MAC/20: Mines and Communities

World Bank Management Response to the Report of the Extractive Industries Review from CooperAccion i

Published by MAC on 2004-07-19

World Bank Management Response to the Report of the Extractive Industries Review from CooperAccion in Peru

Spanish version here

To: World Bank Management
eirmanagement@worldbank.org

July 19, 2004

Dear Sir or Madam:

CooperAcción is a Peruvian non-governmental organization that promotes community development and the recognition of communities' economic, social, cultural and environmental rights. We work directly with communities affected by commercial mining operations and with communities engaged in artisanal mining.

CooperAcción encourages the Bank to seize this opportunity to reform the governance of extractive industry activity to ensure that it benefits local communities. This includes adopting the Extractive Industries Review recommendations to seek the free, prior and informed consent of communities prior to project approval, banning involuntary resettlement and establishing transparent mechanisms for benefit redistribution.

We further encourage the Bank to assist governments to formalize and regulate their artisanal and small-scale mining sectors. To accomplish this, the Bank should strengthen and adequately-finance the CASM project. Finally, the WB should consider the role of women in its artisanal and small-scale mining work

Communities and Commercial Mining

In its report, the Extractive Industries Review (EIR) concludes that while the impact of extractive industry activity on affected communities is significant, these communities rarely share in the associated benefits. This is certainly true in Peru, a country recognized worldwide for its mining sector.

As part of its analysis, the EIR commissioned a study examining the World Bank / IMF structural reform program implemented in Peru during the nineties. This program resulted in an enormous expansion of the Peruvian mining sector. While successful in attracting investment, the reforms failed to promote sustainable development. The EIR study found that:
revenue generated by mining investment does not reach affected local communities;
mining development takes place in socially sensitive areas, generating conflict;
environmental degradation from the mining sector is one of the country's most significant environmental problems; and
an inadequate regulatory system and weak government capacity dramatically limit the mining sector's contribution to socially beneficial development.

These observations are supported by CooperAcción's work with Peruvian communities affected by mining. Research and field work demonstrate that many of these communities live in severe poverty, that environmental contamination threatens their subsistence and economic activities, and that affected communities suffer significant negative social impacts.

EIR Recommendations

The EIR makes several important recommendations regarding the impact of extractive industries on neighbouring communities. Below we provide comment on the Bank's response to three of these recommendations.

1. Consent

EIR

The EIR calls on the World Bank to ensure that borrowers and clients obtain the free, prior and informed consent of indigenous peoples and local communities that would be directly affected by proposed extractive industry projects. While the EIR explains that this requirement does not contemplate a veto power for individual persons or groups, it is clear that 'consent' involves a choice. Having assessed all relevant information, potentially-affected groups may opt not to consent to a project if they deem it to be disadvantageous.

The EIR's intent is revealed by its characterization of free, prior informed consent as "a process where indigenous peoples, communities, government and companies may come to mutual agreements in a forum that gives affected communities enough leverage to negotiate conditions under which they may proceed" (emphasis added) and by the EIR's recommendation that agreements be negotiated to govern a proposed project, "should indigenous peoples and local communities consent to the project" (emphasis added).

The requirement for the free, prior informed consent of indigenous peoples is an internationally recognized human right that has been adopted by the European Union, intergovernmental development agencies and international financial institutions.

In Peru, affected communities are excluded from mining-related decision-making. However, they are increasingly vocal in their demand to control their development and in some cases, employ effective mechanisms to express their position. The community of Tambogrande is an emblematic case. Concerned that its thriving agriculturally-based economy would be threatened by the environmental contamination associated with a proposed gold mine, the community organized an unprecedented referendum in which virtually the entire community voted against mine development. The experience of Tambogrande reveals the urgent need for the adoption of transparent, formal and consistent mechanisms for seeking the consent of affected communities.Bank Response

The Bank's response reveals a strong bias in favor of project approval and a paternalistic attitude towards communities. The Bank rejects the EIR recommendation for free, prior informed consent and instead, commits itself to requiring free, prior and informed consultation with affected communities. The Bank characterizes such consultation as "an important component in ensuring that communities are well informed about developments that will affect them, and that they have an opportunity to make their views known and have them fully taken into account." Consultation will be undertaken to achieve "broad acceptance of the project by the affected community." Consultation will result in "informed participation" and will give communities the opportunity to "understand projects that will affect them."

By replacing consent with consultation, the Bank denies communities the right to determine their preferred form of development. Rather than exercising real decision-making power over land, natural resources and economic development, communities will merely be 'informed.' Community views will be 'taken into account' - a meaningless and paternalistic assurance that provides no guarantee that decisions will be influenced by community needs and preferences.

2. Resettlement

EIR

The resettlement of communities to make way for extractive industry projects is intimately connected to the issue of consent. The EIR states that the Work Bank Group "should engage in consent processes leading to free, prior and informed consent before resettlement takes place, thereby complying with indigenous peoples rights and receiving a social license to operate. This means WBG projects would only result in voluntary resettlements, not forced ones."

Bank Response

The Bank's response to this important recommendation is unfortunate. The Bank defers decisions on resettlement to an internal review, leaving communities with the grossly inadequate consultation mechanism discussed above. The Bank's failure to unequivocally ban involuntary resettlement, a practice that de facto violates the economic, social and cultural rights of communities, reveals its unwillingness to make substantive change in the governance of extractive industry projects.

3. Benefit-sharing

EIR

The EIR is unequivocal in its call for benefit-sharing with local groups that are affected by extractive industry activity. The EIR argues,

[t]he WBG should only support projects that benefit all affected local groups, including vulnerable ethnic minorities, women, and the poorest. The WBG should decline to finance projects where this is not the case or should redesign them to guarantee that the standards of living for local groups clearly improve. The communities closest to extractive projects should become involved in ( ...) developing poverty reduction plans before projects begin.

The EIR advocates revenue-sharing among local, regional, and national governments and insists that "[a]n equitable share of the revenues should be provided to local communities."

Bank Response

While the Bank recognizes the legitimacy of benefit-sharing, it fails to commit to measures that will guarantee redistribution. The Bank's laissez-faire attitude to wealth redistribution is demonstrated by its reliance on out-dated policies that are designed to "help ensure that affected groups are not harmed by developments and, where possible, are better off" (emphasis added).

Moreover, in those circumstances where benefit-sharing is deemed to be possible, the Bank appears to be unconcerned about the quality or adequacy of such redistribution. At most the Bank commits itself to "work with investors to ensure that communities benefit in some way from projects that affect them" (emphasis added). Arguably, the mere appearance of benefit-sharing would satisfy the Bank: "[t]he WBG advises governments to ensure that revenue goes to the regions in which EI projects are located thereby compensating the regions for negative impacts and giving a sense of local benefit" (emphasis added).

Artisanal and Small-scale Mining (ASM)

For the past six years, CooperAcción has worked with the artisanal mining community of Santa Filomena. CooperAcción has developed an intervention model that promotes the sustainable development of artisanal mining communities. The model focuses on the modernization of production methods, the eradication of child labour, the development of income generating opportunities for local women and the strengthening of local mining organizations. Application of the model in Santa Filomena has resulted in the generation of alternative sources of income, the elimination of child labour in the mine and greater mineral production with minimal environmental contamination. The model is currently being applied in artisanal mining communities in other South American countries.

EIR Recommendations

The EIR makes a number of significant recommendations regarding artisanal and small-scale mining. Below we provide comment on the Bank's response to several of these recommendations.

1. Formalize and regulate artisanal mining

EIR

The EIR calls on the World Bank to assist governments to legalize and regulate ASM and to integrate this economic activity into the formal sector.

Bank Response

In response to this important recommendation, the Bank reports that it "agrees that [formalizing ASM] is a likely requirement for addressing the poverty and other issues relating to ASM." The WB argues that it is already helping governments to address these issues and that it will increase its efforts.

The need to formalize artisanal mining activity and to adequately regulate this sector is widely recognized, including by the World Bank's own CASM project. For this reason, the Bank's equivocal response to this recommendation is somewhat perplexing.

Moreover, the Bank provides no detail regarding how it will increase its efforts to promote the regulation of the ASM sector. In the absence of such detail, it is impossible to gauge the adequacy of such efforts or to monitor their effect.

2. CASM Project

In its response to the EIR recommendations, the Bank makes frequent reference to the CASM project. The Bank proposes to realize a number of changes that are identified by the EIR through this project. CooperAcción has benefited by participating in CASM events and gratefully received support from this project. While we recognize CASM as a valuable initiative, it is important to emphasize that the project suffers from a number of limitations that restrict its ability to effect the changes proposed by the EIR. The CASM project has very few personnel and a limited budget. For this reason, it is essential that the Bank strengthen and adequately finance the project if it is to assume responsibility for identified reforms. While the Bank makes reference to such improvements, its commitments once again lack detail.

3. Women and artisanal mining

In addition to childhood labour, CooperAcción's work in Santa Filomena focuses on the role of women in artisanal mining. Neither the CASM project nor the Bank's response to the EIR recommendations integrate this issue. Because women play a pivotal role in artisanal mining activity and in artisanal mining communities, efforts to improve conditions in these communities must necessarily consider the role of women.

Conclusions

CooperAcción commends the World Bank for undertaking the Extractive Industries Review. The Review accurately reflects the experience of communities affected by mining activity in Peru and includes a number of important recommendations that are essential for ensuring that the mineral sector contributes to the sustainable development of these communities.

We urge the Bank to seize this opportunity to reform the governance of extractive industry activity to ensure that it benefits local communities. This includes adopting the EIR recommendations to seek the free, prior and informed consent of communities prior to project approval, banning involuntary resettlement and establishing transparent mechanisms for benefit redistribution.

We also encourage the Bank to make it a priority to assist governments to formalize and regulate their artisanal and small-scale mining sectors. To accomplish this, the Bank should strengthen and adequately-finance the CASM project. Finally, the WB should incorporate a focus on the role of women in its artisanal and small-scale mining work.

CooperAcción
Lima, Peru
cooperaccion@cooperaccion.org.pe

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