Sharing Mining Benefits in Developing Countries - World Bank

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There are four main sources of financing available to mining FTFs:companies, communities, governments, and mixed sources. The mostcommon is mining companies themselves, and companies face a challengein determining the appropriate amount to invest. A commonmethod of addressing this dilemma is to set the payment as a percentageof revenue. From a government or community perspective, payments ona revenue or production basis are preferable because they guarantee afinancial contribution independent of company profit. However, companiessometimes prefer to compute payments on a before- or after-taxbasis rather than having them assessed directly on revenues. Companiesmay also choose to fund FTFs based on a percentage of capital or operatingexpenditure. Yet another approach used by companies requires anannual negotiation based on an internal company assessment of fundingavailability. This approach retains almost complete control withinthe company, but it can also appear opaque to external stakeholders,especially during tight financial times. Combining a number of theseapproaches can correct disadvantages associated with each (box 3.2).Box 3.2: Computing Company ContributionsFreeport Partnership Fund for Community Development (LPMAK),IndonesiaFund receives 1 percent of mine revenues, with total contributions ofUS$242 million. Ten percent of all future receipts are to be invested in along-term fund.Minera Escondida Foundation, ChileFunded by allocation of 1 percent of before-tax annual profit based on athree-year rolling average, with total contributions exceeding US$9 million.Ahafo Community Foundation, GhanaFunded through a combination of 1 percent of net operational profit (beforetax)from Ahafo South mine plus US$1 per ounce of gold from Ahafo (estimatedat US$0.5 million per year).Greater Rustenburg Community Foundation (GRCF), South AfricaThe GRCF is a community-developed foundation located in the platinumricharea of Rustenburg in South Africa. Focused on developing a sustainablefuture for community members, there is no direct company involvementin the GRCF. The foundation relies on donations from individual and corporatedonors, whose generosity supports the grantmaking program.26 Sharing Mining Benefits in Developing Countries
Communities or local nongovernmental organizations (NGOs) mayprovide funding to an FTF in order to establish a direct, vested interestin its outcomes. Alternatively, communities may choose to use their ownfunding to establish a community foundation that will advance socialdevelopment within their local area thanks to the donations of communitymembers. The model has particular application where there is a differentialin wealth in the host community, such as the gap between thoseearning mining salaries and the rest of the community.Governments contribute to development projects by drawing onpayments from the mining sector related to: (a) concessions, licenses,and land access; and (b) royalties, taxes, and fees. Governments mayalso require contributions in the form of closure bonds and trusts(box 3.3).A well-established FTF may enjoy financing from a variety of sources.Such diversity can minimize the boom-and-bust effects associated withfunding derived from mining profits or revenues alone and can be a steptoward a sustainable future. Potential funders include NGOs, donors,governments, communities, other FTFs, and, in some cases, other miningcompanies. Cofinancing is often proclaimed as an operational goal forBox 3.3: Government Funding MechanismsGovernment-operated. In Peru, the ‘canon minero’ is a royalty paymentthat provides a large percentage of the funds that the central governmentpays out to the regions that host mining operations. The regions use thepayments to fund their development projects.Government-directed. The Namibian government requires all mining companiesto establish an environmental trust fund and to pay into the fund overthe lifespan of the project to meet obligations associated with mine closure.Payment for concessions. Half of the price of the Rio Tinto La Granjaconcessions paid to the government of Peru as part of the privatizationprocess is to be invested in an FTF that will fund development programs inthe region while the project develops.Government cofinancing. In Peru, canon minero fi nancing is being usedto support Aporte Voluntario projects (an initiative of the mining companiesnationwide to combat poverty in their areas of infl uence). This effectivelyincreases the implementation record of canon minero monies while expandingthe reach of the Aporte Voluntario scheme.Extractive Industries for Development Series27
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 and 34: Figure 3.1: Sliding Scales of Attri
Page 35: Box 3.1: The Starting Points of FTF
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
Page 72: The World Bank1818 H Street, N.W.Wa

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