bank pres to fiji seabed mining conference

8/6/2019 Bank Pres to Fiji Seabed Mining Conference

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Dr Graeme HancockDr Graeme Hancock

Seabed Mining Workshop,Seabed Mining Workshop, NadiNadi, 6, 6--8 June 20118 June 2011

The Importance of Transparency andThe Importance of Transparency andMacroeconomic Management inMacroeconomic Management inExtractive Industries EconomiesExtractive Industries Economies


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What is EITI?


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What is EITI?

EITI is...


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How Does EITI Work?

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How Does EITI Work?

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How Does EITI Work

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How Does EITI Work?


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Transparency ofrevenues is one part ofgood

governanceofthe mining sector

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Award oflicenses

&contracts

Regulation&

monitoringof

operations

The EITI provides a Forum for dialogue and a Platform for broader reforms

RevenueDistribution

&

Management

Sustain-able

develop-ment

policies

Government Spending

CompaniesDisclose

Payments

GovernmentDiscloses Receipt

of Payments

Oversight bya Multi-StakeholderGroup

IndependentVerification ofTax & Royalty

Payments


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What Benefits does EITI Bring?

Companies and investors benefit from reduced political andreputational risks, and the transparency of payments helps demonstratethe contribution that their investment makes to a country

Countries benefit from an improved investment climate by sending aclearsignal to investors and international financial institutions that the

government is committed to greatertransparency, which can also reduceconflict basedaround the oil, mining and gas sectors

Citizens, communities, and civil societybenefit from the increasedinformation in the public domain about those revenues, resulting in a

greaterlevel of confidence and trust between people and their

government

Using the EITI principles and process can help prevent thenegative impacts that often come with extractive industries


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How can the World Bank Support EITIin The Pacific?

Making EITI advisers and consultants available to assist inpreparation and implementation (especiallythe technical, financial,and legal aspects)

Supports broad-based engagement by national stakeholders andpromotesmulti-stakeholder exposure to best-practice

implementation experiences andknowledge-sharing globally

Providing grants to both governments and civil society coalitions to helpthem move towards EITI and support implementation

The World Bank manages aTrust Fund that provides grantsto assist countries in moving towards, and implementing,

EITI


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Implementing Countries in theAsia Pacific Region

Timor Leste - Fully EITI Compliant Country

Mongolia - Fully EITI Compliant Country

Indonesia - EITI Candidate Country CommencingImplementation

Solomon Islands - Committed to Implementation and goingthrough the process of becoming a Candidate Country

Papua New Guinea Actively considering becoming a candidateCountry


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Economic Implications


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Economic Impacts of Seabed Miningin Small Pacific Economies

In small Pacific Islands economies, seabed miningdevelopments have the potential to substantiallyanddramatically increase both Government revenues andGDP perhaps to add multiples ofyour GDP.

Projects may only operate fora limited period of time perhaps as short as 5years and up to perhaps 20yearsdepending on deposit type andreserves SMS shorterlife than nodules which might have long life operations

This requires that seabed mining revenues are carefullymanaged to reflect the expected life of the revenuestream


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Economic Impacts of Seabed Miningin Small Pacific Economies

Fiscal responsibilityand prudent macroeconomicmanagement must lookat the long term sustainability of therevenues, avoid massive increases in immediate spendingand ensure secure savings mechanisms are established to

enable expenditures to be smoothed over time e.g.Stabilisation funds and Sovereign Wealth Funds.

Strong Political Will is required. There will inevitably be callsfor large spending increases and populist political pressureto undertake social welfare transfers and build infrastructure

Careful planning and budgeting based on long term returnsfrom a fundare needed to ensure that any new infrastructureorexpenditure programs can be sustained beyond mineclosure and the end of newrevenues


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Economic Risks of Seabed Mining inSmall Pacific Economies

There are manyrisks and many sad examples to remind us some very close indeed including Nauru and to someextent PNG

Rapid increases in Government spending and increases inthe local money supplywill be highly inflationaryanddrivethe poor further into povertyas prices increases and mostincomes remain stagnant

Conversion of US$ incomes into local currencywithin a

small currency base could lead to massive over-valuation ofthe local currency causing Dutch Disease and is also opento destructive currency speculation by hedge funds etc.

Populist social security payments are unsustainable unlessfunded from within the interest return ofany long term fund


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Economic Risks of Seabed Mining inSmall Pacific Economies

Large revenue flows couldresult in excessive rent-seeking (and corruption) and fail to deliver lastingbenefits to anyone other than a few political elites -sustainable development will be the casualty

We often see calls foreconomicallydamaging andunproductive national flag-waving projects e.g.uneconomic national airlines and huge sports stadiums

Timor

Leste and Kiribati both provide us with reasonablygood savings models, but long term sustainabilitywill

depend on public buy-in and strong political will

Even Nauru hada fund in the past, but without adequatecontrols and supervision it was squandered


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To Conclude

Seabed mining will bring both opportunities andrisks toPacific Islands economies

Revenue Transparency is essential to ensure that

citizens knowwhat is happening in terms ofrevenuesand can hold Government to account for the wise use ofrevenues from non-renewable resources

Foreign currency savings programs and the wise use of

revenues will increase the likelihood that windfalls geteffectively converted into sustainable development

Unfortunately there is a very poor trackrecord ofGovernments turning mining revenues into sustainableeconomic growth


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Contacts

EITI Mr AnwarRavat, EITI Program Manager

[email protected]

Pacific Region Mining Specialist MsAdriana Eftimie [email protected]

bank pres to fiji seabed mining conference

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