Mozambique - Mineral Resources Management Capacity Building Project

Document of The World Bank Report No: 21897-MOZ PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT IN THE AMOUNT OF SDR 13.8 MILLION (US$18 MILLION) TO THE REPUBLIC OF MOZAMBIQUE FOR A MINERAL RESOURCES MANAGEMENT CAPACITY BUILDING PROJECT MARCH 1, 2001 Mining Department (CMNPO) Angola, Malawi, Mozambique (AFC02) Africa Regional Office  CURRENCY EQUIVALENTS (Exclhange Rate Effective November 30, 2000) Currency Unit = Metical 1000 MZM = US$0.0606 US$1 = MZM 16,500 FISCAL YEAR January I December 31 ABBREVIATIONS AND ACRONYMS CENACARTA National Centre for Mapping and Remote Sensing CAS Country Assistance Strategy CGS Council for Geoscience, Republic of South Africa GOM Government of Mozambique DINAGECA National Directorate of Geography and Cadastre DNG National Directorate of Geology (Geological Survey) DNM National Directorate of Mines EIS Environmental Impact Statement EMS Environmental Management System FFM Mining Fund (Fundo de Fomento Mineiro) GIS Geographical Information System GPN General Procurement Notice MCS Mining Cadastre System MIS Minerals Information System MICOA Ministry of Environmental Coordination MIREME Ministry of Mineral Resources and Energy MRMP Mineral Resources Management Capacity Building Project NGO Non Governmental Organisation PAD Project Appraisal Document PIP Project Implementation Plan PMIs Public Mining Institutions PRSP Poverty Reduction Strategy Paper TA Technical Assistance UCPM Mining Project Coordination Unit Vice President: Mr. Callisto Madavo Country Manager/Director: Mr. Darius Mans Sector Manager/Director: Mr. James Bond Task Team Leader/Task Manager: Mr. Paulo de Sa  MOZAMBIQUE MINERAL RESOURCES MANAGEMENT CAPACITY BUILDING PROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 3 2. Key performance indicators 3 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 4 2. Main sector issues and Government strategy 6 3. Sector issues to be addressed by the project and strategic choices 7 C. Project Description Summary 1. Project components 8 2. Key policy and institutional reforms supported by the project 14 3. Benefits and target population 17 4. Institutional and implementation arrangements 17 D. Project Rationale 1. Project alternatives considered and reasons for rejection 19 2. Major related projects financed by the Bank and other development agencies 20 3. Lessons learned and reflected in proposed project design 21 4. Indications of borrower commitment and ownership 22 5. Value added of Bank support in this project 22 E. Summary Project Analysis 1. Economic 22 2. Financial 23 3. Technical 23 4. Institutional 24 5. Environmental 25 6. Social 26 7. Safeguard Policies 27 F. Sustainability and Risks 1. Sustainability 28 2. Critical risks 28  3. Possible controversial aspects 29 G. Main Loan Conditions 1. Effectiveness Condition 29 2. Other 29 H. Readiness for Implementation 30 I. Compliance with Bank Policies 30 Annexes Annex 1: Project Design Summary 31 Annex 2: Detailed Project Description 37 Annex 3: Estimated Project Costs 48 Annex 4: Cost-Effectiveness Analysis Summary 49 Annex 5: Financial Summary 51 Annex 6: Procurement and Disbursement Arrangements 52 Annex 7: Project Processing Schedule 59 Annex 8: Documents in the Project File 60 Annex 9: Statement of Loans and Credits 61 Annex 10: Country at a Glance 63 Annex 11: Financial Management Action Plan 65 Annex 12: MIREME's reorganization of Public Mining Institutions 69 MAP(S) Mozambique Map IBRD 29996  MOZAMBIQUE MINERAL RESOURCES MANAGEMENT CAPACITY BUILDING PROJECT Project Appraisal Document Africa Regional Office AFC02 Date: September 20, 1999 Team Leader: Paulo De Sa Country Manager/Director: Darius Mans Sector Manager/Director: James Bond Project ID: P001808 Sector(s): BB - Public Sector Management Adjustment, NN - Mining & Other Extractive Lending Instrument: Technical Assistance Loan (TAL) Theme(s): Poverty Targeted Intervention: N Project Financing Data I ] Loan [X] Credit [ ] Grant ]Guarantee [ ] Other: For Loans/Credits/Others: Amount (US$m): $18.00 Proposed Terms: Standard Credit Grace period (years): 10 Years to maturity: 40 Commitment fee: 0.0 - 0.5 % Service charge: 0.75% Financing Plan: Source Local Foreign Total BORROWER 1.00 0.00 1.00 IDA 9.47 8.53 18.00 AFRICAN DEVELOPMENT BANK 0.50 3.00 3.50 REPUBLIC OF SOUTH AFRICA 0.30 1.00 1.30 NORDIC DEVELOPMENT FUND 1.20 8.00 9.20 Total: 12.47 20.53 33.00 Borrower: MINISTRY OF FINANCE Responsible agency: MINISTRY OF MINERAL RESOURCES AND ENERGY (MIREME) Ministry of Mineral resources and Energy (MIREME) National Directorate of Mines Address: Praca 25 de Junho, P.O. Box 2904, Maputo, Mozambique Contact Person: Estevao Rafael Tel: 258.1.422447 Fax: 258.1.427121 Email: Epale@Mail.Tropical.Co.Mz Other Agency(ies): Nordic Development Fund Address: P.O. Box 185, Fabianinkatu 34, FIN-00171 Helsinki, Finland Contact Person: Marina Ummerus Tel: 358.9.1800.451 Fax: 358.9.6221.491 Email: marina.unnerus@nib.fi African Development Bank Address: BPV 316, Abidjan, Cote d'Ivoire Contact Person: Dr. Ini J. Urua Tel: 225 20 20 52 50 Fax: 225 20 20 49 02 Email: u.ini@afdb.org Estimated disbursements ( Bank FY/US$M):  FY 1 _2001 2002 2003 2004 2005 2006 Annual 0.40 1.50 3.50 1 5.10 6.80 0.70 Cumulative 0.40 1.90 5.40 10.50 17.30 18.00 Project implementation period: January 2001-December 2005 Expected effectiveness date: 06/15/2001 Expected closing date: 06/30/2006 ACS PAD FCIIII' Fl~ M. iO2 - 2-  A. Project Development Objective 1. Project development objective: (see Almex 1) The overall objective of the proposed Mineral Resources Management Capacity Building Project (MRMP) is to provide technical assistance to the Government of Mozambique (GOM) for: (i) institutional development and regulatory reform designed to encourage the expansion of private investment in mining in a socially and environmentally sound way; and (ii) targeted interventions to alleviate poverty in areas of strong incidence of small-scale and artisanal mining. Specific project objectives include: (a) improving the legal and regulatory reform to help establish an enabling environment to promote private investment into mining, while ensuring real and sustainable contribution to economic growth; (b) institutional capacity building to develop capabilities to effectively enforce laws and regulations, administer mining titles, and monitor the sustainable development of small-scale mining; (c) development of a data bank and geological maps to strengthen the Government's capacity to make essential geoscientific and natural resources information available to potential investors; (d) institutional strengthening to establish capacity in the country for environmental management, and to develop the understanding of and the capacity to address social impacts from mining; and (e) identify and adopt appropriate mechanisms to increase revenues and improve the quality of life in selected areas of strong concentration of artisanal miners, through the establishment of legal rights for their activity and the provision of extension services to improve the social, welfare, health and environmental conditions of artisanal miners. The project has been designed to provide a learning experience for the country, the Bank, and investors with respect to implementing sector reform and attracting private sector investment into the country. Learning will relate to the process of negotiating contracts, including interface between public and private sectors and communities; dealing with foreign investors, meeting investor needs; understanding cross-sector dynamics in the context of regional development; establishing effective inter-relationships with environment agencies; and conducting baseline environmental studies and social assessments prior to introducing mining operations in an area. 2. Key performance indicators: (see Annex 1) I) Increase Private Investment, exports and fiscal revenues: (a) Increase in the number of private operators involved in mining. (b) Increase in average annual investments in mining. (c) Increase in average annual minerals exports. (d) Increase fiscal revenues from mining. Principal output indicators: The number of private operators actively involved in exploration, is expected to increase from the current 10 to about 20-30 over the next five years, resulting in an increase of annual investment expenditures from about US$ 10 million today to US$ 40-50 million. On the other hand, mineral exports could go from US$ 7 million per year to about US$ 100-150 million per year over the next ten years. The project will also help strengthen tax assessment and collection procedures for statutory royalties, license fees, income, dividend, and other direct and indirect taxes. The objective would be to increase fiscal revenues from mining to US$ 30-45 million per year by 2010. 2) Set-up of a competitive legal and regulatory framework for mining. (a) Number of investment agreements signed at the end of the project. Principal output indicators: - New mining code and its regulations fully enacted 6 months after project effectiveness. - 3 -  - At least two new mining investment agreements signed at the end of the project. 3) Set-up of a modem and efficient public mining institutions. (a) Average number of days to issue a mining title. (b) Number of staff trained by the project. Principal output indicators: - Computerized mining cadastre fully operational by mid-term review. - At least 3 Provincial delegations of the Mining Directorate fully operational at the end of the project 4) Set the base for the creation of an Environmental and Social Management for Mining: (a) Interministerial coordination arrangements - namely with the Ministry of Enviromnental Coordination (MICOA) and Ministry of Agriculture and Fisheries - for the environmental management of the sector. (b) Number of baseline studies and environmental audits available at the end of the project. (c) Average number of days to treat environmental applications for exploration and mining permits. (d) Application of consultative processes by the mid-term review. Principal output indicators: - Environmental regulations and detailed procedures for Environmental Impact Assessments in rnining jointly issued with MICOA 6 months after effectiveness. - Environmental baseline database fully operational at the end of the project. - Interface of the sector's databases with the corresponding databases available in other ministries (MICOA, DINAGECA. etc.). - 2 investment projects having adopted consultative procedures at the end of the project. 5) Improve Geological and Mining Information System. (a) number of linear kilometers covered by new geophysics airborne survey. (b) number of geological maps published. (c) number of geochemical analysis done. Principal output indicators: - Complete coverage of the areas with strong mineral potential with geophysics maps. - Complete coverage of the areas with strong mineral potential with geological maps at the 1:250,000 scale. - Geoscientific database fully operational at the end of the project. 6) Poverty alleviation in small-scale and artisanal mining areas: (a) Number of artisanal miners legally registered. (b) Increase in the declared production in legally-established artisanal mining areas. (c) Decrease in the number of declared diseases among the affected population. Principal output indicators: - At least 3 social assessments produced on artisanal mining areas. - At least 3 environmental audits produced on artisanal mining areas. - HIV/AIDS awareness campaigns conducted in at least 3 artisanal mining areas. B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex I) Document number: IDAIR/2000-76 (IFC/R-2000-80) Date of latest CAS discussion: 06/01/2000 -4 -  CAS is the support to the Government's program for poverty reduction through the promotion of rapid, broad-based private-sector led growth. The proposed project supports this goal as it is aimed at promoting and facilitating foreign as well as domestic investment into a high potential growth sector in Mozambique, through the creation of a business-friendly environment. The Government of Mozambique's development strategy and its emerging Poverty Reduction Strategy, as stated in its interim PRSP, is based on environmentally sustainable and inclusive private sector growth. Its include efforts to increase economic opportunities by: (i) generating poverty-reducing and employment-creating growth through the private sector; (ii) improve govemance and empowerment, through a more effective public sector, improved rule of law, and greater transparency and accountability; (iii) improve human capabilities, particularly through the development of social services; and (iv) improve the security and protect the rights of Mozambicans. Mozambique includes a variety of natural resources which, if sustainably managed, can provide a good basis for growth. Tourism, mining, agroprocessing, and light manufacturing have been identified in the CAS as sectors with significant growth prospects that can generate substantial employment. Large investments exploiting the transportation corridors or exporting energy (gas, coal or electricity) or energy-intensive manufac4ured products (iron, steel, aluminum and titanium) are under active consideration by large intemational companies. The challenge will be to develop linkages, especially to the growing service sector, to maximize the benefits for the poor, primarily through spin-off effects, such as employee training, connected infrastructure developments, and improved Goveniment tax revenues that can subsequently be channeled into poverty-reducing activities. To promote growth and poverty reduction in Mozambique, the Government aims to create an environment which will enable the private sector to expand its activities and generate employment, especially among the rural poor. But public administration remains weak, despite significant reform and improvement, and faces challenges of capacity and resources to deliver basic infrastructure and services and to properly enforce a consistent legal and regulatory framework essential for private sector development. The proposed project will also contribute to institutional and capacity building efforts and the development of human resources in Mozambique, supporting public sector reform and decentralization, facilitating Mozambican participation in the private sector, and promoting AIDS awareness and prevention in areas of strong concentration of small-scale mining. It would contribute to generate income-generating opportunities in regions where mining is one of the few feasible economic options, optimizing the benefits from mining activities to local communities either at the mine sites or within the region. The proposed project is being designed in a way to strengthen development partnerships, including the Bank Group/Government partnership, mobilizing resources and coordinating aid from several donors, and ensuring adequate coordination within the Bank Group. It has been included in the proposed lending for 2001 in the new CAS. Given a conducive environment, Mozambique's mineral resources could be developed in an efficient, sustainable and environmentally sound manner, and they could contribute to foreign exchange earnings, tax revenues and employment. Based on the announced investments for industrial minerals, gold and gemstones, it is possible to anticipate the doubling of the current mining production over the next five years, to about US$ 13 million per year. The development of the two heavy mineral sands and the tantalum projects currently under evaluation, and the rehabilitation of the Moatize coal fields, would represent potential long tern export revenues of US$ 150 million per year by 2005, and more than US$ 500 million - 5 -  per year by 2010. 2. Main sector issues and Government strategy: Mozambique has a favorable geologic environment for mining but the impact of mining on the economy is still very small: less than 0.25% of the Gross Domestic Product (GDP) and about 1.4% of exports (1997). The value of Mozambique's mineral production rose from virtually nil in 1990 to around the US$ 7.0 in 1998, of which about US$ 6.0 million comes from industrial minerals and construction materials, and US$ 1.0 million from gold and gemstones. However, most of the activity in gold and gemstones stills takes place in the informal sector. The Ministry of Mineral Resources and Energy (MIREME) estimates that about US$ 10 million of gold and US$ 30 to 40 million of semi-precious stones are illegally exported from Mozambique each year. Annual fiscal revenues arising directly from mining (including surface rental fees for exploration) represent about US$ I million. The Government of Mozambique is actively seeking to attract private and foreign investment to promote growth in the sector. The sector policy approved on February 1998 by the Council of Ministers clearly defines Government's role as a regulator, promoter, facilitator and supervisor of mining activity, leaving the operational and implementation role to the private sector. Because of the country's geological potential and Government's pragmatic approach to the implementation of the sector policy, investors have shown positive interest in terms of exploration. However, foreign investment in mining projects has yet to materialize. The joint MIREME/World Bank report "Mining Sector Policy Review", part of the country's Economic and Sector Work for FY 1999, identified four major constraints for the development of the sector: insufficient geological information available on the country, a deficient legal and regulatory framework, lack of capacity of government institutions in the sector, and lack of infrastructure. The conclusions of these reports have been discussed in the Mining Policy Dialogue Seminar "Policy and Strategies for Mining Development in Mozambique: Attracting Foreign Investment into mining" held in Maputo in July 1999 and funded with an IDF Grant. Four key issues requiring immediate action have been identified in the seminar : (i) Introduce a new mining code to bring Mozambique into line with contemporary international mining legislation; (ii) Improve inter-ministerial co-ordination and build capacity for efficient and effective administration in the relevant government agencies; (iii) Collect, process and make available the geoscientific data currently available in Mozambique; and (iv) Simplify and standardize procedures for granting mining titles, and create a separate unit for their administration. Other issues that have been identified in the Mining Sector Policy Review for Mozambique include: (i) Current barriers for mineral exploration by large mining companies have to be reduced, so that Mozambique can attract the annual flow of US$ 50-100 mnillion in exploration investments needed to develop the sector; (ii) The focus of overall mining taxation should be shifted towards profit-related taxes and away from royalties; (iii) Transparency and security for investors should be improved by the introduction of standard mining agreements with stability clauses and automatic incentives, reducing to the maximum extent possible the derogation to the common regime subject to case-by-case negotiation; (iv) Public mining institutions need equipment, financial resources, and qualified and trained staff, in order to fulfill their mandates and enforce the law; (v) Capacity building for mining institutions has to be integrated in a broader framework of coordination among govermmental institutions, through initiates like the creation of shared information systems (such as GIS based information systems); (vi) Mozambique needs carefully designed environmental protection regulations and procedures that take into account the specificity of mining along the different phases of the investment cycle. (vii) There is a need to clearly define the respective mandates and competence of the Ministry of Environmental Coordination (M[COA) and MIREME in the draft environmental regulations that have been prepared for mining. MIREME should also - 6 -  develop its capacity for the enforcement of environmental regulations, baseline studies, social assessments, public consultation, as well as the environmental problems and challenges related to small-scale mining, for which the dissemination of international best practices could be particularly useful; and (viii) Innovative solutions for private sector involvement on the financing of infrastructure need to be developed. Agriculture, fisheries, mining and tourism --- activities based on exploiting the environment - contribute about 45 percent of GDP and 70 percent of total exports. Ensuring that resource exploitation is sustainable is critical to long-term prospects for growth and poverty reduction in Mozambique. Although Government policy in this area is fluid and capacity limited, there is general movement towards integrating environmental aspects into all major policies and strategies, implementing programs for environmental management, and subjecting major economic activities to environmental impact studies. The project will contribute to key Government objectives of increasing capacity to ensure that regulations are properly implemented, formulating cross-sectoral approaches, and encouraging environmentally and socially sustainable private sector investment. Once the enabling environment to attract private sector investment is in place, the challenge for the Government will be to promote the mobilization of internal savings and domestic entrepreneurship to the rational exploitation of mineral resources. In order to facilitate that, the Project will develop links with IDA's recently approved Private Enterprise Development project (PODE) to expose local mining SMEs to best-practice business techniques, management systems, and technological innovations. The Project will also facilitate links with IFC support facilities, including the Africa Project Development Facility and the Africa Management Services Company, as well as consultancy-led assistance to improve the competitiveness of the Mozambican mining industry. 3. Sector issues to be addressed by the project and strategic choices: The proposed intervention would try to address the following issues: (a) Reform of the Legal and Regulatory framework. The Government of Mozambique has been extremely pragmatic in adapting the (deficient) regulatory framework to accommodate the specific needs of private investors. Oil, gas and mming have enjoyed specific regimes that allow for great flexibility during negotiations. This explains the (relative) success obtained so far in attracting foreign investment. The current approach has however limits. In order to establish an enabling environment to attract private investments on a sustainable basis, Government realized that it can not continue the reform process on a piecemeal basis and has agreed to prepare a standard framework for private investment in mining that would be applicable to all cases. This framework should be as close as possible as the normal investment regime for other sectors, while remaining attractive to private investors. On the aftermath of the Policy Dialogue seminar of July 1999 in Maputo, an agreement was reached with Government for a strong, comprehensive and systematic approach, leading to a complete update of the mining code. preparation of the new legislation has started under the PHRD Grant with the assistance of international experts. This includes the preparation of environmental regulations for mining to be jointly published and enforced by MIREME and MICOA. (b) Institutional capacity building to improve Government's capabilities to effectively manage the development of the country's mineral resources, in a way to ensure sustainable contribution to economic growth. The objective is to strengthen the Government's capacity to act as a facilitator and regulator of mining activities through the creation of modern client-driven, results-oriented public mining institutions on a deconcentrated basis. At present, the institutions in charge of the sector are deficient in their level of expertise and capabilities, and do not have adequate equipment to undertake their activities. The proposed - 7 -  project would assist in the re-organization of these institutions, in the definition of clear rnandates for each of them, and the provision of human and financial resources in order to allow them to: (i) enforce laws and regulations; (ii) administer mining titles (iii) establish and maintain a data bank and geological maps to make essential geoscientific and natural resources information available to potential investors; (iv) promote private investment in the sector; (v) promote and enforce environmental management systems for mining; (vi) promote the sustainable development of small-scale mining as an economic alternative in rural areas of high unemployment; and (vii) establish capacity in the country to identify and address social impacts from mining. The project will also support the decentralization and deconcentration of the public mining institutions away from Maputo and into four inter-regional focus point : Nampula, Tete, Niassa and Manica. (c) Targeted interventions to alleviate poverty and monitor the sustainable development of small-scale and artisanal minin : Government has recognized small-scale mining's potential contribution to economic growth and employment, especially in rural areas. Artisanal mining, because of its intensive use of manpower, provides one of the few forms of self-employment and income generation in the rural areas, providing seasonal occupation to as much as one third of the active population. Currently, more than 50,000 small-scale and artisanal miners are estimated to be active in the country, and the involvement of children and women is growing larger. Although the development of small-scale mining activities could represent a rapid increase in disposable income in the affected areas, they do not represent a model for the sustainable management of mineral resources in Mozambique, as they often produce very serious environmental impacts and potential conflicts with land users. Government efforts to develop the sector have not produced the expected results, partially because a Mining Development Fund, established in 1988 to assist the development of small-scale mining in a variety of ways, has not been operations satisfactorily. Government intervention should focus on improving living conditions and reducing environmental damage in contained areas. Because foreign investment will not materialize unless MIREME is able to efficiently administer and manage the sector, a strategic decision was taken to use an integrated approach to sector reform. Experience in other countries of the region like Mali, Burkina Faso and Tanzania as well as countries in LAC suggests that a stand-alone Technical Assistance operation can be an effective way to implement lasting mining sector reform. The Bank presently has nine Mining TA operations all of which are rated satisfactory. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): A) Institutional Reform and Capacity Building of public mining institutions. The project would assist in: (i) strengthening the policy making, regulatory and sector management capabilities in MIREME; (ii) rationalizing the role of the State from being an owner and operator of mining assets to a regulator and administrator by reducing State involvement in exploration and mining by allowing and promoting private sector participation; (iii) finalizing the implementation of an enabling legal and regulatory framework aimed at promoting private mining enterprises; and (iv) restructuring and modernizing of the National Directorate of Mining (DNM) and the National Directorate of Geology (DNG), based on the redefinition of their mandates and intemal procedures, in order to transform them into a sector promotion tool providing a good base for the provision of sound geological information; (v) deconcentrating DNM and DNG away from Maputo, into four inter-regional points (Nampula, Tete, Manica and Niassa); (vi) establishing proper computer-based cadastre and mine-reporting systems as well as explicit criteria and non-discretionary procedures for the granting and foreclosing of mining rights; and (vii) improving capacity at MIREME to - 8 -  attract private sector investment by allocating resources for promotional programs, and institutional development. Main sub-components include: Project Subcomponent A.1: Modernization of Regulatory Framework. With the assistance of a PHRD grant, the Government of Mozambique has started to prepare the reform of the mining sector legal framework, as part of the policy to reduce the role of the State and to create an enabling environment to attract private investment into mining. As a result, a draft mining law and its regulations, including the specific environmental norns and procedures applicable to mining, are currently under preparation. There is now a need to enlarge the participation and build ownership of the different stakeholders on the reform agenda, and reinforce the Govenmment's capacity to negotiate mining investment agreements for large projects with the private sector. Subcomponent A.2: Institutional Reforn/Capacity Building. The broad institutional framework for the institutional reform has been defined during project preparation. The new institutional framework aims at defining better the functions of the public mining agencies, and as part of the policy to reduce the role of the State and to adapt public mining agencies to better-defined functions, eliminating most of their past widespread overlapping and modernizing their capacity to administer the sector. The respective role of such agencies and of the private sector and their inter-relationships will be identified. Some of their functions will be deconcentrated to the Provinces. As a result, a detailed institutional model and implementation plan will be designed and implemented. Subcoimponent A.3: Mining Cadastre and Registry System. A priority objective of the Government's policy for the mining sector is to establish a well-informed, uniform and interactive cadastral system. Based on the audit carried out under project preparation, the proposed Project will finance the transformation of the physical registries of the Mining Directorate into a proper mining cadastre. The cadastre will provide reliable information about the precise location of mining rights in the territory. The procedures required in order to apply the cadastre process will be transparent, public, of general application and non-discretionary. Subcomonent A.: Investment Promotion. The promotion of private investments in the mining sector for the development of the mineral resources of Mozambique constitutes one of the main objectives of the Project. This sub-component will finance the establishment of a promotion unit within the DNM, training of the staff, preparation and publication of promotional material as well as the assistance of MlREME's and DNM staff to international congresses and mining events. Subcomponent A.5: Intranet Network. The availability of accurate and timely infornation is essential for the administration of the mining sector, the definition of the mining policy and the follow up of the impact of such policy and the enacted legal framework on the sector issues. Information is the major tool for MIREME in regulating the sector and promoting its growth through private investments. The Project shall finance the establishment of several information systems - Mining Cadastre System (MCS), Mineral Information System (MIS) and Environmental Management System (EMS) - to ensure the proper collection, storage and retrieval of the sector information. B) Development of the Country's Geological Infrastructure. The main objective of this component is to provide the basic and reliable geological information necessary to facilitate the promotion of private investments in the mining sector and to support the planning of the social-economical development of the country. The actual coverage of geological and geophysical surveys in Mozambique is relatively extensive because of investigations realized during the colonial time and a major effort made after independence in the eighties. However, the major part of the maps and the data have not been published and are under a -9-  the eighties. However, the major part of the maps and the data have not been published and are under a great risk of dispersion and loss. Moreover, recent geological maps to a large extend are based on remote sensing with restricted fieldwork and thus are not sufficiently reliable for mineral exploration. The use of the geological information is not limited to the mining sector but also forms the base for the planning of the development of the infrastructure (roads, etc.), land use planning, urban development, and the management of the environmental resources. Therefore, the production of the geological infrastructure is an integral part of the social and economical development of the country. in order to achieve this goal, the component would: (i) complete the regional airborne geophysical coverage of the country, and finance a denser coverage over selected promising areas; (ii) update and improve of the existing coverage of geological maps at 1:250.000 scale, and support the detailed coverage of selected areas of high mineral potential; (iii) compile the existing geochemical survey data, including the re-analysis of existing samples and some complementary sampling; (iv) strengthen the network of seismic stations to monitor the seismic activity of the country; (v) establish a modem and computerized Minerals Information System (MIS), to compile and catalogue dispersed data, and modernize and improve DNG's documentation center; (vi) conduct an inventory of industrial minerals and construction materials in Mozambique in order to promote investment opportunities to the local private sector; and (vii) strengthen the National Museum of Geology; and the Central Laboratory of the DNG. Main sub-components include: Subcomponent B.1: Component Supervision and Coordination: Considering the highly specialized technical activities to be carried out within the present component, external assistance will be necessary for the coordination and supervision of the works and consulting services in order to minimize the technical contingencies that used to arise from such activities. The Project will finance under a "twinning" arrangement the engagement of a foreign geological survey ("supervisor") with the experience in contracting geophysical airbome surveys, geological mapping and in the establishment and operation of mineral information systems. The supervisor shall oversee the work, coordinate the different consulting firms and contractors engaged for the execution of the component, evaluate the product's quality and advise the DNG in case of problems. Subcononent B.2: Geophysics Airbore Survey fparallel financing). The objective of the Geophysics Airbome Survey is to efficiently furnish essential geological information of public domain to private investors. The Project will finance (parallel financing) the completion of the airbome geophysical coverage in the southern part of Mozambique along the Zimbabwe border as well as higher density surveys in selected areas of high mineral potential of the northem part of the country. The parallel finance shall also finance the compilation and treatment of the data from the previous airbome geophysical surveys including the digitalization of the analogical records whenever their quality justifies the operation. Subcomponent B.3: Geological Mapping of Mozambique (parallel financing) Mozambique posseses an extensive coverage of geological maps. However, almost all the maps present disconformities at the boundaries with the lack of continuity of the geological formations from one map to another. The entire mapping carried out in the past has to be revised, updated and homogenized regarding the stratigraphy and regional structures. The previous mapping programs generated a large amount of documents (maps, reports, laboratory results and samples) that are under the risk of dispersion or loss due to inadequate infrastructure and cataloguing. Therefore, it is urgent to compile, scan and catalogue this information for its preservation. This program would support geological mapping of previously unmapped or inadequately mapped areas, and publish professional quality packages of new as well as existing, but previously unavailable, data and maps. Subcomponent B.4: Geochemical Sampling (parallel financing). The activities of the sub-component will - 10 -  well as the scanning of the documents and the digitalization of the samples position, together with the analytical results in a GIS format. This information will be transferred to the MIS. Moreover, the sub-component shall also finance new regional geochemical surveys to confirn areas of high mineral potential identified during the geological mapping. Subcomponent B.5: Seismological network (parallel financing). DNG has the responsibility to monitor the seismic activity within the national territory in collaboration with the surrounding countries. This monitoring will be used for the establishment of the seismic zonation of the country and the micro-zonation of the urban areas at risk for land use planning and the establishment of construction norms adequate to the seismicity of the area. Towards the end of 1998, the Council for Geosciences, with the financing of the RSA Government and own funds, installed two seismological stations in Mozambique. This collaboration will continue as part of the Project under parallel financing from RSA and CGS own funds. Subcomponent B.6: Documentation Center (parallel financing). The access to Mozambique's geological information is difficult due to the dispersion over different offices within DNG. The information is not centralized and some information may be found in the regional offices. The project will support a centralized documentation center within the DNG where all the paper documents will be classified, indexed, and preserved. Subcomponent B.7: Minerals Information Svstem (MIS) (parallel financing). Basic geological information is an essential tool for the development of private investments in the mining sector, especially into high-risk exploration activities. The Mineral Information System (MIS) sub-component will finance the establishment within the DNG of a computerized information system based on GIS technology and relational databases. The MIS shall also provide the access to information through the Intemet to customers in Mozambique and abroad through e-commerce facilities. Subcomponent B.8: Industrial Minerals Survey (parallel financing). DNG, through the past geological investigations, accumulated an extensive documentation on the industrial minerals and building materials potential of the country. The present sub-component shall finance the strengthening of the extension of services to the industrial minerals and building material sector by the DNM and the DNG under parallel financing. Subcomonent B.9: Rehabilitation of the Geological Museum (IDA + parallel fiancing). Including the rehabilitation of the building and the collections and technical assistance for the management Subcomponent B.10: Reinforcement of DNG's Central Laboratory Network (parallel fmancing). DNG needs a basic laboratory to process rapidly a limited number of samples to support geological investigations. Funds will be provided within the Project (parallel fnancing) to restore the elemental analytical and sample preparation capacity of the National Laboratory (purchase of new equipment and repair of the existing instrument). C) Environment Management System. The general objective of this component would be to set up a preventive environmental protection for mining. This system should bring together the mining admninistration agency with MICOA and private environment entities. It would assist in the: (i) preparation of an environmental and social sector assessment that will help identify the location of protected areas and areas of high value biodiversity that should be restricted to mining activities, as well of prospective locations for the development of mining operations where environmental baseline studies should be carried out; (ii) definition of sector specific environmental regulations and standards, including the procedures for the rehabilitation of the area after mine closure; (iii) implementation of adequate procedures and guidelines - 11 -  for the preparation of environmental impact studies in mining; (iv) capacity building of MIREME's Mining Environmental Management Unit to monitor and enforce environmental regulations; (v) preparation of socio-economic baseline studies over selected mining districts as a basis for development of methodology and capacity to assess and monitor social, cultural and economic impacts of mining on local communities, and (vi) development of consultation and participatory procedures; and (vii) establishment of environmental management system data basis for the environmental impacts of mining, with linkages with other relevant environment data banks in other ministries, namely MICOA's area planning departnent. MIREME's and MICOA's capabilities to deal with sector environmental issues would be strengthened through the training of their staff, in order to ensure that mining operations are conducted in compliance with sound environmental practices. D) Sustainability of Small Scale and Artisanal Mining. Artisanal and small-scale mining activities represent an important source of direct and indirect income for a relatively large rural population. However, such activities usually generate a number of technical, legal, environmental and socio-economic problems. From a regional perspective, the mediuum term socio-economic balance could be negative, and costs greater than benefits, in terms of the use of a non-renewable resource, environmental impacts, health conditions or sustainability of economic activities when the deposits are exhausted. Experience in other countries shows that these problems have to be addressed by assistance programs of integral character aimed at promoting the development of small-scale and artisanal mining on a technical, environmental and social sound basis, and providing for the sustainability of these activities. The component is intended to improve the general awareness of small-scale and artisanal on the ways to improve their technical and environmental performance and the overall impacts of their activity on the local communities. It will: (i) support an integrated management and technical assistance program to enhance technical yields, reduce the current serious adverse impact on the environment, improve living conditions of artisanal miners, and increase tax revenues; (ii) support the Mining Directorate to design and deliver technical advice, geology information, and extension services to small-scale miners, including the establishment of a pilot training center for small scale miners; (iii) build capacity within MIREME for the management of social issues in the sector, namely the preparation of a generic framework for potential resettlement and compensation, and altematives for revenue sharing with local communities; and (iv) health hazards campaign to improve health conditions within small scale and artizanal miners communities. Small scale and artisanal mining activities are often temporal occupations to provide additional incomes for the rural populations or are subject to massive and sudden migrations of population in response to "gold rush" or the discovery of bonanza superficial deposits. The human settlements associated with this activity are generally very precarious and the living conditions close to promiscuity. This mode of life generates health hazards additional to the risk of the mining activities themselves. As part of project preparation under the PHRD grant, a consultant is assisting MIREME in preparing a sector strategy for fighting HIV/AIDS. As part of present sub-component the Project shall finance education campaigns to raise the awareness of the population occupied in small scale and artizanal mining with respect to health hazards and specially conceming the HIV/AIDS contagion. The activities of the project focused on the health hazards awareness and prevention shall be carried out in close cooperation with the Ministry of Health and Welfare and other state or private NGOs organizations active in the mining areas. E) Project Coordination and Management. MIREME shall establish and maintain, during the execution of the Project, a Mining Project Coordination Unit (UCPM) to coordinate project implementation, and manage: (a) procurement, including all contracting for works and purchases, and the hiring of consultants, (b) project monitoring, reporting and evaluation, (c) the contractual relationship with IDA, and (d) financial record keeping, the Special Account and disbursements. UCPM shall ensure the coordination between the different institutions of MIREME participating in the Project as well as other state and private institutions - 12 -  stakeholders in the Project's objectives like MICOA, the Association of Small scale Miners (AMPEMO), private enterprises, and other ministries. The UCPM shall also be the direct link to the World Bank concerning the Project implementation. lndicatve B*nk- % of Component Sector Costs % of financing Bank. I________________________ (US$M) Total (US$M) financing A) Institutional Reform and Capacity Mining & Other 6.93 21.0 6.44 35.8 Building of public mining institutions Extractive A. 1: Modernization of Regulatory Framework A.2: Institutional Reform/Capacity Building A.3: Mining Cadastre and Registry System A.4: Investment Promotion A.5: Intranet Network B) Development of the country's Mining & Other 18.61 56.4 4.50 25.0 Geological Infrastructure Extractive B. 1: Component Supervision and Coordination B.2: Geophysics Airborne Survey (parallel financing) B.3: Geological Mapping of Mozambique (parallel financing) B.4: Geochemical Sampling (parallel financing) B.5: Seismological network (parallel financing) B.6: Documentation Center (parallel financing) B.7: Minerals Information System (MIS) (parallel financing) B.8: Industrial Minerals Survey (parallel financing) B.9: National Museum of Geology B.10: Reinforcement of DNG's Central Laboratory (parallel financing) C) Environment Management System 2.35 7.1 2.28 12.7 D) Sustainability of Small Scale and 2.20 6.7 2.04 11.3 Artisanal Mining E) Project Management and 1.91 5.8 1.74 9.7 Coordination Contingencies 1.00 3.0 1.00 5.6 Total Project Costs 33.00 100.0 18.00 100.0 Total Financing Required 33.00 100.0 18.00 100.0 -13 -  2. Key policy and institutional reforms supported by the project: By reducing the discretionary power of Government, increasing transparency, and improving security to potential investors, the new Mining Code is expected to provide the adequate legislative framework for regulating and monitoring activities in the sector, and to make a major contribution to attract foreign investments into mining. Of particular importance to provide a sense of security for potential investors is the stabilization of the legal, fiscal, and institutional arrangements prevailing at the time of the investment. However, Government's institutional apparatus has not yet adapted to its new role of regulating economic activities and promoting poverty reduction in a market-oriented economy. The Govemrnent is aware that an inappropriate institutional framework, weak administrative capacity, and a civil service that is reluctant to adopt up-to-date work practices and lacks accountability, have contributed to inefficiencies and mismanagement of public resources, which in turn has restrained the development of a dynamic private sector. The Government is convinced that its central objective of reducing poverty through accelerated growth can only be accomplished through institutional and administrative reforms that refocus the role of the State, remove inefficient and discretionary regulations, and build a strong partnership between the State and the civil society at large. In the case of mining, the major institutional constraints identified are: (i) absolute lack of financial resources that prevents the Ministry from monitoring the real developments in the mining areas; (ii) insufficiency of qualified human resources and lack of technical skills; (iii) limited availability of geologic information, stored in poor physical conditions; (iv) excessive centralization at the manager's level and inefficient procedures and flow of information; and (v) poor relations with other line ministries. During project preparation, MIREME agreed on an institutional re-organization of the National Directorate of Geology (DNG) and of the National Directorate of Mines (DNM, as a basis for the sound and sustainable management of the mineral resources, as well as to better implement the project (see annex 12). MIREME's new organization will be implemented under the project, including the establishment of inter-institutional relationships and mandates, new intemal procedures, the definition of the skills profiles required, and correspondent training programs, as well as budget requirements. DNG wants to keep some of the functions of the traditional public service - collection of basic geoscientific infornation, and environmental geology for other sectors (urban development, etc.) - and proposes to re-organize under five departments : (a) Economic Geology, with 4 services : (i) metallic mineral resources; (ii) non- metallic and industrial mineral resources; (iii) energy and water resources; and (iv) geochemical survey; (b) Regional Geology, with 3 services: (i) geological mapping; (ii) geophysical survey; and (iii) seismic and magnetism monitoring; (c) Applied Geology, with 3 services : (i) engineering geology; (ii) environmental geology; and (iii) hydrogeology; (d) Geological Services, with 5 services: (i) cartography, GIS & remote sensing; (ii) MIS; (iii) Documentation; (iv) topography; and (v) Drilling services unit; and (e) National Laboratory. DNM proposes to re-organize under 5 vertical Departments: (a) Mining Titling Management System (Cadastre), including two agencies in the Provinces (see below); (b) Environmental Management, to coordinate the environmental management of the sector with MICOA; (c) Mining Safety and Environmental Inspection, with Maputo defining programs, norms and guidelines and the Provinces implementing them; (d) Small-scale mining, which will develop studies, programs and guidelines for small-scale mining (to be implemented by the Provinces); and (e) Technical and Economic, in charge of keeping the sector's economic statistics (production, investments, royalties), and centralizing and appraising the technical reports sent by the mining companies. Both DNG and DNM agree to give priority under the project to reinforcing the Provincial Directorates of - 14 -  Nampula and Tete, with Manica and Niassa as second priorities. Little would be done with regards to the other Provinces under the project. The new organization of the two Directorates plus the creation of the Project Implementation Unit and the Steering Committee need to be done by specific diplomas, approved by Council of Ministers. Both Directorates have prepared a preliminary plan for the allocation of existing human resources to project activities. This plan includes training requirements of staff, material and equipment needs, as well as the type and number of national consultants that should be associated to project implementation to reinforce the Ministry's teams. The Mining Fund (Fundo de Fomento Mineiro FFM), established in 1988 to assist the development of small-scale and artisanal mining, will also be reorganized. The Mining Fund receives 25% of the mining license fees and royalty, and its budget amounted to less than US$ 400,000 in 1999. The Fund supports the small scale miners in a variety of ways including geological work to identify suitable areas for such mining, organizing gold buying centers in different locations (such as Niassa, Manica, and Tete) and providing technical advice and financial assistance (loans) to small-scale miners. While such assistance is well intended, its implementation has not been conducted in a transparent manner. Management representatives, having become recently mining operators, following the privatization of a state-owned enterprise active in the sector, are now put in a position of potential conflict of interest. In the Bank's opinion, the justification for some of these activities has not been clearly established, nor the rationale for having these activities implemented by a separate organization from the National Directorate of Mines. Although some of the opinions expressed do not necessarily reflect the position of the Government of Mozambique, agreement has been reached with the Bank on the basic principles for the restructuring and redefinition of the activities of the Fund as a condition for Board Presentation of the Project. Based on what is already happening in the case of the Roads Fund, the Fund should have its own independent Board, expanded to representatives of the private sector and the civil society. The Board would be in charge of defining policies and programs, approving budgets and financial statements, setting performance monitoring indicators and evaluating results. The Mining Fund should also have an Executive Director employed full-time with a very small team, resorting to a Technical Committee to appraise specific projects, and sub-contracting the essential of the field work. The Executive Director would be chosen by the Board, the position being widely advertised. It would not be a civil servant on exercise of its duties and its remuneration would be competitive with the private sector. The Executive Director would implement the policies set by the Board, administer contracts, make payments and execute the budget. The financial statements of the Fund should be submitted to external audits. The Mining Fund should discontinue over time all commercial activities (especially gold purchases), in order to focus more in the promotion of private investments, and in social and environmental matters. It would not lend to the private sector although it could manage promotional programs to encourage private investment in mining, like matching grants, promotion material, training, study tours abroad, etc. The main purpose of the Fund's activity would be social and environmental work, and funding of social infrastructures in mining areas. The Fund would also support programs to improve the quality of the service of public mining institutions. - 15 -  Another important aspect of the reform will be the introduction in the Mining Cadastre of a principle of cost recovery for the services performed to users. The Cadastre will charge fees for the registry, and renovation of mining licenses and will be financed through a rental surface fee to be paid by title holders in accordance with the extension of the areas requested. These revenues will be allocated to: (i) the operation of the Mining Cadastre; (ii) the supervision of mining operations and enforcement of the Mining Law, including from the environmental point of view; (iii) the acquisition of new geoscientific data; and (iv) training and seminars. It should be noted that the Geological Service could be at least partially funded from the sale of geological data (on a cost-recovery plus small margin basis). The successful implementation of the mining cadastre requires the development of a database of mining licenses with their mining rights status, location, fees and dues paid, and other requirements. For this purpose, it is necessary to use and update modem tools, such as specifically adapted Geographical Information Systems (GIS), in order to provide a legally valid information system. Because of Dinageca's experience in this area and its mandate to coordinate the work of the Land Information System (LIS), MIREME will request technical assistance from Dinageca in order to ensure that the proper links between the two data bases are properly established. On the other hand, to allow the posterior use of GPS instruments, some technical verifications and definitions need to be carried out before the start of the Project. Amongst these activities, the most urgent are the verification of the geodesic network precision and the parameters for the transformation of the GPS coordinates to topographical coordinates as well as a unique algorithm for the management of the UTM zones over the whole country. MIREME will coordinate with Dinageca the execution of the work. Another case in point is the establishment of environmental management system for mining in Mozambique, coordination MICOA's and MlREME's efforts in the area. Although Mozambique is preparing a legislative and a regulatory framework to address environmental impact assessment in mining, the procedures for the execution of these regulations are fragmented. Furthermore, the institutions lack the capabilities to monitor and address the environmental problems efficiently and in a timely manner, and in particular to implement rehabilitation measures with regard to mining. During project preparation MIREME and MICOA have agreed on their respective roles with regards to the environmental management of the mining sector: MICOA will take charge of the definition of policies and guidelines, while MIREME will manage the implementation and enforcement of the environmental management system for the sector. An environmental department will be created under DNM to act as an "one stop shop" for environmental management in the sector, providing the required links between the mnining operators and MICOA on environmental impact assessments. It has been also agreed that the regulations for environmental management of mining currently under preparation will be promulgated under the form of a joint decree by MIREME and MICOA. the se regulations will include: (i) clear definition of the specific mandates and roles of MIREME and MICOA; (ii) formal definition of MlREMiE's role in all stages of the EIA review process, through the creation of an Environmental Unit within the Mining Directorate and the description of its role in the proposed regulations; (iii) detailed description of the environmental obligations concerning the mining activities that will not be submitted to the formal EIA process (such as mineral exploration, small quarries and small-scale mining); (iv) detailed procedures for the systematic application of participatory approaches in the environmental licensing; (v) definition of the role of the Technical Comrnmittee for the evaluation of ELAs, with composition, profile of the members and decision-making mechanisms; (vi) clear definition of the joint role of MIREME and MICOA in monitoring and supervision of the regulations; (vii) definition of the selection and funding mechanisms for the use of consultants in the review of ElAs and, eventually, in the approval of Terms of reference; (viii) provision for grouped or regional EIAs and audits in areas of - 16 -  small-scale mining; (ix) definition of arbitration mechanisms; and (x) clear articulation between the procedures of environmental and mining licensing. Finally, activity under the Small-Scale and Artisanal Mining component will be taken in coordination with UNAIDS and with the "Rollback Malaria" initiative for the effective implementation of the HIV/AIDS sub-component. Preparation of a first draft of the sector strategy to combat HIV/AIDS will be funded under the PHRD Grant. Funding for wide consultation and discussion of the draft would be provided under the project as well as prioiity actions like education and prevention. 3. Benefits and target population: Benefits: The following benefits are expected: (i) induced by the project: (a) Increased foreign and local direct investment in mining and increased export revenues; (b) development of capacity in private services to the mining industry, such as exploration and drilling services, environmental impact studies, laboratories, mining construction works and earth removal, maintenance and others; (c) development of infrastructure related to mining and with a regional development impact (e.g. roads, energy); (d) increased income-generating opportunities in areas of strong incidence of artisanal mining, increased education opportunities, improved health and reduced migration outflow; (e) contribution to a better regional distribution of productive activities; and (f) sustainable development and fair distribution of benefits to local communities located around mining areas; (ii) as a direct result of the project: (a) establishment of a modem, consistent and homogeneous mining legal and regulatory framework; (b) better understanding of how Government, private sector, communities and donors can work together dealing with foreign investors, and the contract negotiations process; (c) improved efficiency in public mining agencies (e.g. faster and non-discretionary administration of mining rights and improved understanding of issues involved in managing such rights), and improved enforcement capacity of environmental, health and safety regulations; (d) improved security of tenure for mining rights through non-discretionary procedures and accurate geological location of concessions; (e) improved knowledge of existing en'fironmental and socio-economic conditions, as a basis for improved management and participation of local communities; (f) protection of the environment from potential damage caused by mining and a better grasp of how to design future environmental protection measures in the sector; and (g) generation of baseline regional information that can be used by all sectors (e.g. water resources, agriculture). Target Populations and Sectors While the proposed project will benefit the entire private (foreign and local) mining investors community, it will also contemplate targeted actions to improve the standards of living and reduce environmental damages in small-scale and artisanal mining areas. The proposed project will provide them technical assistance, legal rights, security of tenure, improved access to markets, environmental and health awareness, and will facilitate access to basic services. It will also address gender and infant labor issues in artisanal mining. 4. Institutional and implementation arrangements: Project Implementation Period The proposed project would be implemented over a period of 5 years. Project completion date would be December 31, 2005 and the Credit closing date would be June 30, 2006. - 17 -  Project coordination ani oversight The Ministry of Mineral Resources and Energy (MIREME) would be responsible for the implementation of the project. Executing agency The Ministry of Mineral Resources and Energy (MIREME), through an officially designated Project Coordination Unit (UCPM), will be responsible for the overall implementation of the project. Implementation arrangements MIREME will create a Mining Project Coordination Unit (UCPM) to coordinate project implementation, and manage : (a) procurement - including all contracting for works and purchases - and the hiring of consultants, (b) project monitoring, reporting and evaluation, (c) the contractual relationship with IDA, and (d) financial management, the Special Account and disbursements. MIREME has prepared a Project Implementation Manual that has been reviewed by the Bank during appraisal and found satisfactory. Government will hire three senior-level staff for the UCPM: a Project Coordinator, a Procurement Expert (and Acting Project Coordinator), and an Accountant. The first two positions have been advertised during project preparation, using terms of reference acceptable to the Bank. A Steering Committee will be created at the Minister's level, as part of MIREME's structure, to supervise project implementation. It will be composed of the following members: MIREME's Director of Economy, the Director of Geology, the Director of Mines, and two Advisors, one representative from MICOA (Head of Environment Impact Assessment Department), and the Supervisor of the Geologic Infrastructure component. Co-financing arrangemerits Several donors have expressed interest in co-financing the project. Arrangements are being made to secure parallel financing from the Nordic Development Fund to an extent of US$ 9.2 million, and from the African Development Bank for an amount of US$ 3.5 million. The Government of South Africa will be contributing with a grant of US$ 1.3 million. The parallel financing will be exclusively allocated to the geological infrastructure component and fund self-sustained activities clearly identified. If part of the parallel financing fails to materialize, it will not affect the project's development objectivity nor the ability of the executing agency to implement the program of activities supported by the Bank. The UCPM will also be in charge of the coordination of the programs funded by other donors. Accounting, financial reporting and auditing arrangements Under the supervision of the Project Coordinator, the UCPM will be responsible for ensuring that financial management and reporting procedures will be acceptable to the Government, the World Bank and other Cooperating Partners. The principal objective of the UCPM's financial management system (FMS) will be to support management in their deployment of limited resources with the purpose of ensuring economy, efficiency and effectiveness in the delivery of outputs required to achieve desired outcomes, that will serve the needs of the people of Mozambique. Specifically, the FMS must be capable of producing timely, understandable, relevant and reliable financial information that will enable management to plan, implement, monitor and appraise the Project's overall progress towards the achievement of its objectives. For the UCPM to deliver on the aforementioned objectives, its FMS will be developed in accordance with the Financial Management Action Plan presented in Annex 11. Salient features of the Action Plan include: the retention of a Financial Management Consultant to advise on the selection and installation of the Project's FMS (using an integrated accounts package), to prepare the Project's Financial Procedures Manual and to train staff in the operation of the system; the establishment of a representative Financial Management Committee; the recruitment of a Project Accountant and the availability of support staff, -18 -  capacity building; the establishment of a Fixed Assets Register and a Contracts Register; monthly bank reconciliation and quarterly reporting of financial information; cash flow management including variance analysis; and an annual external audit will be undertaken on terms of reference acceptable to the Bank. By credit effectiveness, the UCPM will not have in place a FMS that can provide, with reasonable assurance, accurate and timely information as required by the Bank for PMR-based disbursements i.e. the Project Management Report (PMR). Thus, in the short-term, existing disbursement procedures, as outlined in the Bank's Disbursement Handbook, will be followed i.e. Direct Payment, Reimbursement and Special Comrnitments. However, the successful implementation of the Project's FMS under the supervision of the Project Accountant should facilitate the conversion to PMR-based disbursements within 18 months of credit effectiveness. In that regard, an institutional capacity assessment of the UCPM tream and the FMS proposed will be conducted by a World Bank Financial Management Specialist before effectiveness, and a financial management review of the Project will be undertaken by a World Bank Financial Management Specialist within 12 monthis of credit effectiveness to assess progress. Supervision, Reviews and Monitoring Not later than 45 days after each quarter, the UCPM will submit to the IDA quarterly progress reports covering all project activities, including procurement, and a financial summary report. A Mid-Term Review, 30 months after effectiveness, would provide detailed analysis of implementation progress towards development objectives, including performance to date on selected indicators of project benefits. Baseline data on these indicators will be gathered prior to this mid-term review and used in the assessment. D. Project Rationale 1. Project alternatives considered and reasons for rejection: The project's emphasis is put on reforming the regulatory framework and of mining sector and enhancing management capacity of public mining institutions to implement the reform. Options which have been considered include: (a) inclusion of mining sector reform conditionally as a part of a structural adjustment operation, and (b) inclusion of a mining component in a larger operation to promote private sector development in Mozambique, like the Enterprise Development Project (PoDE). Option (a) was considered because of Government's continuous support to legal reform in the sector, but has been rejected considering: (i) the urgent requirement for TA support for institutional strengthening in order to enforce the new mining legislation under preparation; and (ii) that the establishment of an enabling environment to attract private investments and of modem procedures regarding administration of mining rights and environmental protection would generate a greater synergy effect in termns of sector development, including for example Provinces with an important potential for small-scale mining. Option (b) has been rejected considering: (i) that although the Enterprise Development Project has an institutional building component, the low-level of capacity of public mining institutions in Mozambique requires careful monitoring of implementation progress under some of the key activities in order to identify at an early stage any eventual difficulties; and (ii) the innovative approach used for small-scale mining, through integrated programs covering management, legal, technical, environmental and social issues; this approach is being tested in Bank financed projects in Latin America, so far with encouraging results, but has not been applied yet in projects in Central and Southem Africa. Because foreign investment will not materialize unless MIREME is able to efficiently administer and manage the sector, a strategic decision was taken to use an integrated approach to sector reform. Experience in other countries of the region like Mali, Burkina Faso and Tanzania suggests that a stand-alone Technical Assistance operation can be an effective way to implement lasting mining sector - 19 -  reform. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Latest Supervision Sector Issue Project (PSR) Ratings i __________. _________.__________ ________________________ ( Bank-financed projects only) Implementation Development Bank-financed Progress (IP) Objective (DO) Private Sector Development Enterprise Development Project Energy Sector reform Power Sector Rehabilitation S S Project Rural Development Decentralized Planning and Financing Project Other development agencies lP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) Bank's assistance for mining sector reform in Mozambique started under the Mining Sector Policy Review, a joint MIREME/World Bank report, part of the Economic and Sector Work approved under the 1998 Country Assistance Strategy. This effort helped Government identify priority technical assistance requirements to support private sector investment in the sector. A Mining Policy Dialogue Seminar held on July 1999 in Maputo and Nampula helped to build consensus around the reform agenda, identify priority issues to be addressed, attract the attention of potential foreign investors, and mobilize donor's support to mining sector reform in the country. The Bank is now responding to Government's request for assistance in the sector with a PHRD Japanese Grant that will assist Government in project preparation. A PHRD/Japanese grant obtained to finance technical support required by Government to prepare the proposed project is assisting in the consolidation of the mentioned reforms in the areas of: (i) Legal and Regulatory Reform, with the draft of a new Mining Law and its application decrees; (ii) Institutional strengthening, developing a scope of work to create an integrated computerized information system inside the Ministry available to private investors which would collect, store and treat all sector related data (geological, environmental, etc.), including definition of mandates and identification of required human resources; (iii) Mining Cadastre, implementing a computerized registry system, including the definition of criteria and non discretionary procedures for the granting and foreclosing of mining rights; and (iv) Environment, preparing environmental regulations for mining, and satisfactory institutional arrangements and capabilities for environmental management, in cooperation with MICOA. Other donors' assistance to the Government of Mozambique in mining sector reform has been limited, and traditionally provided by UN agencies (like UNDP and UNIDO), especially in the areas of geological information and small-scale mining, as well as by the Commonwealth Secretariat in the area of legal reform. The European Union has recently expanded the involvement of the Center for the Development of Industry (CDI) to a few small-scale private investments in Mozambique. UK's CDC is a shareholder on the new African Lion Fund (a US$ 27 million African Venture Capital Vehicle for mining investment) that is looking for opportunities in Mozambique. - 20 -  3. Lessons learned and reflected in the project design: Lessons have been learned from the ongoing projects being implemented in Mozambique, from other countries where the Bank has financed similar capacity building operations for mining (e.g., Burkina Faso, Ghana, Guinea, Madagascar, Mali, Mauritania, and Tanzania), as well as from a Bank review on mining sector reforn in Latin America (A Mining Strategy for Latin America and the Caribbean, 1996). Experience in Mozanbique with capacity building and public sector reform suggests that emphasis on beneficiary participation in project preparation, intensive supervision, organization and coordination in the field are critical for timely and effective implementation. Given the limited availability of highly skilled staff, ownership and political commitment to project objectives are key to ensuring strong local leadership, availability of counterpart funds, and clear delineation of ministerial authority and responsibilities. Experience in other countries indicates that improving the enabling environment increases the ability of a country to attract and retain appropriate private investment. The last 25 years have seen significant changes in the intemational mining industry, in large measure because of the liberalization of economic and mining policies of previously restrictive govemments in mining countries. These reforms have had three broad objectives, to improve sector performance and growth and the contribution of mining to the national economies, to ensure the sustainability of the mining industries in the developing countries, and to ensure that the host countries get a fair share from the benefits of growth of the sector. In the context of a generally healthy metal commodity price scenario, the result has been an upsurge in mining investment in those countries which have adopted legal, institutional and taxation reforms. Between 1989 and 1997 Latin America, the region where the reform was implemented more thoroughly, saw a four-fold increase in investment in exploration (for the countries of the region with comprehensive reform programs the increase was twelve-fold) while the world total increased by 90%. Furthermore, the reforming countries have achieved progress in the economic, environmental and social aspects of mining, thus strengthening the sustainability of the sector. Ghana provides a similar example in Africa. In the late 1980s the country undertook significant reforms, supported by the Bank and other donors, to improve the enabling environrment for private sector investment in mining. The result has been a four-fold increase in gold production, a mining investment climate that is consistently ranked among the best in the world by investors, and the privatization of state-owned mining enterprises. Work Bank involvement in the reform process of successful mining countries shows that, for this to happen, the enactment of the necessary legal, fiscal and environmental policies and the establishment of strong mining institutions to implement and administer them have proven to be the keys to success. This includes: (i) a background of sensible economic policies and a coherent general legal framework; (ii) a mining law providing security of tenure, clarity and transparency and access to land (including the release of reserved areas held up by the State and full transferability of concessions to remove all barriers to the entry of investors) , and an investment framework providing access to foreign exchange and a stable and equitable fiscal regime; (iii) public mining institutions that apply properly the sectoral policies; (iv) a sensible environmental management system, and (v) clear, economically efficient rules dealing with enterprise restructuring and privatization. Further progress will depend to a large extent on the continued development of institutional capabilities, in an environment of sensible macro-economic policies, to ensure the sustainability of the progress achieved. - 21 -  4. Indications of borrower commitment and ownership: Commitment of the Borrower is shown on the priority given to natural resources and the mining sector in the overall strategy to increase growth and reduce poverty in Mozambique. At the sector level, commitrnent can be seen in the effort put into the improvement of the legal and regulatory framework, with virtually no support from donors, and on efforts developed to attract private sector investment into the sector. One of the outcomes of the policy dialogue seminar was agreement reached on the continuation of sector reform, namely through the preparation of a new Mining Code, and the reorganization of sector institutions. Ownership: Government ownership is indicated by the seriousness of its participation in the preparation of the project so far, including the realization of seminars and workshops dealing with in-depth analysis of sector reforms to be supported by the project. The definition of the project scope is the result of a more than two year long dialogue between MIREME and the Bank, and based on the planned and on-going activities of the Ministry. 5. Value added of Bank support in this project: Experience in the countrv. Since 1992, Mozambique is making good use of the Bank's experience in macroeconornic and sector reform, particularly with respect to capacity building of public institutions, modernization of its legal and regulatory framework and privatization of state-owned enterprises. Given its experience and established presence in the country. Bank involvement would facilitate the implementation of the project in a timely and efficient manner and ensure that the Government maintains its focus on the objectives of the project. Bank's competitive advantage in rniing. The Bank has been the leading provider of assistance to mining sector reforrn in African and Latin American countries during the last decade and in this capacity has contributed to an upsurge in mining activities in both continents. The Bank is the only donor capable to provide an integrated approach to the technical assistance to the given to Government for institutional development and regulatory reform designed to encourage the expansion of private investment in mining in a socially and environmentally sound way. Bank involvement will also be catalytic in attracting additional funds and support from bilateral donors particularly for the implementation of the social mitigation measures, and in providing the environment for encouraging private sector investment. E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): O Cost benefit NPV=USS million; ERR = % (see Annex 4) O Cost effectiveness * Other (specify) The project provides technical assistance and, as such, does not lend itself easily to quantitative investment analysis. However, a number of economic indicators can be projected and compared with present performances, such as amount of the annual investment for exploration by mining companies, and annual value of exports and fiscal revenues coming from the sector. To test the robustness of the possible contribution of mining to the economy, two scenarios (low and high case) have been constructed. The results of this analysis, projected to the year 2005 and 2010 are: Scenario Gross Production Gross Export Value Average Annual (US$ million) Value Investment - 22 -  1998 7 1 20 Low 2005 70 60 50 Low 2010 250 220 100 High 2005 150 130 80 High 2010 570 520 150 This projections might seem ambitious but worldwide the mineral resource extraction industry is emerging from a period of consolidation and cyclical price lows. Until the late 1980's, the African continent had failed to attract new investment in exploration or mining development. Beginning in the early 1990's this state of affairs began tc change. Certain countries, notably Ghana as an early example, undertook significant reforms to the mining legal and regulatory framework and to the organization of the sector. The result has been a remarkable growth in new investment and gold production. Mining sector reform has been since emulated by many other African countries with, in many cases, tremendously positive results. Tanzania, after having gone through sector reforms, is now the leading designation for exploration and mining investment in Africa. The production of gold in Mali has increased from just 1.5 metric tonnes in 1990 to nearly 20 metric tonnes in 1998. The lesson in Africa (as on other continents) is clear: mining sector reform works. 2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4) Mineral resource extraction remains a very important source of fiscal revenue for developing countries, provides foreign exchange export revenues, and is an important generator of employment. Moreover, in frontier countries mining is generally the first sector to attract foreign direct investment (FDI). The responsible use of their mineral resources provides developing countries with considerable opportunities for poverty reduction and economic development. The formal mining industry employs a great number of people in developing countries, and can have enormous impact on these countries' infrastructure, income. In countries where mining is done well, the industry provides social and infrastructure services, and can help create a lasting impact on the local and regional economy. The industry is key to local mining communities, creating huge opportunities, but also risks regarding the environment that need to be managed carefully. Fiscal Impact: Because of the existence of resource rents, minearl resources production should not be entitled to benefit from the kind of fiscal tratment privided in free trade zones. The mining code under preparation will introduce a fiscal regime for mining consistent with what is considered intemational best practice. The new draft law does not contemplate investment agreements for the large-scale project providing for rather generous tax exemptions and fiscal holidays. The impact of the tax revenues coming from the mining sector at the end of the project can be estimated to be in the range of US$15 to 30 million per year, depending on the scenario. 3. Technical: The project will assist in establishing an enabling institutional and regulatory environment to help attract - 23 -  and sustain mining investment. Expert technical assistance will help the Government to avoid mistakes in dealing with private companies which could result in forgone revenues. The project will help strengthen tax assessment and collection procedures for statutory royalties, license fees, income, dividend, and other direct and indirect taxes. The project will also help put into place environmental regulations, procedures, and monitoring capacity to minimize damage to the environment from mining operations. 4. Institutional: 4.1 Executing agencies: The experience and skills of the sector units is limited and this is a major concern for project implementation. There is a major need for capacity building at all levels, including project management. The work conducted during project preparation identified a major capacity problem in terms of human resources to implement the planned reform and technical programs. As a consequence, the project design has incorporated a substantial provision for the hiring of external consultants (national) which will be in charge of the implementation of specific sub-components. The project cost estimate includes a budget for incremental operating costs in order to fund these expenses. Another problem is the overall lack of conmmunication between MIREME and the other Ministries, namely the Ministry of Finance and the Ministry of Environmental Coordination. The institutional progress under the project will be monitored through intermediate output indicators and impact indicators. Intermediate output indicators are designed to track the implementation and the expected outcomes of the project, and have to be assessed during the lifetime of the project. Impact indicators are designed to assess the achievement of the final objectives of the project, and their assessment should be carried out after the closure of the operation. The accomplishment of the final objectives will imply the achievement of a number of intermediate outputs and conditions, including: 3 Number of months required to make the Mining Cadastre operational. * Number of months required to make the MMI' s Environmental Unit operational. * Average number of days required for granting a mining title. * Backlog and number of complains of the mining Cadastre. o Number of maps published. * Number of consultations to the MIS system. * Number of Environmental Impact Assessment appraised. * Number of pilot baseline studies prepared. Impact indicators will refer to: * Increase in the number of private operators involved in the different stages of the mining cycle. * Increase in average annual investments in mining. * Increase in average annual minerals exports. * Increase fiscal revenues from mining 4.2 Project management: The UCPM will be created as a new unit, but it will benefit from the experience and implementation capacity developed under the implementation of the Bank's IDF and PHRD Grants. The UCPM will be strengthened in terms of personnel with external experts. Terms of reference acceptable to the Bank have been prepared for the recruitment of the Project Coordinator and the Procurement Specialist. - 24 -  4.3 Procurement issues: The procurement documents for the first year are ready for implementation and the procurement plan was found realistic. Guidance will be sought from the Procurement Specialist in order to authorise a direct contract for the supervision of the Geologic infrastructure component, following a preliminary agreement reached between DNG and the Council for Geosciences of South Africa for the extension under the Project of the technical assistance services being provided over the last years by the Geological Survey of South Africa. The supervisor shall oversee the work, coordinate the different consulting firms and contractors engaged for the execution of the component, evaluate the product's quality and advise the DNG in case of problems. 4.4 Financial management issues: Although the country risk is medium, the Project Risk is considered low as the following measures will be taken from the Project's inception to establish a strong control environment: (i) Establishment of the Mining Project Coordination Unit (UCPM) in which financial management activities will be separately identifiable and traceable; (ii) Relevantly qualified staff will be recruited: Project Accountant and support staff; (iii) Establishment of a Financial Management Committee that will meet quarterly to monitor the Project's progress against financial performance indicators. Competent Project Management; (iv) Retention of a Financial Management Consultant to advise on the selection and installation of the FMS, to prepare the Project's Financial Procedures Manual and to train staff in the operation of the system; (v) Monthly bank reconciliations, independently approved; (vi) Quarterly Cash Flow Management; variances will be examined and remedial action will be taken; (vii) Extemal audit will be undertaken on TORs acceptable to the Bank. IFAC Standards will be followed; (viii) Financial statements will be prepared in compliance with Intemational Accounting Standards; and (ix) The Budget will be approved in line with the Government process. Care must be exercised in ensuring the timely availability and release release of Counterpart Funds. In conclusion, provided the financial management proposals outlined in the Financial Management Action Plan are effected in practice, the overall Project Risk is assessed as being low. The challenge for Project Management will be to convert from the "drawing board" to practice. 5. Environmental: Environmental Category: C (Not Required) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. There are no investments in mining operations under the Project. However, the Project would stimulate private investment in mining, and identified environmental issues regarding envirommental management and control by public mining authorities include: (i) Government has not prepared yet the environmental regulations applicable to mining with regards to the new environmental law; this task is however being funded under a PHRD Grant provided by the Japanese Government to assist in project preparation; (ii) the Minister of Mineral Resources and Energy has yet to staff and provide adequate budget to the proposed Environmental Unit; (iii) environmental baseline data for key mining areas is inadequate to monitor the development impact of mining activities or to provide adequate infonnation to the private sector for the preparation of environmental assessment (EA) studies; (iv) public participation in mining projects is embrionary; and (v) there is no experience in evaluating socio-economic impacts of mining projects. In order to address these issues, a comprehensive Sector Environmental and Social Assessment (SESA) will be carried out as part of the project, including the: (i) review of the present status of the environmental legal, regulatory and institutional frameworks; (ii) evolution of the mining sector, including a description of most of the mining projects in operation or under development; (iii) potential physical and socio-economic impacts of sector activities on the environment and on the communities, including indigenous populations; (iv) identification of protected areas and areas of high value biodiversity restricted to mining activities, and - 25 -  prospective areas for mining development where environmental baseline studies will be prepared, in order to assess natural, social and sector background data; (v) preparation of pilot socio-economic baseline studies aiming at the definition and implementation of consultation procedures, training requirements and programs, ad hoc institutional strengthening, altematives for revenue sharing with local communities, and other related measures. 5.2 What are the main features of the EMP and are they adequate? Not applicable 5.3 For Category A and B projects, timeLine and status of EA: Date of receipt of final draft: Not applicable 5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environmuent management plan? Describe mechanisms of consultation that were used and which groups were consulted? Not applicable 5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP? Not applicable 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. Traditionally, assessment of the economic impact of a mining project has been at the level of the national economy, in terms of fiscal revenues, export eamings, GDP, gross capital investment, value added, and other parameters. These impacts can be measured using well-developed statistical and other techniques. Hlowever, the socio-cultural impacts of mining on local communities are receiving growing attention, and the parameters, methodologies, and techniques used to assess these impacts are only now being developed, in contrast to macro-economic impact assessment. Fundamentally, social assessments involve identifying for each group of stakeholders the balance of positive and negative impacts, devising numeric or other objective indicators, and recommending measures to maximize positive outcomes and attenuate negative effects. Experience has shown that consultation and involvement of local communities in these assessments is critical and forms the basis for subsequent action programs. In recent years, Bank-funded project have been undertaking social assessments to identify key stakeholders, examine social issues related to specific sectors and project components, analyze institutional capacities, develop more consultative, inclusive and participatory approaches in project design and implementation, conduct gender analysis, devise monitoring and evaluation mechanisms, and promote project sustainability. Through the social assessments, which will be undertaken in critical stages of the project cycle, the development of adequate institutional and regulatory frameworks will be sought with a view to facilitating community participation and empowerment while developing mechanisms for mitigating any adverse negative impacts, resulting from any of the project activities. In this context and based on the findings and recommendations of the planned social assessments, the project will develop a social management plan for the mining sector, with particular focus on artisanal mining. The objective is to support the government in addressing any issues related to potential resettlement and compensation in cases involving land acquisition and to design the institutional, financial framework for revenue sharing with local communities according - 26 -  to Bank policies and standards. In extractive industries, experience shows that Governments in partnership with the private sector are becoming more sensitive to international business best practices and striving for good governance and good corporate citizenship through inclusive public private ventures, which promote community's ownership of the development process and hence better sustainability. The Project will liase with the Decentralized Planning and Financing Project under preparation in Mozambique and will also seek guidance from two pilot projects that deal with community involvement on the management of natural resources, currently under implementation in Mozambique in the areas of fisheries (Moma) and forestry (Tete). 6.2 Participatory Approach: How are key slakeholders participating in the project? Small-scale and artisanal miners have been directly involved in the organization of the policy dialogue seminar in Nampula and will be fully involved - either directly through the small-scale mining survey funded under the PHRD Grant, or indirectly through their Association - in project preparation with respect to the small-scale mining component. The project has been discussed with mining companies and reflects their comments. The project was also be discussed directly with NGOs interested, mainly from the environment area. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? Consultation on environmental and social issues will be a permanent feature of the project and will mandatory under the proposed new mining law. 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? Continuous minitoring and questionaires will be carried out under the small-scale mining component. 6.5 How will the project monitor performance in terms of social development outcomes? Community consultation and questionaires. 7. Safeguard Policies: 7.1 Do any of the following safeguard policies apply to the project? .......... . ............ .A pp i bili- Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) 0 Yes 0 No Natural habitats (OP 4.04, BP 4.04, GP 4.04) 0 Yes 0 No Forestry (OP 4.36, GP 4.36) 0 Yes 0 No Pest Management (OP 4.09) 0 Yes * No Cultural Property (OPN 11.03) 0 Yes * No Indigenous Peoples (OD 4.20) 0 Yes * No Involuntary Resettlement (OD 4.30) 0 Yes * No Safety of Dams (OP 4.37, BP 4.37) 0 Yes 0 No Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) 0 Yes 0 No Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60) 0 Yes 0 No 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. Not applicable - 27 -  F. Sustainability and Risks 1. Sustainability: Mozambique has good geological potential as is evidenced by the interest major international mining companies are showing in the country. However, the Government will encounter difficulty in sustaining this interest and in ensuring the maximum contribution to economic development unless the major reforms which have already begun are completed and deepened. If proper regulations and enforcement mechanisms as well as a competitive environment are put into place, minerals exploration and development of mines will become self-sustaining to provide a continual revenue stream and other economic benefits to the country. The project will contribute to the institutional strengthening of the Government of Mozambique to manage key areas in the mining sector (policy, institutional, environmental, social), through a set of prerequisite steps that will lay the ground for future private investment and whose implementation will provide a sound basis for Mozambique in exploiting, over the long term and in a developmentally sound manner, the significant potential of its natural resources. Sustainability will be enhanced through the project's strong emphasis on institution building, training, human capital development and environmental awareness in the public as well as private sectors. In addition, the project will attempt to implement a full cost-recovery system in the Mining Cadastre. 2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1): Risk Risk Rating Risk Mitigation Measure From Outputs to Objective Government continued commitment to M Government's program for mining sector reform reform is on schedule and was confirmed and reinforced during the policy dialogue seminar held in Maputo on July 1999 Condensed timing to build-up capacity to S Preparatory work is being funded under the manage the sector by the central and PHRD grant. the project contemplates Provincial mining institutions substantial amounts of capacity building and training and assistance will be phased and prioritized so as not to overburden the relevant government departnents; the international consultants engaged will work alongside local counterparts Reasonably stable world minerals market M Although the general trend in mineral prices will conditions and prices continue to be flat or down over the long term, it is expected that as a result of the project potential investors will find promising targets that will allow them to position themselves favorably in the next minerals investment cycle. Commitment to honor the provisions of M Stability clauses in the new code, international the new Mining Code arbitrage, guarantees and insurance. Continued staff ownership regarding M Provision of necessary staff, resources and project objectives conditions to effectively implement the reform. Political interference M Project implementation guidelines to be included in the General Agreement will aim at minimizing political interference. From Components to Outputs - 28 -  3. Staff stability and continued ownership M Provision of necessary staff, resources and regarding project objectives conditions to effectively implement the institutional reform. Participative processes to implement the institutional reform and introduce new work methods Overall Risk Rating M Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk) The supply response to the major structural reforms adopted by Government could be slow, especially in the case of inconsistent enforcement of the reformed regulatory framework. Moreover, the lack of a well developed and maintained transport infrastructure, the inadequate supply of skilled labor, high freight costs and high utility tariffs do not make Mozambique a competitive environment for long-term private investment The Government needs to aggressively accelerate economic growth through policies and programs aimed at increasing the level of private investment, thereby raising productivity, providing employment and generating income for the labor force. Foreign-led private sector investment in mining could be instrumental in opening up the economy to investment and competition, effectively supporting macroeconomic stability and structural reformL 3. Possible Controversial Aspects: Not applicable G. Main Loan Conditions 1. Effectiveness Condition (a) the Borrower has established the UCPM; (b) the Borrower has appointed to UCPM a full-time Project Coordinator, Procurement Specialist and Project Accountant staff satisfactory to the Association; (c) the Borrower has established within UCPM a financial management and accounting system acceptable to the Association, including a Manual of Procedures and a Financial Management Committee; (d) the auditors referred to in Section 4.01 (b) of this Agreement have been retained, as provided in such Section and in accordance with the provisions of Section 11 of Schedule 3 to this Agreement; (e) the Project Account has been opened; and (f) the Borrower's new draft Mining Law (Projecto de Lei de Minas) replacing the existing Law No.02 of April 16, 1996, has been approved by the Borrower's Council of Ministers and submitted to the Borrower's Parliament. 2. Other [classify according to covenant types used in the Legal Agreements.] Conditions of negotiations: preparation of a Project Implementation Manual acceptable to IDA. Conditions of Board presentation: (i) the Minister of Mineral Resources and Energy sends a letter to the Association confirming the reorganization of the Mining Directorate (Direccao Nacional de Minas) and the - 29 -  Geology Directorate (Direcgio Nacional de Geologia), as described in Annex 12; (ii) the Minister of Mineral Resources and Energy sends a letter to the Association outlining an action plan acceptable to the Association for the reorganization of the Mining Fund (Fundo de Fomento Mineiro) and a timetable for the implementation of the proposed changes; and (iii) the Ministry of Mineral Resources and Energy establishes the Project Coordination Unit (UCPM) by Ministerial Diploma. H. Readiness for Implementation LI 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. Z 1. b) Not applicable. Z 2. The procurement documents for the first year's activities are complete and ready for the start of project implementation. Z 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. OI 4. The following items are lacking and are discussed under loan conditions (Section G): 1. Compliance with Bank Policies Z 1. This project complies with all applicable Bank policies. O 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. Paulo De Sa James Bonn Johannes Zutt Team Leader Sector Manager Acting Director - 30 -  Annex 1: Project Design Summary MOZAMBIQUE: MINERAL RESOURCES MANAGEMENT CAPACITY BUILDING PROJECT Hierarchy of Obectives dKey Performance Monitoring & Critical --_:_-_-_-_._:_:_-::_-_- Indicators Evaluation -_-_. _-_-: _:_: _-_ Sector-related CAS. Goals Sector Indicators: Sector/country (from Goal to Bank reports: Mission) 1. Broad-based growth led Approval of at least two Midterm review Continued neutral by private, foreign mining investments by macroeconomic and investment private investors sector policy environment 2. Improve the Systematic application Implementation performance and of EIA in mining Completion Report institutional capacity of projects with (ICR) Government participatory approach 3. Enhance social Increase in per capita Statistical data development, including revenues of populations poverty reduction and in artisanal mining HIV/AIDS awareness areas Project Development Outcome/Impact Project reports: (from Objective to Goal) Objective: Indicators: 1. Encourage Private Increase average annual Midterm review Stable, long-term Investment in Mining investments in mining politically neutral macroeconomic and sector policy environment 2. Increase Fiscal Revenues Increase average annual ICR Reasonably stable world mineral exports minerals market conditions/ prices 3. Develop Environmental Increase fiscal revenues Continued monitoring Environmental control and Social Management for from mining by MIREME procedures are Mining enforceable and community consultative 4. Inprove Capacity of Define procedures for Consultant's baseline processes are applicable Government Institutions ETA for mining, and progress reports including in artisanal areas Continued monitoring Systematic application by MIREME's Mining of consultative Environmental Group processes Statistical data Improve geological mapping coverage of the country - 31 -  Output from each Output Indicators: Project reports: (from Outputs to Component: Objective) I.Legal and regulatory New mining code Midterm review Continued commitment to framework modem and enacted 6 months after reform transparent effectiveness, including environmental regulations 2.Government institutions Environmental ICR Commitment to honor the capable to provide timely, monitoring system provisions of the new reliable and transparent operational 36 months Mining Code administrative services to after effectiveness the sector 3. Minerals information Geological, Quarterly and annual Reasonably stable world System (MIS) available to environmental technical performance minerals market investors databanks operational at reviews conditions/price project completion 4. Improved social Computerized cadastre Baseline studies reports awareness, conditions for system operational by consultative processes and mid4erm review community participation in new mining projects 5. Improved environmental Consultative procedures Mining Cadastre data and Social conditions on implemented at end of base small-scale mining areas project At least 4 social and Annual social environmental assessment reports assessments in artisanal areas conducted before completion -32 -  Project Components/Sub- Inputs: (budget for Project reports: (from Components to components: each component) Outputs) A. Capacitv Building of A. Canacity Building: Project quarterly and - Continued commitment Public mini Institutions US$ 6.93 million annual reports to sector reform. including: - Continued project ownership A. 1. Modernization of A. 1. Legal and Contracts, procurement - Improved institutional Legal and Regulatory Regulatory Framework: records, Consultants' coordination. Framework: new mining US$ 0.50 million reports, monitoring - staff stability. code, model investment reports, technical and - No political agreement, consultation. training performance interference. evaluation reports, - Satisfactory manuals, financial performance by reports and audits. contracted consultants. A.2. Institutional Reform: A.2 Institutional (i) Implementation of the Reform: US$ 5.03 new institutional model: million staffing, organization, procedures, training, financial resources; (ii) Institutional infrastructure: equipment and works, (iii) training and seminars. A.3 Mining Cadastre and A.3 Mining Cadastre registry System: and registry system: Computerized system, US$ 0.77 million equipment and training. A.4. Investment A.4 Investment promotion: promotional promotion: US$ 0.433 material; communication million strategy. A.5. Intranet network: A.5 Intranet network: consultants and equipment US$0.30 million -33 -  B. Geological 2. Geologic Project quarterly and - Continued commitment Infrastructure including: Infrastructure:US$ annual reports to sector reform. - B.1. Component 18.61 million Continued project supervision, on twinning B. 1.Component Contracts, procurement ownership - Improved arrangement with a world supervision:USS 1.15 records, Consultants' institutional coordination. class Geological Survey. million. reports, monitoring Staff stability. - No B.2. Geophysics Airborne B.2. Geophysics reports, technical and political interference. - Survey (parallel Airborne Survey:US$ training perfonnance Satisfactory performance financing): aeromagnetic 4.82 million (parallel evaluation reports, by contracted consultants. and radio-metric survey of financing). manuals, financial the most promising mineral reports and audits, provinces of Mozambique. maps. B.3. Geological Mapping B.3. Geological (parallel financing): Mapping:US$ 8.19 preparation of a complete million (parallel coverage of the country financing). with digitized maps. B.4. Geochemical B.4. Geochemical sampling (parallel sampling:US$ 1.31 financing): compilation of million (pamllel previous surveys, financing) collection of new samples, digitized maps. B.5. Seismological B.5. Seismological network (parallel network:US$ 0.11 financing): rehabilitation of million (parallel existing network financing) B.6. Documentation B.6. Documentation center (parallel financing): center: US$ 0.46 rehabilitation, update, and million (parallel training. financing) B.7. Minerals B.7. MIS: US$ 0.76 Information System million (parallel (parallel financing): financing) upgrading of the information system and facilities; training publication of maps and documentation. B.8. Industrial Minerals B.8. Industrial Minerals Survey (parallel Survey:US$ 0.88 financing): identification of million (parallel potential targets for SMEs. financing) B.9. National Museum of B.9. National Museum Geology. of Geology: US$ 0.43. B. 10. DNG Central Laboratory (parallel financing): - 34 -  C. Envirorunental C. Environmental Project quarterly and - Continued commitment Management System-EMS Management System- annual reports to sector reform. including environmental EMS: US$ 2.35 million - Line staff and socio-economic Contracts, procurement environmental and social baseline studies, records, Consultants' awareness. development of reports, monitoring - Continued project consultative procedures reports, technical and ownership and assessment criteria, training perforniance - Improved institutional environmental management evaluation reports, coordination. capacity building, training; manuals, financial - Staff stability. implementation of the reports and audits, - No political EMS. maps. interference. - Satisfactory performance by contracted consultants - Continued commitmnent D. Sustainability of Small- D. Sustainabilitv of to sector reform Scale Mining, including: (i) Small-Scale Mining: - Ability to integrated management and US$ 2.20 million enforce new law. T.A. program to enhance - Continued technical yields, project environmental ownership performance; enforcement - Improved of new mining law; institutional program of extension coordination, services to small-scale especially with miners; pilot training center providers of for small scale miners, health and social strengthening of minerals services. laboratories; and (ii) - Staff stability HIV/AIDS awareness and - No political prevention campaign; interference. - Satisfactory performance by contracted consultants. - 35 -  E. Proiect Coordination 5. Proiect Coordination - Continued comnitinent and Management: and Management:US$ to sector reform. - Hire and supervise staff 1.91 million - Continued project - Manage procurement ownership -Contract accounting and - Improved institutional auditing coordination. - Prepare quarterly and Staff stability. annual reports and annual - No political operation plas interference. - Monitor progress and evaluate results. Contingencies US$ 1.00 million - 36 -  Annex 2: Detailed Project Description MOZAMBIQUE: MINERAL RESOURCES MANAGEMENT CAPACITY BUILDING PROJECT By Component: Project Component 1 - US$6.93 million Institutional Reform and Capacity Building of Public mining Institutions. The objective of the component is to improve the legal and regulatory framework for mining in Mozambique, and strengthen the capacity of the sector institutions to enforce the law in order to establish an enabling environment for private investments into mining. The activities of the component shall comprise: (i) strengthening the policy making, regulatory and sector management capabilities within MIREME; (ii) rationalizing the role of the State from being an owner and operator of mining assets to a regulator and a promoter of the private sector participation; (iii) finalizing and perfecting the reform of the legal and regulatory frameworks to create a favorable environrment for the private investments in mining; (iv) restructuring and modernizing of the National Directorate of Mining and the National Directorate of Geology, based on the redefinition of their core mandates, in order to transform them into a sector promotion tool; (v) establishing a modern computer-based cadastre and mine-reporting systems as well as explicit criteria and non-discretionary procedures for the granting and foreclosing of mining rights; and (vi) improving MIREME's capacity to attract private sector investments by allocating resources for promotional programs. These activities will be complemented by the training the staff and by procurement of equipment and materials to enable the institutions to fulfill their mandates and functions. The activities of the component are grouped into five sub-components: (A. 1) Modernization of the Legal and Regulatory Framework; (A.2) Institutional Reform and Capacity Building; (A.3) Mining Cadastre and Registry; (A.4) Promotion of investments; and (A.5) Intranet computer network, to improve the flow of information within MIREME and to the different stakeholders of the sector. A.1. Modernization of the Legal and Regulatory Framework - US$ 0.50 million (1.5% of total project costs). The broad lines of the legal framework reform have been defined during Project preparation, under a PHRD grant from the Government of Japan. As a result, proposals for a new mining law and its regulations, including the specific environmental norms and procedures applicable to mining, have been drafted. The next step consists of obtaining a consensus from the different stakeholders on the intended reform and the new legal texts. The absence of a consensus would seriously hinder the enactment and application of the new regulatory framework. Therefore, there is now a need to enlarge the participation and build ownership of the different stakeholders on the reform agenda. This objective will be achieved through a Policy Dialogue and Consensus Building program. The consensus will be reached with the help of a communication campaign explaining the scope of the legal reform and its advantage compared to the actual legal framework. Seminars and roundtables will be organized to promote and enlarge the participation of key stakeholders of the mining development and representatives of other Govemment institutions, specifically the finance, planning and environmental administration of the State. The work will be carried out principally by individual national and intemational consultants under the coordination and supervision of the National Directorate of Mining. Funds will also be provided, through the Project, for seminars and the round tables logistics. In order to achieve the consensus over a broader spectum of stakeholders, including the population of the mining areas, communication campaigns will be organized through the local media (press, radio and television). This campaign will aim at explaining the legal reform to the various economical and social sectors in order to reach a high level of acceptance. - 37 -  Although a draft of the new mining legislation has been prepared under the PHRD grant, some complementary texts will be needed for the application of the new legal framework. Moreover, legal assistance will be eventually required while the new Mining Code is being reviewed by Parliament. Technical assistance will also be provided to strengthen the capacity of public institutions to negotiate mining contracts and reinforce the Government's capacity to negotiate mining investment agreements for large projects. This will be achieved through on the job training by the consultants, national seminars and courses animated by the same consultants and study trips to emerging market countries. A.2. Institutional Reform and Capacity Building - US$ 5.03 million (15.2% of total proiect costs). The broad institutional framework for the institutional reform has been defined during project preparation. The new institutional framework aims at defining better the functions of the public mining agencies, elimninating most of the past widespread overlapping of functions, and strengthening their capacity to administer the sector. This work has resulted in the definition of a preliminary new institutional model for MIREME's mining agencies (see Annex 12). The detailed definition and adjustment of the model including functions, procedures, staffing and operational budget will be carried out as part of the activities of the present sub-component. T'he new institutional model, accounts for the adaptation of the organization and core mandates of the PMIs to the new mining policy of the Government. This new model sets up the broad institutional framework according to which the reform will be carried out. However, the implementation of the new model still requires, for each institution, some adjustments of the organization, the detailed definition of the functions, work procedures as well as qualifications and training requirements of the staff. The practical implementation of the new model shall also require the improvement of the infrastructure and equipment of the institutions in order to provide them with the necessary physical resources to carry out their new functions. The inventory of the needs in equipment and infrastructure improvement will be carried out as part of the detailed definition of the model. The detailed design and implementation of the new model shall be carried out under two programs: (i) Adjustment and Implementation of the New Institutional Model, aimed at adjusting the overall model, the definition of the functions and efficient work procedures, the definition of the staffing, job profiles and training requirements to allow the staff to upgrade their knowledge and assume their new functions, the estimation of the necessary operational budgets as well as the equipment and infrastructure requirements. The implementation will be preceded by the adjustment and the detailed definition of the institutional model agreed during project preparation. This process will be focused on the DNM and DNG, however some actions will also be carried out concerning the Mining Fund. The adjustment of the model shall be carried out with the participation of the major stakeholders of the mining administrations, e.g. the ministry, the authorities of the institutions, the personnel and the clients of the institutional services from the private sector or other state institutions. The process will take into account the internal and external demand of institutional services and the requirements of quality and reliability of these products. The adjustment shall be achieved through a participative process involving all the stakeholders of the mining administration and geological services of Mozambique. Seminars and workshop will be organized for the sake of the participative process. The scope of the activities under this sub-component includes : (a) Identification of the respective role of each agency and of the private sector and their inter-relationships within the mining policy of the Government. This identification will be validated during the seminars and workshops; (b) Identification of the inter-ministerial coordination required for the implementation of the mining Policy between MIREME, MICOA, Finance and Planning Ministry, and other state institutions and definition of the coordination - 38 -  mechanisms; (c) Identification of the present intemal and external demand for the institutional products and estimation of the future demand as result of the promotion of the investments in the mining sector. A particular attention will be given to the identification of the type and quality required for the institutional products; (d) Determination of the detailed functions of each institution and efficient work procedures for the production of the institutional services in quantity and quality required by the internal and external clients; (e) Adjustment of the organizational structure on the basis of the roles and demand identified as well as the work procedures established above, determination of the staffung, operational budget and equipment necessary for the implementation of the new work procedures. The consultants shall also determiine the necessary upgrade of the facilities to accommodate the new organization. The procurement of the recommended equipment and works will be carried out by the UCPM on the basis of the technical specifications prepared by the consultants for the equipment and contracted architects for the works. The adjustment of the organizational structure of the institutions will be validated during internal workshops with the participation of the authorities and the personnel of the institution; (f) Preparation of the manuals of functions and procedures comprising the description of the functions of each post and the procedures for production of each service. National consultants will be hired to redact the manuals under the supervision of he international consultants on the basis of the definitions established above. The manuals will be redacted in Portuguese; (g) Determination of the training requirements for the accomplishment of the functions and work procedures defined. Training shall be orientated to prepare the present staff to perform the new functions and work procedures established. Part of the training will be performed through on the job training during the missions of the international consultants but will also comprise the participation to workshops and short courses in Mozambique and abroad. The international consultants shall recommend the content of the training programnme and establish the respective budget. The training programnne shall be administrated and financed through the UCPM; (h) Evaluation of the capacity and training needs of the present staff and establishment of a human resources policy including economical motivation and career plans and training programme; and (i) Assistance for the implementation of the new work procedures through technical assistance during the accomplishment of the new functions. (ii) Institutional Infrastructure Program to upgrade the facilities at the reforrned institutions and provide the necessary field and office equipment. The consultants participating to the adjustrnent of the new model will determine the technical specifications of the works and equipment and the procurement will be carried out by the UCPM on the basis of these specifications. The upgrading of the facilities shall comprise the premises of the DNG in Maputo and its regional offices as well as the facilities of the DNM in Maputo and of the Provincial Directorates. The funds of the Project shall be used only for the upgrading and improvement of existing facilities. In the case of DNG, part of the rehabilitation works shall comprise the upgrading of the sample storage facilities for the conservation and classification of the geological and geochemical samples from previous field campaigns as well as the new samples to be collected as part of the Project activities. The equipment to be purchased within the institutional infrastructure programme shall comprise: i) computer and office equipment (others than the computer planned to be acquired within the sub-components of the mining cadastre, mineral information system and environmental management and information system); ii) field equipment for the geological field work, mines inspection and environrnental affairs unit; iii) four wheel drive vehicles for the DNG, DNM and Provincial Directorates; iv) laboratory equipment for the laboratories of the Provincial Directorates. A.3. Mining Cadastre and Registry System - US$ 0.77 million (2.3% of total project costs!. The Project will finance the transformation of the physical registries of the National Mining Directorate into a computerized rnining cadastre. The cadastre will provide reliable information about the precise location of mining rights in the territory. The cadastre procedures will be transparent, public, of general application, non-discretionary and will respect the priority of the first application presented. Moreover, the cadastral procedures will have stages, instances and resources to allow mining rights owners to adequately defend - 39 -  their rights in accordance with the provisions of the Mining Code. The activities under this sub-component include: i) the adjustment and establishment of the new organization of the mining cadastre, in the DNM and the Provincial Directorates; ii) the definition of the functions and the establishment of the working procedures of the mining cadastre including the interaction with the Provincial Directorates for the reception and transmission of the applications in accordance with the dispositions of the mining code; iii) the design of the Mining Cadastre System (MCS), a modem computerized system for the administration of the mining titles, including the supply of the hardware and software and programming of the system; iv) computerization of the working procedures of the mining cadastre as defined above in accordance with the dispositions of the enacted mining act including the digitalization of the present manual information of the mining cadastre of Mozambique; v) training of the mining cadastre staff in technical and legal aspects of the administration of the mining titles and the operation of the MCS; and vi) strengthening of the technical capacity of the mining cadastre in the DNM and the Provincial Directorates in terms of computer, topographical and office equipment. To allow the posterior use of GPS instruments some technical verifications and definitions need to be carried out before the start of the Project. Amongst these activities, the most urgent are the verification of the geodesic network precision and the parameters for the transformation of the GPS coordinates to topographical coordinates as well as a unique algorithm for the management of the UTM zones over the whole country. These activities may imply changes in the terms of reference of the consultants to be engaged and should thus be performed as part of the Project preparation in order to avoid delays or surprises during the execution. A.4. Investment Promotion - US$ 0.33 million (1.0% of total project costs). The project shall finance the publication of promotional material (printed and video presentations) for presentation at international events and publications in international magazines. All the activities of the Project are focused on the promotion of the investments and it is of utmost importance to ensure the adequate diffusion of the results obtained within the international mining community. Therefore, the Project will finance the realization of an international symposium in Maputo at the end of the Project to which will be invited all the major mining companies interested in investing in Southern Africa. A.5. Intranet network - US$ 0.30 million (0.9% of total project costs). The Project shall finance the establishment of several information systems (Mining Cadastre System (MCS), Mineral Information System (MIS) and Environmental Management and Information System (EMIS)) to ensure the proper collection, storage and retrieval of the sectorial information. However, these information systems will form independent networks under the responsibility of the different technical units but will not provide a central access to the complete information of the sector. For example, the Minister would need to consult several units in order to compile a synthesis of the sectorial situation at any time. Project Component 2 - US$18.61 million Geologic Infrastructure The main objective of this component is to provide the basic and reliable geological information necessary to facilitate the promotion of private investments in the mining sector and to support the planning of the social-economical development of the country. In order to achieve this goal, the Project shall finance: (i) completion of the regional airborne geophysical coverage of the country and a denser coverage over selected promising areas; (ii) actualization and improvement of the existing coverage of geological maps at 1:250.000 scale, and a detailed coverage (1:50.000) of selected areas of high mineral potential; (iii) compilation of the existing geochemical survey data including the reanalysis of existing samples and some complementary sampling; (iv) establishment of a network of seismic stations to monitor the seismic activity of the country; (v) modernization and improvement of the documentation center of the DNG including the classification and preservation of the documents (reports, maps, etc..); and (vi) the establishment of a -40 -  modem and computerized Minerals Information System (MIS), to compile and catalogue dispersed data facilitating the access to the information. The MIS will introduce GIS technology in support to geological and thematic mapping and facilitate the use of the geological information for environmental purpose and land use planning. A seventh component will include an inventory of industrial minerals and construction materials in Mozarnbique and its promotion to local investors. The eight and ninth components concern the strengthening of the National Museum of geology and DNG's Central Laboratory in Maputo. B.1. Component supervision - US$ 1.15 million (3.5% of total project costs!. Considering the highly specialized technical activities to be carried out within the present component, external assistance will be necessary for the coordination and supervision of the works and consulting services in order to minimize the technical contingencies that used to arise from such activities. The Project will finance the engagement of a consulting firm or a foreign geological survey ("supervisor") with the experience in contracting geophysical airbome surveys, geological mapping and in the establishment and operation of mineral information systems. Under an "institutional twinning" arrangement, the supervisor shall oversee the work, coordinate the different consulting firms and contractors engaged for the execution of the component, evaluate the product's quality and advise the DNG in case of problems. The supervisor shall also assist the UCPM for the elaboration of the bidding documents, the evaluation of the offers and the negotiation of the corresponding contracts. B.2. Geophysics Airborne Survey - US$ 4.82 million - Bank fmancin2 + parallel financing (14.6% of total 1roject costs). Mozambique posses an extensive coverage of airborne geophysical surveys at various scale, some of them dating from the late fifties. The early airborne geophysical surveys were carried out for oil exploration and the Nuclear Agency of Portugal. Airborne geophysical surveys for mineral exploration and geological mapping started in 1970. The data of the early airborne survey carried out for oil exploration (before 1970) are available only in analogical format as contour maps. The flight characteristics of these surveys (high latitude and wide spacing) make them of little use for geological purpose. More recent surveys have been carried out by CGG and Hunting Geophysics and Geology, between 1980 and 1985, and included gamma-ray spectrometric measurements and complete magnetic recording. The data of the three zones is available at DNG in digital and analogical format (paper contour maps). This data is presently being compiled and treated at CGS South Africa and shall be available to the Project at the end of year 2000. According to the evaluation realized during Project preparation the quality of the older survey does not justify the work to recover or digitize them and only the analogical paper maps will be used as complementary information within the Project. However, the southern part of Mozambique has not been covered recently and the coverage available is in analogical format, old and inadequate for geological mapping (as has been realized primarily for oil and gas exploration). A part from the gaps in the northern part of the country, a major zone with high mineral potential along the border with Zimbabwe has never been covered by airborne geophysics. Trough parallel financing (US$ 1.6 million), the Project will carry out the completion of the airborne geophysical coverage in the southern part of Mozambique along the Zimbabwe border as well as higher density surveys in selected areas of high mineral potential of the northern part of the country. The methods to be used will comprise gamma-ray spectrometric measurements and magnetism. This area covers 212.000 square kilometers and will be flown with a flight lines spacing of 1 kilometer and an altitude between 100-120 meters. In addition, Bank financing (US$ 3.02 million) will cover higher density surveys over selected areas of northern Mozambique previously flown. A total of 325.000 line Km (including tie lines) wihl be flown at 250 meters spacing an altitude of 60 to 80 meters over areas of high mineral potential to increase the density of information. 500.000 line Km will be flown. The exact location of the detailed surveys will be determined with the advices of the supervisor engaged. The Project shall also finance under the present sub-component (parallel financing, US$ 200,000), the compilation and treatment of the data from the previous airborne geophysical surveys including the digitalization of the analogical records whenever their quality justifies the operation. - 41 -  B.3. Geological Mapping - US$ 8.19 million - parallel fmancing (24.8% of total project costs). Mozambique posses an extensive coverage of geological maps. Geological mapping at 1:250.000 scale has covered up to date 93% of the country. Almost all the maps present disconformities at the boundaries with the lack of continuity of the geological formations from one map to another. Therefore, the entire mapping carried out in the past has to be revised, updated and homogenized regarding the stratigraphy and regional structures. The budget of the Project does not allow the in depth revision of all the maps of Mozambique. Therefore, the activities of the geological mapping sub-component have to be programmed according to priorities set in function of the objectives of the Project, according to the estimated mineral potential of the corresponding map sheets, and taking into account the maps presently under revision and preparation for printing as part of a recent cooperation with the Council of Geosciences of South Africa. The scope of work for the revision of the geological maps of Mozambique at the scale 1:250.000 has been divided in three groups of activities: (a) Detailed revision with extensive field checks dimensioned according to the quality of the previous fieldwork carried out. The work will result in the preparation of a digital map ready for impression. The impression will be made at a later stage with the assistance of the supervisor; (b) Revision with limited field works to produce a preliminary digital geological map that will not be printed but kept in digital format to facilitate the posterior updating when more fieldwork can be carried out; and (c) Only compilation of existing material and preparation of a digital draft map for as a base for further revision. Selected areas of high mineral potential will also be mapped at a smaller scale (1:50.000). The exact areas to be mapped shall be detennined at a later stage with the assistance of the supervisor. B.4. Geochemical sampling - US$ 1.31 million - parallel funancing (4.0% of total project costs). More than 150.000 stream sediment and rock samples have been analyzed during the past geological and metallogenic investigations of the DNG from 1973 until 1984, not counting the soil samples. A large amount of data and samples have been accumulated. However, nowadays most of the samples have been lost and the analytical results dispersed within reports, laboratory protocols, etc. Presently, major investments are not being taken advantage of. It is most urgent to recover, classify and digitize this information for future use as well as locate and catalogue the sample's material as theses samples could be reanalyzed for multi-elements at low cost compared to a new sampling programme. The activities of the sub-component will comprise the inventory of all available information, sample maps, analytical results, and sample material as well as the scanning of the documents and the digitalization of the samples position, together with the analytical results in a GIS format. This information will be transferred to the MIS. Moreover, the sub-component shall also finance new regional geochemical surveys to confirm areas of high mineral potential identified during the geological mapping. DNG staff will carry out the sampling with the assistance of intemational consultants. Parallel financing will cover the technical assistance of international experts, the cost of analysis (multi-element) and the field allowance of DNG staff. The results shall be integrated to the former information by the consulting firm engaged. B.5. Seismological network - US$ 0.11 million - parallel financing (0.3% of total project costs). The seismological network of Mozambique shall be rehabilitated and completed by CGS under parallel financing from RSA and own funds of CGS (Council for Geosciences of South Africa). The rehabilitation of the seismological network comprise three phases: (i) Phase 1 : (completed) installation of two stand-alone digital seismographs in Tete and Nampula. Data is automatically archived at the stations onto zip drive. In the absence of processing facilities in Maputo, the data are sent to the CGS in Pretoria for analysis, and inclusion in the regional seismological bulletin for SADC; (ii) Phase 2 : (end 2000) installation of a third station at Changalane, maintenance (repair) of the two stations installed at Tete and Nampula (the station at Tete will be upgraded to a three-component system), and installation of processing facilities in Maputo. Transfer of data from the seismological stations will done sending the zip disk to Maputo where it will be processed and then sent to CGS in Pretoria for its inclusion in the SADAC - 42 -  bulletin; (iii) Phase 3 (2001) installation of two more stations, one at Manica and one at Lichinga. Future developments include the transmission of the data between the stations and Maputo by telephone or Internet. B.6. Documentation Center - US$ 0.46 million - parallel financing (1.4% of total project costs). A wealth of information can be found at the DNG in Maputo, but the access to it is difficult due to the dispersion over different offices in Maputo and in the Provinces. Therefore, it is important to organize a centralized documentation center within the DNG where all the paper documents will be classified, indexed, and preserved. To achieve this goal it is necessary to upgrade the facilities, equip the documentation center with adequate furniture, and provide technical assistance for the recuperation, classification and preservation of the docunents. Under this sub-component, parallel finance shall fund technical assistance for the recovery and classification of the information and the organization of the center. The organization of a documentation center will include the installation of a computerized catalogue of the documents and lending system to track the documentation borrowed by users. Training in Mozambique and abroad shall be provided to the staff of the center. B.7. Minerals Information System (MIS) - US$ 0.76 million - parallel fmancing (2.3% of total project cos. Basic geological information is essential for the development of the mining sector and the promotion of investment into high-risk exploration activities. However, the usefulness of this information will depend primarily on its accessibility. The DNG posses already a wealth of information that, is unfortunately, is not used at the optimum because of lack of accessibility. Most of the information is kept in paper format and although the documentation center of DNG is well organized, the search through the paper documents is time consuming. Moreover, mining companies are not aware of the availability of the information. The Project will not achieve its objectives if an appropriate mineral information system is not established to facilitate the search, diffusion, and commercialization of the information. Parallel financing under the Mineral Information System (MIS) sub-component will fund the establishment within the DNG of a computerized information system based on GIS technology and relational databases. The MIS shall also provide the access to information through the Internet to customers in Mozambique and abroad through e-commerce facilities. B.8. Industrial Minerals Survey - US$ 0.88 million - parallel financing (2.7% of total project costs). Mozambique possesses a great potential for industrial minerals. In the proximity of urban areas, smnall-scale exploitation of building materials (stone crushing, limestone, clay, ornamental rocks among others) are widespread. However, these exploitation's also lack the managerial and technical skills to exploit in a rational manner the mineral resources. The present sub-component shall finance the strengthening of the extension of services to the industrial minerals and building material sector under parallel financing. The DNG, through the past geological investigations accumulated an extensive documentation on industrial mineral potential of the country. Moreover, the geological mapping programs to be carried out under the Project will also contribute to the identification of promising areas. This knowledge should be passed over to the industrial minerals and building material sector. The DNG shall bring technical assistance to the industrial minerals and building material sector with geological advices regarding the exploration of such material. The Project shall also finance the engagement of international consultants to assist in evaluating the quality of the industrial minerals and building material deposits identified by the DNG, as well as advise the small-scale miners regarding the quality requirement of the market. Access to financing is also an important limitation for the development of the sector. The DNM shall advise the small scale miners involved in the exploitation of industrial minerals and building material on the possibilities of financing. B.9. Rehabilitation of the National Museum of Geology - US$ 0.43 million - Bank financing + parallel - 43 -  financing (1.3% of total project costs). This sub-component will assist in the rehabilitation of the building of the National Museum of geology in Maputo and the valorization of its collections. Under parallel financing, technical assistance will be provided to modernize the museum's collections and management. B. 10. Strengthening of the DNG's Central Laboratory - US$ 0.50 million - parallel fmancing (1.5% of total proiect costs). Under parallel financing, consultants for the technical assistance to the National Laboratory of DNG. DNG needs a basic laboratory to process rapidly a limited number of samples to support geological investigations. The sample preparation section needs also to be strengthened, specially regarding mineralogical and petrographical preparations. Funds will be provided by parallel financing to restore the elemental analytical and sample preparation capacity of the National Laboratory (purchase of new equipment and repair of the existing instrument). Due to the experience of the National Laboratory, the staff is well qualified and only a limited technical assistance will be required. Consultants will assist the DNG in establishing the technical specifications for the procurement of the equipment, supervising the installation and will ensure the training of the staff for the operation. Project Component 3 - US$ 2.35 million Environmental Management System The general objective of this component is to set up a preventive environmental protection for mining. This effort aims to bring together the mining administration, MICOA and the private environment entities to set up an effective environmental approach to the mining development. The activities of the present Component shall comprise: (i) preparation of an environmental and social sector assessment that will help identify the location of protected areas and areas of high value biodiversity that should be restricted to mining activities, as well of prospective locations for the development of mining operations where environmental baseline studies should be carried out; (ii) definition of sector specific environmental regulations and standards, including the procedures for the rehabilitation of the area after mine closure; (iii) implementation of adequate procedures and guidelines for the preparation of environmental impact studies in mining; (iv) capacity building of MIREME's Mining Environmental Management Unit for the definition of efficient procedures for environmental licensing and the establishment of efficient cooperation mechanism between the mining administration and MICOA to monitor and enforce environmental regulations; (v) preparation of socio-economic baseline studies over selected mining districts as a basis for development of methodology and capacity to assess and monitor social, cultural and economic impacts of mining on local communities, and (vi) development of consultation and participatory procedures; and (vii) establishment of environmental management system data basis for the environmental impacts of mining to manage the large amount of technical data needed for the environmental assessment and administration of the sector and simplify and speed up the environmental licensing procedures; the system would have linkages with other relevant environment data banks in other ministries, namely MICOA's area planning department. MIREME's and MICOA's capabilities to deal with sector environmental issues would be strengthened through the training of their staff, in order to ensure that mining operations are conducted in compliance with sound environmental practices. The main activities of the Component are as follows: a) Environmental and Social Sector Assessment: The assessment shall consist of an overall diagnosis of environmental conditions and social impacts of the mining activities and the identification of the strategic priorities for the sector. The recommended priorities for environmental and social management shall include both broad policy, legal and institutional issues, specific targets for environmental and social mitigation in the mining sector. The scope of work of the sectorial assessment shall include : (i) the identification of the mineral resources and the mining potential of the country; (ii) the identification and characterization of the present mining activities; (iii) the hydrological constraints, water resources and the competition for the use - 44 -  of water between the different sectors; (iv) the identification of the areas of ecological sensitivity to mining activities; (v) the demographics and socio-economic conditions of the mining sector; (vi) the economic and environmental policies of the Government; (vii) the identification and clarification of the institutional responsibilities for the environmental control and management; (viii) the overall environmental quality, occupational health and safety conditions of the sector; (ix) identification of the major sources of contamination and social impacts of the mining activities; (x) evaluation of the present and future environmental and social impacts of the mining activities; and (xi) identification of the strategic priorities for environmental and social mitigation. The recommendations will cover the strengthening of governmental and non-governmental institutions, the overall planning for sound use of land and natural resources, the identification of priorities for mitigation and the analysis of alternatives, the setting of goals for environmental quality, the environmental legislation and the planning for new investments in the sector. A consulting firm shall be engaged to carry out the sectorial environmental assessment with the participation of DNM and MICOA staff. b) Pilot studies and institutional capacity building of the Environmental Department: The main objectives of the pilot studies comprise: (i) the development of methodologies for multi-disciplinary studies adapted to the realities of Mozambique and applied to the evaluation of environmental and socio-economic impacts of the mining activities on a regional or local level; (ii) the definition of the fundamental parameters of the environmental conditions of the country to be applied in the formulation of the environmental regulation of the sector; (iii) the development of methodologies and capacity building for the planning and execution of the reclamnation of contaminated terrains by mining through pilot decontamination works; and (iv) the capacity building of the Environment department of the DNM. The pilot studies will be carried out in close cooperation with MICOA and two staff from this ministry will be invited to participate to the field activities. The results of the studies and the establishment of the corresponding methodologies will be realized together between the DNM and MICOA. One area has been preliminary for the pilot environmental baseline study, on the border of the Nampula and Zambezia Provinces. The environmental base line study will focus on the determination of the fundamental parameters characterizing the natural environmental conditions (background value) and the present level of contamination due to the social and economic development (base line data). The results of the study shall lead to the determination of the main parameters to elaborate the environmental regulation adapted to Mozambique including the standards and permissive limits to be applied allowing an environmentally sound econornic development of the country. The social and economic study will be carried on the same area of the baseline study and will aim to the detenrination of the positive and negative impacts of the mining activities on the social, cultural, and economical development of the communities as well as the methodology to optimize the positive impacts. Concerning the capacity building, the scope of work of the consulting firm shall comprise: (i) Determination of the respective role of MICOA, DNM, and the Provincial Directorates for the environmental assessment and control within the mining sector; (ii) Definition of the detailed functions of the Environmental Department and the Inspection Department with respect to the environmental assessment of the sector, environmental licensing, control, impact evaluation and auditing and the establishment of the corresponding manual of functions in Portuguese; (iii) Establishment of efficient work procedures for the accomplishment of the functions of the different units of DNM and the preparation of the corresponding manual of procedures in Portuguese; (iv) Establishment of environmental inspection guides, base line study methodology, environmental auditing guides, etc.; (v) Adjustment of the organizational structure based on the roles and functions identified, detennination of the staffing, operational budget and equipment necessary for the implementation of the new work procedures; (vi) Determination of the training requirements for the accomplishment of the functions and work procedures defined. Part of the training will be perforned through on the job training during the missions of the intemational consultants but will also comprise the participation to workshops and short courses in Mozambique and abroad; and (vii) Assistance for the implementation of the new work procedures through technical assistance during the accomplishment of the -45 -  new functions. A pilot work for the decontamination of the Monarch mine shall be preceded by an engineering study to verify the feasibility of the reclamation including a cost/benefit analysis, to establish the work program and the technical specification of the works to be carried out. The decontamination works shall be limited to the neutralization of the major sources of contamination and protection of the risk areas. c) Environmental Management System (EMS) : The objective of the sub-component is to establish a computerized Environmental Management and Information System to facilitate the administration of the environmental procedures within the mining sector and ensure the storage and access to the technical information. The EMS shall support the environmental evaluation and include all the necessary modules for the modeling of the environmental impacts and shall allow the storage and display of all the results from the base line studies. Moreover, the EMS shall include also modules for the automation of the environmental licensing procedures and environmental control. The operation of the EMS shall be under the responsibility of the Environmental Department of the DNM but shall be accessed by the Mines Inspection Department concerning the feeding of the inspection data and records of the environmental infractions. The EMS shall also comprise the safety a.id health inspection database operated by the Mines Inspection Department of the DNM. It shall have the capability of linkage with other relevant environmental data banks in other ministries and specifically allows for the exchange of data with MICOA as well as provide access to the databases from MICOA.; and d) Consultation and participatory procedures : Under this sub-component, the Project shall finance the realization of seminars and workshops in the local communities to develop the methodologies for the consultation and participatory procedures with the stakeholders in the new mining projects. The activities will be coordinated by the Environmental Affairs Unit of the DNM in close collaboration with MICOA. The Project shall also finance workshops in Maputo with the DNM, MICOA and other institutions involved in the environmental management. e) Component supervision by an independent consultant. Project Component 4 - US$2.20 million Sustainability of small-scale and artizanal mining The component will support assistance programs of integral character aimed at promoting the development of small-scale and artizanal mining on a technical, environmental and social sound basis, and providing for the sustainability of these activities. Activities are intended to promote the awareness of small-scale and artizanal to improve their technical and environmental performance and the overall impacts of their activity on the local communities. The component will: (i) assist DNM in the demarcation of reserved areas for small-scale mining, explain the content of the new Mining Code, certificate the small-scale miners working in those areas and promote their organization in small associations; (ii) support integrated management and technical assistance pilot projects to enhance technical yields, reduce the current serious adverse impact on the environment, improve living conditions of artizanal miners, and increase tax revenues; (iii) support the Mining Directorate to design and deliver technical advice, geology information, and extension services to small-scale miners, including the establishmnent of a pilot training center for small scale miners; and (iv) support health hazards campaigns to improve health conditions within small scale and artizanal miners communities, namely for malaria, and STDs, with focus on HIV/AIDS. The program shall be multi-disciplinary in its approach and include assistance to the following activities: (i) small-scale enterprise organization, management and accounting, including the provision of assistance to encourage small-scale miners to form cooperatives. improve their access to micro-finance, and identify - 46 -  suitable, well organized private companies who would be interested in joint-venture operations; (ii) legal and fiscal matters related to mining and provision of assistance to legalize informal operations and to enforce the new mining law; (iii) technical assistance: mining methodology, geology, metallurgy (mineral processing, infrastructure, simple mining economics and environmental safeguards); (iv) design and implement an environmental sensitization, awareness and prevention campaigns targeted at artizanal miners; (v) investigate and identify health hazards originating directly or indirectly from mining and promote remediation measures, including HIV/AIDS awareness; and (vi) promote the implementation of projects aiming at the diversification of economic activities, through the development of an information and assistance network. Project Component 5 - US$1.91 million Project Coordination and Management A project management structure shall be established in order to administrate and supervise the Project's activities. For this purpose, MIREME shall establish and maintain, during the execution of the Project, a Mining Project Coordination Unit (UCPM) to coordinate project implementation, and manage: (a) procurement, including all contracting for works and purchases, and the hiring of consultants, (b) project monitoring, reporting and evaluation, (c) the contractual relationship with IDA, and (d) fnancial record keeping, the Special Account and disbursements. The Project shall finance the recurrent costs (salaries of UCPM staff and operation costs), external auditing and accounting assistance (consultants), short term consultants for the assistance to the UCPM for the supervision of the Project, equipment and vehicles and training of the UCPM staff in World Bank procedures. The adequate operation of the UCPM is a key factor for the implementation of the Project. The UCPM shall ensure the coordination between the different institutions of MIREME participating in the Project as well as other state and private institutions stakeholders in the Project's objectives. The UCPM shall also be the direct link to the World Bank concerning the Project implementation. -47 -  Annex 3: Estimated Project Costs MOZAMBIQUE: MINERAL RESOURCES MANAGEMENT CAPACITY BUILDING PROJECT Local Foreign Total Project Cost By Component US &$lljon US $mil]ion US $mtlion A. Institutional Reform and Capacity Building 4.28 2.65 6.93 B. Development of Geologic Infrastructure 3.97 14.64 18.61 C. Environmental Management System 0.87 1.48 2.35 D. Sustainability of small-scale mining 1.68 0.52 2.20 E. Project Management 1.68 0.23 1.91 Total Baseline Cost 12.48 19.52 32.00 Physical Contingencies 0.00 0.00 0.00 Price Contingencies 0.00 1.00 1.00 Total Project Costs 12.48 20.52 33.00 Total Financing Required 12.48 20.52 33.00 Local Foreign Total Project Cost By Catgory US $million US $million US&$million Consultant 4.90 12.09 16.99 Training 0.99 1.31 2.30 Publishing Services 0.15 0.16 0.31 Goods 1.16 1.51 2.67 Works 2.81 4.46 7.27 Recurrent Costs 2.46 0.00 2.46 OContigencies 0.00 1.00 1.00 Total Project Costs 12.47 20.53 33.00 Total Financing Required 12.47 20.53 33.00 Identifiable taxes and duties are 0 (US$rn) and the total project cost, net oftaxes, is 33 (US$m). Therefore, the project cost sharing ratio is 54.55% oftotal project cost net of taxes. -48 -  Annex 4 MOZAMBIQUE: MINERAL RESOURCES MANAGEMENT CAPACITY BUILDING PROJECT The value of Mozambique's declared mineral production in 1998 was about US$ 7 million, basically from industrial minerals (US$ 6 million), gold and gemstones (US$ 1 million). On the basis of the announced investment programs, a growth of 50% in the production of industrial minerals over the next 5 years can be anticipated. This is simply a "supply-driven" projection, without taking into account increases in output that could arise from demand in specific areas, like the Maputo Corridor. Growth in gold and gemstones is more difficult to forecast, since most of the production is currently smuggled out of the country. Based on current exploration projects, it could be reasonable to estimate that, on a five year horizon, two small mechanized mines for gold could be open, generating annual revenues of about US$ 2 million. On the other hand, it is also reasonable to anticipate the doubling of the reported production of gemstones to US$ 1.5 million. As a reminder, estimates for artisanal gold smuggled out of the country vary from $5 to $10 million, while the equivalent estimated for gemstones range from $10 to $20 million. One of the objectives of the project is to formalize part of this output within the next five years. This would leave Mozambique with a declared output of about US$ 13 million for mining in the five years horizon. The pipeline of new projects is relatively rich: (i) a tantalum project which is reaching final stages of exploration and, if an investment decision is reached soon, could generate revenues of about $ 60 million in about 3 years. This project has good chances to see the day; (ii) two mineral sands (titanium) projects are on advance stage of evaluation (pre-feasibility study) in Gaza and in Angoche. Feasibility studies should be finished in about one year and an investment decision, at least for one of them, could be made by 2001-02. Output could reasonably reach $ 75 million by 2004. There is a fair change of having one of the projects developed within the time horizon of the Project; and (iii) the rehabilitation of Moatize coal depends on the reconstruction of the Sena railway. It is unlikely that this could be achieved over the next five years. In this scenario, coal production at the end of the five year horizon would still be modest, something like $5-10 million. In summary, projections for mining production by the year 2005 can be done under three scenarios: * Worst case scenario: no new projects => mining production: $ 13 million; * Base case scenario: 1 large-scale project => mining production: $ 70-90 million; * Best case scenario: 2 large-scale projects => mining production: $ 150 million. Mineral Production of Mozambique projected under the best case scenario (US$ million) 1997 1998e 2005 2010 Industrial minerals 6.0 6.0 9.6 20.4 Gold (from mines) 0.0 0.3 2.0 7.0 Gemstones 0.7 0.7 1.5 5.0 Mineral Sands - - 75.0 400.0 Coal - - 4.5 80.0 -49 -  Tantalum - - 60.0 60.0 Reported Value 6.7 7.0 152.6 572.4 Artizanal Gold (*) 5.0 5.0 10.0 10.0 Artizanal Gemstones (*) 20.0 20.0 30.0 40.0 Source: MIREME, USGS (Mineral Commodity Summary), and Government projections and estimates (e= estimated; p= projection); (*) smuggled out of the country This projections might seem ambitious but worldwide the mineral resource extraction industry is emerging from a period of consolidation and cyclical price lows. Until the late 1980's, the African continent had failed to attract new investment in exploration or mining development. Beginning in the early 1990's this state of affairs began to change. Certain countries, notably Ghana as an early example, undertook significant reforms to the mining legal and regulatory framework and to the organization of the sector. The result has been a remarkable growth in new investment and gold production. Mining sector reform has been since emulated by many other African countries with, in many cases, tremendously positive results. Tanzania, after having gone through sector reforms, is now the leading designation for exploration and mining investment in Africa. The production of gold in Mali has increased from just 1.5 metric tonnes in 1990 to nearly 20 metric tonnes in 1998. The lesson in Africa (as on other continents) is clear: mining sector reforn works. Mineral resource extraction remains a very important source of fiscal revenue for developing countries, provides foreign exchange export revenues, and is an important generator of employment. Moreover, in frontier countries mining is generally the first sector to attract foreign direct investment (FDI). The responsible use of their mineral resources provides developing countries with considerable opportunities for poverty reduction and economic development. The formal mining industry employs a great number of people in developing countries, and can have enormous impact on these countries' infrastructure, income. The industry is key to local mining communities, creating huge opportunities, but also risks regarding the environment that need to be managed carefully. In countries where mining is done well, the industry provides social and infrastructure services, and can help create a lasting impact on the local and regional economy. At the other end of the scale, informal artisanal mining in developing countries across the world provides livelihood for millions of poor people, although it also can impact negatively on health and the environment. - 50 -  Annex 5: Financial Summary MOZAMBIQUE: MINERAL RESOURCES MANAGEMENT CAPACITY BUILDING PROJECT Years Ending December 31 | IFllPFiEgWEl-TWATl