Extractive Industries Governance brochure

1Extractive Industries Governance

Supporting governments to develop oil, gas and mining industries to deliver sustainable and equitable impact

Extractive Industries Governance 3

The Importance of Extractive Industries Governance

Our Global Experience

Strategy, Policy & Legislation

Institutional Strengthening

Revenue Management

Communications & Communities

Transparency & Accountability

Environmental Sustainability

Economic Impact

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Contents

4Institutional Strengthening



Revenue Management


Economic Impact


Sustainable, equitable,

resource-based socio-economic

development

Adam Smith International is a leading international authority on the governance and development of the oil, gas and mining industries in the developing world, with more than 10 years of experience in over 40 countries.

We provide strategic advice and implement complex reform programmes to support governments in maximising resource revenue, increasing employment and delivering sustainable and equitable economic growth.

We facilitate the establishment of favourable environments and positive socio-economic outcomes in natural resource countries by providing expert advice on every strand of extractive industries governance required by governments.

We are driven by a commitment to the sustainable development of the industry. We promote an approach characterised by informed political will, multi-stakeholder consultation, shared prosperity, capacity building, and transparent and accountable action, so our programmes deliver results at every level of society.

Well-managed natural resource investment can deliver a transformative impact on a host country, catalysing economic growth, equitable development, and sustainable poverty reduction.

The Importance of Extractive Industries Governance

6Liberia

Establishment of a natural resource tax unit, increasing tax audit capacity, compliance andrevenue.

Nigeria

Development of a gas market strategy for the power sector has provided the government with recommendations to implement an effective power strategy to meet growing domestic energy demands.

Sierra Leone

Support to the design, legislation and establishment of the mining industry regulator has transformed mining sector compliance and transparency.

Cameroon

A mining institutional audit to identify operational gaps and fit-for-purpose organisational structures, improving institutional efficiency andeffectiveness.

Our Global ExperienceWe have worked across the world with many clients and governments on an award-winning portfolio of projects, supporting the development of their oil, gas and mining industries in a sustainable and equitable way. Throughout this brochure, you will find examples of our work you can see a further selection here. For detailed information on our wider portfolio, visit adamsmithinternational/exploreourwork.

Our Offices London | United KingdomNew Delhi | IndiaNairobi | AfricaSydney | Australia

Regions:

The Americas & Caribbean Central & Southern Africa West Africa East Africa Middle East & North Africa Europe & Former Soviet Union Central Asia

South Asia & Asia Pacific

Regions: Other projects

Various

Afghanistan

Development of petroleum legislation and compliance guidelines, contributing to increased state income and robust sector development.

Palestine

Resource revenue sharing advice ensured equitable sharing of oil and gas wealth.

Papua New Guinea

Support to Bougainvilles new Department of Mining led to a stronger institution equipped to address the re-establishment of the resource industries.

Myanmar

Institutional and regulatory assessment of the extractive industries to support EITI implementation.


South Sudan

Technical assistance to the Ministry of Petroleum and Mining, with a focus on legislative reform, increased management and legal capacity, compliance and revenue.

Kenya

Support to the development of Kenyas extractive industries legislation, policy, community development, transparency and accountability to deliver increased and well-managed investment, sustainable and equitable development, and stakeholder alignment.

Laos

Mineral fiscal regime reform, contributed to increased revenue, investment and best practice management.

8In many countries, natural resource wealth has the potential to catalyse significant economic growth, but only if governed by robust policy and legislation, and guided by a cohesive vision for the sector.

Our experts draw on a wealth of in-country experience and approach assignments with internationally approved, best practice methodologies.

Our expertise includes:

Collective development of national vision and sectorstrategy

Drafting of policy, laws and regulations

Undertaking research and comparative analyses

Facilitating inclusive stakeholder consultation

We believe that a policy, legal and regulatory framework should be finalised with consensus reached by consultation with government, private sector and civil society, to ensure expectations align on the benefits and risks the sector will bring.

Through consultative and comparative analyses, we have drafted nationally endorsed policies and legislation which guide the natural resource sector in several countries, including Sierra Leone, South Sudan and Afghanistan.

It was great working with Adam Smith International. The policy is the first of its kind in the PNG mining sector. I am sure the policy will set the next level of playing field in the PNG mining sector for all stakeholders.

Acting Director, Mineral Policy & Legislation Division, Department of

Mineral Policy and Geohazards, Papua New Guinea

A rigorous policy and legislative framework ensures that economic benefits resulting from the extractive industries are sustainably captured.



Developing Afghanistans extractive industries strategy

Afghanistan holds vast mineral and hydrocarbon assets, but the country has yet to responsibly harness this wealth and its benefits for the people of Afghanistan.

To remedy this, we developed a strategy for the Ministry of Mines & Petroleum to move from being an owner-operator to becoming a policy-maker facilitator and regulator. We provided experts in organisational reform, mineral economics, minerals governance, extractives fiscal policy and communications, who drafted and implemented reforms to the ministrys institutional and legislative framework.

The project is building an institution to responsibly develop the extractive sector, creating the framework to ensure its sustainable growth and securing employment benefits for Afghan citizens. Afghanistan

Building an institution capable of governing the

extractivessector

Afghanistan

Building the foundations for sustainable

resourceextraction

Kenya

Kenyas considerable natural wealth is beginning to attract investor attention.

We are helping Kenya position itself as an attractive investment destination. We support aligned regulation and governance following the devolvement of government in the 2010 constitution and assessed the industry in a scoping study, outlining Kenyas options for growth. We are implementing an 18-month, uniquely holistic and fit-for-purpose intervention, which supports good central mining, oil and gas governance, while at the same time improving community engagement and impact at sub-national level.

We are supporting the improvement of policy and legislation, building institutional capacity, establishing communications strategies and implementing optimal models for community development frameworks.

Sustainable development of Kenyas extractive industries

Kenya

Increasing production of Sudans liquefied petroleum gas

In Sudan, liquefied petroleum gas (LPG) is becoming increasingly important as an alternative to wood fuel. Demand for LPG will soon outstrip supply at hundreds of thousands of tonnes per year.

In 2010, we identified the policy issues preventing Sudan from increasing its LPG production and provided recommendations on promoting its uptake. We advised on fiscal issues, subsidies and constructing an LPG association to promote and regulate use and production. We suggested means to increase indigenous supply, including collecting LPG from gas set to be flared and revamping existing refineries.

Consequently, the Sudanese government continues to promote LPG energy, helping to reduce widespread poverty.

(Former) Sudan

Enabling Sudan to increase LPG production

Sudan

Only institutions with appropriate mandates, design and capacity are well equipped to exploit the opportunities for sustainable economic growth and develop a flourishing and internationally respected extractive sector. In the oil, gas and mining industries, deficient institutional frameworks can lead to a governance environment conducive to disadvantageous contracts, low revenue, low impact on business, less employment opportunities, opaque deal-making, civil unrest, and suboptimal policy and regulatory frameworks.

Adam Smith International possesses unique experience in addressing these challenges and impacts, having delivered institutional change across extractive industries in several countries, including Afghanistan, South Sudan and Papua New Guinea.

We have expertise in:

The review of institutional mandates and frameworks

Supporting stakeholders in defining strategic objectives of new organisations

Recommending approaches based on process design

Assessing organisational capacity to match neworganisation

Designing and implementing capacity buildingprogrammes

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We particularly appreciated the continuous engagement and strong relationships you created, and the impact that you had. The technical work and push for a strategy were also crucial and have allowed the National Minerals Agency to make progress.

Private Sector Development Advisor, DFID, Sierra Leone.

Fit-for-purpose institutions with appropriate capacity are key to ensuring good governance of the economic activity of extractive industries.

Institutional Strengthening


To turn around its mining industry, Sierra Leones government introduced a new legislative framework, but needed the institutional capacity to implement. Regulatory compliance responsibility was with the Ministry of Mines & Mineral Resources, which struggled to attract the necessary technical staff.

We provided strategic advice on the establishment of a semi-autonomous state regulatory authority and then assistance in establishing the National Minerals Agency in April 2013.

With our support, the Board recruited high quality senior management and technical staff. Now the government is in a position to enforce laws and regulations and is staffed with technically qualified professionals. The resulting increase in institutional capacity to regulate the mining sector is seeing considerable environmental, social and economic benefits.

By 2015, 29% of government revenue will come from mining

Supporting the establishment of the National Minerals Agency in Sierra Leone

Sierra Leone

Sierra Leone

Supporting a nascent extractives industry to realise

its potential

After 10 years of conflict and 15 years of peacebuilding, the mineral sector in the Autonomous Region of Bougainville an island of Papua New Guinea - could again become a significant producer of copper, gold and other minerals. It can now encourage large-scale investment and ensure a fair return, whilst promoting and protecting its environment and people.

In 2012, we worked with the Mineral Resources Authority to evaluate the institutional structures of the Department of Mineral Resources, establish a framework for the local government and to develop a corporate plan. We analysed the institutional system, recommended changes and offered training to implement these.

We also produced organisational design and finance projections, a strategic framework and an action plan. These recommendations raised departmental capacity and performance to sustainably manage a sensitive minerals sector and avoid issues causing unrest.

Institutional reform of Bougainvilles first government Department of Mineral Resources

Papua New Guinea

Autonomous Region of Bougainville

Adam Smith International works with government institutions in support of optimising revenue collection from the natural resource sector. This includes support in relation to tax policy, administration and long-term management and typically involves close collaboration with finance, revenue and resource ministries and authorities.

Our flexible approach relies on the extensive tax and fiscal experience of our consultants, with technical expertise complemented by a facilitative style to ensure solutions are tailored to the requirements of the many stakeholder groups involved.

We provide expertise in:

Assessment and modelling of resource revenue potential

Fiscal policy advice and development

Strengthening and reform of revenue administration

Long-term revenue management strategy

[Note that our Revenue Reform and Public Financial Management services provide a range of tax and fiscal support expertise beyond the extractive industries scope referred to here.]

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Investment in natural resource development can generate game-changing levels of state revenue. Successful tax policy acknowledges the opposing needs that need to be carefully balanced attracting investment versus maximising tax-take, spending today versus saving for tomorrow.

Revenue Management

Fiscal Policy Advice

Attracting Investment Optimising Government Revenues


Liberia requires a robust administrative and human capacity system to facilitate effective government revenue collection. In 2013 and 2014, the Australian government funded our support to the Liberian Ministry of Finance in establishing and building the capacity of a natural resources tax unit. Part of the Large Tax Division, it offers auditors expertise to review natural resource companies and promote optimal management of natural wealth, preventing exploitation of workers and revenues.

We assisted the unit and its customers across government in improving their understanding of production sharing contracts, mineral development agreements and interaction with the Revenue Code of Liberia. We also assisted with knowledge about mining and oil, helping Liberia benefit from its resources.

To date, the unit has provided advice on issues in all mining sector audits, in respect of the specialised areas of tax law and along with its contribution to concession negotiations, has saved the government large sums of revenue.

Helping Liberia get a fair price for its exports

Establishment of a natural resource tax unit in the Liberian Revenue Authority

Liberia

Liberia

Auditing government ministries to ensure

accountability to citizens

Lao PDR

The mining sector in Lao PDR has developed rapidly since 2003. The government has a responsibility to effectively manage the sector to the benefit of its people and a key starting point is having an appropriate tax policy and administration in place. Beginning in May 2013, we worked with the Ministry of Energy & Mines and the Ministry of Finance to review the fiscal regime and train officials in revenue modelling and forecasting.

We reviewed all applicable laws and regulations and carried out fiscal modelling in order to establish the current effective tax rates. We then developed key policy options for the Government of Lao PDR and through tax simulations, we identified potential scenarios for future mining revenues.

This work has supported the government in their decision making process to achieve an appropriate balance between maximising sector revenues and attracting increased investment to the sector.

Strengthening of policies and administration of mineral taxation and royalties in Lao PDR

Laos

US$30MRevenue saving over

years$$

as a result of the Natural Resource Tax Units involvement in the Inter-Ministerial Concession Committee.

$ $$ $ $

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Extractive industry activity often generates high expectations of employment and increased income, which can be compounded by a lack of information.

At Adam Smith International, we recognise the importance of translating a technical development agenda into concrete outcomes for host communities and providing an informed understanding of the oil, gas and mining industries and their development and production lifecycles.

Communication affects every project we undertake. We support governments in designing comprehensive communication strategies to ensure risks of social unrest and conflict are mitigated.

Our expertise includes:

Developing and implementing targeted communications strategies and action plans

Running consultation workshops

Designing and implementing participative community development agreements

Designing and implementing feedback mechanisms for local communities

Developing social license to operate guidelines

Developing community engagement guidelines

Developing and implementing social and resettlement policy

Extractive industries should offer a lifeline for communities hosting resource exploitation, but often bring challenges. Empowering and engaging local communities and delivering effective communications supports mutually beneficial relationships between the private sector, government and citizens.


Companies

Government Communities

Tension,mistrust

Trust,mutualbenefit


Protecting communities fromexploitation

Developing an Involuntary Resettlement Policy in Papua New Guinea

Unregulated and undercompensated resettlement associated with mining has been a significant problem in Papua New Guinea. Limited regulation around land acquisition has meant that new extractive industry opportunities have left many indigenous communities worse off, as their traditional land holdings are seized.

We provided an expert to Port Moresby in 2013 to support the Department of Mineral Policy & Geo-Hazards Management in planning a national involuntary resettlement policy. Our support included a gap analysis, in-country consultations and policy drafting.

The resultant policy applies to all phases of mineral development, protecting communities from exploitation, reducing the risk of conflict and encouraging international mining investment.

Papua New Guinea

Papua New Guinea

Developing Community Consultation Guidelines in South Sudan

As companies seek to exploit South Sudans mineral reserves, the government must manage associated social and environmental risks and issues.

In 2010, we suggested how the transitional government should design a community consultation process in order to inform and communicate benefits of mineral investment. This required finding a balance between meeting social development obligations and ensuring economic benefit.

We provided advice on how the communities, in partnership with local government, could identify development priorities via a joint management body and offered support to government in its promotion of small business opportunities associated with an operational mine.

We also drafted community development regulations, which apply to a large mining lease holder to ensure that an arrangement of benefit-sharing from mining operations revenue is negotiated with the local governmentauthority.

South Sudan

Ensuring the interests of local communities are

wellrepresented

South Sudan

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Adam Smith International is committed to transparency in the extractive industries, recognising that developing a transparent and accountable extractives sector is a long-term investment. Information on bid rounds, licensing mechanisms, contracts and agreements, beneficial ownership status, pricing practices, the fiscal regime, operational cost structures and national geological information should all be in the public domain.

In 2010, we became an official validator of the Extractive Industries Transparency Initiative (EITI), through which we support the implementation of transparency measures in candidate countries.

Our experise and support to governments in the area of transparency and accountability covers:

Feasibility scoping

EITI validation assessments

Comprehensive analyses of tax payments and government income streams

Audit support and training

Civil society strengthening

Parliamentary support and capacity building

Value chain transparency assessments

To attract investors and gain public support for natural resource development, the highest standards of transparency and accountability should be adopted.



The Validation of Iraqs Extractive Industries Transparency Initiative

Iraqs EITI programme was launched in January 2010 to enforce transparency and make international investment in the sector more attractive. We conducted the validation of Iraqs implementation of the EITI as an official EITI validator.

We assessed the criteria for Iraq, including evaluating its official work plan, and ensuring the full engagement of companies and civil society. We committed to working hand-in-hand with the international and Iraqi EITI Secretariats throughout theproject.

Due to the economic and social impact the industry has on both the government and local people, we had a clear responsibility when assessing candidate countries. Our final report recommended that Iraq had met the necessary criteria and it was declared compliant on 12th December 2012. Iraq

Assessing governance and transparency as an official

EITIvalidator

Supporting Vietnam in adopting global miningstandards

Extractive Industry Transparency Initiative (EITI) feasibility in Vietnam

Vietnam is thought to hold the worlds third largest reserves of bauxite ore, but proposals for mines face environmental opposition and would potentially impact the livelihoods of people earning their living on the land.

In 2013, we provided technical assistance to the Ministry of Industry & Trade in Vietnam to identify the challenges and actions required to implement EITI. We introduced a framework of implementation to Vietnamese officials. We assessed the costs and benefits of EITI implementation and considered how it could reinforce other reform efforts. We then identified key stakeholders and considered any capacity constraints. Finally, we explored sources offunding.

This study laid the foundation for subsequent analyses, resulting in Vietnams announcement that they intend to adopt global mining standards by 2015.

Vietnam

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The environmental impact resulting from natural resource extraction can be an emotive topic. The inevitable issues that could damage and have damaged water supply, flora, fauna, tourism and agricultural livelihoods require careful analysis and mitigation.

At Adam Smith International, we understand the challenges and requirements of conservation and are uniquely placed to support governments in planning, designing and implementing physical, ecological and socio-economic measures to mitigate environmental issues.

Our expertise covers:

Sustainable environmental planning

Strategic environmental and social assessments (SESAs)

Environmental policy and regulatory drafting

Environmental and Social Impact Assessments (ESIA) protocols

Our commitment to long-term environmental planning outlasts our projects. Our contributions continue to deliver positive impacts across a number of countries, including Afghanistan, Liberia and Papua New Guinea.

All stakeholders - government, private sector and community alike - have a shared responsibility to manage the environmental impacts of extraction activities.


WORKING IN HARMONY

Flora & Fauna Agricultural

Resource Processing

Water Supply

Resource Extraction


Afghanistan

Ensuring the opinions of over 130 stakeholders were counted

Afghanistan

Afghanistans extractives industry could be a major source of future economic growth. As part of the Sustainable Development of Natural Resources Project II, in 2013, we completed a Strategic Environmental and Social Assessment for the extractive industries sector in Afghanistan. We identified the most urgent problems concerning responsible mineral extraction and recommended alterations to legislation, policies, approaches and institutions.

We consulted with numerous stakeholders to identify the impact of the extractive industries on local communities and the environment, so that projects can maximise the benefits brought to the area, compensating people fairly where damage cannot be avoided. Stakeholders help affected communities deepen their understanding of the industry and manage expectations of the opportunities it offers them.

Strategic Environmental and Social Assessment (SESA) of the extractive industries in Afghanistan

Safeguarding Liberias environment for

futuregenerations

Liberia

In 2010, we began to build government capacity to manage the environmental problems affecting Liberias mining industry. We provided technical advice to the Ministry of Lands, Mines & Energy amongst others, including an action programme, on-the-job training and capacity-building.

Additionally, we prepared a mining environmental roadmap to outline environmental legislation and industry approaches, the drafting of regulations and preparation of environmental and social safeguards. Finally, we undertook information workshops for stakeholders.

This has streamlined the ministry and improved its interaction with environmental issues. No mining operation can now commence without an environmental and social impact assessment and plans for redressing environmental impact must be included in the proposal.

This will result in a clear and effective environmental policy to limit any environmental damage, whilst safeguarding the financial output for Liberiaseconomy.

Environmental advisory services for the Liberian Ministry of Lands, Mines & Energy

Liberia

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Many large-scale resource projects benefit society through employment, training and skills, the development of local supply chains, improved infrastructure, health, education, electricity, energy and access to services.

Governments must plan for this wider impact and create a vision setting out the role of the extractive industries sector in the countrys broader development plan.

Our experts support governments in formulating and adopting prioritised plans for investing resource revenue and in creating policies and frameworks that stimulate sustainable development outcomes.

Our expertise covers:

Economic planning

Resource corridor modelling and implementation

Local content assessments

SME development programmes

Investment promotion activities

Investment policy reforms

Sustainable development policy drafting

EconomicPlanning

InvestmentPolicy Reform

InvestmentPromotion

ResourceCorridorStrategy

LocalContent

Assessment

SMECapacity

DevelopmentSustainable Development

Attracting Investment

Resources may be finite, but the positive impacts and benefits derived from their development can be broad and long-lasting.

Economic Impact

Promoting investment opportunities in South Sudan

South Sudan derives 98% of its revenue from oil reserves. As a new state trying to regulate and govern its industries, South Sudan is seeking economic diversification and must find an appropriate framework for attracting and managing investment into its mining industry.

In 2010, we conducted a study to make recommendations on the desirable investment policy model suggested by the Organisation for Economic Cooperation and Development (OECD) and its implications for the sector. We also assessed the investment regime against OECD principles, designed strategies and considered opportunities to market the mineral sector.

The government implemented these recommendations and South Sudans minerals sector has consequently been expanding, with increased investment into the country.

Expanding South Sudans extractive industries to provide

jobs for 1000s of people.

Assessment of local content in Sierra Leone

A major challenge in Sierra Leone has been the scope of benefits from the extractive industries sector. The government approved its first Local Content Policy in May 2012, but the policy did not meet its targets.

In 2012-2013, we assessed the estimated market size, the percentage of the Sierra Leonean workforce employed by extractive industries and local presence in the supply chain and constraints to it. We then made recommendations for further optimisation.

Our analysis confirmed significant potential for increase in local content utilisation and contribution to equitable economic growth in Sierra Leone. We designed a local content support programme, actively promoting a fair exchange of benefit for locals and foreign investors. Sierra Leone

Protecting the rights of 150,000 Sierra Leonean miners.

Sierra Leone

South Sudan

South Sudan


I would like to take this opportunity to thank DFID and their advisers from Adam Smith International for the excellent support they provided to my ministry, which has helped build it into a much stronger and more effective institution and delivered gold standard projects.

Minister of Mines & Petroleum, Afghanistan, discussing technical assistance to the Ministry of Mines & Petroleum

It is my pleasure to report that Adam Smith International acted with professionalism and technical proficiency and has definitely proven to be a world expert in the field. They have completed the activities that were assigned by the scope of work in the contract to the fullest satisfaction of the department.

Secretary, ABG department of Mining, Autonomous Region of Bougainville, Institutional Audit.

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Copyright 2014 Adam Smith International. All rights reserved.

www.adamsmithinternational.com

Find out more

For an in-depth look at any of these projects and more of our Extractives Industries Governance experience, visit www.adamsmithinternational.com.

For assistance, please contact:

E: [email protected]

Headquarters240 Blackfriars Road London SE1 8NWUnited Kingdom T: +44 20 7735 6660

Africa2nd Floor Cavendish 14 Riverside, Riverside Drive PO Box 26721-00100 Nairobi Kenya T: +254 20 444 4388

South AsiaBharat Yuvak Bhawan 1 Jai Singh Road New Delhi 110 001 India T: +91 11 4150 2291/93/94/95

Asia Pacific507/46-56 Kippax StreetSurry HillsSydney NSW 2010AustraliaT: +61 2 8265 0000

Adam Smith International is an award-winning professional services business that delivers real impact, value and lasting change through projects supporting economic growth and government reform internationally.

We specialise in the design, management and delivery of complex projects.

Our wide-ranging experience is grouped into two areas: Economic Growth and Government Reform. Economic Growth includes services in Private Sector Development, Infrastructure Development, Extractive Industries Governance and Climate Change. Government Reform includes services in Public Administration Reform, Justice, Security and Peace-building, Revenue Reform, Public Financial Management, Education Development, and Civil Society and Demand-Side Accountability.

Often working in challenging environments and conflict affected areas, we have a proven track record for achieving tangible results.

Adam Smith International @adamsmithint

Documents

Extractive Industries Governance brochure