Sharing Mining Benefits in Developing Countries - World Bank

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Table 3.2: Comparing Programming ApproachesStrengthsWeaknessesGrant-making Operational Grant-making OperationalParticularlyapplicablewhen otherdevelopmentactors are in thearea.Can reduce riskof overlap andduplication.No geographicallimit placed onFTF’s activities.Can becomea conduit forfunding fromother sources.Small overheadsand staffingcomplement.Particularlyapplicable inregions wherefew developmentactors operateand FTF haslonger-term future.Cleareropportunities forcompany brandingand connection tosocial license tooperate.Opportunitiesexist to seekexternal fi nancingif good reputationis developed.Needs strongtransparencypolicy to ensuredisbursementsand decisions areundisputed.Requires strongoversight andmonitoring toreduce risk offailure.Limited directcontact at projectlevel.Size of budget forgrants needs tobe appropriate tonumber of grantapplicants.Reputationalbenefit for companyor contributingparty can bediluted or lost.Higher overheadcosts and initialstart-up costs.Long time lagfrom decision toestablish FTF todelivery of fi rstdevelopmentproject.A large staff withdevelopment skillsmay be needed.Difficult orexpensiveto operateacross multiplegeographicregions.FinancingFTF’s can be compared on the basis of their financing structure, thesources of their financing, and their financial management scheme.An FTF’s financing structure has significant implications for its longtermsustainability and its ability to commit to multi-year projects. Themain approaches to structuring the funding of an FTF are by endowment,annual budget allocations, or a combination of both. Broadlyspeaking, endowment funding favors FTFs that are designed to existbeyond the period of a mining operation, while budget cycle allocationsare better suited to FTFs established to deliver benefits solely while amining project is operational. Table 3.3 summarizes the strengths andweaknesses of the two funding structures.24 Sharing Mining Benefits in Developing Countries
Box 3.1: The Starting Points of FTFs May VaryThe development of a social trust fund has been required as a condition ofthe privatization transactions surrounding several mineral projects in Peru.The Las Bambas Social Fund (FOSBAM) was created to manage the fundsassociated with the Xstrata Las Bambas project social trust fund and to deliverdevelopment projects to communities during the exploration and projectdevelopment phases (that is, in advance of royalty and tax payments). TheAhafo Development Foundation was developed a number of years into theoperation of the mine. This delayed start was made possible through theexistence of other community development projects currently being run bythe company through in-house expertiseThe Anum Lio Foundation at Kelian, Indonesia, was established to managethe social programs which have continued beyond mine closure.Table 3.3: Comparing Funding StructuresEndowment FundingAnnual Budget AllocationsStrengths Weaknesses Strengths WeaknessesGreatly enhancessustainability ofFTF.Facilitates multiyearprojectcommitments.Can protect FTFsfrom fl uctuationsin mineral prices.Can provide asmooth transitionto a post–mineclosure operatingenvironment.Ideally requiresearly investmentof developmentfunding whenmoney is mostexpensive.Large sums ofmoney can attractcorrupt practicesand poor fi nancialmanagementpractices.Allows financingcommitmentsto be scaledand modifieddepending onexternal factorsaffecting source offunding.Can drive closecollaborationbetween fundingsource and FTF.Can drive thedevelopment of astrong monitoringand evaluationprogram.Allows fundingto be managedthrough existingaccountingsystems.Potential limitingfactor for multiyearprojects, ascommitments maybe limited to thebudget cycle.Threatens longtermsustainabilityof companyfundedFTFs, asan entirely newfunding sourceis required whenoperation closes.Extractive Industries for Development Series25
Page 2: World Bank Group’s Oil, Gas, and
Page 6 and 7: Box 3.3: Government Funding Mechani
Page 8 and 9: AcronymsAACFAHRCALACAMPAASRPCMCACOD
Page 11 and 12: Executive SummaryMining projects in
Page 13 and 14: Chapter 1IntroductionMessageFoundat
Page 15 and 16: that process. Chapter 3 reveals bot
Page 17 and 18: Figure 2.1: Benefit-Sharing Channel
Page 19 and 20: Table 2.1: Examples of Royalty/Tax
Page 21 and 22: to be shared among project benefici
Page 23 and 24: FTFs and other dedicated instrument
Page 25 and 26: money payable to communities over a
Page 27 and 28: The agreements often use FTF struct
Page 29 and 30: Chapter 3Key Attributes ofFoundatio
Page 31 and 32: • Provisions for supervision and
Page 33: Figure 3.1: Sliding Scales of Attri
Page 37 and 38: Communities or local nongovernmenta
Page 39 and 40: support charitable organizations in
Page 41 and 42: externally, or by a combined approa
Page 43 and 44: Chapter 4Drawing Lessons fromExperi
Page 45 and 46: development projects. It was subseq
Page 47 and 48: objectives, and intended beneficiar
Page 49 and 50: Buying in expertise: The Anglo Amer
Page 51 and 52: Figure 4.6: Rio Tinto Palabora Mini
Page 53 and 54: Figure 4.7: Fondo Solidaridad Cajam
Page 55 and 56: and the level of financing they wil
Page 57 and 58: Figure 4.9: Ok Tedi Mining, Ltd.Pro
Page 59 and 60: ConclusionFoundations, trusts, and
Page 61 and 62: Appendix 1: MiningFoundations, Trus
Page 63 and 64: Name Associated Company Country46.
Page 65 and 66: March 2002, accessed April 2, 2010,
Page 67 and 68: Ok Tedi Fly River Development Progr
Page 69: Extractive Industries for Developme
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