Argentina - Mining Development Technical Assistance Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-6617-AR MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$30 MILLION TO THE ARGENTINE REPUBLIC FOR A MINING DEVELOPMENT TECHNICAL ASSISTANCE PROJECT JUNE 29, 1995 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit: Peso (P$) P$ = US$1 ACRONYMS AND ABBREVIATIONS AFM : Federal Mining Agreement BHP : Broken Hill Proprietary (Australia - USA) BUD : Unified Data Bank CAE : Mining Advisory Council CAEM Argentine Chamber of Mining Managers CEADS : Argentine Council for Sustainable Development CM : Mining Code CNEA : National Atomic Energy Commission COFEMA : Federal Environmental Council COFEMIN : Federal Mining Council CRA : CRA Group, Australia CRAS : Regional Groundwater Center DIA : Environmental Impact Declaration DNM : National Mining Directorate DNSG National Geological Service Directorate DPM : Provincial Mining Directorate EIA : Environmental Impact Assessment EPLMA : Environmental Protection Law for Mining Activities FARN : Environmental and Natural Resources Foundation FM : Fabricaciones Militares FVSA : Argentine Wildlife Federation GPS : Global Positioning Systems IA : Provincial Implementing Authority ICB : International Competitive Bidding IDB : Inter-American Development Bank IDTA : Institutional Development Technical Assistance Operation INPRES : National Institute for Seismic Prevention INTEMIN : National Mining Technology Institute IPEEM : Provincial Mining Exploration and Development Institute IUCN : World Conservation Union LIB Limited International Bidding MINPRO Mining Information and Promotion Program MT : Ministry of Labor NCB : National Competitive Bidding NGO : Non-Governmental Organization PASMA : Mining Development Technical Assistance Project PCU : Project Coordinating Unit PM : Mining Police RIAM : Mining Environmental Interactive Network SEA : Mining Sectoral Environmental Assessment SINATEM National System of Mining Technology SM : Federal Secretariat of Mining SRNAH : Natural Resources and Human Environment Secretariat UGAN : National Environmental Management Unit UGAP : Provincial Units for Environmental Management UMA : Argentine Mining Union YCF : Yacimientos Carboniferos Fiscales YMAD : Yacimientos Mineros de Agua de Dionisio YPF : Yacimientos Petroliferos Fiscales (until July 1993), private YPF company since. Au = gold Cu = copper K = potassium Mo = molybdenum Sn = tin W = wolfram Ag = silver Fe = iron Ma = magnesium Pb = lead U = uranium Zn = zinc  FOR OFFICIAL USE ONLY ARGENTINA MINING DEVELOPMENT TECHNICAL ASSISTANCE PROJECT Loan and Project Summary Borrower: Argentine Republic Implementine A2encv: Federal Secretariat of Mining, Ministry of Economy and Public Works and Services Beneficiaries: Federal Secretariat of Mining and Mining Admninistration Agencies in the Provinces of Catamarca, La Rioja, Mendoza, Salta, San Juan and San Luis Poverty: Not applicable Amount: US$30 million equivalent Terms: Repayable in 15 years, including a 5-year grace period, at the Bank's standard variable interest rate. Commitment Fee: 0.75 percent on undisbursed loan balances, beginning 60 days after signing, less any waiver Financing Plan: See Schedule A Economic Rate of Return: Not applicable Maps: IBRD 24900-AR IBRD 27034-AR Project Identification Number: AR-PA-6055 This document has a restricted distribution and may be used by recipients only in the performance of their I official duties. Its contents may not otherwise be disclosed without World Bank authorization.   ARGENTINA MINING DEVELOPMENT TECHNICAL ASSISTANCE PROJECT TABLE OF CONTENTS Page No. Country/Sector Background ................................. 3 Project Objectives.. 4 Project Description.. 4 Project Implementation ............................. . 5 Project Sustainability ............................... .... .. 6 Lessons Learned.. 6 Rationale for Bank Involvement. 7 Future Actions.. 8 Poverty Category.. 8 Environmental Aspects.. 8 Program Objective Category.. 9 Participatory Approach. 9 Benefits .............................................. 9 Risks ............................................... 10 Recommendation ..10 Schedule A: Summary of Project Costs and Financing Plan .11 Schedule B: Summary of Procurement and Disbursement Arrangements 12 Schedule C: Timetable of Key Processing Events .14 Schedule D: Status of Bank Group Operations in Argentina .15 Annex 1 The Mining Sector .18 Annex 2: Project Description, Administration and Implementation .34 Annex 3: Summary of the Sectoral Environmental Assessment .67 Annex 4: Analysis of Fiscal Regime for Mining .95 Annex 5: Economic Contribution of Mining ..................... 97 Annex 6: Mining Cadastre - Proposed Technical Solutions .... ........ 100 Annex 7: Main Indicators: Matrix of Project Activities and Timed Targets . . 106 Annex 8: Lessons Learned ............................... 107 Annex 9: Estimated Annual Contractual and Other Payments .... ...... 109 Annex 10: Selected Documents and Data Available in the Project File ..... 110 This President's Report is based on work of an appraisal team consisting of Aura Garc(a de Truslow (Mission Leader, LAlCO); Craig Andrews, Gotthard Walser (IENIM); Alain Tobelem (LAIPS); Bo Lundberg (Environmental Consultant) and Juan Luis Ossa (Mining Cadastre Consultant). Frans Bloser prepared Annex 6. Cristina Perez was in charge of production. Bekir Onursal (LATEN) contributed to the Sectoral Environmental Assessment which was reviewed by George Ledec (LATEN). The Managing Division Chief is Alfonso Sdnchez (LAIIN) and the Country Director is Gobind T. Nankani (LAI).   - 3 - MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE ARGENTINE REPUBLIC FOR A MINIG DEVELOPMENT TECHNICAL ASSISTANCE PROJECT 1. I submit the following memorandum and recommendation on a proposed loan to the Argentine Republic for the equivalent of US$30.0 million to help finance a Mining Development Technical Assistance Project (PASMA). The loan would be at the Bank's standard variable interest rate, with a maturity of 15 years, including 5 years of grace. The loan would also refinance a Project Preparation Facility (PPF-238-AR) provided for project preparation. Country/Sector Background 2. Partially supported by a formidable structural reform and an ambitious privatization program, Argentina's ongoing macroeconomic program has resulted in relative price stability and economic growth unknown for decades in the country. Since sustained future growth hinges on an expanding and dynamic private sector, the Government's new role is to avoid distortions that may repress or misguide private economic activities, and to provide an enabling institutional and regulatory framework for the development of such activities, among them mining. 3. The Government's mining sector policy follows broader economic policy and is formulated by the federal Mining Secretariat (SM) at the Ministry of Economy, Public Works and Services. In the past two years SM has resolutely pursued both sector reform and its development, in close cooperation with the provincial governments, which administer mining rights according to the Argentine Constitution. In addition, SM develops the country's geological and mining sector data bases and provides technical support to the provincial administrations. Following analytical work which addressed sector deficiencies and underlined the country's significant geological potential and the possibly large contribution of mining to the economy, the Govermnent developed a strategy to become an enabler of increased, environmentally sound private mining (Annex 1). 4. A 1993 World Bank Mining Sector Review, carried out with Swedish and Finnish collaboration, showed that mining activities, at less than 0.5 percent of GDP and 1 percent of exports in 1991, were far below the country's potential (Argentina Mining Sector Review, Report No. 11704-AR, June 30, 1993). Production is mostly divided among many small non-metallic operations--almost 400 of them in the six provinces of Catamarca, Chubut, Jujuy, Mendoza, Salta and San Juan. Yet only three producers of metallic minerals account for over 80 percent of the value of the country's production; two others account for 75 percent of gold production. While Argentina has large areas of favorable geology for the discovery of mineral deposits, the potential of the country is largely unknown due to the paucity of geological data, deficient information infrastructure and little exploration activity.  - 4 - To achieve the sector's potential, it is estimated that investment in exploration should be over US$45 million per year. The sector's past poor performance was likely due to long-term macroeconomic instability, and the Government's excessive role in the sector. More recently, it has been mostly due to: weak administration by provincial governments, many of which still hold large areas, blocking access to potential deposits; outdated legal frameworks and complicated concession and cadastral management arrangements lacking the guarantee sought by potential investors; inadequate and inefficient institutional structures; lack of appropriate geoscientific and sector data; and the poor infrastructure and remoteness of potential mining areas from industrial centers and ports (although this is not a major issue for large mining operations within an adequate policy environment). 5. The Bank's sector report recommended that: (i) the Government encourage private investment while avoiding wasteful promotion schemes; (ii) federal and provincial governments better define their responsibilities, divest from mining interests and restructure their sector agencies; (iii) legal provisions be revised to provide simple, enforceable procedures and non-discretionary administration to grant mining rights and apply health, safety and environmental regulations; and (iv) an independent geological service be established. The Government endorses these recommendations. Three recently approved laws improve the mining investment and institutional frameworks, and create the Geological Survey--albeit not autonomous. Other institutional changes include the creation of the units for Environmental Management and of the Unified Data Base for the sector. Divestment of mining reserves has started. Mining companies have expressed serious interest in investing in Argentina, yet other important reforms are needed to promote environmentally sound, competitive private mining. Project Objectives 6. The main objective of the project is to develop and support, through an institutional development technical assistance operation (IDTA), the government's policy, regulatory and institutional reforms which encourage the expansion of private investment in mining in an environmentally sound way. The project would help build the capacity needed--at the federal level and in selected provinces--for an efficient administration of mining rights. It would also support divestiture of mining interests held by provinces; establish adequate environmental safeguards for mining operations; and strengthen services that support mining growth, including the public provision of reliable geological and mineral information. Project Description 7. This IDTA project has four components: (i) a Policy Development Component (US$1.4 million or 4 percent of base costs) to ensure the consistency of mining sector policy with the country's overall economic liberalization efforts; to revise and prepare the legal framework; and to develop tools for its implementation, including procedures for the provincial administration of mining rights and appropriate environmental norms and standards (to be implemented through the environmental management subcomponent); (ii) a Policy Implementation Component (US$16.6 million or 47 percent of base costs) to help develop the capacity of the federal Mining Secretariat and sector agencies in selected provinces, including  - 5 - their cadastral and registry systems and advisory services, as well as the mechanisms to monitor and enforce environmental management. It would also finance relevant skills transfer, training and divestiture efforts; (iii) a Support Services Component (US$16.1 million or 45 percent of base costs), to build up the geological infrastructure in support of private investment decisions: geological and thematic mapping; a sector data bank and public information network; mineral and market statistics and promotion facilities; a geological repository and ancillary facilities; and the selective strengthening of the mineral and geological laboratory system; and (iv) a Project Coordinating Unit (PCU) to oversee project implementation (US$1.4 percent of 4 percent of base costs). The project would finance consulting services and contract works, computer equipment and software, field and office equipment and vehicles, training, incremental operating costs (for establishing and strengthening functions), and the necessary upgrading of facilities. Annex 2 describes in detail the project's components and its implementation schedule. 8. The total cost of the project is US$40 million equivalent, including US$3.7 million for contingencies. It would be financed by a Bank loan of US$30 million, or about 75 percent of total project cost net of taxes and duties, and a government counterpart of US$10 million. The project will finance about 228 specialist-months of international consultancies and about 1,841 specialist-months of local experts. The loan would cover 100 percent of the project's foreign exchange costs and about 5 percent of local costs. Bank financing of some local costs is justified since the project supports an underdeveloped sector. The Government would cover about 95 percent of local costs. Detailed cost estimates and the financing plan are shown in Schedule A and Annex 2, Attachments C and D. Assurances were obtained during negotiations that the Government will provide counterpart funds of no less than US$2.9 million in each of the first two years of project implementation, US$2 million in the third, US$1.2 million in the fourth and US$1 million in the fifth year of project implementation. One year before completion, arrangements would be made to ensure future funding to support core sector activities initiated by the project, that will become permanent, such as maintenance of the unified mineral data base. Project Implementation 9. The Argentine Republic would be the Borrower. The Secretariat of Mining (SM) in the Ministry of Economy and Public Works and Services would coordinate project implementation, and directly implement components that strengthen federal policy, legislation, agencies and services (Undersecretariat of Mining, National Directorate of Mining, Mineral Statistics, Data Bank and Information Network, Geological Survey, Repository and Laboratory system). The provinces would be responsible, with the help of SM, for implementing improvements to their mining cadastre and registry systems, and environmental control mechanisms. Six provinces would participate in the project. Four of them (Mendoza, San Luis, San Juan and La Rioja) would do so under a regional scheme, "Nuevo Cuyo", that has started to develop homogeneous mining regulations, cadastres and administrative arrangements. The other two are Catamarca and Salta, and were selected based on their commitment to reforms. The PCU in SM will remain throughout implementation, to coordinate federal and provincial subcomponents and carry out project monitoring and supervision, consultancy arrangements and procurement and disbursement  - 6 - activities. The project would be implemented over five years and terms of reference for all components were prepared with the support of the Bank's PPF. Procurement of goods and services and the selection and contracting of consultants would be carried out according to Bank guidelines. Procurement arrangements are summarized in Schedule B and discussed in Annex 2. All procurement documentation and decisions for contracts expected to cost US$100,000 or more would be subject to prior review by the Bank. About 10 percent (US$3.7 million) of the project's total base cost estimate would cover contingencies. Disbursements will take place over a period of five and a half years according to arrangements summarized in Schedule B. A Special Account to be managed by SM would be established in the Banco de la Naci6n with an authorized allocation of up to US$1,700,000, which is about four months of initial disbursements. Eligible expenditures of up to US$400,000 incurred up to 12 months prior to loan signing would be retroactively financed. Quarterly progress reports would be submitted by the PCU to the Bank. Reviews, 18 months after effectiveness and yearly thereafter, would verify implementation progress and allow for periodic adjustments (one such review would be a Mid-Term Review). Attachment A to Annex 2 contains the Implementation Schedule, and information on annual contractual and other payments can be found in Annex 9. 10. The PCU has engaged a private accounting firm to maintain accounts and process payments for preparation expenditures. This system will be maintained during project implementation. Separate accounts will be kept for all expenditures made under the project. Project Accounts, the Special Account and all procurement, including Statements of Expenditure, would be audited annually by an independent auditor satisfactory to the Bank and appointed for at least three years. Audit reports would be submitted to the Bank no later than six months after the end of the Government's fiscal year. Project Sustainability 11. The project would support sector growth by creating appropriate conditions for mining development and helping to attract long-term private investment. The legal and institutional framework and technical services that it promotes will assist in expanding and diversifying the country's economy and exports. Only provinces that have committed to the proposed reforms would participate in the project. In addition, a formal agreement (drafted during preparation and signed before negotiations) establishes the framework and provisions of the unified mining cadastre. The project strengthens these provincial administrative roles and the related advisory services that will be provided by the national level. Once in motion, these activities should catalyze further reforms and sector growth in other provinces as well. Lessons Learned 12. There have been no previous mining loans to Argentina. However, reviews of various recent Technical Assistance operations in Argentina, which the project has taken into account, underline the need to aim at well-defined objectives and to implement clearly focused, carefully designed components in a limited time period. They also indicate that: (i) terms of reference, documentation for contracting services, and the criteria for the provision of advisory services under such operations should be defined during the preparatory stage;  - 7 - and (ii) Bank supervision is costly, particularly when implementation relies on many individual consultants. In addition, since technical assistance is often aimed at sensitive issues as well as capacity building within complex governmental structures, counterparts must be highly committed and capable. Consultants may help establish functions and routines to facilitate new government roles, yet they should not substitute for normal institutional activities and decision making. Finally, units and counterparts responsible for implementation should have sufficient delegation of responsibility, and a monitoring system with clearly measurable intermediate and final goals should be established. Annex 8 contains lessons learned in the sector in other countries. Rationale for IBRD Involvement 13. This operation is fully consistent with the Country Assistance Strategy (CAS) discussed by the Board on May 4, 1995, which states, in para. 67 that "...Bank support for private sector development would also be provided through the strengthening of institutions providing assistance in.. .mining development...". Following the Bank's mining sector review, the Government requested Bank assistance in 1993 to finance a program of reforms and institutional improvements to support sector growth, along the lines of actions recommended by the Bank's report, some of which the Government had started to implement. Following approval of a Bank PPF in April 1994, the SM continued its work on reforms in parallel with project preparation. It organized a series of meetings to inform interested parties of sector developments and to offer and auction off to private investors mining exploration and concession rights in areas still held by provincial entities. The Federal Government is firm in its intention to facilitate the transfer of all such existing rights to the private sector. The provinces selected to participate in the project are those actively implementing this policy. 14. The Government formulated in 1995 a Sector Policy and Strategy document, reconfirming its role as facilitator of private mining activities, and in December 1994 it signed a formal Agreement with each of the participating provinces, regarding implementation of the project. In addition, it has taken significant steps to modify the legal and institutional frameworks to encourage mining growth, yet such frameworks still lack essential elements to attract large-scale private investment to mining operations. The Bank's assistance will support efforts to bring about such modifications--in particular the design and establishment of a mining cadastre system that provides security of tenure--and assist in policy implementation, including measures to avoid the negative environmental impacts of mining and improve geological and mining information. Through the proposed project, the Bank would support the liberalization, modernization and growth of potentially important, export-oriented private activities that would be geographically spread.  -8- Future Actions 15. The Govermnent would, in the future: (i) review project implementation 18 months after effectiveness--and annually thereafter--to discuss with the Bank project progress and any issues and follow- up actions; (ii) review with the Bank and allow it to comment on any proposals or draft legislation or regulations affecting mining activities during project implementation; (iii) procure goods and services through arrangements satisfactory to the Bank; (iv) allow the Bank to review and comment on the mining sector agencies' budgets and staffing levels on a yearly basis during project implementation; (v) ensure that counterpan funding will be allocated in a timely manner during project implementation. In addition, one year before project completion, the Government and the Bank would review and agree on satisfactory arrangements by the Government, to ensure adequate institutional as well as financial sustainability (staffing and funding of recurrent costs) to support the ongoing programs, and ihat the PCU would cease functioning at project completion; (vi) one year after effectiveness, the participating provinces will have formulated environmental regulations for mining satisfactory to the Bank; and (vii) three years after effectiveness, the Government will have converted the existing National Geological Service Directorate into an administratively separate agency. 16. As specific conditions of effectiveness the SM would: (i) set up and maintain the PCU under arrangements satisfactory to the Bank--with a project coordinator, a deputy and an administrative/procurement specialist with qualifications satisfactory to the Bank and two support staff; and (ii) have secured the counterpart budget funding allocation to cover the project's first fiscal year of implementation, and yearly thereafter. Poverty Category: Not applicable Environmental Aspects 17. Mining activities have been limited in Argentina, and the Mining Code (CM) includes only work safety provisions plus two articles dealing with environmental protection. A general environmental law is under discussion in Congress, as well as a specific law providing a well-designed framework for environmentally sound mining, which was formulated during project preparation. Preparation of the regulations for this specific law is funded by IDB in cooperation with this project. Preparation of subsequent norms and standards are included in this project, as they involve tasks over a much longer period.  - 9 - However, they are expected to be in place in time to address growth in mining activities, which traditionally require long lead times. A Sectoral Environmental Assessment was carried out for this Category B project . The project's environmental work includes: (i) a program to develop and establish environmental norms, standards and procedures--including provincial regulations, environmental guidelines, and a registry and qualifications system-- and the enabling institutional structure with clearly defined responsibilities at the federal and provincial levels; (ii) measures to enable the provincial administrations to develop their administrative capacities, facilities, resources and staff training to implement and enforce such a program; and (iii) environmental baseline studies, to prepare natural, social and sector background data in each participating province. Program Objective Category 18. This IDTA operation belongs fully to the Bank's Private Sector Development Program Objective Category. Participatory Approach 19. The basic environmental legislative work addressing mining activities was carried out in consultation and coordination with industry branch organizations, trade associations, the miner's unions and NGOs. This approach, including media coverage informning the public, has continued for the national level and each of the participating provinces. In order to achieve meaningful results the project helps these provinces to develop adequate institutional capacities, regulations and screening criteria applicable to different kinds of mining operations according to their size, type and location. Mendoza, the only province with an environmental law now in place, requires public hearings in connection with major industrial uses or environmental conflicts, but has yet to establish the screening criteria. Significantly, two major environmental groups contributed during project preparation with their knowledge and studies: the Argentine Wildlife Foundation (FVSA, dealing mainly with flora and fauna) and the Environmental and Natural Resources Foundation (FARN, an internationally known group of academics focusing on legislation). Another local NGO, the Argentine Council for Sustainable Development, was also informed about the project, as it promotes environmental awareness and management in industry "from within." Benefits 20. The project would facilitate increased foreign and local investment in mining to develop Argentina's hitherto underdeveloped mineral potential. It would technologically update the quality and enhance the usefulness of government services supporting mining growth, and develop a better legal framework--including a revised mining code--improved and unified concession procedures and secure tenure provisions through the Unified Mining Cadastre. In addition, the project would help develop technical services to enhance the productivity of small- and medium-scale mining. Finally, the project will help develop mechanisms throughout the sector to ensure adequate capabilities and technological skills for the application of environmental safeguards in mining and related activities.  - 10 - Risks 21. The main project risk is sustaining the provincial stance for reform. While participating provinces have already expressed their readiness, and have been involved in project preparation, (i) the political will may change and (ii) the establishment of reliable provincial administrative capacity during implementation may be more difficult than planned. To address (i) above a Federal Agreement has been signed with participating provinces whereby all parties are committed to implementing the project, including the Unified Mining Cadastre. In addition, the expansion of geological infrastructure for sector growth (geological and thematic mapping, mining data bank and basic laboratory services) helps sustain a firm backing for reforms since such infrastructure benefits all mining activities. Regarding (ii), there is some flexibility in the project's strong institutional component to respond to changing needs, with a technical advisory capacity at the federal level, that can help guide and support the development of managerial and administrative capacities at the provincial level (and that can help extend such activities to other provinces later), and training (on-the-job and formal) addressing specific needs. However, the administrative capacity deals with the establishment and maintenance of new work routines that respond to changes in the role of government (to that of an enabler in the sector), and as such may involve longer than anticipated lead times. Finally, mining requires stable, politically neutral macroeconomic conditions, to commit long-term investment resources. Argentina's present macroeconomic policy has provided a window of opportunity to attract mining concerns and investment to exploration, yet there is a risk that it will not hold. While addressing this risk is outside the project's possibilities, by strengthening the geological infrastructure and mining rights tenure security, the project strengthens the enabling environment for overall sustained growth in mine development activities, which once established are likely to continue. Recommendation 22. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank, and recommend that the Executive Directors approve it. James D. Wolfensohn President Attachments June 29, 1995 Washington, D.C.  - ii - SCHEDULE A ARGENTINA - MINING DEVELOPMENT AND TECHNICAL ASSISTANCE PROJECT SUMMARY OF PROJECT COSTS Local Foreign Total Component Cost Cost Cost --- (in US $ million) --- Component 1: Sector Policy Development 0.5 0.9 1.4 1.1 Legal Framework Development 0.3 0.3 0.6 1.2 SINATEM Studies 0.2 0.6 0i8 Component 2: Policy Implementation 6.3 10.3 16.6 2.1 Institutional Capacity (2 Programs) 2.3 3.3 5.6 2.2 Mining Cadastre 2.0 5.2 7.2 2.3 Environmental Management 2.0 1.8 3.8 Component 3: Support Services 2.8 13.3 16.1 3.1 Geological Infrastructure (3 Programs) 1.5 9.2 10.7 3.2 SINATEM 0.4 1.4 1.8 3.3 Information Infrastructure (2 Programs) 0.9 2.7 3.6 Component 4: Project Coordination 0.7 0.7 1.4 Total Base Cost 10.3 25.2 35.5 PPF 0.0 0.8 0.8 Contingencies 0.2 3.5 3.7 TOTAL PROJECT COST 10.5 29.5 40.0 PROJECT FINANCING PLAN Local Foreign Total --- (in US S million) --- World Bank 2.0 28.0 30.0 Government 8.5 1.5 10.0 TOTAL 10.5 29.5 40.0  - 12 - SCHEDULE B ARGENTINA - MINING DEVELOPMENT TECHNICAL ASSISTANCE PROJECT SUMMARY OF PROPOSED PROCUREMENT ARRANGEMENTS (in US$ million)2/ Project Element Procurement Method Total ICB NCB Other 1. Consultancies -Consultants and Studies 9.7 b/ 9.7 (8.8) (8.8) -PPF 0.8 0.8 (0.8) (0.8) 2. Contract Works -Laboratory Services 0.3f 0.3 (0.3) (0.3) -Benchmark Works 4.6!' 4.6 (4.1) (4.1) -Geology & Geophysics 4.0f' 4.0 (3.5) (3.5) -Rehabilitation Works 2.0 2.0 (0.7) (0.7) 3. Goods (Computers, Equipment and 5.9 1.1 1.5 -' 8.5 Vehicles)2/ (5.2) (0.9) (1.3) (7.4) 4. Incremental Operating Costs-' 6.7 6.7 (2.3) (2.3) 5. Training and Educ. Materials-/ 3.4 3.4 (2.1) (2.1) TOTAL 5.9 3.1 31.0 40.0 (TOTAL) (5.2) (1.6) (23.2) (30.0) a/ In parentheses are the amounts financed by the Bank. All figures include contingencies. b/ Includes procurement of technical assistance services according to Bank Guidelines for the hiring of consultants. c/ Contracts may include provision for maintenance. d/ Incremental operational costs: rent, utilities, travel and per diems of staff. e/ Training will be contracted according to Bank Guidelines for the hiring of consultants: material inputs will be procured by shopping procedures acceptable to the Bank. f/ Procurement by LIB in accordance with Bank guidelines. _q Procurement by shopping procedures acceptable to the Bank.  - 13 - SCHEDULE B ARGENTINA - MINING DEVELOPMENT TECHNICAL ASSISTANT PROJECT DISBURSEMENTS Withdrawal of the Proceeds of the Loan Category Amount % of Expenditures to be financed2' 1. ConsultantsR/ 7.6 100% of foreign and 74% of local expenditures 2. Contract Works 6.9 85% of total expenditures 3. Goods 6.6 100% of foreign and 85% of local (Computers, Equipment and expenditures Vehicles)S/ 4. Incremental Operating Costs 2.2 37% of total expenditures 5. Rehabilitation Works 0.6 33% of total expenditures 6. Training and Educational 1.8 100% of foreign and 46% of Materials local expenditures 7. PPF Refinance 0.8 100% 8. Unallocated 3.5 TOTAL 30.0 Notes a/ Consultant figures include travel and per diem allowances. b/ May include maintenance and servicing provisions. c/ Expenditures net of taxes and duties. ESTIMATED IBRD DISBURSEMENTS (in USS million) IBRD Fiscal Year FY96 FY97 FY98 FY99 FY00 FY01 Annual 2.7 9.0 9.4 5.4 2.2 1.3 Cumulative 2.7 11.7 21.1 26.5 28.7 30.0  - 14 - SCHEDULE C ARGENTINA - MINING DEVELOPMENT TECHNICAL ASSISTANCE PROJECT TIMETABLE OF KEY PROCESSING EVENTS (a) Time taken to prepare 1 year (b) Prepared by Govermment of Argentina, with support from an advance from the World Bank Project Preparation Facility (PPF) (c) First Bank Mission October 1993 (d) Appraisal Mission October 1994 (e) Negotiations June 1995 (f) Board Presentation July 1995 (g) Planned Date of Effectiveness January 1996  - 15 - THE STATUS OF BANK GROUP OPERATIONS IN ARGENTINA SCHEDULE D STATEMENT OF BANK LOANS (as of March 31, 1995) US$ million) Loan Fiscal AMOUNT (lees UNDISBURSED Number Year Borrower Purpose cancellations) Fully disbursed loarn (42) 5,033.3 0.0 of which SALISECAUDebt Reduction loans: 2675 1986 Argentina Agriculture Sector 350.0 2815 1987 Argentina Trade Policy 496.0 2998 1989 Argentina Trade Policy II 300.0 3291 1991 Argentina Public Enterprise rleform 300.0 3394 1992 Argentina Public Sector Reform 325.0 3566 1993 Argentina DDSR Support 460.0 3558 1993 Argentina Financial Sector Adjustment 400.0 2641 1986 Argentina Water Supply 44.8 8.5 2854 1987 Argentina Power Distribution 276.0 84.9 2920 1988 Argentina Municipal Development 120.0 10.1 2984 1989 Argentina Social Sector 28.0 0.1 3280 1991 Argentina Provincial Development 200.0 141.1 3281 1991 Argentina Water Supply 100.0 92.8 3292 1991 Argentina PEREL 23.0 1.3 3297 1991 Argentina Agricultural Services 33.5 13.9 3362 1991 Argentina Pub Sectr Reform T.A. 23.0 7.9 3460 1992 Argentina Tax Administration II 20.0 4.6 3520 1993 Argentina Yacyreta II 300.0 28.1 3521 1993 Argentina Flood Rehab 170.0 62.7 '3556 1993 Argdne Pub Enteprise Ref ll 300.0 0.03 3611 1993 Argentina Road Maintenance & Rehab 340.0 245.8 3643 1994 Argentina Maternal & Child Health 100.0 86.4 3709 1/ 1994 Argentina Capital Markets 600.0 500.0 3710 1994 Argentina Capital Markets TA 8.6 7.8 3794 2/ 1995 Argentina Secondary Education I 190.0 190.0 *383 1995 Argwaio Provicial Reform 300.0 240.0 3860 2/ 1996 Argentina Municipal Development II 210.0 210.0 TOTAL 8,320.0 of which has been repaid 2,481 .8 TOTAL NOW OUTSTANDING 5,838.2 AMOUNT SOLD 12.8 of which has been repaid 12.8 TOTAL NOW HELD BY BANK AND IDA 56826.4 TOTAL UNDISBURSED 1 936.0 *Disbursing SECAL. SAL or Debt Reduction Loan 1/ Not yet effective 2/ Not yet signed.  - 16 - ARGENTINA STATEMENT OF IFC INVESTMENTS SCHEDULE D s of March 31, 1995 (USS Millions) Origiril Gross Commitments Held Held by Undihbuwsed Fiscl Year IFC IFC Partici- by Partici- (Including Committed Obligor Type of Businass Loan Equity panht Totls IFC pants Participants) 1960/95 Acindar S.A. Steel Products 27.94 - 20.73 48.67 25.00 - 15.00 1960 a/ PapelIraRioParanaS.A. PulpandPaper 3.00 - - 3.00 - -- 1961 a/ FadesaS.A. Motor Veh. &Accessories 1.23 - 0.28 1.50 - - 1962 a/ Pasa SAIC Petrochemicals 3.05 - - 3.05 - 1965/72 a/ Celulosa Argentina Pulpand Paper 8.25 - 4.25 12.50 - 1969 a/ Editorial Codex S.A. Printing and Publishing 5.00 1.60 0.40 7.00 - 1969/75 a/ Dalmin SidercaSAIC IronandSteel 14.75 - 2.25 17.00 - _ 1971/73 a/ Calera Avellaneda S.A. Cement 5.50 - - 5.50 - 1977/84/86/88 Alpargatas SAIC Textiles and Shoes 62.93 5.00 36.50 104.43 34.22 29.00 1977/85 a/ Soyex S.A. Food and Food Process 21.00 - - 21.00 - - 1978/81//82/87193/94 JuanMinettiS.A. Cement 44.00 - 67.50 111.50 9.51 9.29 1978/85/87/88/91 a/ Massuh S.A. Pulp and Paper 25.65 4.25 3.00 32.90 - - 1979/82/87/92 a/ IpakoS.A. Petrochemicals 21.00 1.15 9.00 31.15 - - 1979/83/84 a/ AlpescaS.A. Food&FoodProcess 5.20 1.61 - 6.81 - - 1984/86 PetroquimiraCuyoS.A. Chemicals&Petrochem. 21.00 4.00 21.09 46.09 3.52 4.25 - 1986 a/ Atanor S.A. Chemicals 7.00 1.00 - 8.00 - - 1986 Ropasa/Sadicar Capital Markets - 0.05 - 0.05 0.05 - 1986/87 Sadicar Capital Markets - 2.00 - 2.00 0.43 - 1986 ROB-Cattorini General manuhacturing - - - 0.00 0.18 - 1986 ROB-Benvenuto Food&agribusiness - - - 0.00 - - 1986 ROB-Boldt Timber, pulp & paper - - - 0.00 - - - 1986 ROB-Clave Plast General manufacturig - - - 0.00 - - 1986 ROB-Cuyo General manufacturig - - - 0.00 - - - 1986 ROB-Gaverante Industrial services - - - 0.00 - - 1988 ROB-Klaukol Cement - - - 0.00 - - 1988 ROB-Labelcor Food & agribusiness - - - 0.00 - - 1986 ROB-Longvie General manufacturing - - - 0.00 0.90 - 1986 ROB-Pilar General manufacturing - - - 0.00 0.19 - 1986 ROB-Sudamericana Industrial equipment - - - 0.00 0.21 - 1986 ROB-St.Ursula Food & agribusiness - - - 0.00 - - 1986 ROB-Stani Food & agribusiness - - - 0.00 - - 1986 ROB-Tags Industrial services - - - 0.00 - - 1986 ROB-Diario limber, pulp & paper - - - 0.00 0.09 - 1986 ROB-Piedra Mining - - - 0.00 0.06 - 1986/89/91/95 Banco Roberts S.A. Capital Markets 48.00 - - 48.00 20.00 - 1987 a/ GarovaglioyZorraquin GwralManufacturing 13.00 - - 13.00 - - - 1987/90 Hidra Oil Crude Petrol. & Nat. Gas 80.00 - 27.60 107.60 0.38 - 1987/90/91 Terminal o S.A. Port Facilities 12.50 0.00 0.00 12.50 5.00 - 1988 a/ AstraCAPSALindero Energy 12.38 - - 12.38 - - 1988 a/ Bridas S.A.P.I.C. Energy 20.63 - - 20.63 1988 Arcor SAIC General Manufacturing 12.00 - - 12.00 1.00 - 1988 BGN-Colortex Textiles - - - 0.00 0.33 - 1988 BGN-Estrelia General Manufacturing - - - 0.00 - - 1988 BGN-lnterpack Timber, pulp & paper - - - 0.00 0.50 - 1988 BGN-Noroeste Food &agribusiness - - - 0.00 0.17 - 1988 BGN-Cilsa Textiles - - - 0.00 0.07 - 1988 BGN-Moldeada Timber-pulp & paper - - - 0.00 0.33 - 1988 BGN-Ottalmologic Timber-pulp & paper - - - 0.00 - - 1988 BGN-San Sebastian Food &agribusiness - - - 0.00 0.33 - 1988 BGN-Tevycom Indurtrial equipment - - - 0.00 0.10 - 1988 BGN-Valley Food & agribusiness - - - 0.00 0.17 - 1988 BGN-Vandentil Textiles - - - 0.00 0.17 - 1988/89 BGN-Flichman General Manufacturing - - - 0.00 0.43 - 1988/89 Banco General de Negocios AL Dev. Finance 20.00 - - 20.00 - - 1988/92 a] Chiret Oil Chemicals & Petrochem. - 6.62 - 6.62 - - 1988/92 Banco Rio de Ia Plata Capital Markets 50.00 - - 50.00 32.00 - 7.53 1988/93/94 Bunge y Born Food and Food Process 63.00 - 57.50 120.50 19.00 57.50 - 1988/93 BGN-Longvie General manufacturing - - - 0.00 0.13 - 1989 a/ Argentinaelnvestment Company Securities/Financial lnst. - 2.00 - 2.00 - - 1989 a/ ChihLidos Petroleum Energy - 4.98 - 4.98 - - 1989 Banco Frances Dev. Finance 15.00 - - 15.00 10.91 - 1989 ROB-Carboclor Chemicals & petrochem - - - 0.00 0.14 - 1989 BGN-Cencosud Industrial serviess - - - 0.00 0.33 - 1989 ROB-Ciervos Food & agribusines - - - 0,00 - - 1989 ROB-Comesi General manufacturing - - - 0.00 0.75 - 1989 ROB-Maleic Chemicals & petrochem - - - 0.00 - - 1989 ROB-Malteria Food &agribusiness - - - 0.00 - - 1989 Corn. General de lnversiones Financial Srvices - 0.10 - 0.10 0.01 - 1989 ROB-Fracchia Industrial servces - - - 0.00 0.49 - 1989 ROB-Lauril Chemicals & pstrochem - - - 0.00 0.28 - 1989 ROB-Inta Textiles - - - 0.00 0.75 - 1989 ROB-Masoprano Timber-pulp&paper - - - 0.00 0.10 - 1989 BGN-Parafina Chemicals & petrochem - - - 0.00 1.25 - 1989 BGN-Pastoril Food &agribusiness - - - 0.00 0.36 - - 1989 BGN-Genaro Food&agribusiness - - - 0.00 1.36 - 1989/92 Asta CAPSA Energy 50.00 - 43.00 93.00 24.80 28.67 -  - 17 - ARGENTINA STATEMENT OF IFC INVESTMENTS SCHEDULE D as of Mwch 31. 1995 (USS Milone) Original Grom ComnitmentB Held Held by Undisbursed Frmm Yew IFC IFC Partici- by Partci- (Including C hodnet Obligor Type af Business Loan Equity pant Tohi IFC pants Participt) 1989/93 BGN-Eolland Tourism - - - 0.00 0.40 - 1990 OGN -Algodonera Textiles - - - 0.00 0.54 - 1990 Corporacion de Inversiones y Privatizncion SA Financial Services - 0.08 - 0.08 0.08 - - 1990 BOGN-Frogotoba Food &agribusiness - - - 0.00 0.25 - 1990 BGN-Willmor Food&agribusiness - - - 0.00 1.36 - 1990/95 Petroken Peroquimica Chemicals & Patrochem. 40.00 - 11.00 51.00 36.67 7.33 10.00 1991 Banco de Credito Argentino Financial Services 10.00 - - 10.00 7.14 - 1991 ROB-Guilford Textiles - - - 0.00 0.47 - - 1991 ROB-Jugos Fod &Agribusiness - - - 0.00 0.33 - 1991 ROB-Interpack Timber,pulp&paper - - - 0.00 1.00 - 1991 ROB-Surtactan Chemicals & petrochem - - - 0.00 0.21 - 1991 BGN-TBR Industral equipment - - - 0.00 0.36 - 1992 FrigorilicoRioplatense Fod &Agribusiness 12.00 1.00 6.00 19.00 10.33 5.W0 2.00 1992 MBA Sociedad de Bolsa SA Capital Markets - 0.18 - 0.18 0.16 - 1992 Olaaginosa Oeste Sunflower SeedAgribus. 20.00 - 15.00 35.00 18.93 12.50 1992 Polisur SM Chemicals&Petrochem. - 7.00 - 7.00 7.00 - 1992193 Petrolra Argentina San Jorge Energy 15.00 27.00 35.00 77.00 40.75 32.08 25.18 1993 Alto Parana S.A. Timber, pulp and paper - - - 0.00 19.47 - 1993 BridasSAPIC Energy 35.00 15.00 60.00 110.00 50.00 55.00 - 1993 CadipsaSA. Energy 15.00 5.00 20.00 40.00 20.00 13.00 9.20 1903 BGN-Capri Food & agribusiness - - - 0.00 1.00 - 1903 ROB-Emprigas Industrial services - - - 0.00 1.13 - 1993 Ferroexpreso Pampeano SAC Industral Equipment 13.00 - 20.00 33.00 1300 18.53 4.60 1993 ROB-Alimenticia Food & agribusiness - - - 0.00 0.83 - 1993 MalteriaPampaS.A. Food&Agribusiness 12.00 - 12.00 24.00 12.00 12.00 1993 ROB-Mendoza Generalmanufacturing - - - 0.00 1.13 - 1993 NuevoCentralArgentinoSA RailroadEquipment 10.00 3.00 15.00 28.00 13.00 - 1993/94 Molinos Rio de Ia Plata Food & Agribusiness - 3.00 - 3.00 7.82 - 1994 BancoGeneraldeNegocios Dev.Finance 15.00 - - 15.00 15.00 - 1994 CervoceriayMalteriaQuilmes Food&Agribusiness 15.00 - 15.00 30.00 15.00 15.00 - 1994 ClAGenCombustible CrudePetroleum 25.00 15.00 40.00 80.00 40.00 40.00 - 1994 EmpresafDistrbuidora IndusrialServices 45.00 - 128.00 173.00 45.00 128.00 - 1994 Quitral Chemicals & Petrochem. -000 - - 0 1994 BGN-Ferrum Cement & construc mat - - - 0.00 150 -. 1994 Masisa-ArgenbmnaS.A. ForestProducts 11.00 - - 11.00 11.00 - 1994 Arg.Equity Investment I Limited Financial Services - 4.00 - 4.00 4.00 - 1994 Yacylec Industriml Serfices 20.00 - 45.00 65.00 20.00 45.00 - 1995 Acetera Food&Agribusiness 15.00 10.00 15.00 40.00 25.00 15.00 15.00 1995 Mastellone Hermanos S.A. Food & Agribusiress 40.00 - 35.00 75.00 40.00 - 1995 Maxima SA. AFJP Financial Services - 10.19 - 10.19 10.19 - 1995 La BuenosAiresVida Financial Services - 2.89 - 2.89 2.89 - 0.71 1995 La BuenosAiresRetiro Financial Services - 1.17 - 1.17 1.17 - 0.53 1995 Klbppe/Caldero Food & agribusiness 6.00 - - 6.00 6 00 - 1995 Aguas Infrastructure 38.00 7.00 134.50 179.50 45.00 134.50 52.95 1995 Compania Elaboradora de Productos Alimenticios S.A. Food & agribusiness 15.00 - 6.00 21.00 15 00 6 00 - 1995 Roberts Argenbna Investmert Capital Fund (AICF) Financial Services - 20.00 - 20.00 20.00 - 17.73 1995 Roberts Argentna Investment FundManager FinancialServices - 0.15 - 0.15 0.15 - 0.13 1995 Socma HoldingCompany 24.99 15.00 60.01 100.00 39.99 - 24.99 1995 Cadesa Supermarkets 28.00 - - 28.00 28.00 - 20.00 Toha Gross Cognmitmwetsb/ 1152.99 181.00 96.01 2290.60 Less: Cancellabons, Terminaions, Repayment & Sales 481.57 6.19 297.96 785.72 Tota Commlhnent Now Held eJ 671.43 174.82 667.65 1,513.59 846.24 667.65 205.56 Pending Commitmenh: AECSA 20.00 - 61.00 81.00 Empresa Oistrbuidora Industrial Services - - 800 8.00 Goainvest Infrastructure - 20.00 - 20.00 Nahuelsat Infrastructure 30.00 5.00 - 35.00 Sancor Food & agribusiness 20.00 20.00 30.00 70.00 Transconor Infrastucture 25.00 - 80.00 105.00 Tucuman Infrastructure - 0.30 - 0.30 sub-total 95.00 45.30 179.00 319.30 TOW Comrnitmenmb Held and Pending Commltnenta 706.43 22D.12 846.65 1,833.19 Toal Undisbbaed Commibnenb 02.02 44.28 69.25 205.56 a/ Investmentb which have been fully cancelled, terminated, written-off, sold, redeemed or repaid. b/ Gro(s Commitmentb consist of approved and signed projects. cl Held Commitments consist of disbursed and undisbursed investmrets.   - 18 - ANNEX 1 ARGENTINA - MINING DEVELOPMENT TECHNICAL ASSISTANCE PROJECT THE MINING SECTOR TABLE OF CONTENTS Page No. A. Background ......................................... 19 B. Past Performance of Mining ............................... 20 C. Structure of the Mining Industry ............................. 21 D. Mining Development Constraints ............................ 22 E. Mineral Potential ...................................... 25 F. Mining Sector Reform ................................... 26 G. New Investment in Exploration and Mine Development .............. 29   - 19 - ANNEX 1 ARGENTINA - MINING DEVELOPMENT TECHNICAL ASSISTANCE PROJECT THE MINING SECTOR A. Background 1. In Argentina, unlike many of its South American neighbors, mining is currently not a major economic activity. The sector accounted in 1994 for only 0.25 percent of GNP. In 1993, the total production value of all types of minerals was pesos 497 million (see Table Al. 1). Construction materials, mainly limestone, granite, marble and onyx, account for over 65 percent (pesos 325 million) of the total value of mining production. Production of construction materials is carried out in most provinces, while mining of other minerals in concentrated in the mountain provinces. Mining of metallic minerals is not significant and is concentrated in a small number of operations producing zinc, silver and lead as well as gold. The total value of production of metallic minerals amounted to about pesos 44 million in 1993, or about 9 percent of the total value of minerals production. Non-metallic minerals production, of which clays, borates, gypsum, and bentonite were the most important, was pesos 126 million, or 25 percent of total minerals production in 1993. TABLE AI.1: Value of Argentina Minerals Production Thousand Pesos at 1992 Prices Metallic Non- Construction Semi-precious Year Minerals Metallics materials stones Total 1987 73,606 153,421 323,471 541 551,039 1990 86,128 105,662 208,501 1,397 401,689 1992 55,875 120,603 257,170 5 433,654 1993 44,137 126,305 325,178 1,194 496,815 Source: Estadistica Minera de la Republica Argentina, Mining Secretariat, 1994. 2. Mineral exports were US$70 million in 1992, or about 0.5 percent of total Argentine exports of US$12.3 billion. Lead and zinc concentrates and refined products accounted for two-thirds of this value, and borates for most of the remainder. Minerals imports were much more significant at a value of US$665 million, or 16 percent of Argentina's total imports in monetary terms. Iron ore imports were the most important category with US$126 million. Alumina imports for the aluminum smelter in Chubut amounted to US$70 million. The other most significant imports were: sodium carbonate for the glass and detergent industries (US$31 million), refined copper, mainly for electricity supply (US$27 million), and titanium oxides for manufacturing paints and pigments (US$25 million).  - 20 - ANNEX 1 Table A1.2: Argentina Mineral Production 1993 Metals Production Non-Metallic Production Construction Materials (metric tons contained metal content) (metric tons). (metric tons) Zinc 31,395 Asbestos 309 Aggregate 16,360,660 Lead 11,826 Clays 4,393,987 Basalt 1,111,936 Iron ore 1,372 Silica sand 396,134 Limestone 10,739,681 Uranium 148 Barytine 11,267 Gravels, etc.. 8,117,446 Cadmium 80 Bentonite 96,706 Granite (blocks) 81,337 Silver 42.7 Borates 146,349 Dolomite 434,371 Gold 0.94 Calcium 34,513 Granite, 5,630,993 crushed Kaolin 42,052 Marble (blocks) 9,344 Celestine 4,806 Marble Onyx 1,124 Quartz 101,399 Travertine 15,637 Diatomite 3,096 Flatstones 94,749 Feldspar 55,764 Pumice 18,945 Fluorite 4,611 Serpentine 26,518 Mica 1,946 Tuff 60,501 Common salt 1,033,066 Tosca 5,144,577 Aluminum sulfate 29,240 Magnesium sulfate 2,820 Sodium sulfate 6,554 Talc 18,084 Peat 10,453 Vermiculite 38 Gypsum 519,181 Source: Estadistica Minera de la Republica Argentina, Mining Secretariat, 1994. B. Past Performance of Mining 3. Mining activities in Argentina increased during the 1970s but declined during the 1980s. The value of mineral production increased from an estimated US$740 million in 1970 to US$870 million in 1980 (in 1991 prices). This increase can be attributed mainly to the development of borate mining to supply local and Brazilian markets, and to increases in production of construction materials in order to meet the demand of the strongly growing domestic building industry. Subsequently, the production of minerals declined to pesos 400 million in 1990 (in 1992 prices) due mainly to the crisis of the construction industry in Argentina which significantly affected the production of limestone, granite and other construction materials. Gold production increased between 1980 and 1991 due to the development of the YMAD gold mine in Catamarca and the Mina Angela in Chubut. Production of iron ore by the HIPASAM mine in the province of Rio Negro came to a halt  - 21 - ANNEX 1 in 1990. The crisis in the world tin markets caused the closure of the tin mine in Jujuy in 1991. Among non-metallic minerals, production of borates declined as markets shrunk both domestically and in the main foreign market, Brazil. The industry appears to have reached its nadir in 1990. Since that year, production of minerals by value has increased to reach pesos 496 million in 1993. Nonetheless, this level is still far below the levels achieved in the mid- 1 980s. C. Structure of the Mining Industry Table Al.3: Principal Mining Production of Six Provinces in 1990 Estimated Value of Production in 1990 Province Source Products (US$ million) Catamarca YMAD Gold, silver 7 Doiia Amalia Limestone 11 Small mines Limestone, precious stones, other 10 Chubut Cerro Castillo Gold, zinc, silver 10 Small mines Kaolin, barite, limestone, other 10 Jujuy Minera Aguilar Zinc, silver, lead 32 Medium mines Limestone 10 Small mines Borates, limestone, other I Mendoza Medium mines Uranium, gypsum, clays, salt, other 9 Small mines Bentonite, limestone, other construction 5 Salta Boroquimica Borates 35 Small mines Perlite, sodium sulfate, salt 8 San Juan Medium mines Limestone, marble, aluminum sulfate, 10 other Small mines Limestone, marble, aluminum sulfate, 22 other Total of Six Provinces 180 4. Table A1.3 presents the 1990 structure of the mining industry in the six key mining provinces. Presently, the six most important mining provinces are Catamarca, Chubut, Jujuy, Mendoza, Salta and San Juan. The five largest companies in these six provinces produce US$95 million annually, over one-half of the total mineral value of production in the six provinces. Three companies account for over 80 percent of Argentina's metallic mineral production: Minera Aguilar, the main zinc and lead producer in the country; and YMAD and Cerro Castillo, which account for over 75 percent of gold production in Argentina. Boroquimica annually produces borates valued at US$35 million, which accounts for 28 percent of Argentina's production of non-metallic minerals (excluding construction materials). Dofia Amalia, the major limestone producer, has an annual output of about  - 22 - ANNEX 1 US$11 million. Other producers in these six provinces consist of small and medium mines, most of which register an annual output below US$1 million. There are an estimated 400 small- and medium-scale mining operations in Argentina, the majority of which are in the six main mining provinces. These small and medium-sized operations present special difficulties since management skills are lacking, economies of scale cannot be achieved, infrastructure in many of the areas is poor or non-existent, and the companies have limited access to internal markets and no access to export markets. D. Mining Development Constraints 5. The previous stagnation of mining in Argentina has resulted from a combination of external and internal factors. Economic and political instability in Argentina has had a major effect on the development of mining. Periodic economic crises and a highly regulated economy have, in the past, made potential investors wary. An important detrimental factor has been the heavy involvement in mining development by the federal and provincial governments, both directly in exploration and development and indirectly through interventionist sector policies and regulations. The most important specific constraints to development can be summarized as follows: (a) A deficient legislative and regulatory framework based on the original (frequently amended) mining code of 1886 that is so diverse, outdated and complicated that potential investors have found it very difficult to do business. Previous government efforts at mining promotion have led to the creation of subsidized mining operations that were not economically viable and which resulted in considerable fiscal losses. (b) Poor administration and application of the minerals legislation. The Constitution places administration of the mining code in the hands of the provinces, and the demarcation of authority and responsibility between the federal and provincial governments has not always been clear. There has been a notable lack of cooperation between the federal and provincial mining institutions, which has often led to duplication of effort. Furthermore, the provincial mining authorities in many cases lack the logistical means to efficiently accomplish critical sector support functions such as licensing and administration of mineral rights, provision of technical assistance to small-scale miners, collection of rentals and royalties and monitoring of health, safety and environmental concerns. (c) The regional geological data base of Argentina is deficient. So far, only about 20 percent of the country is covered by published geological maps at a scale adequate for planning purposes. Without these basic geological maps potential investors do not know where to begin exploring and how to reduce their risk. The country is thus at a considerable disadvantage when compared to its neighbors where more basic geology information exists. Considerably more actual geological mapping work has been carried out, but compilation and publication of maps was suspended from 1987 until the end of 1992, as provincial and federal governments were undertaking the development of specific deposits. The use and availability of other geo-information systems is varied. Aerial photography, satellite imagery, airborne geophysical data, geo-chemical surveys, drill hole and other data are held by various entities such as provincial mining companies, YPF, YCF, Fabricaciones  - 23 - ANNEX 1 Militares, and others. But there is little sharing of these data between agencies, and modern interpretation is constrained by a lack of appropriate hardware and software. (d) Difficult access to exploration land by private investors. In the past the federal and provincial governments established reserve areas in many of the known geologically promising zones and also created security zones in the mineral-rich border areas. The reserve areas were supposed to be explored and developed by federal (Fabricaciones Militares) or provincial government-owned mining companies (Table Al.4 lists such companies in provinces participating in the project). Article 409 of the Mining Code (CM) permits the provinces to establish mining reserves of up to 200,000 hectares for an initial period of four years, extendable for an additional five years, to conduct geological exploration. Most of the provinces have reserved areas, but very little exploration or development work has been undertaken on provincial reserves. In most cases, the original prospects investigated during various regional exploration programs of the 1960s and 1970s have not been significantly upgraded by additional drilling or other work. In these instances, effective development of Argentina's most promising mineral areas has been frozen for many years without any work being performed. Even though the federal government has disposed of the mineral assets of Fabricaciones Militares, in many cases these mining titles have been taken over by government-owned provincial companies. The result is that promising areas are still withheld from private sector development. Recently, some provincial companies have signed joint ventures or option agreements with private local and foreign companies. It is very common in most countries, Argentina being no exception, for land speculators, including government organizations, to overvalue land holdings, hence making it difficult to negotiate with investors. The mine title situation in the provinces has meant that land is not readily available initially for the exploration work that may lead to investment at a fair cost. Also, the provincial mining authorities have been lax in enforcing surface rentals and work obligations of the title holders, with the result that land is not made available to subsequent investors. (e) Widely divergent and inconsistent provincial tax and royalty policies. The general level of corporate taxation of income in Argentina has not been a major constraint on development of mining. However, until 1993 when the provinces agreed not to levy mining royalties above 3 percent, provincial royalties were levied on production at excessively high rates, sometimes as high as 10 percent of the market value of the minerals extracted. The imposition of these elevated royalties has led to sub-optimal investment and mining decisions. In effect, royalties at any level are ad valorem taxes and reduce the amount of ore which can be mined, since they increase the so-called cut-off grade for mineral deposits. In addition to the generally high rates, the provinces have established different methods of calculation of the royalties. This has had the deleterious effect of making the provinces compete against each other not on the basis of the true economic potential of the deposit but rather on the basis of imposed fiscal measures. Moreover, in neighboring countries with which Argentina must compete for investment (Chile for example), royalties on mining production are either non-existent or set at effective rates far below Argentina provincial levels.  - 24 - ANNEX 1 Table A1.4: Provincial Mining Companies Province Corporation/Institute Mining properties Mines n operation Observations Catamarca YMAD 34,300 ha Farallon Negro Joint Venture: Bajo de la (shareholders: (Au) Alumbrera (Musto and Catamarca and MIM); Bajo el Durazno Univ. of Tucuman) (Placer) SOMICA-DEM 115 ha none Joint Venture: Capillitas (mixed Province- (Musto and FM); Private ownership) Salar del Hombre Muerto sold to FMC. La Rioja YAMIRI SEM 19 exploration none Contract with purchase (mixed Province- permits option with CRA (La Private ownership) 150 mining permits Mejicana/Nevado de Famatina) and El Dorado (El Oro) Mendoza Nuclear Mendoza 3 mining permits no information In litigation SA Salta La Casualidad 10 exploration none In process of Inbemi permits privatization Geonorte 20,000 ha Iniquiri l San Juan IPEEM 40,000 ha none El Pachon adjudicated to San Jose (COMSUR/ RTZ) and Cambior; Contracts with purchase option (JV) with Argentina Gold and LAC Minerals/ American Barrick (El Carmen y Veladero) San Luis DPM none none Is auctioning off ex-FM . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ p erm its Source: Direct information as of November 1994 from provinces participating in the project. (f) Lack of adequate physical infrastructure, particularly with regard to present and potential future mining areas located in remote mountainous regions. Major industrial centers and ports are also far removed from these mining areas, making transport of maIiy bulk products extremely expensive even if adequate transport infrastructure exists. In previous years, it was not possible to export mineral products (for instance in the case of the El Pachon copper deposit) through Chile, even though the distance to Pacific ports is much less than the distance to Argentina's Atlantic ports!'. Energy costs are very high and the An agreement between Chile and Argentina regarding this matter is under negotiation, and would allow Argentina's mining products to be exported through Chile.  - 25 - ANNEX 1 provision of adequate water in the arid mountainous and plateau regions has also been a serious limitation. (g) Lack of adequate environmental and safety legislation and controls. As in many other countries, environmental issues are relatively new to Argentina. In the past, there have been no national or provincial environmental policies or legislation. The existing federal mining code provides for few provisions in the critical areas of mining pollution control, health and safety measures. In the absence of federal and provincial regulations, some of the existing foreign-owned mining operations have taken it upon themselves to attempt to comply with "intemational best practices". Nonetheless, awareness of environmental issues in some operations and monitoring the compliance with appropriate standards by the authorities has been lacking (for a more detailed explanation of environmental issues, constraints and proposals, see Annex 3). E. Mineral Potential 6. Argentina is considered to have good geological conditions for the discovery of both metallic and industrial mineral deposits. The country has a surface area of 2.7 million square kilometers, of which about 25 percent has exposed potentially ore-bearing rock formations or structures. This mining potential area is roughly similar to those of Chile, Peru or Bolivia. The deficiencies of the geological data base and the paucity of continued and high-quality exploration activities in the past means that the true mineral potential of Argentina is still largely unknown. The great number of prospects and mineral indices principally within, but even outside the Andean mountain chain augurs well for the future of the mining industry in the country. 7. From the point of view of structural development, Argentina lies to the south of the craton-dominated shield terrains of Brazil (typified by massive iron-manganese deposits, greenstone gold and diamondiferous kimberlites) and to the east of the axis of the main Peruvian-Chilean pluton dominated porphyry copper belt, the world's premier copper province containing about 40 percent of known global resources. Because of the lateral zoning of mineral belts and different paleoclimatic conditions across the Andes, it is unlikely that Argentina could host world-class giant copper reserves similar to Chuquicamata and Escondida. But there are good possibilities to discover and exploit large copper deposits similar in type to Andina, Disputada, Pelambres or El Teniente. The north-western part of Argentina, from Mendoza to the border with Bolivia, shows the most favorable and diversified mineral potential of the country. Apart from the eastern-most border of the porphyry copper zone, this area includes the southern extension of the Bolivian polymetallic (lead-zinc-silver), gold-antimony and tin belts. An important part of this area is covered by a Cenozoic and Recent acid volcanic province now known in Chile, Bolivia and Peru to host major precious metals epithermal mineralizations similar to El Indio or La Coipa. It also includes the high inter-montane evaporite basins of the Puna which contain boron, lithium, potassium and other salts. The southern Andes of Argentina cover a narrow area along the border with Chile, thus representing a more restricted area of prospective interest. This area is however characterized by geological environments favorable to the discovery of porphyry copper, polymetallic and epithermal precious metals deposits.  - 26 - ANNEX 1 8. More recently, the potential of non-traditional mining areas outside the Andes was also demonstrated, such as the Deseado and Somuncura Mesozoic volcanic areas with vein-type precious metals deposits in Santa Cruz and Chubut, respectively; and the Sierras Pampeanas in San Luis, Cordoba and La Rioja (gold). Documented opportunities exist for the development of several other commodities, including uranium, coal, semi-precious stones and, particularly, a wide range of industrial minerals and rocks, including a variety of ornamental rocks (e.g. marbles and granites) and construction materials. F. Mining Sector Reform 9. In July 1989, the Government initiated a reform of macro-economic policies, which involved the stabilization and deregulation of the economy and the privatization of public enterprises. In order to reduce the fiscal deficit, the Government took measures to increase revenues and to divest and/or close loss-making federal public enterprises. The divestiture/liquidation program included the sale of public enterprises related to mining, such as the steel companies (SOMISA and Altos Hornos Zapla), the iron ore mine (HIPASAM), a coal mine (YCF) and Fabricaciones Militares (FM) which held several mining concessions. The divestiture of federal mining assets is now virtually complete. 10. As part of the overall reform of economic policies, the government commissioned several studies of the mining sector, and the Bank prepared in 1993 a mining sector review.Y These reports called attention to the deficiencies in the sector but also to the significant geological potential in the country and the possibilities that a vibrant mining industry could contribute substantially to the economy. Cognizant of the deficiencies and aware of the potential, the government has moved resolutely to reform the sector. This reform movement continues and will be supported and strengthened by the proposed project loan. The important steps already taken include: 11. Reform of mining fiscal legislation. Mining Investment Law No. 24.196 of 1993 removes several impediments to private sector investment. An analysis of this law, and its impact on potential government tax receipts, is detailed in Annex 4. In general, this legislation conforms to international best practices and can do much to stimulate new investment. 12. Revitalization of regional geological cartography and research. The Mining Reorganization Law No. 24.224 of 1993 establishes as a national priority the compilation of geological information and maps at appropriate scales. Thus, a national program of geological mapping has been re-initiated and ten maps at a scale of 1:250,000 are being readied for publication. The Law establishes a "Geological Charts Committee" to advise the government on geological mapping and data gathering programs. Furthermore, geology data that has been previously widely dispersed among various government departments is to be centralized in the Federal Mining Secretariat and companies and provincial governments have 2/ Argentina Mining Sector Review, Report No. 11704-AR, June 30, 1993.  - 27 - ANNEX 1 been invited to supply any information of relevance that they may hold. The Law further establishes new rates for mining permits, title issuance fees, and surface rentals. Figure A1.1: Present Organization of the Federal Secretariat of Mines SECRETARIAT OF MINES ENVIRONMENTAL UNIT UNDERSECRETARIAT OF MINES GEOLOGICAL SERVICE SM REGIONAL OFFICES MINING NATIONAL NATIONAL DIRECTORATE COORDINATION DIRECTORATE K REGIONAL GEOLOGY L NOA REGION L MINING INV. GEOLOGICAL & MINING RESOURCES -NUEVO CUYO REGION _ MINING EVAL. APPLIED & ENVIRONMENTAL -CORDOBA REGION MINING DEV. _COMAHUE REGION -PATAGONIA REGION 13. Restructuring of federal and provincial institutional relationships. A Federal Mining Agreement (Law No. 24.228) was signed by the federal government and the provinces in July 1993. It establishes several key principles to remedy previous deficiencies, among them: (i) recognition of the primacy of the provinces in application of the minerals legislation; (ii) support for the divestiture of previous provincial reserve areas; (iii) removal of preferential treatment of provincial mining companies; (iv) strengthening of the federal secretariat of mining; (v) elimination of provincial and municipal taxes; (vi) upgrading of the mining cadastre systems in the provinces; (vii) harmonization among the provinces and federal government of mining procedures and regulations; (viii) removal of distortions in the pricing of key inputs such as energy and transportation; (ix) the need to establish environmental regulations and their effective implementation; (x) establishment of a unified  - 28 - ANNEX 1 information system and the centralization of minerals data; and (xi) greater vigilance in the monitoring of compliance with payment and work obligations on the part of the mining title holder. 14. Restructuring of the federal mining institutions. The Sub-Secretariat of Mining was upgraded to a Secretariat of Mining (SM) and restructured in 1992, reflecting the recognition by the Government of Argentina of the potential significance of the sector for the national economy, as well as the need for competent and focused policy leadership and sound institutional structure. It reports to the Ministry of Economy. The organization (Figure Al. 1) consists of the previously existing National Directorate of Mining (DNM) and a new National Geological Survey Directorate (DNSG). A third unit, at the National directorate level, is responsible for the coordination of the five SM regional offices. The DNM has three directorates: Investment, Evaluation and Development. The new DNSG also has three directorates: Regional Geology, Mineral Resources and Applied and Environmental Geology. More recently, an environmental unit of an advisory nature and reporting directly to the Secretary of Mines has been established. 15. As in most other countries, the SM is responsible for the establishment of national sector policy and the federal legal and institutional framework. SM coordinates the policy with the provinces through the Federal Mining Council, established in 1992. The DNM is responsible for the administration of the Mining Investment law and for promotion and information activities (including statistics and markets). It participates actively in the modernization of the legal framework. Unlike all other Latin American (except Venezuela) and the vast majority of other countries, the Geological Survey (DNSG) is integrated within the SM and has no administrative autonomy (thus implying a lack of flexibility to carry out its activities). Nevertheless, its functions do correspond to those of a modern Geological Service, and include regional mapping and mineral resources assessment as well as applied and environmental geology. All exploration and mining development activities are left to the private sector. 16. Much effort has also been expended to improve the efficiency and coordination of federal technological institutes. Most of the activities within this field have been concentrated within three autonomous entities now reporting to the SM: INTEMIN (chemical laboratory, mining and metallurgical technology and services), CRAS (hydrology) and INPRES (seismology). 17. Restructuring of the provincial mining institutions. The sectoral institutional arrangements vary from one province to another. However, the structure of a typical Provincial Secretariat of Mines would consist of (i) a Provincial Mining Directorate (DPM), including a legal unit for sector administration and a technical unit to provide geological and technical support, and assistance to miners; and (ii) a Provincial Mining Corporation, in most mining provinces (see Table A1.4), for managing mineral reserves. Such structures need to be modernized, in order to fit with the new sectoral policy and distribution of responsibilities which has been acknowledged by the Provinces in the Federal Agreement, and also to better use generally scarce resources (with the exception of Mendoza and Neuquen where the DPMs benefit from oil revenues). While most of the technical functions would now  - 29 - ANNEX 1 correspond to federal entities (Geological mapping) or directly to the private sector (exploration and mining), emphasis will be given to the development of sector administration, which represents the principal provincial function, including the licensing of mineral rights through the establishment of a modern mining cadastre. Strengthening of the monitoring and legal enforcement functions regarding health and safety, as well as compliance with environmental regulations, is also needed. G. New Investment in Exploration and Mine Development 18. The new mineral policies and laws are beginning to have a positive impact on investment in exploration and mining development. Because of these as well as the current boom in mining investment in South America, Argentina has attracted the interest of a number of large and small mining companies (see Table A1.5). These investors are currently spending an estimated US$40 - 50 million in exploration annually, and a number of potential projects have reached the advanced planning stage. The risks involved with mineral exploration are very large: it has been estimated that only 1 in 1000 ore mineral showings found during grass-roots exploration (prospecting) activities results in an operating economic mine; the odds improve somewhat to 1 in 2 after orebody delineation, and to 2 in 3 after the feasibility study. Of the projects that enter production, only 1 in 5 achieve the full financial returns foreseen in the feasibility study. The number of companies present and the amount being spent can be taken as a sign of confidence in the mineral potential of Argentina. Furthermore, the resources spent on exploration would be consistent with the level of expenditures necessary in other countries to find and define mineral orebodies, and if sustained, will probably reveal new orebodies. 19. In addition to the exploration effort, several projects are currently in an advanced planning stage,3' among them: Cerro Vanguardia. This large gold deposit is located in the province of Santa Cruz. The mining titles are held by Fomicruz, the government-owned provincial mining company. Fomicruz has an agreement with a joint venture composed of Anglo American (South America) and Perez-Companc & Co. for the development of the Cerro Vanguardia deposits. According to Anglo American sources, the deposit will be developed first as an open pit, and later extended underground. Production of gold and silver should be around 250,000 ounces (8 metric tons) and 2,500,000 ounces per year, respectively, making Cerro Vanguardia one of the largest gold mines in South America. Projected sales from the operation are around US$112 million per year and the operations would employ around 200 persons. The initial capital investment is US$200 million. Anglo American is presently completing advanced exploration, mine planning, and engineering studies; production is scheduled to begin in 1998. Bajo de la Alumbrera. The Bajo de la Alumbrera copper gold deposit is located in Catamarca province. This deposit had been previously explored through funding of 3/ Figures are all best available estimates.  - 30 - ANNEX 1 the central government and international organizations. The mining title belongs to the mining company Yacimiento Minero Aguas de Dionisio (YMAD), owned by Catamarca province and the University of Tucuman. YMAD subsequently entered into a joint venture with International Musto (IMZ), a Canadian mining company. IMZ has spent US$10 million conducting further exploration work and a feasibility study. In January 1994, IMZ signed a 50-50 joint venture agreement with the Australian company Mount Isa Mines (MIM), and take over bids for Musto's shares have been made since. The deposit is large and amenable to open pit mining techniques. The in-situ grades are 0.53 percent for copper and 0.68 grams/ton for gold. As of April 1995, estimated scheduled production rates, were of 170,000 tons of copper and 640,000 ounces of gold over a 19-year mine life. The project is now organizing financing for the estimated US$750 million capital investment, and the promoters indicate that production could start in 1997. However, several issues concerning infrastructure and environmental protection remain to be solved and if the project goes forward this start-up date could well be delayed. Potasio Rio Colorado. Located in Neuquen province, the potash deposit at Rio Colorado is being studied by a local company, Minera Tea. The deposit is 1,100 meters underground and is comparable in quantity and quality to Canadian potash deposits. A feasibility study has been performed which indicates that the mineral can be extracted using solution mining, whereby hot water is injected into the mineralized beds and pumped to the surface where it is evaporated by solar means. Minera Tea reports that it has invested almost US$20 million on studies and has a small pilot plant in operation. Minera Tea is negotiating with a foreign partner to establish a joint venture for the development of the deposits. Potash is used primarily as an ingredient in fertilizer. Brazil would be the primary export market, and it is estimated that production would carry a market value of about US$100 million per year. Salar del Hombre Muerto. The Salar del Hombre Muerto is a deposit of evaporite lithium/potassium enriched brines located in Catamarca and Salta provinces. FMC Lithium International Corporation (USA) will bring the salar into operation over the next few years. The product will be exported at a market value of US$70 million per year. The capital investment required to develop the operations is estimated at US$100 million. El Pachon. Located in San Juan province, the El Pachon copper-molybdenum deposit has been adjudicated to a consortium headed by Minera Aguilar, a subsidiary of COMSUR (Bolivia, which is partly owned by Rio Tinto Zinc-UK) and Cambior Gold (Canada). This deposit has been thoroughly explored originally by Minera Aguilar when this company was owned by St. Joe Minerals. Feasibility studies with various options as to production and transportation methods have been carried out. The deposit is estimated to have 800 million tons of reserves grading 0.6 percent copper and 0.016 percent molybdenum, and can be mined by open pit methods. However, the lack of infrastructure and the constraint that the product had to be exported via Argentina's Atlantic ports and not through Chile which is much shorter, made transportation costs prohibitive. The latest feasibility study on this deposit  - 31- ANNEX 1 estimated a capital expenditure of well over US$1 billion, much of it in required infrastructure. The chances of mining this deposit profitably should increase now that the governments of Argentina and Chile are entering into an agreement which would permit Argentine minerals to be exported through Chilean ports. 20. The Argentine provinces have many other deposits which have been explored to some extent. Recently, over 150 prospects were presented at an international investors conference in Buenos Aires, including metals, non-metals, and construction materials projects. Annex 5 provides an assessment of the economic impact under three scenarios of the development of these and other mining projects. Table A1.5: Companies active in Argentina (March 1995). Company Country Province where active MIna, American Resources Canada Catamarca, Mendoza, Neuquen, metals San Juan Argentina Gold Corp. Canada Catamarca, San Juan metals Argentina Mineral Development SA Australia Jujuy, Mendoza, Salta metals Argex Minerals Corp. Argentina Canada Salta metals BlP Minerals Exploration Inc. Australia Catamarca, Salta metals Barrick Exploration Argentina SA Canada Salta, Santa Cruz metals Battle Moutain Gold Company USA Catamarca, Salta, San Juan metals Borax Argentina (Borquimica) UK Jujuy, Salta lithium, borates Canteras Esquiu Argentina Catamarca limestone CRA Exploration Australia Catamarca, Jujuy, La Rioja, metals Salta Cia. Minera Solitario Argentina SA USA Catamarca, Jujuy, Mendoza, metals San Juan Cia. Minera Aguilar Bolivia/UK Jujuy metals Cia. Minera La Barca Bolivia Mendoza metals Cia. Minera Polimet Canada Catamarca, Tierra del Fuego metals CR International Corp. USA Catamarca, Cordoba metals Challenger Mining International Ltd Australia Buenos Aires, Santa Cruz metals De Stefano Argentina San Luis marble Dona Amalia Argentina Mendoza limestone Empresa Minera Rio Frio SA Chile San Juan metals  - 32 - ANNEX 1 Company COUDy lProvince where actve Minerals GAMSA South Africa Chubut, Neuquen, Salta metals HAG International USA Salta metals Handy & Harman USA La Rioja gold refinery Hexabor SA USA Catamarca, Jujuy, Salta borates Ingeoma Argentina Buenos Aires metals International Musto Exploration Ltd Canada Catamarca, Jujuy, Salta metals Inti Raimi Bolivia/USA Mendoza metals La Elcha Argentina Catamarca bentonite La Plata Gold Corp. Canada La Rioja metals Minamerica Canada Cordoba, San Luis metals Minas Argentinas Canada Jujuy, La Rioja, Salta, San metals Juan, San Luis Minera Aconcagua Canada Cordoba, Salta metals Minera Alumbrera Australia/Canada Catamarca metals Minera del Altiplano USA Catamarca, Salta metals Minera El Dorado Canada Catamarca, La Rioja metals Minera Homestake Chile SA Chile/Canada Chubut metals Minera Mincorp SA South Africa/ Chubut, Rio Negro, Santa Cruz metals Argentina Minerales Patagonicos Canada Rio Negro, Santa Cruz metals Minera Rodo Argentina Catamarca semi- precious stones Minera Tea Argentina Mendoza potash Mintec Consultores Asociados Bolivia Salta metals Miramar Mining Corp. Canada Salta metals NA Degerstrom Inc. Canada Cordoba, Mendoza metals Northen Gold International Corp. UK Salta metals Pacific Rim Mining Corp. Canada Catamarca, Salta metals Paramount Ventures & Finances Inc. Canada San Juan metals Pegasus Gold International Inc. USA Cordoba, Mendoza metals  -33- ANNEX 1 Company Country Province whee aethve Minerms Piedra Grande Argentina San Luis marble Placer Dome latin America Ltd Canada Catamarca, Neuquen metals Plata Minerals Ltd Canada La Rioja, San Juan metals Potasio Rio Colorado Argentina Mendoza potash RTZ Mining & Exploration Ltd UK Catamarca, Cordoba, Chubut, metals Jujuy, Salta Rome Resources Ltd Canada Buenos Aires metals SR Minerals Canada Jujuy metals Sikaman Gold resources Canada Neuquen, Rio Negro metals Sovereign Gold Co. Ltd USA Catamarca, La Rioja metals Sunshine Mining USA Chubut metals Triton Mining Co. Canada La Rioja, Mendoza, Salta metals Uranco Argentina La Rioja uranium YMAD Argentina Catamarca metals, gold refinery  - 34 - ANNEX 2 ARGENTINA - MINING DEVELOPMENT TECHNICAL ASSISTANCE PROJECT PROJECT DESCRIPTION, ADMINISTRATION AND IMPLEMENTATION I. DETAILED PROJECT DESCRIPTION 1. Project Objectives. The main objective of the project is to help encourage the expansion of private investment in mining activities in an environmentally sound way in Argentina. To this effect, it will develop and support policy, regulatory and institutional reforms, help establish a unified mining cadastre, strengthen the provision of sector information and geo-scientific data, and establish a mechanism to address environmental matters and issues in sector activities. The project has three substantive components: technical assistance for mining sector policy development (policy framework development), policy implementation (institutional strengthening, unified cadastre and environmental management), and the development of the sector's support services (technical support infrastructure). All these areas will deal with action programs and discrete tasks at the federal and/or provincial levels, depending on the specific issues. A fourth component is the Project Coordinating Unit (PCU), which will manage project implementation at the SM. The project will be implemented over five years, and all programs included in the first component are expected to be completed in the first two years. Attachments A and B to this Annex show the proposed scheduling of components, programs and tasks included in the project, and their estimated costs are shown in Attachment C. In addition, Annex 7 shows a matrix of key activities and their timed target indicators. General terms of reference for the project were formulated during preparation, detailing first year program tasks. They were reviewed during appraisal, and agreed with SM. All such TORs are kept in Project Files. 2. The project will finance technical assistance, studies, equipment and vehicles, discrete works, training and related incremental costs to: (a) further develop the sector's policy framework by: (i) continuing and completing the revision and reform of its legal and regulatory framework at the national and provincial levels, and establishing appropriate provisions for environmental management in the sector; and (ii) studying the existing market for official research and technology transfer facilities in order to adapt the services provided by such facilities to the new role of the State; (b) support and develop sector institutions at the national and provincial levels by: (i) continuing the institutional adjustment to adapt sector agencies to the state's role as a facilitator of private activities in the sector; (ii) implementing a training program to enable staff in different capacities at SM, provincial administrations and SINATEM (the national mining technology system), to address their evolving responsibilities and to exchange views regarding sector  - 35 - ANNEX 2 policy and issues with private parties (especially trade associations and the affected communities); and (iii) assisting in the progressive and realistic divestiture of provincial mining companies. (c) help provide a strong geological infrastructure by: (i) carrying out geological and thematic mapping, supported by geophysical and geochemical activities and (ii) establishing a geological repository; (d) establish a unified mining cadastre for the country, which will start being developed in the six provinces participating in the project; (e) set up environmental monitoring and control activities by helping develop and establish the mechanisms: (i) at the provincial level, to obtain and update environmental baseline data; to formulate, adapt, disseminate, supervise and enforce environmental regulations, norms and standards, and to ensure the participation--in the processing of proposed mining operations--of parties potentially affected by such operations; and (ii) at the federal level to provide assistance to provinces regarding discrete environmental issues; and (f) help determine the role of official support to scientific and technology development in the sector, particularly regarding small- and medium-sized industries involved in mining, and develop the Unified Data Base and Mining Information programs to facilitate and promote the growth of private activities in the sector. 3. Institutional Framework. The Secretariat of Mining (SM) at the Ministry of Economy, Public Works and Services formulates mining policy, in line with the country's overall economic policy, and is in charge of developing, maintaining and making publicly available the sector's information and data base, including sector statistics, geo-scientific data and marketing information. It provides forums for representatives of both the private sector and provincial authorities to communicate their concerns to the federal government in a formal, periodic fashion, through the Mining Advisory Council (Consejo Asesor de Empresarios) which brings together members of trade associations and industry groups, and the Federal Mining Council (COFEMIN) which groups provincial mining authorities representing their respective Governors. Both groups meet at least once a month, the first in Buenos Aires, the second in a province. Provinces own the mineral resources and are mandated to administer mining rights. They grant and cancel exploration permits ("cateos") and mining concessions, manage mining cadastres, collect mining statistics and monitor sector activities. However, many have often subsidized the sector, with funds from mining permits and royalties, and have established provincial mining entities that have discouraged private activities. In addition, most provincial governments have assumed a technical assistance role regarding small-scale and medium-sized mining activities. Issues associated with these arrangements have only recently begun to be discussed, and will be gradually addressed in a systematic, serious way through the project.  - 36 - ANNEX 2 4. The institutional structure of SM is evolving to provide an appropriate functional setting for SM's new, proactive role as a facilitator of private mining in Argentina. The front office of the Secretary formulates and establishes sector policy, and the Undersecretariat is charged with implementation of such policy through two line agencies, the National Directorate of Mining (DNM) and the National Geological Service Directorate (DNSG), which is to become administratively separate in the future. The former: (i) gathers, organizes and provides summarized sector statistics; (ii) monitors, evaluates and manages the effects of the new fiscal regime applicable to mining; and (iii) centralizes cadastral data originating in the provinces and promotes private mining. The project will re- group and enhance some of these activities--statistics and promotional--and strengthen the cadastral capability so it can provide technical assistance to provinces requesting it (Attachment E). It will also establish a task force to develop a unified mining data bank (BUD) which will be accessible to the public. In 1993 DNSG was created within SM re- establishing the geological data gathering and mapping functions that had been practically eliminated a decade before. The project strengthens the capability of DNSG to produce geological infrastructure (field work and mapping) redirecting SM's existing field offices (called "Delegations") to provide the necessary logistical support, and helps establish a geological repository within DNSG. Modern organizational structures grant an autonomous status to entities charged with such functions in other countries. Yet, there is a pressing need to continue geological work with as little disruption as possible, and hence it is expected--but not required--that the Argentine geological service will become autonomous in the future, within the life of the project, once its long-term work program and discrete routines are well established. It will become at least administratively separate from SM three years after Loan effectiveness. In addition, a Task Force has been established, directly dependent upon the Undersecretary, to deal with environmental matters at the federal level (Annex 2, Attachment E). 5. Three semi-autonomous research institutes have a sectoral dependency from SM. They are: (i) INTEMIN, the National Mining Technology Institute, recently formed by joining four mining-related research centers--CIPROMIN, CIDEMAT, CIGA and CIIM-- which were previously part of the National Industrial Technology Institute; (ii) CRAS, the Regional Groundwater Center; and (iii) INPRES, the National Institute for Seismic Prevention. 6. The SM has created two consultative bodies to discuss regularly with the sector's interested parties and administrators the evolution of sector policies and its legal and institutional framework and specific instruments. These entities meet monthly with the Secretary of SM. The Federal Mining Council (COFEMIN) brings together the provincial sector authorities, and the Mining Advisory Council (CAE) groups representatives of the private sector, mainly national mining sub-sectoral trade associations. 7. Provincial organizational arrangements vary, as do their specific mandates. The most common pattern is a Secretariat or/and a Provincial Directorate of Mining (DPM), which is usually a line agency of a provincial ministry of economy or of production. Depending on the provincial regime, there is also a mining registry which may be attached to the DPM or to the provincial judicial system. While the key provincial functions should be the mining  - 37 - ANNEX 2 cadastre--to properly register and ensure the legal status of mining rights--monitoring sector activities, and supervising environmental management by operators, most of the DPM's existing mandates were directed in the past to extension efforts. The project will enhance the former and discourage the latter (while carefully determining the appropriate timing of such actions). 8. Provinces still maintain (although some only on paper) mining corporations that have carried out very limited exploration, and were originally established to exploit mineral resources. While most of them would have disappeared in time, their relatively recent inheritance of mining rights previously held by Fabricaciones Militares (the productive branch of the Armed Forces which has been largely privatized) rekindled their business instincts, and many are now actively seeking partners among private mining concerns, or the outright sale of such assets. Such divestiture will be assisted by the project. II. DESCRIPTION OF PROJECT COMPONENTS A. Policy Development Component A.1. Legal Framework Development Subcomponent Duration: 2 years Cost: US$570,000 9. As part of its overall liberalized economic framework, the Federal Government is pursuing policy reforms in the mining sector, and is vigorously encouraging a similar stance in the provinces, which are responsible for the administration of mining rights in Argentina. The project supports the country's new mining policy, now adopted by most provinces, which establishes that the role of government is to provide a transparent, non-discretionary, secure administration of mining rights. However, Argentina's Mining Code is an antiquated instrument dating back to the last century, and it does not appropriately support modern mining. Efforts to replace it have met in the past with strong resistance, and the present administration opted for a gradualist strategy that has achieved important changes. Yet, while three federal laws enacted in 1993 have begun to provide a better business environment for modern mining, much more needs to be done, at both the national and the provincial levels. 10. The analysis already carried out shows that the body of legislation applicable to the mining industry in Argentina is excessive and lacks uniformity, has duplications and is not complied with or enforced in an effective, systematic way. The most deficient law at the national level is the CM, most of which is obsolete and difficult to enforce. Serious deficiencies associated with the Code are, among others, the: lack of definitions and potential for administrative discretionality; classification of mines; obligations required of miners; principles for obtaining mining rights; limitations on the size of private mining claims; and the possibility it provides for provinces to maintain large reserves, which in effect removes potentially important mining areas from the market. Also, the number of provincial standards applicable to mining is excessive, and the codes for provincial mining procedures  - 38 - ANNEX 2 are often complicated. Hence one of the priority objectives of Argentina's official policy for the sector is to modernize its legal and regulatory framework, including the reform of the CM at the national level and the revision or establishment of associated legal and regulatory provisions at the provincial level. Given past difficulties, it is understood that this is a task that requires the build-up of sufficient consensus to ensure its legislative approval. The present Administration has presented to Congress for its approval two additional amendments to the Code--one dealing with environmental aspects, the other with urgent modernization measures. In addition, a formal Agreement between the federal and provincial administrations will facilitate the establishment and development of a unified mining cadastre in the country. 11. This subcomponent will provide resources to: (i) revise and modernize mining legislation and regulations at both levels: federal (CM and mining related regulations) and provincial (Mining Procedures Codes; environmental norms applicable to mining); (ii) prepare uniform application forms for exploration permits, all procedural steps and concessions; and forms related to the administration of mining rights such as reports, notifications, and public notices; and (iii) draft a training manual for provincial officials, dealing with the new mining legislation and procedures. Environmental norms applicable to mining will be developed in collaboration with the Environmental Management Subcomponent, as such work is also the practical training grounds for provincial staff that will enforce the norms. It is estimated that about eight foreign and 48 national specialist- months will be required together with resources to cover the corresponding operational expenses. A.2. SINATEM Studies Subcomponent Duration: 2 years Cost: US$840,000 12. The existing technological levels and capabilities in mining activities are an important concern of both federal and provincial authorities, particularly among medium and small size firms. While large scale, modern mining will bring with it new technologies and obtain the qualifications needed either in the Argentine or other labor markets, most mining concerns that have traditionally operated in the country will have to adjust their management, operating and marketing technologies to adapt to the evolving economic paradigm, which requires them to be competitive and shed prior patterns. Technological capacity is an important factor in this adaptation, and INTEMIN has been established to provide assistance in the reconversion that existing mining concerns must undertake. Besides INTEMIN, there are research and development centers in the country (Universities, foundations, and provincial agencies) that may become useful instruments for this reconversion. For this reason a coordinating mechanism, the National Assistance System in Mining Technologies (SINATEM) has been established, to help focus existing institutional resources towards the present needs of mining activities. 13. The subcomponent will finance three studies to determine the market for the existing research and development services in Argentina (supply and demand studies), analyze the  -39 - ANNEX 2 present and potential roles of small and medium mining (PYMES) in Argentina and identify the respective issues. The studies would also provide policy recommendations regarding such issues, and action proposals towards their solution (Project items B1(b.iv), SINATEM Training Program, and C.2, Research and Technology Development Subcomponent would later implement such proposals). The project will finance about 30 foreign and 63 local specialist-months of consultancies, technical and administrative support and incremental operational costs. B. Policy Implementation Component B.1. Institutional Capacity Development Subcomponent Duration: 5 years Cost: US$5,536,000 B.1.a. Institutional Framework Development Program 14. The broad sectoral institutional framework has been reformed during the last two years, as part of the policy to reduce the role of the State, and to adapt sector agencies to better-defined functions, eliminating most of their past widespread overlapping. Further detailed adjustments remain to be implemented at the federal level and, more particularly, within the Provinces where the reform process has in general been more limited and uneven. During project preparation, a careful and detailed institutional capacity analysis and development work (ICADS) was carried out with representatives of federal and provincial agencies involved in the project. The respective roles of such agencies and of the private sector have been clearly defined and the institutional capacity gaps identified. These results must now be translated into rationalized institutional structures. Overall, this subcomponent's tasks will be coordinated by the Undersecretariat of Mines with the help of the PCU. Two sub-programs are included: B.1.a.i. Institutional Modernization and Strengthening Sub-Program Duration: 9 months Cost: US$1,239,000 15. This sub-program aims at defining an institutional model for the sector at the federal and provincial levels, which will be implemented gradually during the project, starting in year 2. The model would be defined through a participative process (workshops and seminars), with the support of international and national short-term consultants. The work will focus first on (i) the distribution of functions and responsibilities within the framework of the new mining policy as defined in the sector's 1993 "Federal Agreement" and according to the results of the ICADS exercise; (ii) the mission statement and organizational status of the Geological Survey entity; (iii) the objectives, functions, responsibilities, strategies and working plans of the provincial agencies; and (iv) the progressive and realistic divestiture of provincial state-controlled mining companies. Second, work will include the design of the resulting institutional model as well as a detailed inventory of its infrastructural needs  - 40 - ANNEX 2 (facilities and equipment) to be funded under the Institutional Infrastructure Sub-Program. Provisions include the financing of: 17 specialist-months of international and 101 specialist- months of local consultants; (ii) workshops and seminars; and (iii) some incremental operational costs. These activities would be closely coordinated with the National System of Public Administration (SINAPA). B.1.a.ii. Institutional Infrastructure Sub-Program Duration: 4 years Cost: US$2,985,000 16. Based on results of sub-program Bl(a.i) above, funds would be provided to upgrade facilities at the National Secretariat and Undersecretariat of Mines (SM and SSM), the Mining and the Geological Survey National Directorates (DNM and DNSG), three or four regional offices (SM Delegations), and the Provincial Mining Directorates (DPMs) of participating provinces. This sub-program will provide funds for office rehabilitation, purchase of basic core office equipment (including administrative hardware and software not included in the BUD subcomponent), vehicles, purchase of legal and technical literature, and the publication of information on legal and administrative procedures. A modest amount will also fund expected incremental operational costs. Its cost was estimated from the ICADS activities. B.1.b. Training Program Duration: 5 years Cost: US$1,312,000 17. This Program is composed of four sub-programs. The two first are aimed at enhancing the management and technological skills in the federal and provincial administrations, respectively. A third will develop the fiscal skills required in order to properly apply the mining taxation regime, and the fourth will help retrain staff in existing mining research institutions. More specific, technically oriented training (some parts of it on-the job, others of an academic nature) is also included in several subcomponents (Mining Cadastre, Environmental Mechanisms, Geological Infrastructure and Information Infrastructure), covering both the federal and provincial administration levels. B.1.b.i. Federal Level Institutional Management and Technological Updating Training Sub-Program Duration: 5 years Cost: US$225,000 18. This sub-program will provide systematic, long-term training within sector agencies regarding in particular management and technological updating of staff and management, in order to continuously strengthen their institutional capacity and enhance their human resource capabilities. Various training needs were identified during the ICADS work, related to  - 41 - ANNEX 2 existing institutional capacity gaps--such as project planning, budgeting and monitoring; human resources policy and management; information systems; and systematic technological updating. The sub-program will be coordinated by the PCU, and provide one specialist- month of international consultancy to verify the present and future training needs at the federal level and design a corresponding long-term training proposal. B. 1 .b.ii. Provincial Level Institutional Management and Technological Upgrading Training Sub-Program Duration: 5 years Cost: US$225,000 19. This sub-program is aimed at the provincial administration level and will be implemented on a multi-provincial basis if appropriate. As in the preceding sub-program, the potential training areas were identified during the ICADS exercise. The PCU will manage implementation of this sub-program in coordination with COMIDI (a committee that includes the provincial project coordinators). The proje^t will fund one specialist-month of international consultancy to identify in detail the present and future needs of the provincial sectoral institutions and design a long-term training proposal. Project funding would be available to implement such a proposal. B.1.b.iii. Fiscal Training Sub-Program Duration: Five years Cost: US$462,000 20. The new mining investment law 24,196 (May 1993) establishes a favorable taxation regime for mining. However, Argentina lacks a mining tradition and has few of the seasoned professionals in mining taxation, accounting and finance that are needed to adequately apply the new law. This situation is worse in the provinces, which have been traditionally isolated from the main financial and fiscal activities in Buenos Aires. This component would improve capacity in taxation, mining accounting, and finance at the national and provincial levels to effectively administer the new legislation and tax regime. Specific mining taxation, accounting and finance training activities to be funded include conducting: (i) three major seminars during the project, dealing with basic principles and international best practices; (ii) one refresher course yearly in Buenos Aires or some provincial location; (iii) visits to the provinces periodically by teams of counsellors and instructors to reinforce training and assist in implementation; (iv) courses abroad; (v) selected audits of mining company financial statements; and (vi) advisory assistance to national and provincial mining administrations on a retainer, case by case basis. 21. The sub-program will increase the understanding of officials regarding calculations of various taxes, royalties and fees. Particular attention will be paid to international practices regarding deductible expenses, amortization of assets, categorization of expenditures, and deferment of expenditures. Through instruction in the spreadsheet analysis of various fiscal parameters, officials will learn to determine the effects of various fiscal measures on the  - 42 - ANNEX 2 mining enterprise's viability. The training will focus on teaching international standards of mining accounting including, among others, valuation of inventories, recording of sales and expenses, depreciation and depletion allowances, financial charges, determination of income, expensing or amortization of capital expenditures, and capital budgeting. Training will also be provided in mine finance, traditional sources of project funding, flow-through shares, operation of capital markets specializing in mining equities, use of risk and hedging funds, equity and debt issues of mining companies, new financial instruments for project finance, investment risk analysis, financial and ratio analysis, projections of cash flow and other topics. It will also deal with the international best practices and standards of financial disclosure and reporting, including how to analyze income statements, balance sheets, and flow of funds statements. Instruction will also be provided concerning standards and methods of industry regulation and supervision. 22. The sub-program will be implemented by the PCU. Staff from the national and provincial mining administrations and their counterparts in the Secretariat of Finance and related government agencies would benefit from this training. It will be necessary to recruit international experts with practical business experience in various taxation, accounting and financial aspects, to ensure adequate awareness and knowledge of practices in mining countries with which Argentina must compete to attract mining investment. It is likely that, at least during the sub-program's initial phases, a large internationally recognized accounting firm may have to be contracted to find the experts with the requisite skills and experience. The objective of these experts will be to design the training program and to "train the trainers" rather than spend extensive amounts of time in Argentina. The sub-program will finance 5 foreign and 20 local specialist-months of consultancies, three seminars and four refresher courses, and ten international courses. B.l.b.iv. SINATEM Training Sub-Program Duration: 3 years Cost: US$400,000 23. During the two initial years of implementation programs dedicated to SINATEM (see project subcomponent A.2 above), a retraining program would be designed to assist the staff of the agencies involved in the SINATEM framework (i) to adjust their roles according to the defined institutional policy and its new objectives and functions; (ii) to participate, when relevant, in the implementation of the project programs (e.g. Information infrastructure). Study trips abroad would be part of this retraining program, in order to benefit from the experience of foreign entities with similar functions of technological support to the mining industry. In addition, study trips for technical training in laboratory skills and quality standards programs would also be included.  - 43 - ANNEX 2 B.2. Cadastre and Registry System Subcomponent Duration: 3 years Cost: US$7,223,000 24. A priority objective of the Government's mining sector policy is to establish a well-informed, uniform and interactive cadastral system. The project will finance the transformation of the physical registries of participating provinces into proper mining cadastres. The cadastre will provide reliable information about the precise location of mining rights in the territory, expressed in Gauss-Kruger coordinates--which is obligatory in Argentina and can be translated and expressed in any other coordinate system--and also about the legal status of mining rights. The procedures required in order to apply the cadastre process will be transparent, public, of general application and non-discriminatory. In addition, the cadastre will cover both the mining rights requested and granted after it becomes effective, and already existing ones as well as the ones that have been simply requested. Hence the cadastral procedure will have stages, instances and resources to allow owners of older mining rights to adequately defend their rights. Older mining rights that are not inserted into the new cadastre must be legally cancelled in order for the information resulting from the cadastre to be correct and useful in practice. Both elements--cadastre coverage and the defense of older mining rights--affect the length of time necessary and the budgetary resources needed to implement the cadastre. 25. The cadastre would continue to be related to the terrain's topographical features, and hence it will be necessary to improve some geodesic networks and cartography, both of which have serious deficiencies in Argentina. This also affects the length of time and budget needed to implement the cadastre, and implies that participating provinces must: train their present staff and hire twelve additional staff during eight months; purchase computer and topo-geodesic equipment--which for a typical province includes: three 486 computers, one for digitalization, plotter and database, one for the registry and the third for the counter (providing access to the public); one double screen Pentium; one portable 486 (field work), one 4GB rigid disk; one magnetic-optical (CD ROM) disc; one DAT tape; two laser printers (for the registry and database); one A3 matrix printer (for digitalization); one eight-pencil pen plotter; one 36" x 48" digitalizing table; three UPS units; one each of word processing, digitalization, image processing and topographic calculation software programs; one DBase database; one LAN; two GPS geodesic order receivers and navigator-type GPS positioners; one complete station (1" reader); hand-held VHF transmitters; Landsat TM digital format images and B/N hardcopies, and other equipment. Likewise, field work to locate and measure a total of about 2,400 geodesic points and 9,000 corners in total will be contracted out at an estimated cost of about 40 percent of the subcomponent's total, as well as the verification of such work (also to be contracted out, to a different firm). The subcomponent includes two specialists/months of international and 184 specialist/months of local consultants. Finally, it will finance operating costs, vehicles and the provision and furnishing of adequate facilities (through office rehabilitation works or additions, equipment and furniture purchases) for the cadastre and registry functions. Annex 6 gives implementation details for the cadastre. The time allocated to implement the cadastre  - 44 - ANNEX 2 subcomponent does not include that required to resolve any disputes arising from issues associated with older mining rights. B.3. Environmental Management Subcomponent Duration: 5 years Cost: US$3,810,000 26. The general objective of this subcomponent is to set up an environmental protection system for mining activities in Argentina. This system should bring together the respective mining administration agencies at the national and provincial levels as well as other public and private environmental entities. The subcomponent will: (i) develop and implement the environmental legislation--including norms and standards--for mining activities in the participating provinces (in collaboration with subcomponent A. 1 above); (ii) establish and/or strengthen the provincial capabilities to undertake environmental management functions in the sector; and (iii) undertake baseline studies in order to establish the values of environmental standards and parameters; and as a result of the above, develop environmental management methods applicable to mining activities, in line with the country's federal nature, each province's ecosystems and the potentially competitive uses of natural resources. B.3.a. Legal and Regulatory Program Duration: 4 years Cost: US$1,905,000 27. An effective environmental legal and regulatory framework requires a federal law and specific regulations, as well as technical and procedural instruction manuals for each province. Such regulations and manuals will be elaborated with the participation of the six provinces, under the supervision of the environmental unit within the national Secretariat of Mining, and in collaboration with all affected or potentially affected groups. The legal and regulatory system as a whole will become the basis of reference for authorities, private mining activities and third parties. To be implemented in close collaboration with the Institutional Capacity Development Subcomponent (B. 1), this program will help prepare the: (i) environmental regulations for the six provinces; (ii) instructions for the preparation of environmental impact evaluations; (iii) instructions for the notification of authorities regarding prospection and exploration works; (iv) organization of registries of environmental consultants and of laboratories capable of performing environmental work; and (v) technical manuals for environmental practices and procedures. B.3.b. Environmental Management Program Duration: 5 years Cost: US$250,000 28. The institutional buildup, strengthening and training provided through subcomponent B. 1 will make possible the application of the resulting legislation and work procedures. This  - 45 - ANNEX 2 activity is mostly directed at the provinces, and includes the establishment and strengthening of local capacities by, inter alia, participation in the formulation of environmental legislation, regulations, norms and standards; the development and application of methods and routines for issuing exploration permits and mining concessions (including requirements of environmental assessment and management programs); and the establishment of appropriate monitoring, supervision and control within the sector regarding such programs and the applicable occupational health and safety provisions. B.3.c. Baseline Studies Program Duration: 2 years Cost: US$1,645,000 29. Baseline studies are carried out to obtain comprehensive information regarding the existing natural and social conditions of a given area. This program will: (i) provide the specific information and data for the formulation, establishment and adaptation of environmental norms and standards, and to support decision-making regarding location of infrastructure, housing and mining and processing facilities; (ii) develop multidisciplinary research methodologies to be applied in environmental analysis; and (iii) strengthen the research capacity and human resources in environmental issues related to mining activities. The program will finance an environmental baseline study for each of the participating provinces and will proceed on a schedule of priority areas determined by the location of provincial protected areas and proposed mining operations. Work will make selective use of existing data from available sources, through field and source compilation, revision, supplementation, and comprehensive interpretation of such data. Such work will include, inter alia, (i) the study and determination of water resources: watershed areas, rain statistics, resource modelling, and water sampling and analysis (results will also be documented in a geographical information system); (ii) evaluation of the areas' environmental vulnerability; and (iii) determination of mining impacts regarding existing or past operations. Close collaboration with INTEMIN, CRAS and other research organizations is expected. 30. Mining Secretariat staff as well as from the provincial agencies, and local consultants when necessary, will implement the environmental programs, assisted by a team of foreign consultants. This effort has been estimated to require about 35 foreign and 590 local specialist-months of consultancies. The programs will include the purchase of field and office equipment--computer equipment and software and laboratory equipment--two vehicles, satellite imagery (in coordination with other subcomponents), analysis services and operational and training costs. Annex 3 details this subcomponent's activities. C. Support Services Component C.1. Geological Infrastructure Subcomponent Duration: 5 years Cost: US$10,700,000  - 46 - ANNEX 2 31. The availability and regular publication of basic geological and mineral resource maps is an essential service which must be provided by governments to attract and orient private investments to mining activities as well as to provide cross-sectoral information for government use and for the community at large (for purposes of public works, land use management, agriculture, and environmental protections). Because of past inadequate mining development policies and institutional issues, this essential work has been largely neglected: only 30 percent of the country has an initial systematic geological map coverage. The Mining Restructuring Law of 1993 provides a strong mandate to the Geological Survey National Directorate (DNSG) to reactivate and strengthen these basic services. Mapping production was re-initiated and a few regional maps have already been compiled on the basis of existing information. However, this material, with some exceptions, does not provide the information a modern Geological Survey should produce because the available data are partially outdated or poorly identified in the field, and/or their processing and interpretation has not been carried out according to modern concepts or techniques. The DNSG has already taken steps to design modem products, namely the generation of standardized geological and mineral resources maps at scales of 1:250,000 and--at a later stage-- 1:100,000. This subcomponent, to be housed in the DNSG, would include three programs: (i) Geological Mapping; (ii) Mineral Resources and Thematic Mapping; and (iii) the National Geological Repository. These three programs would strengthen the core mapping and mineral sector development activities of the DNSG. C.1.a. Geological Mapping Program Duration: 5 Years Cost: US$5,442,000 32. The main goals of this program are to: (i) strengthen and modernize DNSG's geological map production through the development of remote sensing data processing and a digitalized map processing and editing capacity; (ii) support the systematic geological mapping of previously umnapped or inadequately mapped areas, and publish professional quality packages of data and maps; (iii) train DNSG's geologists on-the-job in dynamic and modem field mapping and map production techniques; and (iv) provide the basic and reliable geological information necessary to attract investments and plan sectoral and cross-sectoral activities. The work would aim at the digitalized production of about 60 1:250,000-scale maps and 10 1:100,000 scale maps over the Andean Cordillera area, first within the boundaries of the six provinces directly participating to the project, covering some 550,000 km2 or about 75 percent of the prospective mineral areas of the country. The bulk of the work will be carried out by the permanent staff of regional geologists of the DNSG, under the guidance of international consultants and the support of specialized national consultants. Geologists now doing mineral inventory work at the provincial mining offices will be integrated into the DNSG teams active within the respective provinces. The subcomponent would provide a total of 57 specialist-months of international and 240 specialist-months of national consultants. It includes field and office equipment satellite images, data treatment and map processing equipment (specific hardware and software), vehicles and incremental operating costs. Specific field as well as on-the-job training is also included. The geological  - 47 - ANNEX 2 mapping program will be undertaken in close collaboration with the geophysics and mineral resources mapping program. C.1.b. Geophysics and Mineral Resources Mapping Program Duration: 5 Years Cost: US$4,329,000 33. More information than basic geology is required to develop a specific data base for use by the mineral industry The mineral resources thematic mapping being implemented by the DNSG is aimed at generating and producing interpretations of different data sets, to be published and made available in maps, and descriptive and interpretative formats. Data sets being developed and integrated would include regional geophysics, geochemistry and geology, structures, distribution of mineral deposits, metallogeny, infrastructure and other topics, with key areas being subject to field checking. The results of this work provide guidance as to metallogenic provinces and districts which are prospective for the discovery of specific ore deposits. The specific objectives of this program are to: (i) develop the DNSG capacity to gather, process and interpret mineral resources data sets, and produce professional maps and reports; (ii) develop the institution's capacity to process and interpret geophysical data; (iii) support the mineral resource assessment of regions where mining potential is deemed to be high, but poorly defined; and (iv) support the implementation of airborne geophysical surveys over selected areas of the regions defined under (iii) above. The work aims at producing about 60 1:250,000 scale and about 10 1:100,000 scale digitalized mineral resource maps over the Cordillera area, first of all within the six provinces directly participating in the project, covering some 550,000 km2 or about 75 percent of the mineral prospective areas of the country. The bulk of the work will be carried out by the permanent staff of mineral resource geologists of the DNSG, under the guidance of international consultants. Geologists presently doing mineral inventories in the provincial mining offices will be integrated to the DNSG teams active within the respective Provinces. The subcomponent would provide about 58 specialist-months of international and about 140,000 line-km of airborne survey (magnetometry and radiometry). It also finances field and office equipment, geophysical data treatment and processing equipment (including specific hardware and software) and incremental operating costs. Specific field as well as on-the-job training is also included. The geophysics and mineral resources program will be undertaken in close collaboration with the geological mapping program, with which resources such as satellite images, remote sensing processing and digitalization and interpretation facilities would be shared. C.1.c. National Geological Repository Program Duration: 2 years Cost: US$929,000 34. Much information, such as rock samples, geochemical samples, and drill cores, gathered during the past three decades by the Secretariat of Mines and other State  - 48 - ANNEX 2 organizations 1' doing geological investigation--most of which are now being privatized or liquidated--should be retrieved and made available in an orderly manner, as it is an important asset which should be used as a basis for future work. The two main activities to be supported under this program would be to: (i) clearly define the materials which should be collected, and design in detail the organization and required physical infrastructure of the repository, including a cost-benefit evaluation; and (ii) subject to the result of (i) above, design and establish the required facilities. The funding of this program would provide for two specialist-months of international and 24 specialist-months of local consultants, and funding for specialized architectural and technical consultancies, construction work, equipment purchases, installation of the Repository and incremental operation costs. The DNSG library would be also be enhanced through this program, through the financing of its restructuring and the purchase of technical literature in order to update its resources and the services it provides to the public. C.2. Research and Technology Development Subcomponent Duration: 3 years Cost: US$1,850,600 35. Studies under A.2 above will determine how sector research and development efforts should be redirected, and the timing of such actions. This subcomponent would support such reorientation, undertake the corresponding functional and organizational reforms, and, if needed, strengthen and modernize the facilities and equipment dedicated to these efforts. While the extent of these reforms cannot be known until after the studies are completed, an overall cost has been estimated for the subcomponent, based on preliminary results of preparation work. It is envisaged that SINATEM members will redirect their action to: (i) applied research and the technological support of productivity improvements in Small and Medium-Scale Enterprises (SMEs); (ii) the solution of discrete issues affecting production and marketing of SME products; and (iii) help update SMEs on environmental matters. As estimated, the subcomponent would finance eight staff-months of foreign and 96 staff-months of local consultancies, the cost of workshops and seminars, new equipment, minor facilities and training of operators. C.3. Information Infrastructure Subcomponent C.3.a. Unified Mining Information System (BUD) Program Duration: 5 years Cost: US$2,344,000 36. An essential tool in the development of private sector mining is the rapid and efficient access to accurate information. At present, some information of relevance to the mining sector is collected and published, in particular statistics on production volumes and values. 4/ Principally YPF, FM, CNEA, YCF and others.  - 49 - ANNEX 2 However, this information is collected by a number of different agencies at the provincial and national levels and is not fully used as a decision-making tool. The project will improve the quality and quantity of cadastral, environmental, geological and other sector information which must be integrated into the system. An integrated information data bank, using modern processing and communications technologies, will be of great value to the government and private producers and enable the sector to grow and compete more effectively. This component will provide funding for: (i) technical assistance: three specialist-months of foreign and 96 specialist-months of local consultancies; (ii) procurement of equipment (computer hardware and software), equipment maintenance and training; (iii) minor rehabilitation works; and (iv) incremental operational costs. 37. The objective of the BUD is to systematize the collection and interpretation of sector information at the provincial, national and international levels, making use of state of the art technology to gather, store and provide the information to interested parties in a timely fashion. The BUD will consist of several layers of information, such as: (i) institutional, legal and fiscal aspects; (ii) mining cadastre (permits and concessions); (iii) geological maps and information; (iv) mining technology information; (v) environmental control and monitoring information; and (vi) production and marketing statistics. The component will be implemented by a specially designated task force of specialists located within the SM. There will be an overall coordinator of the BUD, assisted in each province by a provincial coordinator. The task force approach is necessary as a transition step, in order to build the necessary skills base within the SM while at the same time ensuring independence and objectivity in the collection and assembly of data. By the fourth year of the project it is anticipated that sufficient skills will have been developed and data gathered to determine the definitive institutional arrangements for the BUD. 38. The program will be implemented in phases: the first will precisely define the information needs and uses thereof, specify the hardware and software requirements, and train personnel to effectively implement the system. During this first phase, bibliographies, technical reports, projects, statistics, directories, and other relatively easily assembled data would be produced. During the second phase, cadastre and environmental information would be added as it is collected through other project components. The third phase will integrate geo-information such as cartography, maps, geophysics and geochemistry data into the BUD. The national and provincial information systems would be linked and become interactive through cable, satellite, and radio liaison. 39. Equipment to be procured includes inter alia: personal computers (Pentium and 486), work stations, servers, laser printers and plotters, digitizing tables, scanners, supporting communications devices, and various accessories. Software requirements include programs in database management, word processing, archives and statistical management, geo-statistics processing and others. In addition, subscriptions to various local and international electronic databases will be funded. Because the national and provincial organizations lack the qualified personnel necessary to design and implement the system, funding of local and international consultants is provided. Some rehabilitation work, in particular the up-grading of electrical supply and computer security in government offices, will be required. Finally,  - 50 - ANNEX 2 an allocation for training of personnel on a continuing basis is included in the five-year program. C.3.b. Mining Information and Promotion Program (MINPRO) Duration: 5 years Cost: US$1,267,000 40. The BUD will collect and synthesize data. Making the data available to interested parties and promoting investment in the sector will be a function of the Mining Information and Promotion Unit. At present, the national and provincial secretariats publish essentially only statistical abstracts and directories. In addition, access to international information via subscriptions to industry trade journals, statistical databases, and on-line information services is inadequate at the national and provincial levels. In the past two years, the SM has prepared investment guides and directories of opportunities for specific conferences and promotional campaigns. In addition, a few private firms publish quarterly and monthly magazines concerning the sector. While these documents and publications are useful and generally up to international standards, a more focused information dissemination campaign conducted on a systematic basis would improve awareness of the country's potential to the investment community and to the public at large. 41. The principal objective of the dissemination of information is to make available to all interested parties at nominal cost, in an appropriate format, and at convenient locations selected information products about mining. An important additional function will be to sensitize and educate the general public as to the importance and contribution of mining, including the associated potential issues. An important benefit will be to provide the information and data required by private sector specialist publications. The various information products and activities envisaged in this component include, inter alia, the: (i) preparation and publication of the annual Estadistica Minera de la Republica Argentina; (ii) periodic preparation and dissemination of a Mining Investor's Guide; (iii) publication of regular newsletters, directories (business, mineral, financial) and opportunities bulletins; (iv) preparation of trade show/conference printed and visual materials; (v) participation in at least four international industry trade shows and conferences per year for the duration of the project; (vi) preparation of specialized marketing and other studies of sector-wide importance; (vii) preparation of various technical manuals and studies in association with INTEMIN (SINATEM); (viii) analysis of international minerals marketing, prices, and other trends; and (ix) preparation of video and educational material for use in schools and other public sensitization campaigns. 42. The skills needed to successfully implement an information and promotion campaign are specific and different from those required for the BUD. Hence the MINPRO unit will be separate, but will draw extensively on information generated by the BUD as well as INTEMIN and other government agencies. The various information products will evolve with the progress of the project and as information is fed into the integrated information system. Publication of some of the current products such as the statistical reports, directories, and other material need not be delayed and will continue. Additional planning  - 51- ANNEX 2 studies will be undertaken with the assistance of local and international consultants, to define exactly the types of complementary products and promotional campaigns required. During the project various training courses will be organized at the national and provincial levels for public and private sector officials in advertising and publication techniques, international marketing of mineral properties, preparation of business and financial plans, mineral product norms and standards, and export and international markets, among other topics. Finally, MINPRO would not replace or compete with private sector groups in Argentina to disseminate information. Rather, the function of MINPRO would be to serve as an initial catalyst to spur the private sector into a more active role in the dissemination of mining sector information. The project will finance about 1.5 specialist-months of foreign and two specialist-months of local consultancies; four market studies; SM attendance at four international sector conferences per year; training; the production of publications; and subscriptions to sector publications. D. Project Coordinating Unit (PCU) Component Duration: 5 Years Cost: US$1,410,000 43. The project was prepared with the support of a Coordinating Unit (PCU) which will continue to operate throughout implementation. The PCU links with SM's line agencies as well as the provincial agencies which participate in the project, and, during implementation, will monitor, supervise and provide its management control, by components, subcomponents and programs and of the project as a whole. The PCU will manage procurement--including all contracting for works and purchases--and the hiring of consultants, the contractual relationship with the Bank and the project's overall administration and accounting--which includes managing the Project's Loan Account and its other funding. PCU staff have attended Bank procurement seminars and satisfactorily implemented procurement under the PPF. As was done during preparation, an accounting firm will be retained with PCU funds to carry out the main accounting tasks during project implementation. The PCU will be responsible for preparing and submitting to the Bank quarterly reports dealing with project implementation, and for contracting under TORs acceptable to the Bank, the yearly audits of the project including the timely submission of such audit reports to the Bank. 44. The PCU will have a General Coordinator and an alternate, an administrative/accounting assistant, all chosen to the Bank's satisfaction, and two secretaries. It will also be able to hire temporary support if needed during peak periods of work. Funding is also provided for the unit's operating costs (most PCU equipment was acquired during project preparation).  - 52 - ANNEX 2 III. PROJECT ADMINISTRATION AND IMPLEMENTATION 45. Procurement. Goods and contract works will be procured in accordance with Bank Procurement Guidelines (January 1995). Consultants to be financed by the Loan (amounting to about US$9.7 million or 24 percent of cost) will be selected and hired by the PCU in accordance with the "Guidelines for the Use of Consultants by World Bank Borrowers" (August 1981). The principal Terms of Reference for work included in the project were drafted during preparation and reviewed at appraisal. Draft contracts for consultants and consultancy services will follow the IBRD Standard Form of Contracts, as applicable. Procurement of goods, at an estimated cost of US$8.5 million equivalent (or 21 percent of costs) includes purchase of computer equipment and software, furniture, instruments, field and office equipment and vehicles. They would be procured using: ICB for packages each estimated to cost US$350,000 or more, for a total cost of about US$5.9 million, including a two-stage bidding procedure for computer hardware and software; NCB for packages each estimated to cost between US$100,000 and US$350,000, for an aggregate cost of about US$1.1 million; and shopping procedures for goods and materials which need to be purchased in packages smaller than US$100,000, up to an aggregate amount of US$1.5 million. Given the need to obtain service, maintenance and spare parts promptly, all vehicles and technical equipment and instruments will be procured from agents or vendors serving the country with after sales facilities, and the respective arrangements may be procured jointly with such packages. Costs of contract works to be financed under the project amounting to about US$10.9 million (or 27 percent of costs) would be procured using: LIB for laboratory services, geophysics works, geology works and cadastre positioning benchmarks (at an aggregate cost of about US$8.9 million); and NCB for facilities rehabilitation works (at an aggregate cost of US$2.0 million). For all LIB procurement under the project, a large enough number of suppliers would be invited to ensure appropriate competition and representation. All ICB, LIB procurement will be carried out using the Bank's Standard Bidding Documents (SBD) and for NCB, ad hoc SBD will be prepared and agreed. Training will be contracted following Bank guidelines for consultants (see above), and educational materials will be procured using shopping procedures acceptable to the Bank. Table A2.1: Limits on Types of Procurement and Prior Review Thresholds (US$1,000) Prior Review Contract Value Description Type of Procurement Limit US$000 * Consulting Services by Firms Short lists of firms All 2 100 * Consulting Services by Selection acceptable to the All >50 individuals Bank * Contract Works LIB All * Rehabilitation Works NCB All 2100 * Goods ICB All 2 350 NCB All 100 to 350 Price quotations (Shopping) None