This document discusses challenges in implementing extractive industries governance reform. It provides an overview of Adam Smith International's extractive industries practice and experience implementing projects in various countries. Key challenges discussed include complex political economies that protect the status quo, misaligned timeframes between political and industry cycles, capacity constraints, and inconsistent policy frameworks. The document emphasizes the need to understand stakeholders and the political economy to influence systemic change across policy, institutions, capacity, and sustainable development issues.

1. Implementing Extractive
Industries Governance Reform
Luqman Ahmad
May 2nd 2012

2. Overview
1. Background to ASI’s Extractive Industries Practise
2. Key trends in sector shaping government responses
3. State of EI governance reform
4. Development partner/Donors
5. Implementation challenges
2

3. Adam Smith International
» Consulting company established in 1992, focused on advising on
Government reform and economic growth.
» Experience in close to 70 countries, currently delivering projects in
25 countries.
ASI’s permanent ASI’s countries
offices of experience
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4. ASI’s Extractive Industries Practise
Legislative Institutional Fiscal Change Technical Transparency &
Reform Reform Reform Implementation Services Governance
Sector Strategy, Geoscience
Minerals Fiscal Information EITI
e.g. Political Capacity Building
Primary Law Policy Analysis & Management, Implementation
Economy / Training
Advice Support
Analysis e.g. GIS
Mineral Rights
Institutional Audit Tax & Non-Tax Strategic Information
Regulations, Management, EITI Validation
& Design Administration Communications
e.g. cadastre
Community Certification
Organisation Revenue
Outreach & Support,
Stakeholder Design & Management, Environmental
Sensitisation, e.g, Kimberley
Consultation Process Re- e.g. compliance, Assessment
engineering e.g. artisanal Process, conflict
sovereign funds
communities minerals
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5. Specific ASI projects -last 18 months
Legislative Institutional Fiscal Capacity Technical Transparenc
Reform Reform Reform Building Services y
Afghanistan      

Cameroon

Ghana
   
Liberia

Macedonia
   
Mongolia 
Mozambique 

Nigeria

Pakistan
 
PNG
    
Sierra Leone 
   
South Sudan

Sudan

Tajikistan
Tanzania 
 
Zimbabwe 
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6. Influencing Governance Reform
Trends in Extractive Industries

7. Trends in the Sector
Post colonial
nationalisation
Weak performance of Rise in Chinese
state run enterprises competition for resources
Privatisation & Commodity price boom
liberalisation (super cycle)
Rethink role of Government and
investment environment
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8. Some messages coming from Governments
» We haven’t received adequate share of benefits from private
mining companies.
» State ownership in production companies might better protect
our interest (Chinese examples).
» Companies are realising massive capital gains through selling
licence holding companies – we are not.
» There have not been sufficient benefits to the local economy.
RE-THINK OF LEGISLATIVE ENVIRONMENT AND ROLE OF
GOVERNMENT.
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9. State of EI Governance Reform
» Some regions never went
through reform – still limited
private sector involvement
(Central Asia)
» Some countries who
liberalised early now looking
to claw back and increase
Government role and stake.
(Tanz, Ghana, Zambia)
» Indications of growing
resource nationalism (Zim,
South Africa)
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10. What type of assignments are we seeing
» Changes to the fiscal regime (tax,
royalties, VAT, Customs)
» Re-negotiating agreements
(stabilisation, harmonising enabling
environment)
» Changes to licensing regime (first-
come/first serve, auctions, use it or
loose it.)
» Institutional reform (ministries vs.
agency)
10

11. Types of support interventions
International Initiatives and
Development Partners
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12. Some international initiatives related to EI
Initiative Subject matter Users
EITI Revenue transparency, multi-stakeholder Government
dialogue Private Sector
Civil Society
Equator Principles Environmental and social performance Private sector
standards
Global Reporting Reporting on sustainable development issues Private sector
Initiative
ICMM Range of issues (social, environmental) Private sector
IFC Range of issues (social, environmental) Private sector
OECD Corporate governance Private sector
UN Global Compact Guidance on human rights, labour, Private sector
environment, anti-corruption
NRC Precepts – across EI governance chain Government,
Private sector
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Civil Society

13. International partners supporting EI governance
reform
» World Bank » EBRD
» IMF » GIZ
» Norway (OfD) » AusAID
» DFID
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14. Types of support
» Technical assistance (advisory)
» Drafting legislation
» Institutional change management
» Fiscal affairs and agreement negotiations
» Geological information
» Airborne survey
» Geo-chem survey
» mapping
» Support to civil society
» Building capacity to increase accountability
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15. Experiences from the “coal-face”
Implementing EI governance
reform
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16. Anatomy of a poorly managed EI sector
» Capacity gaps – easier said than done
» Discretionary decision making – vested interests
» Complex laws and dysfunctional institutions – lack of clarity
and leadership
» Artisanal mining – much more than a resource issue.
» Speculators and non-performing investors – “gaming it”
» Limited geological information – increased risks

17. Why haven’t we been more successful?
» A lot of smart people have been working on EI
governance issues – “avoiding the resource curse”
» We know what good governance looks like.
» Why do we still have a hard time implementing
reform?
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18. 1. Complex political economy
» Understanding what influences current decision making.
» While there may be interests to reform, there are going to be
vested interests in the status quo.
» Reform initiatives need to understand this and even go further
to identify entry points and opportunities for leverage.
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19. 2. Misaligned timeframes
Politicians Political cycle 1 Political cycle 2 Political cycle 3
Feasi
Companies Exploration Prospecting bility Build mine Operate mine
study
Policy Policy Policy Policy
Donors direction 1 direction 2 direction 3 direction 4
Years 1 2 3 4 5 6 7 8 9 10 11 12
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20. 3. Capacity constraints
» Reforms not necessarily matched against absorptive
capacity (shelves full of analysis and reports)
» Administrator capacity part of wider civil and public
service challenges (attract and retain) – discrete capacity
building not effective
» Focus on licencing and agreements, limited attention to
monitoring and implementation
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21. 4. Inconsistent or unclear policy framework
» Weak policy formulation process – stakeholder
engagement (still a lot of mistrust)
» Reform efforts piecemeal (avoiding the elephant in the
room)
» Unique agreements and renegotiations
» Disconnect between policies and decisions
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22. Influencing Systemic Change
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23. Influencing systemic change
Information asymmetries Political economy
Stakeholders Market forces
Sector Fiscal Design
Policy, Legal and Revenue
Organisations Sustainable
Contractual and management
and development
Framework Administration & distribution
Institutions
Capacity issues Conflict issue
National – subnational dynamics