma within key agencies in the Government whether to proceed with the rehabilitation and continued operation of the mines within state-ownership and control or to proceed to divestiture and private sector led mining development; b) lack of continuity in the management of SGMC; and c) inadequate transfer of management skills and technology from expatriate staff, due to high turnover within SGMC - particularly at the higher levels. 22. Implementation Record. The Credit was approved on May 10, 1988 but did not become effective until March 10, 1989. The long delays in credit effectiveness largely resulted from the failure of GOG to expeditiously fulfill the conditions for effectiveness. These conditions included the putting in place of satisfactory management arrangements for SGMC and the appointment of an investment advisor to assist in joint venturing SGMC's mines. The delays largely reflected the initial lack of consensus, on the part of key agencies within the Government, on the appropriate approach to the joint venturing of SGMC's mines. 23. Following effectiveness the project made satisfactory progress with the institutional components but the start of the rehabilitation of SGMC's mines was extremely slow with the result that the project implementation was rated unsatisfactory in March 1990. Delays primarily related to the process of joint venturing of the mines, which had been planned to take place concurrently with the rehabilitation process. Two years later, in mid 1992 the project implementation was still rated unsatisfactory on the basis that the SGMC component was still lagging. Delays were reportedly linked to the complexities both political and commercial in the evaluations of joint venture proposals. 24. The above difficulties in implementing the project on schedule resulted from: (a) slow decision making at high as well as at working levels; (b) the lack of previous exposure to the privatization process which resulted in a steep learning curve accompanied by considerable discussion and controversy within various Government departments; and (c) a highly centralized management culture which slowed the operational decision making process. The process was further hampered by institutional weaknesses including: (a) inappropriate skill mix in key institutions; (b) insufficient skilled manpower as a result of high turnover of staff; (c) poor coordination between key agencies; and (d) inadequate commitment to the reform of the sectoral agencies in the early stages of the project. 25. Throughout most of the project implementation period, the availability of cofinancing remained in a state of flux. While the initial commitments were made by the agencies as noted above the only funds to be disbursed were those of EIB, which were fully disbursed by June 1993. No disbursements were made from either ADB funds or the Caisse Centrale funds which GOG elected not to utilize on account of the attached financial conditions. The Caisse Centrale did however provide some funding to support activities of SGMC, outside the purview of the  7 project. Nevertheless the project benefited significantly from the support of those cofinanciers whose funds were not utilized as these agencies made significant contributions to the policy dialogue through their participation at cofinanciers' meetings. 26. In retrospect, it would probably have been better to have placed emphasis on privatization from the outset of project implementation. However, during that period in time, particularly in the developing world, privatization was still a relatively new concept E. Project Sustainability 27. Sustainability. The policy reforms implemented under the project have a high staying power, particularly since they have been reinforced by the follow-up project. This latter project, the Mining Sector Development and Environment Project, builds on the experience and lessons learned from implementing the institutional strengthening, environmental and small-scale mining components of this project. The prospects for sustainability, therefore, are good, particularly since the project has already contributed significantly to the flow of private sector investment into the mining sector, providing continuing financial and economic growth. 28. State Gold Mining Corporation. All the mines of SGMC were privatized during project implementation and all signs point to the renewed economic, financial and technical viability of the three mines. The new owners of the mines have already established significant new reserves of gold and the outlook appears secure for sustainable mines for many years to come. As a part of the privatization process, environmental issues related to past mining activities were recognized and priority issues were addressed. Environmental Audits were conducted and monitoring arrangements were initiated. IDA funds were set aside to finance priority areas relating to tailings containment, pollution control and rehabilitation. These programs aimed at reducing the impacts both at the nine sites and improving conditions of communities adjacent to the mine sites. 29. Institutions. From the experience of this project and other mining sector TA projects it has, become clear that the building of institutional capacity is a long-term task that requires more time than is usually available under any one project. The primary focus of the project was in rehabilitating the SGMC mines and attracting private sector investment. Some emphasis was placed on strengthening the key institutions related to sector development. Additionally, SGMC was provided necessary support and technical assistance to rehabilitate the mines and facilitate their divestiture. Equipment, technical assistance and training were also provided in limited amounts to MC, MD and GS. Project implementation experience also identified the need for continuing institutional strengthening and technical assistance, to enable the Government to meet evolving environmental and social issues. 30. Small scale mining, The regularization of small-scale mining and the liberalization of the market resulted in increased volumes of gold and diamonds into the financial market. In order to ensure the sustainability of such developments, the Government is implementing a technical assistance program and extension services delivery to further strengthen the small-scale  8 mining sub-sector. The Government is implementing a strategy towards further liberalization by taking steps to downsize the state-owned PMMC in readiness for its eventual privatization. Additionally, the extension services delivered to small-scale mining include the introduction and the promotion of environmentally responsible practices and procedures related to production, processing and closure of small-scale mining operations. 31. Environmental and Social Aspects. All of the gold mines formerly owned by the Government were privatized. Experience relating to privatization indicates that the economic, financial and technical viability of all 3 gold mines are well assured. However, with regard to environmental sustainability, the Government needs to establish sufficient capacity and coordination to ensure that mining activities do not result in long-term, significant, negative impacts on the environment and on the health of adjacent communities. This issue is being addressed under the follow-up project which aims to support establish a sound environmental framework for mining. Technical assistance is being provided to set up capacity in sectoral agencies to carry out environmental monitoring, EIAs, environmental information gathering, and environmental remediation. With regard to social issues GOG needs to ensure better redistribution of the benefits of minings. F. Bank Performance 32. The Bank performance was "satisfactory" in identification, preparation, appraisal and supervision. The project was identified during the course of the Bank's supervision of several projects that contained mining sector components and which supported the economic reform process. At the preparation stage the Bank correctly diagnosed the need: (a) to continue support to the state owned and operated mines of SGMC so as to preserve their assets for successful privatization; (b) to strengthen the institutions administering the sector; and (c) to bring small scale mining into the formal economy thereby improving the benefits for both the miner and the Government. 33. Supervision missions were frequent and the Bank maintained a lively dialogue with those GOG officials responsible for the sector, thereby strengthening the GOG's commitment to, support for, and effective administration of today's private sector led mining industry. The Bank showed flexibility in modifying the details of project content and implementation to respond to the evolving needs of GOG and international trends relating to divestiture of state-owned entities. There is an excellent record of the project. However, fewer formal implementation summaries than would be expected were completed. 34. The Bank task team responded to the needs of the Government by assigning IDA funds to carry out needed environmental audits, monitoring and mitigation of priority areas. In addition IDA funds were assigned to carry out urgent health and safety related improvements at the mines. The need to address these issues assumed greater significance during the divestiture process, when private investors were being attracted.  9 35. In reviewing compliance with the legal covenants, it is readily apparent that events in the reform of the Ghanaian economy in general, and in the mining sector in particular, quickly overtook the conditionality of the Credit Agreement. This being the case, several covenants were not, complied with, in a strict sense. However, the spirit of the covenants was fully complied with or exceeded in all cases. All decisions with regard to evolving policy reform, and needed implementation measures were taken in conjunction with the Borrower and cofinanciers. G. Borrower Performance 36. During the initial stages of the project there was a noticeable lack of commitment on the part of the Borrower, to the project objectives, as was manifested in the delayed effectiveness of the Credit. The project picked up momentum as the Borrower gradually became committed to the development of a private sector led mining industry. There is no doubt, however, that project implementation was hampered by the lack of qualified personnel both in SGMC and MLNR. Consultants retained by the Borrower's companies/agencies were generally competent. They provided important contributions at a time when sectoral agencies across the board operated with very limited capacity. However, the orderly transfer of management skills and technology was adversely affected due to the turnover of higher level staff particularly in SGMC. Additionally, project implementation was affected, at least during the earlier stages, by the dilemma within key Governrnent agencies to proceed with rehabilitation and continued state-ownership and control of the gold mines or to proceed to divestiture and private sector led development of the mining industry. H. Assessment of Outcome 37. The project is rated highly satisfactory since it has met all its main objectives. The project has even exceeded its stated objectives, in that it has facilitated the successful divestiture of all 3 gold mines previously owned by the Government. Further, these mines are currently operating soundly; they are expanding; and are making effective contributions to the national economy. Status of SGMC's Mines after Privatization Joint-Venture Transition to Gold Production Reserves Environmental Mitigation Mines Partner Private (ounces) (million Management ounces) Tarkwa Goldfields July 1993 20,528 in 1989 13.0 Containment of (South Africa) 47,450 in 1996 Tailings Removal of mercury from Dunkwa Continental July 1993 2,834 in 1994 1.0 processing plant; Construction 5,548 in 1996 Reclamation, revegetation (Canada/India) of past mining areas 16,389 in 1992 Containment of Tailings Presta JCI June 1996 34,151 in 1996 0.5 Abatement of (South Africa) Arsenic and S02 emissions  10 38. The promotional activities carried out under the Credit resulted in the realization of significant private investment. However, increased private investment in mining has resulted in some adverse ramifications including social conflicts within affected communities. In addition the increase in mining activity has increased the potential for environmental damage and health and safety issues in the workplace. This will place an increasing burden on those agencies charged with the administration of the sector and the continued support under the current mining sector project is essential. Furthermore the Government will need to implement measures to ensure that the benefits of a strong mining industry are equitably distributed and reach affected communities. 39. The Government has recognized that while promotion of the mining sector needs to be continued, such efforts, need to be complemented with appropriate policy, institutional and regulatory reforms and capacity building to implement those reforms to meet the present and potential demands associated with the growth of the mining sector. In the follow-up Mining Sector Development and Environment Project, the Government and IDA have put in place a series of measures and programs aimed at addressing these concerns. 40. The project resulted in the progressive liberalization of the trading of gold and diamonds. The market reforms initiated under the project are being reinforced under the follow-up project. Increased private sector competition to the government agency for marketing of precious minerals (PMMC), is being fostered. 41. The project also resulted in raising awareness of the importance of issues related to small- scale mining activities. Studies that were carried out under the project led to the regularization of the sub-sector and to the design of a program targeted at improving the economic, technical, environmental and social conditions affecting these mines. The follow-up project is aimed at supporting the Government's initiatives in the sub-sector. I. Future Operations 42. The implementation experience of the Credit revealed the need for technical assistance, training and equipment in several different areas related to the growth and sustainable development of the sector. For example, the efforts related to institutional strengthening revealed the need for major capacity binding support for all mining sector agencies, in order to carry out policy formulation, geological information and other sectoral data gathering, as well as promotional activities need to be continued. Necessary skills need to be established for monitoring and enforcement of health, safety and environment aspects. The regularization of small-scale mining and the studies undertaken with regard to small-scale mining identified the need for technical assistance, extension services, training and equipment to improve these activities. At the same time, environmentally sensitive approaches, equipment and technology need to be introduced to complement the support for small-scale mining sector promotion and improvement.  I 43. The Mining Sector Rehabilitation Project established the role of the GOG as the administrator and promoter of a private sector led mining industry. At the same time initial steps were taken in the improvement of the legal and fiscal framework for both large and small scale mining and in the establishment of efficient sectoral institutions. It now remains to complete the revision of the legal and fiscal framework, to continue to strengthen the institutions, to improve the environmental performance of the sector and to assist the small scale miners. In recognition of the need for further support to the institutions especially with regard to environmental matters and the continuing issue of small scale mining, the GOG and IDA formulated a follow on project. This project, the Mining Sector Development and Environment Project (Cr.2743-GH) aim to strengthen institutional capacity, promote further private investment in mining, the integration of modem environmental management into the administration of the sector and provide support to small scale mining. This latter credit approved in June 1995, and declared effective in March 1996, builds on the needs identified in, and lessons learned from, the Mining Sector Rehabilitation Credit. J. Key Lessons Learned 44. The implementation experience has illustrated the value of a continuing Bank policy dialogue in a sector over an extended period of time. This dialogue, supported by several lending operations, has contributed to agreements on major changes in sector policy, to strengthening the role of sectoral institutions and ultimately to increased private sector investment. On the other hand the project illustrated the difficulties encountered by governments in divesting their interests in major corporations on an ad hoc basis without the assistance of extensive specialist expertise. 45. Implementation experience demonstrated that an appropriate policy, legal and institutional framework is essential for sustainable development of the mining sector. The privatization of state-owned mines could not have taken place without these elements. 46. Open lines of communication, positive attitudes and constructive working methods developed by Bank task team and the staff of key implementing agencies of the Borrower, contributed significantly to successful project implementation leading to almost total disbursement of the IDA Credit. 47. It was recognized that a higher level of commitment and strong leadership within Government, including timely decision making, coordination and realistic target setting are needed elements for privatization of state-owned enterprises. The process of investigation carried out under the project, clearly indicated the need for a one-stop-shop within Government to promote and attract private investment and joint venture partnerships. 48. Another important lesson was the need to strictly adhere to environmental regulations in order to ensure that separate and costly mitigation programs are not needed upon changes of ownership. Comprehensive environmental impact assessments and audits would assist both the  12 private sector and government agencies in monitoring and managing adverse environmental impacts of mining development. 49. Implementation experience revealed the need for skills enhancement within sectoral agencies as well in the private sector. An urgent need exists for technical, economic, legal and environmental skills pertaining to mining, to be developed in the private sector. 50. The flexibility in project design was a major factor which allowed the achievement of all stated project objectives. It also enabled the implementation team to make necessary improvements in the project design to meet operational realities on the ground. As Bank and Government policy related to privatization and private sector development underwent significant changes during the life of the project, the project design also needed complementary modifications. 51. Implementation experience revealed the need of better clarity and delineation of responsibilities between the mining sector agencies and the environmental as well as other sectoral institutions. In particular, with regard to social issues, implementation experience revealed an urgent need to formulate sound policies, regulations and guidelines to address situations where relocation or resettlement of communities would be involved.  13 PART II: STATISTICAL TABLES Table 1.: Summary of Assessments Table 2.: Related Bank Credit Table 3.: Project Timetable Table 4.: Credit Disbursements: Cumulative Estimated and Actual Table 5.: Key Indicators for Project Implementation Table 6.: Studies Included in the Project Table 7A: Project Costs Table 7B: Project Financing Table 8.: Economic Costs and Benefits Table 9.: Status of Legal Covenants Table 10.: Bank Resource: Staff Inputs Table 11.: Bank Resources: Missions  14 Table 1: Summary of Assessments A. Achievement of objectives Substantial Partial Negligible N-al applicable Macro policies Em1 Sector policies Financial Objectives F Institutional development W3 Physical objectives m Poverty reduction Fm] Gender issues EH Other social objectives F Environmental objectives V/ Public sector management Private sector development B. ProJect sustainability Likely Unlikely Uncertain C. Banker_rmance Highlysatisfactory Satisfactoyr Deficient Identification l Preparation assistance Appraisal Supervision D. Borrower performance Highly satisfacitry Satisfactor Deficien Preparation Implementation Covenant compliance Operation W E. Assessment of outcome Highly Satisfactory Unsatisfactory Highly satisfactory unsatisfactory  15 Table 2: Related Bank Credits Credit title Purpose Year of Status approval Preceding operations I .Export Rehabilitation Credit (Credit Strengthen Foreign Exchange earning 1984 Closed in 1988; 1435-GH/SF-9-GH) capacity by improving state-owned gold ICR in 1991 mining, cocoa, timber and port facilities 2.Export Rehabilitation Technical Strengthen the institutional capacity of key 1984 Closed in 1988; Assistance Credit (Credit 1436-GH) state-owned exporters of gold, cocoa and ICR in 1991 timber industries 3.Second Reconstruction Imports Credit Support the 1983-86 time slice of Ghana's 1985 Closed in 1988; (Credit 1573-GH) economic recovery program ICR in 1991 Following operations I.Mining Sector Development and Under Environment Credit (Credit 2743-GH) implementation Table 3: Project Timetable Steps in the project cycle Date planned Date actual Identification (Executive Project Summary) N/A 01/15/86 Preparation N/A 06/17/87 Appraisal 05/87' 10/19/87 Negotiations 11/87 02/25/88 Board Presentation 03/88 05/10/88 Signing 07/14/88 Effectiveness 08/882 03/10/89 First tranche release Mid-term review N/A 10/07/92 Second tranche release Project completion 06/30/94 06/30/97 Loan Closing 12/31/93 12/31/96 'Dates for Appraisal through Board presentation taken from Project Brief/EPS dated 05/05/87. 2Dates for Effectiveness through Completion taken from SAR.  16 Table 4: Credit Disbursements: Cumulative Estimated and Actual (US$ millions) FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 Appraisal estimate 4.5 15.6 27.0 34.1 37.1 40.0 - - - Actual 4.9 11.2 17.7 22.5 24.1 28.4 32.8 35.7 40.1 Actual as % of estimate 109 72 66 66 65 71 82 89 100 Date of final disbursement 1997 Table 5: Key Indicators for Project Implementation Type of Indicator Estimated Actual 1. Key operating indicators in SAR/Presidents Report ... M odified........... ndicators.......... (if.... .......................... ................................................................................... .............................................................. applicable) 1i11 Modified Indicators for future . privatization schedule - production- operation (if applicable) _________________cost of production - people trained  17 Table 6: Studies Included in the Project Study Purpose Status Impact of study . ~~~~~~~~~~~*. I .Mine Evaluation - Evaluate the future potential and C Rehabilitation and subsequent Tarkwa and Prestea investment needs of the mines privatization went ahead .. .................. ................................................................................................................................................................................................................ 2.Small Scale Mining Study of the existing small scale C Identified the issues with regard to industry regularization of the industry ........................... .......................................................................................................................................................................................... 3,Study for Mine C. C Rehabilitation 4.GNMC - Study of C Nodulizing Plant 5.Environmental Impact Assess the impact of small scale mining C Made a significant contribution to Assessment of Small on the environment the preparation of the next project Scale Mining 6.Study on Improving Assessed the technology used by small C Disseminated better practices and the Performance of scale miners provided input for preparation of Small Scale Mines next project 7. and C Reclamation/Cost Benefit Analysis 8.Review of Small Scale Review of the regulatory framework for C Improved legal frame work for Mining Law small scale miners small scale miners introduced 9.Study on Cost Assessed whether the economic benefits C GOG undertook reclamation in Benefits of Reclamation of small scale mine reclamation by small scale mining areas of Small Scale Mining GOG were positive ................................................................................................................... ................................................................................................... 1-6.Sand and Gravel C. .C Study I I.Environmental Identified and quantified the ,'. C . Reclamation work started with lImpact environmental impact of mining project funds Assessment/Audit - operation in the past to assist with Tarkwa Mine delegation of responsibilities associated with privatization 12.Environmental I identified and quantified the ,.C Reclamation work started with Impact environmental impact of mining project funds Assessment/Audit - operation in the past to assist with Prestea Mine delegation of responsibilities associated with privatization ........ ............................................... ................................................................................................... ...... ................................................. 13.Environmental Identified and quantified the C Reclamation work started with Impact environmental impact of mining project funds Assessment/Audit - operation in the past to assist with Dunkwa Mine delegation of responsibilities associated with privatization * Status of"C" indicates the study is complete.  18 Table 7A: Project Costs (US$ Millions) Appraisal estimate Actual/latest estimate Item Local Foreign Total Local Foreign Total costs costs costs costs 1. SGMC Rehabilitation Tarkwa 2.0 42.3 44.3 5.4 4.1 46.4 Prestea 3.0 38.7 41.7 6.4 4.6 52.4 Dunkwa 1.2 16.1 17.3 1.4 5.0 6.4 Total 6.2 97.1 103.3 13.2 92.0 105.20 2. Sectoral Promotion 0.1 2.9 3.0 0.1 0.35 0.45 3. Strenghtening of Agencies 0.1 1.80. 1.9 0.1 1.26 1.36 4. Small Scale Mining 0.1 0.5 0.6 0.2 0.55 0.75 Total Base Cost 6.5 102.3 108.8 13.6 94.16 107.76 Physical Contingencies 0.2 8.0 8.2 - - Price Contingencies 0.5 2.5 3.0 - - Total Project Cost 7.2 112.8 120.0 13.6 94.16 107.76 Table 7B: Project Financing (US$M) Appraisal estimate Actual/latest estimate Source Local Foreign Total Local Foreign Total costs costs costs costs IDA - 40.0 40.0 - 40.1 40.1 SGMC (cash flow) 6.9 21.6 28.5 9.0 34.8 43.8 Government 0.3 - 0.3 2.9 - 2.9 Co-financing institutions - 34.7 34.7 - 17.8 17.8 Joint ventures/Commercial - 16.5 16.5 - 4.0 4.0 TOTAL 7.2 112.8 120.0 11.9 96.7 108.6  19 Table 8: Economic Costs and Benefits The project has provided major economic benefits to Ghana. Revitalized sectoral organizations are administering a vibrant private sector mining industry. The mines of SGMC have been privatized and are already contributing revenues to the Government by virtue of both taxes and royalties. Environmental damage from past mining operations has been mitigated thereby improving socio-economic conditions in adjacent communities. The calculated Economic Rate of Return (ERR) for the operations of SGMC, as indicated in the SAR, which was to be determined following the rehabilitation of the mines with the funding from the Credit, has become irrelevant as all the former operations of SGMC are now in the private sector.  20 Table 9: Status of Legal Covenants Agreement Section Covenant Present Original Revised Description of covenant Comments type status fulfilimen fulfillment t date date Credit 3.04(a) 10 NC 12/31/88 Establish the Gold Exploration GOG and IDA Agreement Company (GEC) agreed to reallocate funds to institutional strengthening .......I. .. .. .. .. .. . . .. .. .. .. .. .. .. , . .. .. .. .. .. .. .... .. .. .. .. ... .. .. .. .. .. .. .. .. .. .. .... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. , . .. .. .. .. .. .. .. .. .. .. .. .. 3.04(b) 4 NC Make available to GEC from Funds proceeds of the Credit up to reallocated US$ 1.5 million equity contribution 3.05 10 CD 12/31/88 01/01/95 Complete a study of salaries in the GOG decided Mines Department not to increase salaries 3.06 10 CD 12/31/89 01/01/95 Relocate the Chief Inspector of Office space not Mines to Accra available earlier 3.07 6 CP 12/31/89 01/01/94 Monitor the quality of underground Intermittent and air at major underground mines late 3.08(a) 6 C 07/01/89 1994 Complete a study on the environmental impact of surface mining 3.08(b) 6 C 07/01/90 Establish environmental and reclamation regulations 3.09(a) 10 C 12/3 1/88 Prepare an action plan for establishing sales channels for gold from small-scale miners 3.09(b) C 06/30/89 Implement the plan for sale of gold from small-scale miners 4.0 1(a) I C Maintain records and accounts for Parts B and C 4.01 (b)( I C Obtain audits of the accounts for i) Parts A and B and the Special Account . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . ........ .. . . . .... . . . . . . . ... ... ... ........... ......... .... . . . . . .. . . . . . ................. ......Fums.th.aditd.ccont.t.................... .... 4.0 1 (b)( 1 C Furnish the audited accounts to ii) IDA not more than six months after the end of each year 4.01(c) i C Maintain records of SOE (i) expenditures 4.01(c) i C Retain all documents until one year (ii) after IDA has received audit 4.02 1 CP Ensure that adequate foreign 35% retention exchange funds are available to permitted SGMC 4.03 1 NC Within six months of mine privatization convert to equity 50% of funds on-lent to SGMC 4.04 1 C 12/31/88 Prepare a study on methods to Debt to be convert SGMC's debt to the Volta regarded as GOG River Authority and the Ghana equity in SGMC Commercial Bank into equity.  21 Project 3.04(a) 6 C 09/30/88 1988 Furnish to IDA a plan for the Agreement systematic monitoring of effluents from SGMC'S mines ............................. ................... ... ......................... .................... .......................... ............................ ................................................................ ............................ 3.04(b) 6 C 06/30/89 1988 Commence systematic monitoring Systematic of effluent discharges monitoring in place 3.04(c) 6 NC 03/31/90 Furnish to IDA a plan for the Further control of effluents and mine dust consultation 3.05 6 C 12/31/88 1988 Fence the tailings ponds at the Tarkwa and Prestea mines and prohibit farming within ............................. ...................... ......................... ..................... .......................... ............................ ......................................:................................. .................... 4.0 1(a) 1 C SGMC to maintain accounts ............................. ...................... ......................... .................... .......................... ............................ ................................................................ .I .......................... 4.0 1(b)( 1 CD SGMC to have its accounts audited i) 4.0 1(b)( I CD SGMC to provide audited accounts Usually delayed ii) ....... to IDA within six months after year about six months end ............................. ............ .............. ............ .......................... .................. ...........................GMsiaminifrecho.............................. .......................... 4.02 1 NC SGMC shall maintain for each of Rate improved its fiscal years after December 31, but privatization 1991, a ratio of current assets to completed. current liabilities of not less than Condition 1:3 became irrelevant ............... ............................ ..................... 0 .......................... .................. ...................................................... ..................................o 4.03 1 C SGMC shall not declare any No dividends dividend or make any other distribution of its share capital unless its ratio of debt to equity is at least 60:40 ............................. ...................... ......................... .................... .......................... ............... ................................................................ ............................ 4.04 1 C 06/30/89 1989 SGMC shall revalue its assets Done on a continuing basis ......... .......... ...................... ......................... ..................... ............ ...... .. ......................... ............................................................................................. 4.06 2 C 12/31/93 SGMC shall not undertake any None undertaken investment exceeding US$2.0 million not included in the project l __________ ________ _________ __________ without prior consent of IDA  22 Table 10: Bank Resources: Staff Inputs Stage of the Planned Revised Actual project cycle Weeks I US$ Weeks US$ Weeks US$(000) Preparation to . . 72.8 171.8 Appraisal ..................... ................ ............... 4........... .... ............... ............ .....................4-- ........... ................... ............. .... : j ............... .................................. Appraisal . . 23.8 98.6 ................. ..................... ....... ................... F*............ ............. ............. ........................... ......................................................... Negotiations thro'Board . . 15.2 37.7 Approval .... ............................ ........... ... .. ........... .. ................................ ................................................ .............. .......................................................... Supervision 116 .3 133.7 192.6 557.6 C om pletion . . ......................... ....... ................................................... ......... .................... ............................... ...........  23 Table 11: Bank Resources: Missions Performance rating Stage of Month/ Number Days Specialized Implemen- Develop- Types of project cycle year of in staff skills tation status objectives problems persons field represented Through 12/85 4 15 FA,Eng,Eng,E appraisal 04/86 4 12 E,Eng,,E,Con 09/86 2 18 E,FA 05/87 3 20 FA,Eng,Eng 10/87 2 21 FA,Eng Appraisal thro' Board approval Supervision 10/88 2 17 FA,Eng 02/89 I? ? ? 2 2 03/90 2 7 FA,Eng 3 2 09/90 2 10 FA,Eng 3 2 11/91 1 5 Eng 03/92 06/92 3 14 Eng,OpOff,Con 3 2 10/92 Mid-Term Review 10/92 06/93 1 17 Eng 11/93 3 14 Eng,OpOff,Con 2 2 04/94 3 16 Eng,OpOff,FA 07/94 4 19 Eng,OpOffFA, Con 12/94 2 12 Eng,OpOff 10/95 2 18 Eng,OpOff 02/96 2 4 Eng,OpOff S S 06/96 1 8 Eng S S 12/96 2 8 Eng,OpOff S S Completion 04/97 2 10 Eng,OpOff S S NOTE: Missions in italics were not full supervision missions. A review of the project was made on the dates indicated in conjunction with supervision of earlier projects and identification, preparation, appraisal and supervision of the follow-up project - Mining Sector Development and Environment Project (Credit 2743-GH).   24 Appendix A Missions' Aide Memoire   25 GHANA MINING SECTOR DEVELOPMENT AND ENVIRONMENT PROJECT MINING SECTOR REHABILITATION PROJECT AIDE MEMOIRE SUPERVISION MISSION: MARCH 24 - APRIL 5,1997 1. This aide memoire summarizes the main findings of the IDA mission that visited Ghana from March 24 to April 5, 1997 to review progress of the Mining Sector Development and Environment project. This mission also reviewed actions for the for completing disbursements of the Mining Sector Rehabilitation project, and arrangements for the preparation of the respective project completion report. The mission consisted of Mr. Leo Maraboli and Ms. Indu Hewawasam. Main meetings were held with officials of the Ministry of Mines and Energy (MEM), Minerals Commission (MC), Mines Department (MD), Geological Survey Department (GS), Precious Metals Marketing Corporation (PMMC), the Ministry of Environment, the Environmental Protection Agency (EPA), State Gold Mining Corporation (SGMC), and the Ministry of Finance. The mission would like to express its appreciation to MC for facilitating and coordinating the mission's activities. The main findings of the mission are addressed below. A. Mining Sector Development and Environment Project 2. Nordic Development Fund (NDF) Components. Government clearances for NDF funding were completed on January 15, 1997. This enabled the initiation of activities funded by NDF by February 1997. The main component initiated was an aerial survey. For this purpose MC and GS have appointed liaison officers, and an owner-representative consultant responsible for quality control. Additionally, vehicles funded by the project have been provided to the Geological Survey of Finland (GSF), as contractor for executing the survey. About 10,000 line- kilometers of survey have been completed so far, out of a total of 129,000 line-kilometers to be surveyed in four selected areas of Ghana. These are scheduled for completion by end of July, prior to the heavy rain season. It is noted that MC has functioned remarkably well as a one-stop- shop for obtaining all permitting and logistical requirements for aerial survey equipment, including its entry into Ghana, operation and maintenance. It is also noted that conservative approaches were adopted on safety grounds, using crew replacements every two weeks, and ensuring scheduled maintenance at the hangars of Ghana Airways. 3. The interpretation of aerial survey data has also been initiated. For this purpose a team from the Geological Survey of Sweden (GSS) visited Ghana in February for six weeks, as contractor for survey data interpretation, to complete logistic arrangements and initiate training. GS appointed 3 counterpart staff which are undergoing training in Sweden, using data generated by nearly 10,000 line- kilometers of survey. Their return is scheduled for mid-April, when data- processing equipment and software funded by NDF should be installed and be operational in  26 Ghana. Necessary office facilities and vehicles will be provided to the GSS/GS team at that time. The sole identified elements in the critical path are the procurement of data-processing equipment and software, for which clearances have been provided by NDF and IDA. Close follow-up and coordination from MC is needed for the timely delivery of these elements, in order to avoid: a) delays and related costly stand-by payments to GSS; and b) bunching of interpretation activities contracted with GSS through March 1998. Moreover, the mission suggested the possibility of obtaining bilateral technical assistance from Sweden, possibly on setting up twinning arrangements, in order to enable follow-up support to ensure sustainability of interpretation activities after project completion in March 1998. 4. IDA Components. Initial emphasis for starting project implementation was placed in preparing and initiating components funded by NDF. Consequently, except for training, IDA funded components experienced some slippage, but are now being phased into implementation. 5. Small-Scale Mining. In a first stage of studies, a total of 15 areas have been selected by MC and GS as target areas to carry out pilot tests for the introduction of mechanization, to artisanal mining communities. Initial assessments have focused on location, size, access, drainage and relief, and geological considerations. A second stage of work is about to start, involving geological and reserve assessments to rank each area. It will be followed by a third stage of studies on the best ranking areas, which is likely to start by June 1997, to address broader issues related to social aspects and environmental issues. These stages will have parallel sequencing to avoid delays. Concurrently, procurement activities have been initiated with: a) pre-qualification of potential suppliers of equipment suitable for small-scale mining; and b) requests for price quotations for smaller components. 6. However, in order to expedite project execution with close technical coordination, a fast- track approach is being arranged through collaboration with the Dunkwa and Aboso mines. At both places, specific areas not suitable for mining with large equipment are being released to be mined by artisans. At Aboso, a company supervisor is already overseeing artisanal mining activities. Main advantages for the miners will be the close coordination, technical inputs and trading venues provided by the companies. Main advantages for the companies will be the reduction of widespread illegal artisanal mining, which encroaches on mechanized large scale mining at their concessions. Other important benefits include investor integration into the local communities and the mitigation of potential for social conflicts. Potential for environmental degradation by artisanal miners will also be mitigated through close monitoring and supervision. Current preparatory activities are focused on the selection and procurement of equipment, and consultations with artisanal miners and mine owners on procedural arrangements. 7. Land Reclamation and Rehabilitation. In one of the three degraded areas identified as priority sites for reclamation, an issue had arisen due to encroachment by developers, who had started reclaiming these lands for housing construction. It had therefore become necessary to identify an alternative site to carry out the pilot reclamation. After assessing several sites within the Green Belt Zone, an alternative area - the Doblogonno area near Amasaman in the Ga District, had been selected using the same criteria as the ones used for selection of the original sites. The mission made an inquiry as to whether the potential for future encroachment in this  27 area had been assessed. Officials of the Minerals Commission assured the mission that this issue had been assessed and that the potential was negligible since adjacent communities, when interviewed, had demonstrated significant interest in the project and it had been agreed that the reclamation would be carried out with their direct involvement and participation. The communities would play the role of monitoring the reclaimed areas and prevent encroachment or future degradation by illegal mining or other activity. 8. A company had been selected to prepare detailed reclamation plans for rehabilitation of the priority areas. An inception report had been prepared by the consultants describing the proposed work, the methodology, and work schedules. IDA had commented on the report, requesting in particular, to (a) indicate the processes that would be utilized to involve local communities in the rehabilitation work; and (b) to ensure that other sectoral agencies - such as the department of Forestry - in the case of rehabilitation of an area within the Nueng Forest played a participatory role. These comments had been forwarded to the consultants and the preparation of the plans was now underway. The plans were expected to be completed by the end of May 1997, when the actual civil works would be advertised. 9. The mission emphasized the need for ensuring the sustainability of the project and for ensuring that the potential for future encroachment and degradation of reclaimed areas should be minimized. It was agreed that one way of ensuring that future encroachment would not take place, would be by promoting a major involvement of the local communities in the project. Their involvement and participation in the project would provide an incentive for the communities to play a monitoring role which would ensure the sustainability of the project. 10. It was agreed that the results of the pilot tests could lead to the formulation of a set of detailed guidelines for reclaiming and rehabilitating abandoned mined-out areas in a cost- effective and sustainable manner. 11. Environmental Regulatory Framework for Mining. A company had been selected to carry out a detailed review of the environmental regulatory framework relating to the mining sector. The consultants had submitted a proposal, which is currently being reviewed by the Minerals Commission and the Environmental Protection Agency. The mission was also provided with a copy. It was agreed that detailed comments on the proposal would be sent from Washington, after consultation with the Environmental Unit of the Legal Department of the Bank. 12. The draft Mining and Environmental regulations are being reviewed by the Legal Department of the Minerals Commission. This review is being carried out in parallel with the review of the environmental regulatory framework that is being initiated by a local consulting company. The Ministry of Environment indicated support for a joint review with the Minerals Commission, of the findings and conclusions of the two assessments, by October 1997. 13. Mineral Information System. TORs have been drafted for establishing a comprehensive mineral information system. These were prepared by MC with assistance from the consultant engaged to design the system. However, following field comments from the mission, prior to finalizing the TORs, inputs will be sought by MC from a similar system recently funded by the World Bank in Peru.  28 14. Mineral Sector Promotion. A CD-ROM was prepared by local and foreign consultants for promoting mining investments in Ghana. It updates Ghana's section presented in MIGA's CD-ROM to attract investments in Africa, and will be availed for inclusion in revisions. MC is making separate arrangements to produce the CD-ROM, in for immediate use in its promotional activities. 15. The text and maps for a promotional brochure for industrial minerals have been prepared with assistance of local and foreign consultants. Final editorial revisions are expected shortly, in order to print the brochure by May 1997. 16. Training. Training activities are well advanced at all agencies (MC, MD, and GS), which are participating in the project. The mission reviewed extensively all training activities undertaken over the last year, and the training program for 1997. The mission reiterated emphasis to improve the cost effectiveness of overseas training, by increasing the amount of mid-size programs, rather than concentrating in short seminars and workshops. It was also agreed that an in-country group training program would be initiated, where a significant number of mining officials including mine wardens, mines inspectors and officials of the Geological Survey could be exposed to sound environmental practices and procedures relating to mining. 17. Finally, the mission was pleased to communicate several compliments received, on the presentations by delegates of MC at a recent seminar on mining law in Colorado, which is a demonstration of very positive result of ongoing training programs. 18. It was agreed that all those officials who undertake external training should disseminate their knowledge among their colleagues within the sector, through regular seminars and exchange of educational materials. It was also agreed that a brief expose would be written up by each individual who undertakes training under the Credit, and these briefs would provide an input to a Knowledge Node/Data base on Best Practice in Mining and Environment that would be set up within the Minerals Commission. 19. Inter-Sectoral Linkages. Mission observed noticeable improvements in inter-sectoral coordination between the mining sector institutions and other sectoral agencies including the Environmental Protection Agency. All parties agreed that these linkages should be strengthened further, for promoting an effective integrated approach to sectoral growth and development. B. Mining Sector Rehabilitation Project 20. The mission reviewed information provided by SGMC, to support final disbursements of the IDA Credit for environmental, health and safety improvements at the three mines previously owned by SGMC. These involved containment of tailings at Tarkwa and Prestea; b) shaft repair, and mitigation of pollution of the roaster at Prestea; and c) reduction of pollution from on-dredge with mercury processing at Dunkwa. Undisbursed credit funds were reduced to US$180,000. This amount is also in the process of disbursement, for expenditures relating to studies and designs for shaft safety repairs at Prestea. Full disbursement of the credit is expected prior to its  29 closing date of April 30. MC and SGMC are expected to conduct a comprehensive field review during May, to assess the progress of the above activities at each mine. 21. The mission also initiated the preparation of a project Implementation Completion Report (ICE). Arrangements for ICR preparation were agreed with MC and SGMC, and outlines and report samples were discussed in detail. Implementation experience was also reviewed in detail. It was widely recognized that the objectives of the project were duly achieved on the divestiture of SGMC's mines (Tarkwa, Prestea and Dunkwa), thus avoiding their collapse, and ending recurrent drain of public resources. Tarkwa is already making fiscal contributions, and has planned major production expansions based on recently established reserves of 13 million ounces of gold. Mandatory clearances and permits relating to environmental and social assessments had been granted by the EPA - subject to specific conditionality, to allow the company to proceed with the expansions. At Prestea, production is increasing significantly (over 26 percent in 1996), and exploration is delineating additional reserves. At Dunkwa, 3 out of 4 dredges were rehabilitated and are undergoing production buildup (about 66 percent in 1996). The project also contributed significantly to institutional strengthening, with initial support for capacity building at the Minerals Commission, Mines Department, and Geological Survey Department. It also supported steps to improve and organize small-scale mining, and liberalize the commercialization of precious minerals. The initial review of implementation experience of the Credit is attached as Annex 1. C. Looking Beyond the Current Programs 22. Current Government efforts related to the sustainable development of the Mining Sector are focused on the orderly completion of the Mining Sector Rehabilitation project, and on the execution of build-up activities related to the initiation of the Mining Sector Development and Environment project. At present, the focus of the Government is on completion of the aerial survey components, which are financed by the Nordic Development Fund, the implementation of the small-scale mining components, co-financed by IDA and BGR program; and initiating reclamation of past mined-out areas as a pilot project. The Government is also carrying out a review of institutional and regulatory frameworks applicable to the sector. These activities will constitute the core of mining sector work over the next year. 23. There is however, a need to look beyond the above mentioned projects, in order to ensure the sustainability of sectoral growth, and the realization of broader economic effects associated with mining, as realized by other successful mining countries. Consensus was reached that appropriate mechanisms should be identified for implementation over the medium-tern, to continue the development of the mining sector; to improve linkages between mining and other sectors, and to promote wider distribution of the benefits of mining for generating social harmony while realizing broader economic gains. 24. Some main priority areas already identified include the need for programs to diversify from gold production, promote investment in downstream mineral activities, and develop capacity for providing technical, contract and support services. Specifically, priority areas which  30 need to be addressed over the next 5-7 years may be grouped into programs of hardware and software oriented activities. 25. Hardware activities should involve emphasis on attracting investments for downstream mineral products, and for diversification from gold production, which is becoming attractive with the progressive improvement of Ghanaian infrastructure, and the development of favorable geological trends for various minerals, such as bauxite and industrial minerals. 26. Software activities should involve emphasis on capacity building focused on developing domestic contractors and consulting capabilities for the mining industry, and for broader aspects associated with mineral growth. Emphasis should also be given to address the fostering of small- scale enterprise and handicrafts development at growing mining districts. Moreover, successful experiences with health services being achieved at some mines, should be used as low-cost models for possible replication at other mines and rural villages. 27. With regard to contractors and consulting services, particular emphasis should be given to develop: a) contractor capabilities for civil work and plant construction; b) service support capabilities such as drilling, laboratory assaying, foundry and machining, and maintenance; and c) consulting capabilities for mining technology and mineral processing. 28. Unless mitigating measures are identified, designed and implemented, the growth and expansion of mining would involve adverse environmental and social implications. As mining and related activities are promoted, the Government needs to recognize the potential for these activities and formulate appropriate policy, institutional and regulatory mechanisms for minimizing such potential. Proactive steps for putting in place a sound and transparent regulatory framework, strong linkages between different sectoral agencies including those responsible for managing the environment, and programs targeted at improving the socio-economic conditions in mining areas will go a long way towards meeting such future requirements. Additionally, in- country capacity for consulting services relating to mining and environmental requirements could also be promoted including capacity for land reclamation, environmental impact assessments, laboratory testing and analysis.  31 Appendix B Borrower Contribution to the ICR   f~~~~~~~~~~~~~~~~~~~~~ PR*JECT COMPLAO_N R~EPORT : : -- . -- G~~~~~RH UXTA _N............. ......-:- * PflWSECT XEVIEW FROM flOKR~~~~~~DIOWVEKS PRPECTIVE - i1. - In th. mid l98Os, the InttrnaitipaL a e1omen- -:--Assc.iat;ei6(IDA) gavespport fo3 -te -ehaI a c - :--. .the -ning secto --in Gharia withartiula n sis n the .;go.ld-, sector- as an integral . mpo r ent .f. he --.:-Gove-rr=nzent*w; policy, of Ec^onomic Recoervy.. -, : --.Overv~iuGtarr of the local currerncy, tbad&quate private:.. -.-inVStment .in theL-sector 1anc reAted 'tactoxsr: had 1caust.d *-:: -.a sham :decline in gold production duzi:ng this period. - - a -- : ~~ ::; - -T- - . -- -.- . - - --.:.:.. .-The :xport Rehz6ilitaLton Cre3it fl425-GH) a5d the -.--.- -..Technica. :Assistance Credit (1436 GH) b --.984 were: '.Ollt"'wed by the KiLning Sector ih lta. toecti- - . O . .;I.921l ai4 ' i- .l19 88 s l-. ( -r. - - ; ,,~~ . .. , ,.... ;Sl }s;,, - - ; - * . -. >- -n of . . - .: .. e prajee.en-re` of t. COlane the . ;-: ;:.rehbi t:L.a tion of.- SGMC *raines t trAikwa, .L esPr a and . -a n Dunkwta Lnciease -heir output, and,redu;e safety-h iards -:...t.o . atrac-private inves:tors to: the- serct;e-. Oth-e.r : . : - . . - : . .comp7one;s -vldd teporision o6 -tec,6nic,ai'.as' iatance-.. to -strebngthen mat6Cr governmental invti .tutI6s dealing-- ' -- -- .-wi the mining sector tp assitt them--in:.attra cting- pri"xa e-capital, an+I technical assistahce: to-`impr, e--the - .- .: .oeratis!s ;df smalt scale-:miners .ii.th~ .6-se f tAhe:. ---- '. > .: ~Pr-OJ^ o;l assLstance ;'mas ls 35ti,aszess-- . ;ementa~health and saf ety conditi n,s ` i b the .*ianes. * ; , ; , j ,n- ; , - , --I - -:;; 2., *