World Bank Document€¦ · PDRM Programme pour le Developpement des Ressources ... B. Recommendation ..... 22 ANNEXES 1. Mali's Geological Potential 2. History of Geological Prospection

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Document of

The World Bank

FOR OFFICIAL USE ONLY

MICROFICHE COPY Report No. 10577- MLI

Report No. 10577-MLl Type: (SAR)MENEZES. I/ X35038 / J9-073/ AF5IE

STAFF APPRAISAL REPORT

REPUBLIC OF MALI

MINING SECTOR CAPACITY-BUILDING PROJECT

MAY 18, 1992

ndustry and Energy Divisionahelian Department.frica Region

Jocument has a restricted distribution and may be used by recipients only in the performance ofofficial duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY

Currency Unit = CFA Franc (CFAF)US$ 1.00 = CFAF 274.8CFAF 1 million US$3,6391 French Franc kMFF) = 50 CFAF

SYSTEM OF WEIGHTS AND MEASURES

Metric System

1 tonne = 1000 kilograms (kg.)1 tonne = 32,154 troy ounces (oz.)

FISCAL YEAR

January 1 - December 31

ABBREVIATIONS AND ACRONYMS

BHIP-UTAH The BHP-U'1AH Minerals International Group of the Broken Hill Proprietary Company

BRGM Bureau de Recherches Geologiques et MinieresCIS Commonwealth of Independent StatesCSO De Beers Consolidated Diamond Mines' Central Selling OiganisationDNGM Direction Nationale de la Geologie et des MinesEDF European Development FundFAC Fonds d'Aide et de CooperationGDP Gross Domestic ProductGIS Geographic Information SystemsLAEA International Atomic Energy AgencyIAPSU United Nations Development Program's Inter-Agency Procurement Services Unit

IFC International Finance CorporationIMF International Monetary FundLCB Local Competitive Bidding

IMME Ministare des Mines, de l'Hydraulique et de l'EnergiePANGIS Pan African Network for a Geological Information SystemPDRM Programme pour le Developpement des Ressources MinieresSOE Statement of ExpendituresSOGEMORK Societe de Gestion et d'Exploitation des Mines d'Or de KalanaSOMILO Societe Minibre de LouloSOMISY Societ6 Miniere de SyamaSONAREM Societe Nationale de Recherche et d'Exploration MiniereUNDP United Nations Development ProgramUNDTCD United Nations Department of Technical Cooperation for DevelopmentUNESCO United Nations Educational, Scientific and Cultural Organization

This report is based on the findings of a World Bank mission that visited Mali from Febniary 1 to 15, 1992

consisting of Micheline Mescher (AFTIE); Ignatius A. Menezes (AF5SE); Peter Nixon (Consultant-Geologist); and

Gotthard Walser (Consultant-Geologist). Mr. Paul I. Dyson (ASTEG) acted as peer reviewer, and Mr. John E.

Strongman (AFTIE) as adviser. Ms. Silvia B. Sagari and Ms. Katherine Marshall are the managing Division Chief

and Department Director, respectively, for the operation.

FOR OFFICIAL USE ONLYREPUBLIC OF MALI

M INING SECTOR CAPACITY-BUILDING PROJECT

STAFF APPRAISAL REPORT

TABLE OF CONTENTS

Page No.

CREDIT AND PROJECT SUMMARY ............................. i

I. SECTORAL BACKGROUND .............. .. ............... IA. Introduction ....................................... IB. Mineral Resources and Exploration ......................... 2C. Production . . ....................................... 3D. Sector Institutions .................................... 5E. Legal and Fiscal Framework ............................. 8F. Government Strategy and IDA's Role ....................... 9

H. PROJECT ... 10A. Project Objectives ................................... 10B. Project Description ................................... 10C. Project Costs and Financing Plan .......................... 16D. Project Implementation ................................ 17E. Procurement ....................................... 17F. Disbursements ...................................... 19G. Accounting, Auditing and Reporting ........................ 20H. Environment, Health and Safety ........................... 20I. Benefits and Risks ................................... 20

HI. AGREEMENTS REACHED AND RECOMMENDAION ...... ...... 21A. Agreements Reached ................................. 21B. Recommendation .................................... 22

ANNEXES

1. Mali's Geological Potential2. History of Geological Prospection in Mali3. Artisanal Gold Mining4. The World Market for Gold and Diamonds5. Letter of Mining Sector Development Policy6. Mali's Mining Tax Regime7. Training Program8. Project Activity Timetable9. Supervision Plan10. Implementation Contracts11. Terms of Reference

MAPSIBRD 23625 Mali: Known Mineral Occurrences andDpositsIBRD 23626 Mali: Geology

This document has a restricted distribution and may be used by recipients or!y in the performanceof their official duties. Its contents may not otherwise be disclosed without 'World Bank authorization.

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REPUBLIC OF MALI

MINING SECTOR CAPACITY-BUILDING PRO.ECT

CREDIT AND PROJECT SUMMARY

Bo-'Qwer: Government of Mali

Benefidary: Ministry of Mines, Hydraulics and Energy

Credit Amount: SDR 4.4 million (US$6.0 million equivalent)

Terms: Standard IDA Terms, with 40 years maturity

and DyisDctin: The main objectives of the project are: to strengthen the capacity of theGovernment to attract more investment in the mining sector and to helpdevelop a vibrant industry consisting of large as well as small- and medium-scale mines financed with both foreign and local capital. The proposedproject will comprise two main components. The Policy and StrategvComponent will consist of several studies, audits, and advisory services tohelp the Government of Mali design and implement a new policy and strategyfor the mining sector. The studies will cover the legislative, economic, fiscal,institutional, artisanal, and environmental aspects of the mining sector.Implementation of the strategy will involve restructuring the institutionalframework of the sector, revising relevant legislation and procedures, andclosing and/or selling public enterprises and their holdings in the sector toprivate investors. Strategy implementation will also involve strengthening theMinistry of Mines, Hydraulics and Energy through the provision of a long-term expert, and training Government officials in mining finance andeconomics, negotiating techniques, metallurgy, and mine management,operation, and technology. The Investment Promotion Component willconsist of financing consulting services, equipment, and some works to: (a)organize the documentation center's information and rehabilitate its facilities;(b) synthesize existing geological data and improve tho- geological informationsystem; (c) fill the gaps in the geochemical data coverage of prospectivemining areas of the country; and (d) promote specific mineralized areas topotential investors.

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and Risks: The activities financed by the project will help strengthen the institutionalcapacity in the country for a sector that has a promising potential. They arealso expected to result in increased foreign and local investment devoted tomining in Mali in the medium term. Available geological information revealsthat the country has the potential to increase gold production beyond the 4.3tonnes of gold it produced in 1990, provided private sector investment isforthcoming in exploration and development. (Rough estimates for resultingexports within the next 5 to 10 years range from 10 to 15 tonnes of gold peryear, whose value would represent 34% to 51% of Mali's total 1990 exports.)There is also a potential for the production of diamonds. Mining could thusbecome an important source of foreign exchange and tax revenue for Mali'seconomy. Furthermore, helping artisanal miners, many of whom are women,could reduce poverty over a large rural population in the western andsouthern regions of the country. While the Government has made thecommitment to pursue private sector development, an important project riskinvolves its implementation by sector institutions that operate in a"government-control" mode. The p.oject is designed .o address this concernthrough its emphasis on capacity building. The on-the-job training that willresult from the project's implemention will contribute substantially to humanresource development in the sector. There is also the risk that promotionalefforts would not succeed in attracting investors. Although the sector isknown to be of interest to foreign mining companies, several potentialinvestors are holding back due to lack of confidence in the policy environmentand sector institutions. The work on mining policy, capacity-building, andimprovement of geological data will help establish an enabling environmentthat will lower that risk.

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Local Foreign Total(in US $ 000's equivalent)

Estimated Project Costs

1. Policy and Strategy Development* Management consultancy -- 835 835* Training -- 500 500* Expert long-term consultant 120 -- 120* Local personnel 70 -- 70* Operational support 255 50 305* Vehicles and equipment -- 260 260

Sub-total 445 1645 2090

2. Investment Promotion* Geological data synthesis and thematic mapping -- 2600 2600* Investment promotion -- 450 4503 Local personnel 60 -- 60* Vehicles and equipment -- 50 50* Civil works 70 70

Subntotal 130 3100 3230

Total Base Costs 575 4745 5320

3. ContingenciesA Physical 70 405 475A Price 95 610 705

Sub-total 165 1015 1180

Total Project Costs 740 5760 6500

FinancinLi Plan Local ForeiEn Total

* Government 500 -- 500* IDA 240 5760 6000

Estimated Disbursements (IDA)FY93 FY94 FY95 FY96 FY97

Total 500 1,000 2,500 1,500 500Cumulative 500 1,500 4,000 5,500 6,000

Economic Rate of Return Not Applicable

REPUBLIC OF MALI


I. SECTORAL BACKGROUND

A. Introduction

1.1 Mali is a resource-poor country with nearly 80 percent of its population dependent onagriculture, which accounts for roughly half of GDP and two-thirds of exports. Its other resourcesinclude minerals, in particular gold and possibly diamonds that, if developed, could make animportant contribution to the economy. Considerable geological work has be-en undertaken in Mali,largely financed with foreign aid, confirming that Mali has promising mineral potential. Thispotential has not been developed, however, because not enough exploration and developmentinvestment by the private sector has been forthcoming, largely due to deficient government policiesand weak sector institutions, and because the large amount of geological data generated has not beenproperly organized, synthesized and made readily available to potential investors. At present, thecountry produces about 4 tonnes of gold per year and no diamonds. Gold is being produced byartisanal miners and by an industrial-scale mine financed and run by a foreign investor. Small- andmedium-scale mines financed and run by local entrepreneurs, "the missing-middle", do not exist inMali.

1.2 Artisanal gold mining is important in Mali, as it has been for centuries, and is a sourceof living for an estimated 100,000 seasonal miners, a large proportion of whom are women.However, artisanal miners operate under unsafe conditions, with very rudimentary methods andequipment that now leave more than 50 percent of the gold in the ground. They are constrained bya lack of more efficient and safer technology and cannot benefit from commercial-scale golddiscoveries that they cannot mine on their own because they are not eligible to hold mineral rightsunder the current legislation.

1.3 Industrial or commercial mining, on the other hand, has been stymied by lack of a clearmining policy and strategy, by dysfunctional public enterprises, by an inadequate mineral database,and by sector institutions that have been guided by an outdated interventionist philosophy andweakened by corruption. It was only in the late 1980s that the sector was opened to foreign privateinvest,rs. One such investor, a well-known multinational mining company BHP-Utah MineralsInternational Group (BHP-Utah), opened a gold mine at Syama in southern Mali in 1990. The mineproduces 2.5 tonnes of gold per year, resulting in exports worth approximately US$30 millionannually, representing 8.5% of Mali's total exports in 1990. This promising start is a result ofconsiderable promotional efforts by the Ministry of Mines, Hydraulics and Energy (MMHE), bu.much more needs to be done by the Government to promote the vigorous growth of the sector. Thisincludes successful implementation of macro-economic adjustment programs and effective private-sector-oriented policies that would allow for stable and transparent regulations, a competitive and wellstructured tax regime, and easy access to good and well organized geological data. The Governmenthas launched an adjustment program supported in part by IDA, and is preparing a project that wouldprimarily focus on fostering the development of the private sector. The Ministry of Mines,Hydraulics and Energy, which is responsible for the sector through its Direction Nationale de laG6,ologie et des Mines (DNGM), is committed to taking more vigorous actions to stimulate private

investment in the sector, but it operates with no clear, detailed policies or strategy to guide it.Moreover, it is not organized to actively promote mining to the private sector. The Mining SectorCapacity-Building Project will complement the proposed Private Sector Development Project and isfocussed on attracting local and foreign investment to mining through the modification of theinstitutional and legal framework, provision of better geological information, and strengthening ofthe Government's institutional capacity.

B. Mineral Resources and Exploration

1.4 Geological Potential. Mali has good geological potential (Annex 1), and muchgeological prospecting has been undertaken since the mid-1950s (Annex 2). This confirms theexistence of greenstone belts with a promising potential for gold mineralization in western Maliincluding Loulo, Sadiola, Seroto-Saboussire, Bakolobi, Moralia, and Sausanto, and in southern Maliat Syama, Misseni, Nampala, and Darabougou (see maps.) Two additional belts of mineralizedsedimentary rocks in eastern Mali are also favorable for gold deposits as well as base metals,phosphates, manganese, uranium, and fossil fuels. Kimberlite pipes, a primary source of diamonds,have been found in the Kenieba region of western Mali, but they have not proven to be sufficientlydiamondiferous to be economically expl!itable. There is little doubt that other clusters of kimberlitesremain to be discovered in the craton further east within Mali. In addition, 1.2 billion tonnes ofbauxite (aluminum) have been proven to exist in Mali but the country's landlocked situation makestransportation costs exorbitantly expensive and the deposit not commercially viable.

1.5 &ploration. Much of the mineral exploration conducted in Mali has been financedwith multilateral and bilateral assistance suc,h as the United Nations Development Program(UNDP)/United Nations Department of Technical Cooperation for Development (UNDTCD), theEuropean Development Fund (EDF), the Bureau de Recherches Geoiogiques et Winieres (BRGM--aFrench state enterprise), the former Soviet Government, and the Belgian Government. This hasresulted in the identification of several deposits and has led to the development of two gold mines,one at Kalana and the other at Syama. Although this work has confirmed the mineral potential ofthe coun ry, the sector's potential is far from being developed because few private investors havefollowed up with detailed exploration of specific target sites.

1.6 There are currently twelve exploration permits outstanding, covering some 14,500 km2

of territory in southern and western Mali. Three have been granted to local companies, the remainderto foreign ones. The granting of mineral exploration and exploitation permits has been done in ahaphazard manner, and there has been no strict enforcement of the agreements with investors. Asa result, only two of the twelve recipients of exploration permits are currently actively exploring andmeeting their work commitments. Furthermore, and for reasons not entirely clear, the Governmenthas not claimed back the acreage from investors whose permits have expired. Hence, there remainlarge tracts of prospective territory that are not available to new entrants. Agreement has beenreached during negotiations that the Government will promptly free all of the acreage that it legallycan by September 1993 and make that acreage available for exploration to other interested parties.It has also been agreed that exploration and mining permits will be awarded using a transparent,competitive approach to be designed and put into effect under the project by January 1994.

1.7 Geologiical Data Availability. The extent and state of geological data are extremelyimportant factors in attracting foreign investment. Mali has good geological, geochemical, minerallocation, and geophysical data coveing much of its territory. However, less than 35% of Mali'sterritory is covered by modern, detailed geological or photogeological maps. The majority of theavailable geological and mineral information is scattered and in different formats. It needs to be

organized and synthesized, and gaps in the data need to be filled. A geographic information systems(GIS) integrated mapping approach is needed to put all of the available data into a single format thatcan be used to attract investors.1/

C. Production

1.8 Mali's mining sector currently produces primarily gold for export and a negligibleamount of phosphate for the domestic market. It has been estimated that Mali produced between 2and 4 tonnes of gold metal per year in the past (see Table 1). However, the production statistics arenot reliable since the extent of smuggling in and out of the country cannot be estimated. In Mali,as in most Sub-Saharan African countries, gold is being produced either by local artisanal miners orby foreign or Government-run commercial mines. The smal' medium-scale mines (producing500 kg. of gold per year or less), the "missing middle", have y co be developed. Until 1990, mostof the gold in Mali was produced by artisanal miners. Since 1990, Mali's first private, foreign-runcommercial gold mine has begun production and has become the country's principal source of goldexports.

Table 1: MALI GOLD PRODUCTION ESTIMATE

Production 1987 1988 1989 1990(in tonnes)

Artisanal 3.2 2.8 1.8 1.4ProductionEstimates

Kalana Mine 0.3 0.3 0.2 0.4

Syama Mine - - - 2.5

Total 3.5 3.1 2.0 4.3

Average Gold 446 437 381 384Price (US$/oz.)

Calculated 50.2 43.6 24.5 53.1Revenues(million US$)

Souse: Ministy of Mines, Bamako, November 1991.

1.9 Artisanal Mining. Artisanal gold mining is important in Mali, as it has been forcenturies, and is a complementary source of revenue for an estimated 100,000 rural farmers whomine on a seasonal basis at more than 250 sites located in southern and western parts of the country:(a) the Bambouck area in the Keni6ba zone (74 sites); and (b) the BouiT6 area in the Kangaba (80sites), Kalana-Yanfolila (84 sites), and Bagod-Kekoro (18 sites) zones. It is estimated that, on

A GIS is a computer system that can hold and use data describing features at and beneath theearth's surface.

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average, each miner derives approximately the equivalent of US$400/yr. from her/his mining activity(Annex 3).

1.10 The social and environmental problems usually associated with "gold rush" type artisanalmining in other countries seem to be minimal among the artisanal miners in Mali because they arewell organized under their customary village structure and laws. Howevor, underground artisanalgravel mining is dangerous and has been estimated to be less than 50 percent efficient due to poormining practices (pillars of ore are left underground to support the galleries of underground mines).Artisanai miners need better methods to support mine walls so as to reduce the number of accidentaldeaths and better tools so that they may mine ore beyond the reach of their handtools. However, airhammers, pumps, and other appropriate small-scale mining equipment, which many miners can affordto buy, are not available in the local area. Some desirable equipment is not available anywhere inthe country.

1.11 A very important barrier to development in this industry is the legal treatment ofartisanal mining in the mining code. It currently does not allow artisanal miners to apply for miningpermits or receive legal mining title to their discoveries. Hence the miners have no negotiableinstrument capable of providing them benefits from the discovery beyond the return they receive fromtheir manual labor in the mine. They don't have sufficient resources to develop a more sophisticatedmine in cases where the discovery may warrant a mine larger than they can mine on their own, andthey cannot seek a buyer or joint venture partner as they cannot lay legal claim to the property.Moreover, they are liable to be expelled from the property when it is granted to a legal permitholder.

1.12 Under the project, an anthropological/legal/economic study will be undertaken todetermine, among other: the method by which mineral rights can be awarded to ?rtisanal miners allthe while respecting their traditional laws and institutions, so that they may attract investment in theirdiscoveries; and how health hazards can be reduced and safety improved. It has been agreed duringnegotiations that the Government would take steps towards facilitating the acquisition of mineralrights by artisanal miners by January 1994. It has also been agreed that, to safeguard theenvironment from future damage and to safeguard the miners' safety and health, the Governmentwould prepare environmental, health and safety regulations and norms and implement them bySeptember 1994. The project will finance a local promotional campaign to increase local awarenessof opportunities in small- and medium-scale mining, and provide the initial contacts which could leadto joint ventures between local investors and artisanal miners. Through training of DNGM officials,the project will help improve the technical assistance that the Government can provide to artisanalminers and local investors in the areas of small-scale mine evaluation, operation, and technology.

1.13 CQ-i jercial Production. Kalana was the first modern gold mine to have beendeveloped in Mali. The mine was opened in 1983 and was exploited by the Government (see Para.1.20) with Soviet technical assistance. Due to significant errors in grade evaluation and miningoperations and equipment, the mine produced less than 500 kg. of gold per year rather than the 2tonnes/yr. that had been expected. The mine is now inoperative and flooded during most of the year.

1.14 The only other modern mine, Syama in southern Mali, was developed by a multinationalmining company (BHP-Utah). In its first year (1990) the open-pit mine produced 2.5 tonnes of goldand has already had an important impact on both the local and national economies: it spends almostUS$1 million equivalent per month in Mali and has paid more than US$5 million of taxes in the lasttwo years. Extensive drilling of the underlying orebody suggests that the area may contain reservesof over 90 tonnes of gold. Requiring an additional investment of US$80 million to exploit those

reserves, the joint venture has negotiated the entry of the IFC in a second phase of the operations.This investment is expected to result in a production of 5 tonnes of gold per year for at least another5 years, followed by a third phase.

1.15 The Syndicat Or, a joint exploration venture between the Government and BRGM,discovered a third gold deposit at Loulo in western Mali. As a result, a joint mining venture, SocieteMiniere de Loulo (SOMILO), was created between the Government (51%) and BRGM and anexploitation permit was awarded to it in 1988. SOMILO has not yet developed the deposit, however.The Syndicat Diamant, which was created as a joint venture between the Government (20%),MINERSA (40%) and BRGM (40%), has found some kimberlite pipes but none have provencommercially viable. It's exploration permits, awarded in 1986, are now expired.

1.16 Buying, selling and exporting gold and oth-r minerals in Mali is legal and uncontrolledby the Government. Annex 4 provides background information on the world market for gold anddiamonds. Gold is freely exported and there have been no market constraints. At present, thisliberal policy is benefitting the country since vome gold inflows from surrounling countries,principally from Burkina Faso, are being exported through Mali thereby earning the Governrmentsome revenues. The extent of cross-border trade, however, is not known.

D. Sector Institutions

1.17 The Government is committed to taking vigorous steps to stimulate private investmentin the sector and has confirmed its commitment in a policy letter submitted to the Association(Annex 5). However, it operates without a clear, detailed sector policy or strategy to guide it andwith dysfunctional public enterprises and institutions that have been guided by an outdatedinterventionist philosophy and weakened by corruption.

1.18 The overall responsibility for the mining sector lies with the MMHE and fourinstitutions/public enterprises reporting to it, as shown in Figure 1. The institutional structure ischaracterized by entities that tend to evolve with the flow of donor aid that finances explorationactivity in the sector. New entities have been created without dismantling old ones. The functionsand responsibilities of the institutions overlap, and are redundant and outdated in the currentenvironment of economic liberalization. In addition, conflicts of interest arise between administrativeand operational functions, and procedures lack transparency and effectiveness. The staff is neitherexperienced in- nor equipped for- promoting investment, monitoring mining activity, or providinglocal investors with technical support.

1.19 The oldest of the institutions is the Societe Nationale de Recherche et d'ExploitationMiniere (S 3t'AREM). Created soon after independence, it was given the responsibility of managingthe mining sector and a monopoly on the exploration and exploitation of t6le country's mineralresources. Between 1963 and 1969, SONAREM was active in exploring and mapping Malianterritory with Soviet assistance. The large amount of geological data generated, however, has notbeen properly organized or synthesized. With the promulgation of Mali's first mining code in 1970,however, SONAREM's public policy functions and hegemony over the sector ended. While it stillexists legally, and its 297 employees are on the Government payroll, it has not done any explorationwork for a decade. The institution's sole function in the last few years has been to sell explosivesand to do a limited amount of water drilling.

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1.20 SONAREM has entered into some mining ventures but was never able to capitalize onthem due to ineffective management and an inability to operate as a commercial entity. It wasresponsible for developing, with Soviet assistance, the Kalana gold mine, which opened in 1983. Themine was transferred to a public enterprise, Societe de Gestion et d 'Exploitation des Mines d 'Or deKalana (SOGEMORK), which ran the mine since its first year of production in 1985. The enterprisehas recently been liquidated after having amassed debt equivalent to US$86 million. The Governmenthas decided to propose early retirement to the 585 civil servants who are employed at the mine. Itwas agreed during negotiations that, as part of the project, the Government would privatize theKalana mine. SONAREM has also created and retains, in the name of the Government, participationin: (a) a phosphate company at Tilemsi, SEPT S.A. (32% participation), which was developed withGerman technical assistance; (b) Mali-Marbres (20% participation); and (c) Eaux Minerales du Mali(5% participation). All of these activities are now inoperative, yet some still have employees on theGovernment payroll.

1.21 In 1967, SONAREM's public policy functions were transferred to the DirectionNationale de la GCologie et des Mines (DNGM). The DNGM is responsible for mining policy,regulates the sector and, at the same time, is involved in exploration and mining as manager of theGovernment's participation in mining ventures.2/ Similarly, it has access to privileged information,being responsible for the geological survey function and for granting mining permits as well. Thissituation has developed the same conflicts of interest the DNGM was created to resolve inSONAREM's operations. The DNGM's most important activity is to grant, monitor, and relinquishmining permits but the procedures it uses lack transparency. In some cases, functions it should behandling are being delegated to others. For example, although the DNGM is best placed to organizeand lead negotiations with private investors, the negotiations typically have been handled on an adhQ basis, involving representatives from many Ministries who are unfamiliar with the matter at hand.There is little institutional memory to help propel the negotiations forward, as the participants changefrom one negotiation to another.

1.22 The DNGM is also the home of the documentation center, which is the repository forall geological information and maps generated by the DNGM itself as well as by private firms anddonor aid agencies. At present, the center cannot accommodate investors' needs for information.The physical facilities are in need of repair, the data need to be organized and missing data must beretrieved, in particular from SONAREM, foreign donors and private companies that have exploredthe Malian territory. Although the Center received French foreign aid from the Fonds d'Aide et deCooperation (FAC) between 1980 and 1985, the equipment it received has deteriorated because thecenter has no operating budget. For example, since 1989 it has received less than US$4,000equivalent to finance operating costs. The International Atomic Energy Agency (IAEA) is helpingthe Government organize the center's information on uranium. This IDA project will help theGovernment extend the methods developed by the UIEA to all other minerals.

1.23 In order to sustain both human and technical assets acquired as a result of a goldexploration project (Or Bagoe) financed by the UNDP, the Government created a semi-independententity in 1990, the Programme pour le Developpement des Ressources Minieres (PDRM). ThePDRM acts as an executing agency and is an integral part of the DNGM, but this creates significant

Z/ The Government is technically a partner in all new exploration ventures since, according tothe mining code, it receives a minimum of 10 percent free equity in all mining ventures inMali.

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conflicts of interest because it also provides profit-making drilling and laboratory services to privateinvestors and donor agencies. The PDRM is well staffed and equipped but its operations arecurrently being maintained with UNDP assistance, which will terminate in December 1992. TheUNDP is considering providing new support to the sector.

1.24 With over 1000 employees, the sector is overstaffed, particularly the public enterprises.Moreover, most of the professionals are geologists without direct mining, metallurgy, or minemanagement experience and little experience in legal and financial matters. The sector's heavy wagebill does not leave enough resources for adequate financing of other operating costs to ensure thesustainability of the institutions: in 1991, salary payments represented 75% of the Government's totalbudget expenditure of US$4.2 million equivalent for the sector (see Table 2). Agreement has beenreached that under the project, the institutions will be restructured and rationalized by January 1994,resulting a significant reduction in personnel, and that a retirement scheme will be instituted bySeptember 1993 for staff who cannot be absorbed in the new structure of the institutions. Agreementwas also reached on the availability of adequate operating budgets after the new institutions are inplace, and subject to the findings of the mid-term review.

Table 2: MALI - MINING SECTOR BUDGETS. 1991(In 000's of US $ equivalents)

Institution Number of Salaries Total budgetcivil servants expenditure

DNGM/PDRM 147 420 1,270

SONAREM 297 790 990

SOGEMORK 585 1,850 1,850

Tilemsi 47 130 130Phosphates Co.

TOTAL 1,076 3,190 4,240

Sourv: Woldd Bait estitates ting DNGM, PDRM and SONAREM 1991 taitcs.

E. Ial and Fiscal Framework

1.25 Mining in Mali is governed by a mining code initially adopted in 1970. It has beenrevised and the changes have been promulgated in 1991 as part of a policy improvement packagesupported by IDA and other donors, under a structural adjustment program. The new mining coderecognizes three types of mining activities: (a) orpaillage or artisanal mining; (b) small-scale miningand (c) commercial or large-scale mining. Accompanying the new mining code is the modelagreement, which reduces the need for lengthy negotiations between the investor and the Government,and considerably accelerates the process of awarding mining permits. The model agreement mustbe signed by both small-scale and large-scale mining concerns with the Government. It fixes thefiscal obligations (including income taxes, exemptions, depreciation allowances, royalties, etc.) forthe duration of the mining activity (Annex 6). In addition, the Government gets a free carried interestof 10 percent, with the possibility of buying an additional 10 percent for a maximum of 20 percent

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participation in any private sector exploration venture. The new mining code, however, has a numberof drawbacks, and will need some adjustments. For example:

(a) Artisanal mining is recognized but the artisanal mining regime does not confer mineralrights;

(b) mining permits for the small-scale mine regime are not transferrable. Hence, a small-scale mine investor who finds a deposit too large for her/him to exploit alone, cannotsell it to a larger firm and benefit from the discovery; and

(c) discrepancies and contradictions occur within and among the three texts of the mininglaw-the mining code, the model agreement, and the accompanying regulations. Forexample, whereas it is stated, in the mining code, that the Government will be limitedto a 20 percent participation in any exploration and exploitation venture, it is alsomentioned, in the model agreement, that the Government will have the right to develop,on its own, a deposit found to be commercially viable on a property if the holder of thepermit does not wish to develop it.

1.26 The mining tax regime embodied in the new mining code improves the investmentconditions in the mining sector. However, it involves some aspects that still need to be evaluated,such as:

(a) the mining tax regime in Mali gives tax breaks-a 5-year tax holiday and 27.5%depletion allowance-which are not especially valued by investors and unnecessarilyreduces tax revenues to the Government, while it imposes a relatively highroyalty/production tax to which investors are extremely sensitive;

(b) there are ambiguities that cannot be firmly clarified by the legal documents or theauthorities on such points as the dividend withholding tax exemption and thedetermination of accelerated depreciation rates; and

(c) the code is not internally consistent with respect to fiscal matters nor is it consistent andcross-referenced with the model agreement, its accompanying regulations, Mali'sgeneral tax code, the customs code, or the international agreements to which Mali is asignatory.

1.27 It was agreed during negotiations that the mining code and the model mining agreementwould be revised to reflect the new mining sector policy and strategy by January 1994.

F. Government Strategy and the IDA's Role

1.28 It was only recently that the private sector was acknowledged to be important toeconomic growth in Mali. The state-dominated development strategy pursued until the early 1980'sled to severe distortions in economic incentives, which impeded growth throughout the economy.In 1988, after a series of budget crises resulted in the generalized bankruptcy of the public enterprisesector and the national development bank, Mali began to redress the public sector bias in itseconomy. The aim was to increase private sector participation in production, trade, and employment.For the past few years, therefore, Mali has been implementing an adjustment program, supported bythe IMF, IDA, and other bilateral and multilateral donors, to restructure and reduce the bloated andinefficient public enterprise sector and introduce appropriate policies to improve the environment for

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private initiative, including a better incentives system. Policy improvements under the adjustmentprogram include the liquidation or rehabilitation of public enterprises involved in mining.

1.29 The project complements the actions initiated under the adjustment operations supportedby IDA and the proposed Private Sector Development Project. The Government attaches highpriority to the search for minerals that have commercial potential as a means of diversifying theeconomic activities in the country. After years of relying on the State, the Government is evolvingto a more liberal philosophy, leaving mineral exploration and extraction to the private investor, bothforeign and local. To accelerate the pace of exploration activities, the Government has decided toundertake a number of studies that will provide it with the basis for defining a comprehensive policythat will define the contractual/legislative framework for mining exploration and production, and forits implementation. It has also decided to provide timely and updated geological information toinvestors. IDA's continued involvement is needed to ensure that the private sector is indeedencouraged to invest in the sector and to help resolve sensitive institutional and organizational issues.

II. THE PROJECT

A. Project Objectives

2.1 The main objectives of the project are to strengthen the capacity of the Government ofMali to attract more investment to the mining sector and to help develop a vibrant industry consistingof both large mines as well as small- and medium-scale mines financed with both foreign and localcapital. Specifically, work done under the project will help the Government develop and implementa strategy for the mining sector that will lead to improvement of the institutional, legal and fiscalframework for the sector. It will also involve the provision of better geological information topotential investors and an improved negotiation process.

B. Proiect Description

2.2 The project will have two main components: a Policy and Strategy Component and anInvestment Promotion Component. The Policy and Strategy Component will include studies,consulting services, equipment, and materials to assist in the design and implementation of a newmining policy and strategy and to strengthen the institutions through training and technical assistance.The Investment Promotion Component will provide the Government with management consultingservices, equipment, and some works to: (a) develop an adequate geological data base; (b) supportthe organization and rehabilitation of the documentation center, which is the Government's repositoryof geological data and maps; and (c) assist in organizing a promotion campaign.

1. Policy and Strategy Component

2.3 The work done under the Policy and Strategy Component of the project will assist theGovernment to define more clearly its mining sector policy (i.e., to redefine its role in the sector,the role of foreign investment, and the role of the local miners, now predominantly artisanal) and toensure adequate environmental, health, and safety measures for the sector. This work will also assistthe Government in defining a strategy consistent with its policy decisions. The strategy willdetermine: (a) how and how much the Government will share in the wealth derived from mineralextraction; (b) the rights and obligations of foreign and local investors; and (c) how the Governmentwill ensure that the rules of the game are upheld. Undei the project, the Government will be assistedin implementing the strategy through: (a) restructuring the institutions and their procedures; (b)

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improving the mining law; (c) privatizing state mining enterprises; (d) training Government officialsso that they may become more efficient in carrying out the policy and in implementing the law; and(e) providing technical assistance to the MMHE in organizational and project management.

2.4 The project will provide consultancy services to carry out the following activities:

(a) Analysis of Policy Alternatives. Six studies will be undertaken to provide thebackground information on policy alternatives and serve as a basis for policyformulation. They will also pay particular attention to identifying barriers to entry ofprivate capital in the mining sector. The studies will involve the following topics: thepolicy and legislative implications of a reduced Government role and of a greater privatesector participation in mining; revision of the sector's institutional structure andprocedures; international mining cost competitiveness; international comparative miningtax regimes; artisanal mining/local industry development; and safeguarding theenvironment, and the health and safety of the miners.

(i) As a result of the roles of Government and private sector study. alternativepolicies and their attendant laws and regulations defining the relationship betweenthe state and the private sector in the business of mining will be presented andassessed.

(ii) The second study will deal with restructuring the institutions of the miningsector, in particular the MMHE, the DNGM, the PDRM, and SONAREM. Theobjective is to define a more efficient and less costly institutional framework thatcan be more appropriate to the development of mining activities. It isparticularly important to clearly define the role of each institution, separating thedifferent functions (and to define operating procedures and norms) to avoidconflicts of interest relating to:

3 administration of mining permits and land management,* production and storage of geological information,* investment promotion,* provision of commercial drilling services,- management of the state's participation shares in joint ventures,* assistance to- and negotiation with mining investors, and* provision of extension services to artisanal miners.

It will also be important to da ermine: an appropriate level for the operatingbudgets and their sources of financing; the number and qualifications ofpersonnel needed; and the relations among institutions.

(iii) As part of the international mining cost competitiveness study, the cost structureof mining in Mali will be comped to that of ot' -r countries in the Sahel regionas well as to that of other gold mining countrie round the world.

(iv) The international comparative tax study will involve the comparison of the fiscalregimes cf countries offering investment opportunities comparable to those ofMali's mining sector. The effective tax burden currently implied by Mali'smining tax regime (for gold, diamonds, and base metals) will be compared to thatof the other countries, and the pros and cons of the tax instruments used will be

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analyzed. As part of this study, the mining code's tax regime will be"harmonized" with the general tax code, the customs code and any internationalcommercial agreements to which Mali is a signatory.

(v) Work done under the artisanal mining/local industry development study willassist in determining how a local small- and medium-scale gold mining industrycan be developed on the basis of local investment funds, a free local mineralrights market, and artisanal miners' experience and gold discoveries. It willprovide information on the traditional socio-economic structure of artisanalmining geared toward designing a legal entity that can preserve its importantfeatures and yet be recognized by Mali's legal code. It will also research andpropose the type of mineral rights that can be granted to this legal entity of localminers that will both attract investment to those operations and be feasible froman administrative and legal point of view.

(vi) The sixth study will involve the establishment of environmental safeguards andthe development of environmental criteria for the mining sector. The study willinvolve an assessment of the current mining activity's impact on the environment,on the health and security of the miners, and on the country's archeologicalcultural property. Recommendations will be made on the types of environmental,health and safety regulations and norms that should be put into effect, and on theappropriate methods for monitoring them. It will also recommend a program ofsurveying and protection of the archeological sites found in mining areas.

(b) Policy Deliberations. Shortly following the completion of the studies, the consultantswill organize and conduct workshops where the main aspects of a mining policy andstrategy (mainly the topics researched in the studies) are initially explained by expertsin the field to the workshop attendees, and then discussed. This process willapproximate the customary method of evaluating policy options and create the consensusneeded for effective and lasting policy change within the Malian context, the Oftatsgenbraux. The workshops will include expert panelists, such as representatives ofdifferent mining companies, geologists, mining lawyers and mineral economists fromvarious mining countries of the world, including other African countries with importantmining experience and IDA. Representatives of the concerned Ministries and interestedlocal leaders will be invited to participate. A first workshop will deal with the generalissues regarding mining policy and strategy-the relative roles of the state, foreigninvestors, and the local industry; and the competitive position of Mali's mining sectorvis-a-vis the international mining industry. In the second workshop, the mining taxationworkshop, the results of the comparative tax study will be discussed with miningtaxation experts. Issues of alternative taxation schemes, which affect foreign as wellas local investors, will be discussed. The third workshop will involve the developmentof artisanal mining as the basis for a local mining industry. It will be based on theresults of the study and will involve a discussion of the alternative ways to grant mineralrights to artisanal miners, the creation of a local mining title market, and the alternativeways to attract local investment in mining. A fourth workshop will deal with mining-related environmental, health, and safety issues. The discussions will center on themeasures to be taken to minimize environmental damage, and health and safety risks tominers. Environmental experts and representatives of NGO's will be invited to discussthe results of the study.

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(c) Policy and Strategy Paper. The consultants will organize committees among theMMHE and the other government ministries concerned to bring the workshopdiscussions to fruition and to define a consensus. Each committee will be charged withdetailing the strategy and implementation plan for one of the subjects debated in theworkshops. A policy and strategy paper will be written, clearly defining the consensusreached in the process of formulating mining sector policy and strategy at the workshopsand subsequent govermment meetings held for that purpose. This activity will lay thefoundation for the process of translating this statement into laws and regulations (para2.4f) and to begin implementing the strategy.

(d) Institutional Reform. The consultants will assist the MMHE in putting into place anappropriate structure for the sector institutions and in revising their procedures. Theirwork will be based on the Government's policy and strategy declaration and the resultsof the institutional structure study, on which IDA will have been consulted. The aimof the restructuring will be to increase the efficiency of the institutions by reducingconflicts of interests and improving the flow of information among and between theinstitutions. The reorganization will touch on the various functions of the sectorinstitutions: (a) commercial prospecting and drilling services; (b) investment promotionand analysis of industry trends; (c) project economics, finance and taxation; (d) legalservices; (e) mining administration, including mining permit and land management; (f)extension services to artisanal miners; (g) geological survey activities; (h) safeguardingminers' health, mine safety, and the environment; and (i) negotiating with investors.It is also important that: (a) the institutions be provided with an adequate operatingbudget; (b) a retirement scheme be instituted for staff who cannot be absorbed in thenew structure of the institutions; (c) a transparent and fair method of awarding miningpermits be instituted; (d) a negotiating procedure be defined to simplify and standardizeall negotiations with potential mining investors; and (e) possibly that a "guichet unique"be instituted to simplify the acquisition of exploration permits. It is extremely importantthat the restructuring strengthen the coordinating offices that determine the relationshipbetween the institutions concerned with the mining sector, in particular, the miningoffices of the Ministry of the Budget and the Ministry of Economy and Finance, andthe finance office of the MMHE.

(e) Privatization of Public Enterprises. In addition, the consultants will help theGovernment sell or close the Kalana mine (SOGEMORK) and the Tilemsi Phosphatemine (SEPT S.A.), and possibly the other holdings of SONAREM, i.e., Mali Marbresand Eaux Mindrales du Mali. The consultants will synthesize the existing informationand supplement it as needed so that a full technical and economic evaluation (a "ducdiligence" study) is available on each of the entities that are still in the Government'sportfolio. The consultants will present detailed plans for either privatizing the minescompletely or closing down these entities, depending on the results of the audits.

(f) ILal Reforan. The mining code and model agreement will be modified as necessaryand environmental regulations prepared. The consultants will help the MMHE modifythe legislation, consistent with the policy and strategy that emerge. They will help draftwhatever new or modified regulations will be needed to put into effect the mining sectorstrategy including the decrees that specify the statutes of the sector's new institutionsand their operating procedures. For example, the project will make available resourcesto help draft appropriate environmental, health and safety regulations, the norms against-which mining operations will be monitored, and the decrees granting the institutions the

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power to implement that p0icy. The consultants will also make the mining codeconsistent and cross referenced with the model agreement, the code's regulations, thegeneral tax code, the customs code and any international commercial agreements enteredinto by Mali. In addition, the consultants will help Mali enter into double taxationtreaties with the major investment exporting countries, and formulate the properdocuments to harmonize with those new commitments.

2.5 Training. A specialist consultancy, such as an educational facility specializing inmining, will manage the human resource development sub-component, which will reinforce thereorganized mining sector institutions. The training will provide: (a) the officials of the MMHE,the negotiating unit, the Ministry of Economy and Finance, and the Ministry of the Budget withknowledge and experience in mining finance and economics; (b) the negotiating team with knowledgeof negotiating proc dures and negotiating skills; (c) the extension service and others (e.g., geologistsenticed to take voluntary retirement, unemployed young geologists coming from foreign schools) withknowledge of metallurgy and experience in small mine operation and technology; and (d) theindividuals charged with the mine environmental, health, and safety safeguard functions with someexperience on international norms, environmental damage control, and mine safety. In particular,the project will finance: (a) in-country seminars, given at the local geological college, in miningeconomics, financial analysis of mining projects, and techniques in effective negotiation (basic levelin the first year, higher levels each year thereafter); (b) short-term courses, possibly abroad, inmining operations, metallurgy, mine management, mining techn,ology, mine safety, and environmentaldamage mitigation; and (c) internships in small-scale mines in selected countries, possibly Zimbabwe,Mexico, and Chile. A detailed training program was submitted (Annex 7) and discussed at the timeof credit negotiations.

2.6 Managerial Assistance to the The services of an expert will be provided toassist the MMHE to coordinate the activities under the project. In particular, this consultancy willprovide financial and organizational management, and recordkeeping services. Operational support,vehicles, and some equipment to assist in the coordination of the project activities will also befinanced under the project.

2. Investment Promotion Component

2.7 A consultancy services contract will be awarded to international consultants experiencedin the use of GIS in geological/geophysical mapping and mineral exploration for the preparation ofan improved geological data base. The consultants will assist the Govermnent to: perform a specificsynthesis of regional data on western and southern Mali including filling in gaps in geological,geochemical and geophysical ground coverage; compile and synthesize country-wide data; andorganize and modernize the documentation center. A separate contract will be awarded tointernational consultants or mining sector promoters who will help the Government to: producepromotional materials, organize promotional campaigns, and evaluate the feasibility and promote thedevelopment of the gold refining and goldsmithing industries.

Geological PData

2.8 Specifically, the consultants will train five Malian geologists while performing thefollowing tasks using a two-phased approach. Phase I will include:

(a) Undertaking a detailed synthesis of data on the western and southern regions of Mali.This will illustrate the relationship of the geology and structure to the location of known

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ore bodies in order to identify potential areas of further exploration (possibly newaeromagnetic surveys to be performed outside the scope of this project). The work willinvolve:

(i) digitizing and integrating existing data bases;

(ii) compiling new data for use in a GIS format by filling in gaps in the geological-geochemical-geophysical ground coverage of the two regions; and

(iii) producing 10 GIS mineral anomaly maps of 1:200,000 scale.

(b) Phase II will involve integrating country-wide data by:

(i) combining 55 images of LANDSAT data with existing geophysical information(gravity and aeromagnetic) to produce 28 sheets of geological maps at 1:500,000scale to extrapolate and interpolate structures and geological boundaries andprovinces;

(ii) making ground-truth observatio.is in key areas to provide target areas for furtherdevelopment; and

(iii) producing lithospheric thickness maps at 1:1,500,000 scale to determinediamondiferous kimberlite provinces.

Documentation Center

2.9 Assisted by a team of Malian specialists, the consultants will organize the documentationcenter in order to make readily available to potential investors the valuable unpublished materialrelating to geological and prospecting activities and the geological and photogeological maps that ithouses. This will involve:

(a) reorganizing the documentary materials and maps for all minerals, and cataloguing themusing a system compatible with- and linked to the bibliographic method alreadydeveloped for uranium by the IAEA;

(b) transferring to the center the materials and data currently being stored in otherbuildings, notably with the PDRM and SONAREM;

(c) acquiring data from overseas;

(d) training staff in modem methods of documentation; and

(e) collaborating with the Pan-African Network for a Geological Information System(PANGIS) (created within the Association of African Geological Surveys at the initiativeof UNESCO) to share information and establish a documentation system.

Investment Promotion Camrpaig

2.10 Working closely with the MMHE's promotion officials, the consultants will organizea marketing campaign that will involve the following activities:

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(a) producing a set of promotional materials using the results of the geological datasyntheses and targeting it to specific niches of likely investors;

(b) disseminating those materials;

(c) promoting specific prospective areas to individual investors, including the state-ownedassets that are to be sold, and holding investor conferences abroad, and one in Mali;

(d) organizing a local campaign to raise local investors' awareness of investmentopportunities in the mining sector. This campaign will be aimed at likely investors suchas commerVants (traders), public officials taking early retirement, and Malians livingoverseas; and

(e) evaluating and appraising mining related activities, in particular gold refining andgoldsmithing, and assessing the methods and feasibility of promoting investment in thoseactivities.

2.11 In addition, the project will assist the documentation center by providing some funds torehabilitate its office and storage space, and some office equipment and a modern computer systemto facilitate the organization of the information and maps that it houses.

C. Project Costs and F_nandng Plan

2.12 A summary of project cost estimates is presented in Table 3 below.

Table 3: ESIIMATED PROJECT COSTS(in 000's of US S equivalent)

LAL FOREIGN .TOTAL1. Poliey and Strategv Develonment

* Mnagemaent consultancy - 835 835* Taining - 500 500* Expert long4-ern consultant 120 - 120* Local personnel 70 - 70* Operational support 255 50 305* Vehicles and equipment - 260 260

Sub-towK 544S 1645 20902. Investment Promotion

* Geological data synthesis and thematic uapping - 2600 2600* Investment pomotion - 450 450* Local personnel 60 - 60* Vehicles and equipment - 50 50* Civil works 70 - 70

Sub-totM F130 3100 3230Total Base Costs 575 4745 5320

3. Contlecise

* Physical 70 405 475* Price 95 610 705

SAO-1ta 165 1015 1180

Total Prolect Costs 740 5760 6500

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2.13 The total cost of the project, net of taxes and duties, is estimated at US$6.5 millionequivalent, with a foreign exchange component of US$5.8 million (90%). Cost estimates are basedon 1991 prices, with about 10% added for physical contingencies and 2.8% for price escalation for1992, 3.9% for 1993 and 1994, and 3.8% for 1995 onwards.

2.14 The financing plan includes an IDA Credit of US$6.0 million equivalent which willfinance all of the foreign exchange costs and some of the local costs (US$0.24 million equivalent).The Government will finance the remainder of the local costs, or approximately US$0.5 millionequivalent.

D. Project Implementation

2.15 The project will be executed in 4 years (see Annex 8 for the timetable of projectactivities). The Government is targeting a short implementation period and the procurementarrangements are also designed to reduce the implementation period, using predominantly 5 majorcontracts. The MMHE will be responsible for project implementation. The Ministry has hadexperience with implementation of projects financed by IDA, UNDP and others with a reasonableamount of success. It has a large pool of well-trained geologists, geophysicists and other technicians.It does lack, however, financial and organizational management skills to manage the activities of theproject. It was agreed during negotiations that the project will therefore finance one long-termconsultant to provide the Ministry with assistance in coordinating the activities of the project.Appointment of the long-term consultant as well as the nomination of counterparts for the firstactivities of the project are conditions of credit effectiveness. It was also agreed during negotiationsthat supervision will include annual performance reviews and an in-depth mid-term review inSeptember 1994, which will be conducted jointly between the Government and IDA to: (a) reviewprogress made to-date; (b) establish a program for the remaining activities of the Project; (c) monitorthe performance of the contractors; (d) agree on any modifications to project design and/orcontracting arrangements, if necessary; and (e) agree on the financial resources to be provided by theGovernment to cover the operating costs of the sector institutions. A detailed supervision plan ispresented in Annex 9. Key consulting contracts, especially of larger duration, will be monitoredclosely. They will be subject to joint annual performance reviews by the Government and IDA,where the transfer of know-how will be a major factor in the evaluations (see contract arrangementsin Annex 10).

E. Procurement

2.16 Procurement under the project will cover the cost of consultant services for technicalassistance, training, equipment, and operational support. The procurement arrangements aresummarized in Table 4 below. To facilitate management of the project activities and the procurementprocess, predominantly 5 contracts will be used to cover: (a) the policy and strategy developmentprocess and its implementation, (b) the training and internship program, (c) the geological data workand the improvement of the documentation center, (d) the production of promotional material and thepromotional campaigns, and (e) the expert assistance to the MMHE to coordinate the project.Consultants and technical assistance personnel to be financed by IDA will be appointed in accordancewith the Bank Group's Guidelines: Use of Consultants by World Bank Borrowers and by the WorldBank as an Executing Agency (Washington, D.C., August 1981), and will be employed on terms andconditions satisfactory to IDA. Vehicles, equipment, and other material (US $360,000) will beprocured through Local Competitive Bidding (LCB). All consulting contracts and contracts for goodsfor amounts of US$50,000 equivalent or more will be subjected to IDA's prior review. This will

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result in more than 90% of contracts under prior review. Other contracts will be subject to selectivepost-award review.

Table 4: PROCUREMENT ARRANGEMENTS(in US S million equivalent)

Procurement MethodProject Component LCB Other Total Cost

1. Policv and StrateQv:

* Management consultancy 1.00 1.00(1.00) (1.00)

* Training 0.70 0.70(0.70) (0.70)

* Expert long-term consultant 0.12 0.12(0.12) (0.12)

* Local personnel 0.08 0.08(0.00) (0.00)

* Operational support 0.45 0.45(0.22) (0.22)

* Vehicles and equipment 0.30 a} 0.30(0.30) (0.30)

2. Investment Promotion

* Geological data synthesis and mapping 3.00 3.00(3.00) (3.00)

* Investment promotion 0.60 0.60(0.60) (0.60)

* Local personnel 0.09 0.09(0.00) (0.00)

* Vehicles and equipment 0.06 ° 0.06(0.06) (0.06)

* Civil works 0.10 0.10(0.00) (0.00)

IQIAL 0.46 6.04 6.50(0.36) (5.64) (6.00)

(1) Figures in parentheses are the amounts to be financed by IDA(2) If feasible, the vehicles, whose total value is estimated at US$200,000, to be procured over time and in small lots

will be procured through the United Nations Development Progran's Inter-Agency Procurement Sevices Unit(APSU).

2.17 In FY91, Mali's portfolio consisted of 19 operations, including 4 adjustment operations.Although 6 projects have an implementation rating of 3, the average overall rating is 1.9, slightlybetter than in 1990. Two recurrent problem areas in project implementation are delays inprocurement and lack of counterpart funds. Several attempts have been made to improve theprocurement procedures ever since a procurement assessment was carried out by IDA several yearsago. The most recent step forward is the approval of a decree (No. 92-059/P-CTSP) in February,1992, which establishes the rules for public sector procurement and fixes the responsibilities of allentities concerned in that process. This is expected to increase transparency and accelerate projectimplementation. With regard to counterpart funds, a public expenditure review is planned for fiscalyear 1993 that is expected to shed some light on the process of providing sufficient counterpart fundsin a timely fashion. Nevertheless, assurances have been received that the Government will make

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available to the project coordinator in an advance revolving fund (avance de rOgte) at the beginningof each quarter, at least US$15,000 equivalent, to cover the cash counterpart funds needed tocoordinate the activities of the project during the following quarter. Deposit of the first quarter'sfunds is also a condition of effectiveness.

F. Disbursements

2.18 The project is expected to be completed over a 4-year period and the funds to bedisbursed over 5 years. There is a strong indication that disbursements will not lag this time horizonas the Government wishes to proceed rapidly with its mining promotion program. The fact that thebulk of the project is composed of technical assistance and training that will be disbursed during thefirst three years of the project will also tend to speed up disbursements. The estimated disbursementsand allocation of the IDA credit are shown in Table 5.

Table 5: DISBURSEMENTS(in US $ million equivalent)

Categgry Amount % of Expenditure to be financed

Consultant services 4.00 100% of expendituresTraining 0.50 100% of expendituresVehicles and equipment 0.31 100% of expendituresOperational support 0.11 35% of expendituresUnallocated 1.08

TOTAL 6.00

2.19 All disbursements of the IDA credit will be fully documented except for contracts of lessthan US$20,000 equivalent which will be made against statements of expenditures (SOEs). TheMMHE will be responsible for preparing withdrawal applications for all components. Thedocumentation for withdrawals under SOEs will be retained at the MMHE for review by IDA staffduring supervision missions and for regular semi-annual audits. Retroactive financing, up to amaximum of US$150,000 equivalent, is recommended for eligible expenditures as of May 8, 1992.

2.20 To facilitate disbursement, the Government will establish a Special Account in acommercial bank to cover IDA's share of eligible expenditures. An initial deposit of US$300,000equivalent will be made available from the proceeds of the credit upon effectiveness. IDA willreplenish the Special Account upon receipt of satisfactory proof of incurred eligible expenditures,accompanied by a bank statement and reconciliation of the Special Account. Details of theestablishment and operations of the Special Account and other disbursement procedures have beendiscussed and agreed upon during credit negotiations. Budgetary provision for local costs will beinscribed in the annual operating budget of the MMHE.

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G. Accounting. Auditing and Relorting

2.21 The MMHE will establish and maintain, to the satisfaction of IDA, separate accountsand records to be used exclusively for the project. Agreement has been reached on the performanceof audits by independent auditors acceptable to IDA who will audit these accounts in accordance withappropriate auditing principles and in such detail as IDA may request. Appointment of the auditorsis a condition of credit effectiveness. In addition, the Special Account and SOEs will be auditedannually and audit reports submitted 6 months after the end of each audit period. The MMHE willsubmit to IDA: (a) an annual report on progress of the project implementation; (b) annual workprograms and budgets for the following year; and (c) a project completion report within six monthsof the credit closing date.

H. Environment, Health and Safety

2.22 Artisanal mining uses very rudimentary methods that do not involve harmful chemicals,however there are issues of miners' safety and health that need to be addressed. Large-scalecommercial mining, on the other hand, raises a broad range of environmental, health and safety issuessuch as land reclamation, and waste treatment and disposal. The Syama mine uses cyanide, otherchemicals and a fluidized bed reactor that emits sulfur dioxide. IFC has, however, reviewed theinformation on the operation and was able to confirm compliance with Bank guidelines. Nonetheless,the project will finance a study to examine the environmental, health, and safety aspects of miningand recommend protective measures. It will also help the Government institute environmental, healthand safety regulations, set standards, and train officials to monitor mine compliance and safeguardarcheological cultural property in the mining areas. A country Environmental Strategy Paper hasbeen completed as a first step towards a National Environmental Action Plan, which would includeactions that will be taken under this project.

I. Benefits and Risks

2.23 The activities financed under the project will help strengthen the institutional capacityin the country for a sector that has a promising potential. The project is expected to result inincreased foreign and local investment devoted to mining in Mali in the medium term. Availablegeological information reveals that the country has the potential to produce and export much moregold than the 4.3 tonnes it produced in 1990, provided private sector investment is forthcoming inexploration and development. (Rougn estimates for resulting exports within the next 5 to 10 yearsrange from 10 to 15 tonnes of gold per year, whose value would represent 34% to 51% of Mali'stotal 1990 exports.) There is also a potential for the production of diamonds. Mining could thusbecome an important source of foreign exchange and tax revenue for Mali's economy. Furthermore,helping artisanal miners could reduce poverty over a large rural population in the western andsouthern regions of the country.

2.24 While the Government has made the commitment to adopt a private sector developmentphilosophy, an important project risk involves its implementation by sector institutions that operatein a "government-control" mode. The project is designed to directly address this concern throughits emphasis on capacity-building by providing intensive on-the-job training and offering courses,seminars and internships. There is also the risk that promotional efforts would not succeed inattracting investors. The sector is known to be of interest to foreign mining companies, but severalpotential investors are holding back due to lack of confidence in the policy environment and sector

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institutions. The work on mining policy, capacity-building, and improvement of geological data willhelp set the enabling environment that will lower that risk.

m. AGREEMENTS REACHED AND RECOMMENDATION

A. Agreements Reached

3.1 The Government has submitted a letter expressing its commitment to support privatesector mining development (para. 1.17) (Annex 5) and a detailed training program (para. 2.5)(Annex 7).

3.2 It was agreed during negotiations that the Government will:

(a) identify and release all acreage where work commitments are not being fulfilled orexploration permits have expired and to make that acreage available for exploration toother interested parties by September 1993 (para. 1.6);

(b) design and put into effect a transparent and competitive method for awarding explorationand exploitation permits by January 1994 (para. 1.6);

(c) take steps towards facilitating the acquisition of mineral rights by artisanal miners byJanuary 1994 (para. 1.12);

(d) institute a scheme for retiring the excess public sector personnel in the mining sector bySeptember 1993, and revise and streamline the institutional structure and procedures forthe sector, rationalizing the level of personnel employed in the sector by January 1994(para. 1.24);

(e) provide for adequate operating budgets for the institutions after the mid-term review(para. 1.24);

(f) privatize the Kalana Mine (para. 1.20);

(g) prepare environmental, health and safety regulations and norms, and implement themby applying the norms and monitoring them by September 1994 (para. 1.12);

(I) modify the mining code and model mining agreement to reflect the new mining sectorpolicy and strategy, after consultation with IDA, by January 1994 (para. 1.27);

(i) meet yearly with IDA to define and agree on a work program and budget and toevaluate the last's year's program, in keeping with the Supervision Plan, Annex 9 (para.2.15);

aj) hold a mid-term review in September 1994 (para. 2.15);

(k) hire a long-term expert consultant to assist in project coordination for four years on aone-year renewable contract, to be renewed subject to IDA's approval, and keep theposition of Project Coordinator filled at all times (para. 2.15);

- 22 -

(I) deposit in an advance revolving fund (avance de regie), to be made available to theproject coordinator, at the beginning of each quarter, from its own funds, at least theequivalent of US$15,000 to cover cash counterpart funds estimated to be required forproject coordination during the following quarter (para. 2.17); and

(m) have audits of accounts and records performed by independent auditors, acceptable toIDA, who will nudit these accounts in accordance with appropriate auditing principlesand to prepare a project completion report within six months of the credit closing date(para. 2.21).

3.3 Effectiveness of this credit will be subject to the following conditions:

(a) the signing of a contract with a long-term expert and hiring of basic support staff forproject coordination, including one bookkeeper, one secretary, one driver and onemessenger, in a manner satisfactory to IDA (para. 2.15);

(b) the designation of appropriate counterparts for activities to be started within 6 monthsof project effectiveness (para. 2.15); and

(c) the deposit in the avance de regie of at least US$15,000 equivalent for use asoperational counterpart funds for the first quarter (para. 2.17).

(d) the appointment of independent auditors, acceptable to IDA, who will audit the accountsand records of the project annually (para 2.21).

B. Recommendation

3.4 I am satisfied that the proposed Credit will comply with the Articles of Agreement ofthe Association and recommend that the Executive Directors approve the proposed Credit.

Lewis T. PrestonPresident

rage i O0 X

REPUBLIC OF MALI


MALI'S GEOWGICAL P ENTIAL

1. Mali occupies a favorable geological position in that it spans the ancient West Africanshield or craton. Cratons contain belts of mineralized volcanic-sedimentary rock infolded into thegranitic basement. Such belts occur in west and south Mali where gold is concentrated in theProterozoic (Birrimian) formations (see map--Geology). During the long history of these rocks, theyhave suffered an overprint of metamorphism, shearing, and quartz veining, which has had the effectof locally increasing the gold grade. Many gold deposits occur close to shear zones. In west Mali,these include Loulo, Sadiola, Seroto-Saboussire and Bakolobi, with associated gold alluvials beingnotable at Moralia and Sausanto (see map-Known Mineral Occurrences and Deposits). In southernMali, shear-related deposits occur at Syaina, Misseni, Nampala, and Darabougou. Gold concentrationis also enhanced in basal horizons of the weathered laterite, such as at Mali's only major mine,Syama.

2. Two additional belts of mineralized sedimentary rock in the east of the country arefavorable for gold deposits. A belt of Lower Proterozoic detrital rocks, resembling the gold- anddiamond-bearing Tarkwa formation of Ghana occurs in eastern Mali (Bourre inlier). Preliminarywork there has revealed the existence of manganese. uranium. coper. lead. and zin as well. ThePan-African belt (Upper Proterozoic), which borders the eastern margin of the craton in the L'Adrardes Iforas area, also carries gold and base metals.

3. Elsewhere in Africa, the ancient cratons, such as the Zaire, Tanzania, and KaapvaalCratons, are the sites of kimberlite intrusions, the primary source of diamonds. In the Kenidbaregion of western Mali, a cluster of approximately 20 kimberlite pipes has been discovered, althoughthese have not been proven to be sufficiently diamondiferous to be economically exploitable. Thereis little doubt that other clusters of kimberlites remain to be discovered in the craton further eastwithin Mali.

4. The occurrence of other minerals such as lead-zinc sulphides. barytes. uranium.phosphates. and fossil fuels (petroleum. gas. oil shale, and coal) in active and ancient rifts is welldocumented. The presence of rifted and similar fault-controlled basins in eastern Mali makes theseareas highly prospective. Within the Gao Graben (rift), commercial deposits of phosphates of Eoceneage have been proven at Tamaguilelt. Lithium (spodumene) also appears to be widespread. Inaddition, 1.2 billion tonnes of bauxite (aluminium) have been proven to exist in Mali but thecountry's landlocked situation makes transportation costs exorbitantly expensive and the deposit notcommercially viable.

5. Sedimentary basins normally have hydrocarbon potential; Mali has four such basins.While the major one, the (Palaeozoic Intercratonic) Taoudeni Basin, has been explored as a result ofa previous IDA-financed project that resulted in negative findings, the Gao Graben, the Nara Graben,and the Malian portion of the lullemeden Basin (which extends into Niger) have not been adequatelyassessed.

HISTORY OF GEOLOGICAL PROSPECTION IN MALI

EXEOJT34 DAlE PROSPECION CURRECN VALEJ VALUE INAGENCY AClVlrrY OF INVETMENT 1978 CAF

D.F.I.G. 1925-1960 Geological prospectionwith 1/500 000 mappingand some hydrogeologicaLwork 3,440

D.F.M.G. 1955 Geological prospectionin the region of Bougouni-Sflkasso 189

D.F.M.G. 19S5-56 Bauxite in Citadina 94D.F.M.G. 1957-58

D.F.M.G. 1958-59 Bauxite in West Bafing 55

D.F.M.G. 1959 Bauxite in Bafoulabe 18

D.F.M.G. 1953-57 Geological prospection of theupper Basin of Falt (in Malf)and survey of gold in Mddinandi 789

BUMIFOM 1957-58 Prospection in Adrar des Iforasand survey of gold-ore in Tessalitand In Darset 698,500 ff 250

9.F.M.G. 1958-60 Spodumene in Bougouni 75

D.F.M.G. 1958-59 Copper in Gourme 137

D.F.M.G. 1f55-57 Kimberlites in KOnidba 80,000,000 fCFA 650

SOIINIG e DFMG 1952-57 Manganese in Ansongo

BUMIFOM 1959 Phosphate in Tilemsf 35

D.F.M.G. 1959 Diaionds in Fal6md 28

BUMIFOM 19f9-60 Manganese in Ansongo 630,900 Ff 210

D.F.M.G. 1958-59 Copper-Iron in Nioro 231

B.R.G.M. 1960 GoLd in Bago6 105

B.R.G.M. 1960 Exploration on the Mandingue 41Plateau (Area of Go06)

B.R.G.M. 1961 Diamonds on the Mandingue Plateau 62

B.R.G.M. 1958-59 Copper-Iron in Nioro 259,000 ff 86

B.R.G.M.-Reynolds 1960 Bauxite in Citadina 277,000 FF 92

SAREPA 1959-60 Bauxite in West Mali 74,000,000 FCFA 497

C.E.A. 1957-60 Uranium In West Mali and inAdrar des Iforas

B.R.G.M. 1960-66 Prospections from REICHELT:geological and hydrogeologicalstudies in the Gourma Region 386.000 FF 85

SONAREM 1962-65 Phosphate and oit shale in thenorthern region of Gao 2S4,574,400 FCFA 660

SAPA 1962 Aeromagnetics on the Gao Grabenand West Basin of lullemedencarried out for the Mali MiningBureau (precursor of SONAREM) 182,575,876 fCfA 563

EXEWCING DAIE PROSPECnION CURRENT VALUE VALUE INAOENCY ACIlVlTY OF INVBSltiENT 1978 CFAF

SONAREM 1962-69 Oil prospection (Tamesna, 3,924,436,805 FCFA 9,870Graben Gao, Manaka, Taoudenmi)

SONAREM 1964 Aeromagnetics for gold anddiamonds 174,557,160 FCFA 465

SONAREN 1964-76 Gold and diamonds and findingof Kalanaore 6,081,369,339 FCFA 13,300

Selection Trust 1963-66 Dianonds in the Area of 200,000,000 FCfA 520Kenieba

SONAREN 1965-67 Iron prospection .Diamou,Bald, Djidian, Knifba) 151,221,475 FCFA 375

SONAREN 1964-65 Lithitn. in Bougouni 145,542,465 FCFA 3201971-72

SONAREM 1964-65 Salt in Taoudenni 12,199,600 FCFA 3

KLOCKNER 1968 Technical and economicalstudy of phosphate of Tilemsi

SONAREM 196? Studies on constructionmaterials 890,900,206 FCfA 1,450

SONAREN 197? Manganese in Ansongo 298,229,379 FCFA 298

Consortiun Uran. 1970 Attempt to search for uraniutmCKrupp-Saar Bergwerk)

Texaco 1970-75 Oil research in TaoudenniBasin 4,000,000,000 FCFA 5,600

U.R.G.M. (FAC) 1972-74 GeneraL prospection in thearea of BougounI-Sikasso;1st findings of Nickel andCopper in Kadiolo 2,000,000 FF 380

Chamo Complex 1972 Pre-feasibility for the alu-minum industry in Mali

Sun Oil 1972-75 Oil research (Tamesna) 600,000 USS 450

S.R.G.M. 1974-75 Copper in West Mali 1,465,000 FF 198

Murphy Oil 1973-78 Oil research (Graben Gao) 870,000 USS 600

B.R.G.M. 1976-77 Geological study with C.G.G.on the Iforas, 1977 mission onuLtra-basic metals 316,000 FF 35

B.R.G.M. 1975 Reexamination of the gold issuein Western Mali 310,000 FF 37

B.R.G.M. 1977-78 Study in the Eastern Gourma (manganeseAnsongo, basic metals) 742,000 FF 74

SONAREM 1977 Gold in Kalana 464,224,500 fCFA 510

SONAREM 1977 Gotd in Kalana 683,977,400 FCFA 683

P.N.C. 1975-78 Uranium in Adrar des Iforas 850,000,000 FCFAin 76-771,200,000,000 FCFAin 77-78 2,230

COGEMA 1977-78 Uranium in Central and Western 5,000,000 FFMali (previsions) 500

DAT1h PROSPECTION CURRENT VALUE VALUlE INACTIVIY OF INVESTI(ENT 1978 CFAF

IC) 1977-78 Iron in Djidian Kenidba 60,000,000 FCFA 80

IC) 1978 Iron in Bale 100,000,000 FCFA 100

1979 Phosphates Gao Graben

of 1977-82 Mapping; general prospecting in AdrarIfores

1978 Kangaba, Loulo, gold

1978 Kenieba, diamonds

1979 Oil, Gao graben

1979 Phosphates, Gao graben

1982-84 Carbonatites, I'Adrarrid)

a S.R. + 1988 Marble, diamonds

198? Kalana gold mine, abandoned

1983-91 Bagoe gold; S. Bougouni

(FED) 1987-89

I (FED) 1990- ) Gold geochemistry, exploration, mapping

1986-88 Massigui gold; mappping

1989- Gold in Kangaba and Kenieba areas

-X) * 1989- Gold, Kakadian, W. Mali

1990- Sadiola gold

1991-94 Bougouni gold, base metals, etc, mapping

* 1990- Gold in Narena

1990- Laterite gold geochemistry and petrology

1990- Gold in Kemieba-Dialafara, U. Mali

3) 1990- Laterite gold research

? 1989 Gold in Laulo area

pfama) + 1990- Gold mine Syama, S. Mali gold exploration and follow-up

1991- Katako area, S. Mali

19? Mineral water, Bamako

1992- Gold in Bakalobi - Mediandi area, U. Mali

rospecting permit issued

ining permit issued

ANNEX 3Page 1 of 5

REPUBLIC OF MALI

MINING SECTOR CAPACITY- BUILDING PROJECT

ARTISANAL GOLD MINING

1. Artisanal mining is a tradition that dates back to the 7th century A.D. during the Ghana,Mali, and Songhai Empires. Today, it is a complementary source of revenue for an estimated100,000 rural farmers who mine on a seasonal basis at more than 250 sites located in southern andwestern parts of the country: (a) the Bambouck area in the Kenieba zone (74 sites): and (b) theBourre area in the Kangaba (80 sites), Kalana-Yanfolila (84 sites), and Bagoe-K6koro (18 sites)zones.

2. Artisanal mining is decreed by the Government to be an occupation exercised onlyduring the dry season when agriculture is not productive. The decree, however, does not need to beenforced since the mining areas are found in the most fertile part of Malian territory and the minesare flooded in the rainy season. In Kenieba, western Mali, however, where hard rock mining 1/is very profitable, many miners work all year long.

3. Artisanal mining and ore processing are conducted in a very rudimentary and traditionalmanner resulting in low productivity. All except hard-rock miners in the Kenieba region use handpicks for extracting the ore (as seen in Figure 1). In the Kenieba region, miners have acquired moresophisticated equipment, not only because hard rock mining requires air hammers, but because themines fill up with water and need to be pumped constantly. The level of sophistication in mining,however, is not matched by ore processing. The investment required to systematically crush thequartz ore is very high, hence it is pounded by hand in metal mortar and pestles. The gold isseparated from the ore in calabasses (gourds), usirg water and hand action. In the other areas of thecountry, where placers are mined, miners continue to use rudimentary handtools to dig and crush theore. According to the DNGM's extension agents, the lack of equipment is the greatest hindrance tothe artisanal miner's livelihood. Air compressors and pumps are the most valuable pieces ofequipment to the miners but are not readily available for purchase. There exists an important excessdemand for mining equipment in the country.

4. Due to the poor mining practices, artisanal mining is dangerous and inefficient. Lackof knowledge about safe mine support techniques and gallery construction makes this occupationextremely dangerous. Although there are no records of the number of deaths due to cave-ins, it isreported to be high. The risk of suffocation is also high due to lack of proper ventilation equipment.At present, rats are used to determine the oxygen level in the mine. Underground artisanal gravelmining has been estimated to be less than 50% efficient because it leaves much gold in the groundin pillars of ore to support the galleries of underground mines. Gold separation is estimated to wastemore than 20% of the gold because the gold particles (placer mining) are too fine to be recuperated

I/ A mine that follows a vein of gold typically in quartz reefs as opposed to alluvial or eluvialmining (often called placer mining), where the gold has been washed away from theprimary reefs and has accumulated in current or ancient river beds.

e jQ **! j>.* '' v* ' * t3''

FIGURE I

ARTISANAL GOLD MINING

S fi 8,.,, '> .......... ?; ej...........IN MALI

- :i *,'0; J

A~~~~~~

Miner carrying ore out of Handtool used to mine and poundan alluvial gold mine in Kangaba. the gold ore before processing.

4- -

Separating the gold from the ore. A more sophisticatedhard rock mine in Keni6ba.

by the hand method or because some of the lower grade ore (hard rock mining) is not ground toextract the gold. At present, mercury and cyanide are not being used in the artisanal gold extractionprocess.

5. The social problems usually associated with "gold rush" type artisanal mining in othercountries seem to be minimal among the artisanal miners in Mali because they are well organizedunder their customary village structure and laws. Depending on the region, artisanal miners workindependently or in village groups. The traditional method of mining is in village groups led by theplacer chief (who is nominated by the village chief). In the Kenieba region, however, the traditionalways may be either different or changing, where it is not abnormal to find individual miners whohave explored alone and made a discovery. In the Kangaba region (southern Mali), however, a minerwill not venture to explore on her/his own. The miners follow a system of customary rulesadministered by local village chiefs and appointed arbitrators called tombolomas. Artisanalexploration is conducted under the supervision of a village elder and the process is shrouded inmysticism. Village groups will wander as far away as one day's walk from the village to prospectfor gold. Traditional methods of discovering sites involve detecting natural occurrences that indicatethe existence of gold, such as particular trees or rocks. On average, new finds are made every threeyears. During the rest of the time, artisanal miners return to old, less productive, sites. Once a siteis found, individuals dig pits, sometimes as close as 3 to 4 feet apart, aligned to follow the ancientriver bed. They pay the placer chief a fixed one-time fee per pit. If gold is found, the placer chiefreceives, in the name of the village, a higher fixed fee. Anyone can join a village group on their site,and help mine the gold they have found. No one can be refused, including migrant workers fromneighboring countries. This custom is a risk-sharing mechanism that ensures all miners some incomewhether or not they have made a discovery themselves.

6. The organization of mining is also well defined. The men extract the ore from the pitand the women separate and recover the gold. There are many different types of occupations in theartisanal mining industry, from the least well renumerated -- the young boy providing thecommunication link between the outside of the mine and the gold digger through a pipe, to the ownerof the mine (the one who has discovered the site and/or has organized the development of the pitmine) who receives the greatest share of the output. There are also the people who own theequipment and rent it out, the financier, the digger, the rope puller, the ore crusher, the goldseparators, etc... There is a predetermined pay for each job, which is a fixed proportion of the orethat is pulled out of the ground. For example, in some areas the financier receives one out of everythree bags of ore that is extracted.

7. The traditional method of payment is risky and requires that all of the people concernedremain around the mine to make sure that the bags they get in payment contain the most gold-bearingore. The gold digger, for example, is the first to be paid. He gets his pick of one piece of ore (asbig as he can carry out of the pit by hand), which he will make sure is the most laden with gold.The output per mine is variable, with some very rich ones producing as much as 30 grams or morea day and poor ones producing one gram per day. Grades can be extremely variable depending onthe history and location of the mine. Incomes from mining, averaged over the different regions andoccupations, are calculated very roughly to be approximately the equivlent of US$400 per worker perseason, or double the average annual per capita income in Mali.2/ In Kenieba, many women

2/ BUGECO, Etude de l'orpaillage au Mali. Burkina Faso. Niger et Senegal, March 1991.

become mine owners as they are often the ones that make the discoveries. Some amass enoughmoney to finance other mines. A mine in Kenieba requires approximately the equivalent ofUS$1,300 for start up costs.

8. The gold delivered to gold buyers is panned concentrate which is typically found to havea grade of 22.7 carat. Payment is made after weighing on a small double-pan balance. The priceis 2500 CFAF per gram of gold. This price does not vary much. It is approximately 300 to 350CFAF higher in Bamako, which accounts for the middlemen's fee and transport costs. Incomparison, the international gold market price was 3300 CFAF at the time these figures wererecorded. Hence, it appears that the artisanal gold miners are receiving a very competitive price,taking into account that the gold is not refined. The gold market is a free market and verycompetitive, even at the village level. The buyers who regularly visit the village are often agents oflarger gold merchants, both Malian and foreign. The gold may also be deposited with general villagemerchants in repayment for credit received, or hoarded. Gold is used as a store of wealth, to be usedfor special occasions such as weddings. Very little information is known about the amount ofhoarding or the amount of smuggling by gold buyers.

9. The commercialization chain is not well understood either. There are three major goldmerchants in Bamako who export gold legally. They finance gold buyers in secondary cities suchas Kayes in western Mali who finance gold buyers in the remote villages such as Kenieba. Thesystem is ruled by a strict code of ethics that allows gold buyers to travel in safety, and which hasestablished a high level of trust between buyer and seller, financier and agent.

10. Government extension agents in the artisanal mining areas are supportive of the minersand they command great respect. However, they do noi get much support from the DNGM andconsequently are not able to provide more than basic administrative support to the miners. Extensionagents need to provide much more support in the form of technical assistance on mine operation andmethods, and health and safety precautions for miners.

11. There is an important need for an organized local savings and credit mechanism in themining areas, such as local credit unions. One of the important reasons why many miners do nothave equipment is that they cannot save their earnings. There are several reasons for this. Theminer will receive credit from merchants for food and agricultural inputs. When gold is produced,the miner will deposit it with the merchant in payment for the goods received and, if any of itremains, for future goods. Since the miners do not keep records of the value of goods received, theminers can often be cheated by merchants. Another reason saving is difficult is because it iscustomary that, once miners make an important strike, they host a big feast where they usually spendmost of their earnings.

12. A very important barrier to development in this industry is the legal treatment ofartisanal mining in the mining code. It currently does not allow artisanal miners to apply for miningpermits or receive legal mining title to their discoveries. Hence the miners have no negotiableinstrument capable of providing them benefits from the discovery beyond the return they receive fromtheir manual labor in the mine. Since they don't have sufficient resources to develop a moresophisticated mine in cases where the discovery may warrant a mine larger than they can mine ontheir own, they cannot seek a buyer or joint venture partner as they cannot lay legal claim to theproperty. Moreover, they are liable to be expelled from the property when it is granted to a legalpermit holder. There has been one case, in western Mali, where artisanal miners have requested a

permit so as to operate with the help of foreign investors. They have not been able to receive thepermit and have not been able to continue with their plans for expansion and modernization.

REPUBLIC OF MALI


THE WORLD MARKET FOR GOLD AND DIAMONDS

1. Gold is one of the most actively traded commodities. The demand for gold is a deriveddemand, driven mainly by the demand for jewelry, coins, and medallions, and by its industrial andconmmercial use in electronics and dentistry. Gold is also hoarded, used as an investment and a hedgeagainst inflation. In 1990, the demand for gold in the ex-non-socialist world amounted to about 2,800tonnes. Table 1 below gives the breakdown of gold demand for the past five years and shows thatjewelry accounted for 61 % of gold demand on average. South Africa is the largest gold producer,accounting for between 35% and 67% of gold production in the last ten years, followed by the UnitedStates, the former Soviet Union, Australia, and Canada. Average gold prices in the last five yearshave dropped dramatically from a high of US $450/oz. in 1988 to a low of about US $350/oz., theprevailing gold price in 1992.

Table 1: DEMAND FOR GOLD IN THE EX-NON-SOCIALIST WORLD 1/(in tonnes)

Usage J 1986 1 1987 1 1988 1989 1990

Jewelry 1,154 1,197 1,515 1,874 1,986

Electronics 123 124 133 137 143

Official Sector 145 72 285 - 40

Bar Hoarding 214 259 461 515 236

Investment 127 231 - - 144

Other 468 323 258 268 252

Total 2,231 2,206 2,651 2,793 2,799]

Souce: Goldfields Mineral Sources Ltd, 1991.

2. The near-term outlook for the gold market hinges on many parameters, including theCommonwealth of Independent States' (CIS) economic problems and reserve position, and a decreasein worldwide gold exploration and production. A disaster in the CIS harvests would result in morefood imports and hence a need for foreign exchange, which might trigger a distress sale of gold.However, Russia is reported to have sold 500 tonnes of gold bullion in 1991 (about 28 percent of

I/ Formal statistics from this source do not include the ex-Eastem Bloc countries' demand forgold, possibly for lack of reliable data.

world production) and it is not believed to be in a position to do it again. Exploration for new goldmines has decreased because of low gold prices. At the prevailing gold price of US$350/oz., closeto 40% of South Africa's gold production is uneconomic, and new low-cost mines are not beingdeveloped rapidly enough to affect new mine supply. If gold prices were to increase markedly, mineproduction would respond, but with a significant lag. While forward sales tend to depress themarket, all the fundamentals (i.e. increasing jewelry use, mine closings and a relatively lowexploration effort) point to a firmness of the price. The latest World Bank (May 1992) gold priceprojections indicate that the price will be increasing from an average of US$345/oz. in 1992 toUS$393/oz. in 1995.

Diamonds

3. Since the early 1980s, rough diamond production has nearly doubled to reach more than100 million carats, as shown in Table 2. Diamonds are classified as either gems, near-gems, orindustrial diamonds. Gem diamonds are valued at roughly 10 times near-gems per carat, and near-gems are valued at roughly 10 times industrial diamonds per carat. Gems account for over 85% ofthe value of all diamonds produced (natural or synthetic) while they represent only 15% of the caratsproduced. Prices range from one dollar (US) per carat for industrial diamonds to hundreds ofthousands of dollars per carat for the highest quality gems.

Table 2: DEMAND AND SUPPLY OF GEM DIAMONDS(in mions of carats)

1980 1987 _1990 2000|est. est.

World Production 48.0 94.9 101.3 112.6of Rough Diamonds

Gem production 11.0 13.8 14.8 18.3

Demand for Jewelry 7.5 13.3 - -

Demand for Jewelry 18.6 30.0 43.0 46.9(in billions of US$)

CSO Sales of Rough 2.8 3.0 4.2 4.5Gem Diamonds(in billions of US$)

Sources: Anderson, Wilson & Paitnelr, Inc. De Beers,October 1991 and Johnson, Marriott and vonSaldem, "World Diamond Industry: 1970-2000,"Natural Resources Forum, May 1989.

4. The demand for gem diamonds depends greatly on jewelry demand, which amountedto 13.3 million carats or US$30 billion in 1987. The largest market is in the United States, which

accounted for 38% of world diamond jewelry sales in 1987, but the annual growth in that market,5%, is expected to be outpaced by the Asian market (expected 8% annual growth), where Japan leadswith a 17% share of the demand market.

5. Commercial deposits of diarnonds are found in 20 countries. Of these, only 5 countries-Australia, Botswana, South Africa, the former Soviet Union, and Zaire account for over 94% ofworld production in terms of volume. In terms of value, Botswana, South Africa and the formerSoviet Union are the most important producers. Synthetic diamonds have created competition in theindustrial diamond market and kept prices low. They now account for over 80% of the estimatedannual world production of approximately 250 million carats of industrial diamonds.

6. The diamond cartel is the most effective cartel in the minerals industry, controlling theprice and supply of diamonds. It is run by De Beers Consolidated Diamond Mines' Central SellingOrganisation (CSO), which is widely reported to control 80 - 85% of world rough gem diamondsales. This is based on production from its own mines (producing 8 million carats in 1990) andvoluntary sales agreements made with diamond-producing countries, including the former SovietUnion, Botswana, Zaire, Australia, Tanzania, Namibia, and South Africa. The market is assured formost any gem or near-gem diamond from the viewpoint of a producer since the CSO provides highand stable prices and will offer a steady demand for a producer who signs a marketing agreement.By all indications, diamond production is expected to increase in the medium term. In a competitivemarket, this would signal lower prices. However, the cartel's pricing strategy has resulted in risingdiamond prices in constant dollars over the long term. The cartel keeps a very large stockpile of gemdiamonds in order to adjust supply with demand of the many categories of diamonds and to stabilizeprices. Accordingly, diamond prices in real terms have increased between 1.6% and 2.5% per yearsince 1960 and are expected to continue to grow in this fashion.

REPUBLIC OF MALI


LEITER OF MINING SECTOR DEVELOPMENT POLICY

ANNEX 5Page 2 of 3

REPU3WLIOE U MALIUN PEUPLE - UN BUT - UNE FOI

LES MINISTRRS: - de 1'Economie et des Finances- du Budget- des Mines, de l'Hydrauliqueet de l'Energie

A Monsieur A.M. Lewis PRESTONPresident de la Banque MondialeWASHINGTON D.C.

OBJET: DWveloppement du Secteur Priv6au Mali - Projet d'Assistancedu Secteur Minier.

Monsieur le President,

Le Gouvernement de la Republique du Mali a entrepris, depuis 1984, un vasteprogramme de reformes economiques base essentiellement sur le Programmed'Ajustement Structurel (PAS). Ces reformes ont pour objectif de reduire lataille du secteur public et son domaine d'intervention a des activitesstrategiques en donnant une place de choix au secteur prive.

Cette volonte s'est manifestee dans le domaine minier par l'adoption enJuillet 1991 d'un nouveau code minier et d'une convention d'etablissementtype comportant des dispositions fiscales et douanieres incitatives pourencourager l'investissement prive national ou 6tranger.

Le Gouvernement a pris l'engagement ferme de mettre en application lesdispositions du code minier en vigueur en particulier les dispositionsfiscales qui y sont inclues pour attirer davantage de societes privees.

En ce qui concerne la societe de Gestion des mines d'or de Kalana(SOGEMORK), elle a ete dissoute et i'Etat a pris toutes les dispositionspour vendre la mine des que possible.

.Loa=J .,A. J

Le Gouvernement prend l'engagement de proceder dans l'ensemble du secteur minier(DNGM, PDRM, SONAREM) a la modernisation, le restructuration de l'administrationet a la reduction du personnel dans le cadre du present projet dont les conclusionsdetermineront les actions a entreprendre.

En ce qui concerne l'orpaillage, le Gouvernement s'engage & appliquer les disposi-tions du code minier afin de donner a toute personne ou entite, physique ou moralele possibilite d'acquerir un titre minier. Le present projet entreprendra uneetude tres approfondie de cette branche d'activite afin de deterniner la maniereet les procedures pour mettre cette politique en vigueur vis-A-vis des orpailleurs.

En esperant sur un prompt demarrage de ce projet capital pour le developpementdu secteur prive minier, nous vous prions de croire, Monsieur le President, Al'expression de notreZtres haute consideration.

Bamako, le 0 4 MAi 1992

c~ '~' ~TRE DES MINES, DE NI E DU LE MINISTRE DE7; ;c7\9~ 'QUE ET DE L'ECONOMIE ET DESLEN FN

LE SOCUE ~~~~~~assar T d~

REPUBLIC OF MALI


MALI'S MINING TAX REGIME

The fiscal regime fixed by the new code is described in detail in Figure 1. Thereremain some issues that . ill need to be adjusted, as stated in the main text. They are, among others:

(a) In comparison with those of other countries, the mining tax regime in Mali givesunecessary tax breaks--a 5-year tax holiday and 27.5% depletion allowance--while itovertaxes gold production through the extremely high combined royalty and productiontax rate;

(b) there are ambiguities that cannot be firmly clarified by the legal documents or theauthorities on such points as the dividend withholding tax exemption and thedetermination of accelerated depreciation rates; and

(c) the code is not internally consistent with respect to fiscal matters nor is it consistent andcross-referenced with the model agreement, its accompanying regulations, Mali'sgeneral tax code, the customs code, or the international agreements to which Mali is asignatory.

The proposed Project aims to bring these issues to light and help provide assistance tothe Government to improve the competitive position of its mining tax regime.

Figure 1: Features of Mining Tax Legislation in Mali

Income Tax ImpOt sur les Bnefices Industniels et Commerciaux (BIC):45% of gross income. Can be negotiated if profits arereinvested.

Exemptions/Deductions: All pre-production (non-capital) costs can be capitalized orExploration and amortized over 10 years or minelife, whichever is shorter.Development Allowance Accelerated amortization is allowed and each firm can

chose its own method, but this must be negotiated.

Capital Capital expenditures can be depreciated as stated above.Depreciation There is mention of depreciation schedules found in the

arr&tt interministdriel No. 236 MF-MDITP ofJanuary 23, 1975.

Depletion 27.5% of ex-mine value up to 50% of profit, whichAllowance needs to be spent on new investment within 5 years

otherwise added back to income after the 5-year period

Tax Holiday Tax holiday from the BIC through the fifth year ofproduction

Headquarters Can be deducted up to 2% of salesManagementFee

Interest Deduction Limits on interest deduction to Libor plus 2%

Deduction for All taxes and duties including the land rents areTaxes Paid deductible for income tax purposes

Deduction for All TA provided by the company will be deductible forTA Provided income tax purposes

Loss Carryover Losses may be carried over for 5 years.

Dividend Withholding Tax 9% for the first three years and 18% for the remainingyears. Neither the tax nor its exoneration is mentionedin the Mining Code or in the Model Agreement, but itexists in Mali's general tax code.

Free Equity for the 10% minimum, can vary to 20% maximum in miningGovernment code

Figure 1 (Continued) ]Royalty Ad valorem tax of 3%. No exemption allowed.

Production Tax Contribution pour Prestation de Services (CPS): 3% ofex-mine value-paid at the point of export (effectiveexport tax); is levied at 5% on imports (this tax wassupposed to be replaced by the TVA but it is still levied)No exemption allowed.

Import Duties Droits de Douane (customs duty)-5%Droit Fiscal d'Importations (import duty)--15% or 30% Prelevement Communautaire de Solidarite (PCS--communal charge)-1 %Import taxes on fuel used in the production of energy forthe mine and processing plant are exonerated.Exemption from all import duties until year 5 ofproduction. Exemption thereafter only for equipment,materials, and supplies used for modifying or extendingthe mine. Import duties on all non-mining relatedimports must be paid in foreign exchange.

Sales Tax Taxes sur la Valeur Ajout6e (IVA-Value added tax ongoods) of 10% or 17% depending on the sector. Miningsector falls under the 10% rate. This tax affects allimports as well as domestically bought goods. Exemptionthrough year 3 of production.Taxe sur les Prestations de Services (TPS-value addedtax on services)-7% or 15%. Choice between the tworates is negotiated by agreement. Exemption through year3 of production.Petroleum products sales tax is exempted on productsused for the production of energy (excludestransportation fuels).

License Fees Prospecting licenses and their renewal cost300,000 CFAF (US $1076) for both large and smallmines. Exploitation licenses cost 1 million CFAF (US$3588) for large mines and 700,000 CFAF (US $2511)for small mines.

Land Rental Exploration: 50 CFAF (US$0.18) per km2 per year forthe initial period; 100 CFAF (US$0.36) per km2 per yearfor the first renewal; 200 CFAF (US$0.72) per km2 peryear for the second renewal.Exploitation: 50,000 CFAF (US$179) per km2

REPUBLIC OF MALI

MINING SECTOR CAPACrIY-BUILING PROJECT

TRAINING PROGRAM

1. The Government of Mali has submitted a training plan (attached) which it intendsto implement within the scope of the proposed project. This training plan is appropriate to thegoals of the project and is addressed in the project description in para. 2.5.

2. Training will be provided on-the-job through the consulting contracts as well asthrough internships and courses, both in-country and abroad, organized by a consultingeducational institution or firm specializing in mining education. The following presents theservice delivery methods for the training of Malians in the mining sector.

3. The on-the-job training will include the following:

(a) The management consultancy will work with local officials on each of the policystudies, providing them with experience in techniques of economic, financiaLanthropological and organizational management work.

(b) The expert panelists, who will attend the workshops, will prepare short seminarsbefore the discussions take place on the policy options. These seminars will be opento all of the workshop attendees, a wide variety of Government officials and privateparticipants. The topics include: mine operational costs and economics, mine financeand taxation, environmental legislation and monitoring, organizational managementand various other areas of public poliy.

(c) Several lawyers from the MMHE, the Ministry of Economics and Finance, and theMinistry of the Budget will be trained in writing policy statements and organizing astrategy when working with the consultants on the drafting of the Policy and StrategyPaper and in drafting legal documents during the implementation of the legalreform.

(d) During the implementation of the institutional reform, the consultants will train thestaff of the new institutions on the use of new procedures of operation.

(e) Five geologists from the DNGM will be trained in geological data manipulation,GIS-based data synthesis and thematic mapping when they will work closely with thegeological data consultancy. They will be trained not only in Mali but also at theconsultants' headquarters, using the consultants' computer facilities and software.Other geologists will be trained in Mali to digitize geochemical data and producemineral anomaly maps

(f) Geologists will be trained as bibliographic data-entiy specialists to work on recordingthe documentation center's information and the DNGM staff will be trained to usethe information system set up at the documentation center.

(g) Two DNGM officials responsible for investment promotion will be trained on-the-job by the promotion consultants on how to understand the international mineralsmarkets by reading the industry journals; how to know prospective investors andtheir market strategies by reading their annual reports; how to approach and keepin contact with representatives of the industry-, and how to get information on theindustry and its players from key contacts. They will be accompanied by theconsultants to international mining conferences, learn how to make promotionalpresentations there, and how to folow up contacts made at the conferences.

4. A consulting educational institution or firm will organize a series of internships andcourses abroad and in-country for mining sector Government officials, including:

(a) A negotiation seminar will be held in-country for one week, once a year for twoconsecutive years. This seminar is meant to benefit the negotiations/mineralcommission that will be responsible for dealing with foreign investors and negotiatingexploration and exploitation agreements with them.

(b) Several managerial geologists from the DNGM will be sent on three-monthinternships in large mining companies to learn mine mment, metallurgy andtechnolg, and eninmental safeguards This internship program would beinitially organized by the consultants but will be later managed and directed by theDNGM so that it may continue past the life of the project.

(c) The consultants will organize another internship program that will place geologists,who will later be extension workers, into small mines in countries with small-scalemining such as Zimbabwe, Chile, or Mexico so that they may learn small-scale mineoperation, and appropriate minin and processing technology. This program wouldalso be managed in its later stages by the DNGM and sustained past the life of theproject.

(d) The consultants will identify and/or organize courses at a mining college or universityabroad on nl regplations, norm-tz4 an monitoring mine safety andsafeguarding mie worker health for the officials of the DNGM who will beresponsible for monitoring environment, health and safety in the mining sector andin mining operatios, metallury, mine and minin tco for thegeologists of the DNGM. These courses will be preceded by short-term languagetraining to prepare the trainees in cases where the courses are not being taught inFrench.

(e) The consultants will hire professors and experts to teach the trainers at the localcollege for geologists in Bamako so that they may create new courses in mineraleconomics and finance for officials concerned with mining taxation from the Ministryof Economy and Fmance, the Ministry of the Budget as well as the MMHE.Courses will also be taught at an appropriate institution on surveying techniques forarcheological sites found in mining areas.

MINISTERE DES KINE , DE REPUBLIQUE DU MALIL I MIRAUL!TWE T ul L'Ina;u± E Un Peuple - Un But * Une Foi

DIRECTION NATIONAL DE ANNEX 7LA GEOLOGIE ET DES MWNES Page 3 of 4

PROGRAM OS PORNATION DB IA

DXRM NWATIONALK DS LA GIOLOCIE ST DUS KOM

(R#publlque du WALI)

La Direc ion Nationale do ls GCologie et de Mines poseede

beaucoup do cadr competent. done les domaines de l'exploration Mini6re

et do la cartogr phis gibologlque de terrain, male dont lee connaiusances

dans d'autres dom ines restent limit#00,

A cot stfet, la Direction sQiamh^eto prnrcAdrnr A VO formitiono

compl4mentaires di sea agents 4gng 1am dnmu1nfv Rlvrnte-

- formati n dens lee proc6dures de n6gociations;

- formati n dan le domains "Business development";

- formati n dans le domaine do 1 gestion et 6conomie miniCre;

- formati n dans le domain. de 1'Economle ot finances de proJets

Miniers;

- formati dans le domaine di la promotion minibre;

- stage d formation pratique dane lee petite. mines d'or:

a en g6ologie et 6valuation des placers;

b en technique d'exploitation miniire & petite 6chelle;

- stage ot formation pratique on exploitation par mystUme de

Dragues pour le raitement des alluvions aurifi'res des lit. do coure

d'eau;

. stage de formation dan le traitement des d6chete d'orpaillago;- stage our inspectours de mines pour l'application de la

riglementation tou hant:

a) lenvironnement des secteurs miniers faisant l'objet

d'exploitation min 6r;

b) la eanti our lee sites en exploitation et lee placers;

c) la uacurit4 dan. lee mines et autour doe chsntiere

miniere;

- stage en artographie g6ologique aGeiotec d'erdinateur:

- stag. on raitement informatique des donn.es g6ochimiques;

- formation dans la domaine de Is conception et pratique de ' a

dou1mtn tr tt nn alitom tique;

- initiatio & I'informatique: saisie et encodage;

- exploitat on banques de donn6es informatiques;

- organisat on et goetion du laboratoire;

- perfectio inemnt dans lee techniques a&alytiques, absorption

atomique, ZCP, fusi n plombeuse, mise en solution des 6chantiallons;

- analysee p6troli4rea (ossais normalisA. et 6tabliesement do

bilan de sant6 moteur et industrie);

- maintenan des appareile de laboratoire.

ANNEX 8REPUBLIC OF MALI Page 1 of 2

MINING biiCl OR CAPACMTY-BUILDING PROJECT

PROJECT ACTIYITY TIMETABLE

ACTIVITY YEAR 1 YEAR 2 YEAR 3 YEAR 4

POLICY STUDIES1. Role of the State and

the Private Sector _2. Comparative Mming Costs _3. International Tax Comparison4. Artisanal/local mining5. Enviromment, Health and Safety -

6. Institutional Restructuring

WORKSHOPS1. General Mining Policy Issues2. International Tax Comparison v3. Development of Local Mining/

Mineral Rights for Artisanal Mining v4. Environment, Health and Safety v5. Institutional Restructuring v

POLICY AND STRATEGY PAPER1. Committee Meetings2. Defining a Consensus3. Consultation with IDA4. Drafting the Document -

5. Policy and Strategy Paper

INSITUTMONAL REFORM1. Agreement on Definition

of Reforms2. Consultation with IDA3. Reconfiguration of Institutions _4. Definition of now Procedures5. Implementation of New Procedures6. Reorganization of Personnel7. Retirement of Personnel8. Provision of new Budgets

LEGAL REFORM1. Agreement on Definition

of Revisions2. Consultation with IDA3. Drafting New Documents4. Signing Double Taxation Treaties5. New Texts Revised

Page 2 of 2PROJECT ACTIVITY TIMETABLE-lContinued)

ACTIVlTY YEAR I YEAR2 YEAR 3 YEAR4

PRIVATIZATION OF PEs1. Kalana Gold Mine

a. Due Diligence/Auditb. Promotion or bidding c. Sale and Grant of Mining Title ed. Retirement of Debt and Personnel

2. Tilemsi Phosphates3. Mali Marbres4. Eaux Min6rales du Mali

TRAINING1. Negotiations Seminar In-Country v v2. Intermships Abroad--Mine Mgmt.,

Metallurgy and Technology -

3. Internships Abroad--Small MineOperation and Technology -

4. Short-term courses Abroad5. Short Term Courses In-Country--

Economics/Finance of Projects _Env. Monitoring, Mine SafetySurveying ArcheologicalCultural Property - -

IMPROVEMENT OF GEOLOGICALINFORMATION1. Phase 1: Regional Data

Synthesis and GIS Mapping -

2. Phase 2: Country-wide Mapping -3. Improvement of Documentation

Center m -

INVESTMENT PROMOTION1. Preparation of Promotional

Materials2. Promoting Specific Properties3. Promotional Campaigns -4. Mining Conference in Mali5. Related Industries Study

REPUBLIC OF MALI


SUPERVISION PLAN

A. BANK SUPERVISION INPUT

1. Bank staff supervision will require the following supervision activities:

a) Two missions effected by the task manager and a mining specialist each year, consistingof a yearly program evaluation and planning for the next year, and one regularsupervision mission including possibly a consultant or a lawyer, depending on theprogress of the project. In addition to supervising compliance with covenants, themissions will be geared for particular purposes detailed with their estimated schedulein Table 1;

(b) Frequent communications with the project coordinator and regular supervisionrequirements to review progress reports, procurement and disbursement issues;

(c) Joint preparation with the Government of a mid-term review in September 1994; and

(d) Finalization of the Project Completion Report.

B. BORROWER'S CONTRIBUTION TO SUPERVISION

2. The Borrower and the MMHE (through the DNGM) will be responsible for thefollowing:

(a) To monitor and coordfiate the day to day progress of the project activities and liaisebetween the Govermnent of Mali and IDA on all matters concerning the project;

(b) To prepare progress reports twice yearly, at the end of January and July and a mid-temreview in September 1994 jo&ntly with IDA;

(c) To prepare a yearly activity plan and attend yearly progress review and project planningmeetings to discuss and agree with IDA on the future year's plan and budget;

(d) To have audits of accounts and records performed by independent auditors and submitthem to IDA no later than June 30 of each year;

(e) To coordinate and brief IDA supervision missions; and

(t) To prepare the Project Completion Report.

Table 1: IDA SUPERVISION MISSIONS

Approx. Purpose Skill Requirements Staff-date weeks

September Launching seminar; Supervision of Task manager 21992 accounting systems and of start-up Financial analyst 1

activities, including the privatization of Mining specialist 1Kalana l

June 1993 Attend workshops; Consult with policy Task manager 2planning committees and legal reform Lawyer 1consultants

September Hold annual planning meeting; Supervise Task manager 21993 the improvement of the geological data, Mining specialist 1

the documentation center, the startup ofthe training and promotional activities

January Consult on policy concensus and legal Task manager 21994 reforms; Attend negotiations seminar; Mining specialist 2

and Supervise the start-up of institutional Lawyer 1restructuring

September Hold annual planning meeting and hold Task manager 21994 mid-term review of project progress Mining specialist 2

Consulting geologist 3

January Supervise on-going training, geological Task manager 21995 work, institutional reform, and the Mining specialist 2

preparation of the mining conference l

September Hold annual planning meeting; Attend Task manager 21995 mining conference Mining specialist 1

January Supervise finalization of work on Task manager 21996 geological data and the documentation Mining specialist 2

center, and the establishment of in-housetraining and promotional capabilities

September Project completion meeting and Task manager 21996 production of project completion report Mining specialist 1

Page I of 3REPUBLIC OF MALI

MINING SECTOR CAPACITY BUILDING PROJECTIMPLEMENTATION CONTRACTS

LEVEL OF EFFORT(in person months)

Expatriates* Counterparts

1. MANAGEMENT CONSULTANCY CONTRACT

ANALYSIS OF POLICY ALTERNATIVESRole of the State/PS Study

Regulatory expert 1 3Comparative Cost Study

Mineral economist 2 3Comparative Tax Study

Tax expert 2 3Artisanal Miting Study

Anthropologist 6Mineral economist 2Mining lawyer 1Artisanal mining experts 24

Environment, Health and Safety StudyEnvironment and mining expert 2 12

Institutional Structure StudyManagement consultants 3 12

Technical Audits for PrisatizationsMineral economist 1Geologist/metallurgist 2 12

POLICY DELIBERATIONS/WORKSHOPSTax experts and industry reps 1 2Mining policy experts and industry reps 1 2Artisanal mining experts 1 2Environment and mining experts 1 2Workshop organization 4

POLICY FORMULATIONMineral economist 3 3

INSTITUTIONAL RESTRUCTURINGLong term management expert 20Negotiations procedure expert 3Local consultants 24

LEGISLATIVE REFORMMining/env/tax lawyer 6 12

TOTAL LEVEL OF EFFORT

ar s .;........ : . ... '

Note: * To be financed under the project by IDA.

ANNEX 10IMPLEMENTATION CONTRACTS (Continued) Page 2 of 3

LEVEL OF EFFORT(in perso mondhs)


2. GEOLOGICAL DATA SYNTHESIS AND MAPPINGPHASE 1Regional geological data synthesis (S & SW Mali)

Field geologists and geological data speci 72Subcontract to team of local geologists 180 *

Improvement of Documentation CenterLong-term data specialist/geologist 12Local consultants--data entry 120

PHASE 1 LEVEL OF EFFORT

PHASE 2 (1)Geological thematic mapping/data synthesis countrywide

Team of geological data experts 60One resident expert 24Trainees 120

PHASE 2 LEVEL OF EFFORT

3. INVESTMENT PROMOTIONPromotional materials

Promotional consultants 2 2Investment promotion campaign

Promotional consultants 15Public relations consultant 6Trainees 24

Drawing up agreements with investorsLawyers 5 5

Related industries promotionMineral economist 1 1Metallurgist 1 1


Note: e To be finaced under the project by DA.(1) Although Phase 2 is an extedsion of Phse 1, it will be contracted sepaately.

Its scope and extent of work will be dependet oan the ensults of Phase 1.

ANNEX 10IMPLEMENTATION CONTRACTS (Continued) Page 3 of 3

LEVEL OF EFFORT(in peaon mondS)


4. TRAIING MANAGEMENT CONTRACTIn-country seminars: economics and finance 20

of mining, negotiating skillsLocal professors/trainers 12Short term courses in mining abroad (mgmt time) 6Internships (mgmt time) 6


5. LONG-TERM ASSISTANCE TO MgMHE CONTRACTLong-term expert consultant 48 *(2)


=|X ;.~.__

OTHER CONTRACTSQuick response, short term consulting 12

Note: * To be finced under the project by IDA.(2) 4-yr cawutacy on a 1-yr renwable ccntmct

REPUBLIC OF MALI

MINNG SECTOR CAPACITY-BUILDING PROJECT

TERMS OF REFERENCE:

MANAGEMENT CONSULTANCY-POLICY AND STRATEGY COMPONENT

A. BACKGROUND

1. The Ministry of Mines, Hydraulics and Energy (MMHE), which is responsible for thesector through its Direction Nationale de la Geologie et des Mines (DNGM), is committed to takingvigorous actions to stimulate private investment in the sector, but it operates with no policies orstrategy to guide it. Mining in Mali is governed by a mining code initially adopted in 1970. It hasbeen revised and the changes have been promulgated in 1991 as part of a policy improvementpackage supported, under a structural adjustment program, by IDA and other donors. However, themining code still has a number of drawbacks, and will need some further adjustments.

2. The overall responsibility for the mining sector lies with the MMHE and fourinstitutions/public enterprises reporting to it. The institutional structure is characterized by entitiesthat tend to evolve with the flow of donor aid that finances exploration activity in the sector. Newentities have been created without dismantling old ones. The functions and responsibilities of theinstitutions overlap, and are redundant and outdated in the current environment of economicliberalization. In addition, conflicts of interest arise between administrative and operational functions,and procedures lack transparency and effectiveness. The staff is neither experienced in- nor equippedfor- promoting investment, monitoring mining activity, or providing local investors with technicalsupport.

3. The project would provide consultancy services to help the Government carry out thedesign and implementation of a mining sector policy and strategy; that is, to assist the Governmentto redefine its role in the sector, the role of foreign investment, and the role of the local miners andto ensure adequate environmental, health, and safety measures for the sector. This work would alsoassist the Government in defining a strategy consistent with its policy decisions. The strategy woulddetermine: (a) how and how much the Government will share in the wealth derived from mineralextraction; (b) the rights and obligations of foreign and local investors; and (c) how the Governmentwould safeguard that the rules of the game are upheld. The consultancy would also assist theGovernment in implementing the strategy through: (a) restructuring the institutions and theirprocedures; (b) improving the mining law and regulations; and (c) planning the privatization of statemining enterprises.

B. WORK PROGRAM

4. To implement the Policy and Strategy Component of the project, the consultants willperform the following tasks:

ANNEX IIPage 2 of 21

Analysis of Policy Alternatives. Six studies would be undertaken to provide thebackground information on policy alternatives and serve as a basis for policyformulation. They would also pay particular attention to identifying barriers to entryof private capital in the mining sector. The consultants will work with Maliancounterparts on all of the studies. The studies would involve the following topics: thepolicy and legislative implication of a reduced Government role and of a greater privatesector participation in mining; revision of the sector's institutional structure andprocedures; international mining cost competitiveness; international comparative miningtax regimes; artisanal mining/local industry development; and health, safety, and theenvironment.

(i) As a result of the roles of Government and private sector study, alternativepolicies and their attendant laws and regulations defining the relationshipbetween the state and the private sector in the business of mining wouldbe presented and assessed.

(ii) The second study would deal with restructuring the institutions of themining sector, in particular the MMHE, the DNGM, the PDRM, andSONAREM. The objective is to define a more efficient and less costlyinstitutional framework that can be more appropriate to the developmentof mining activities. It is particularly important to clearly define the roleof each institution, separating the different functions, and to define theirprocedures and norms to avoid conflicts of interest relating to:

e administration of mining permits and land management,* production and storage of geological information,* investment promotion,* provision of commercial drilling services,* managing the state's participation shares in joint ventures,* assisting and negotiating with mining investors, and* providing extension services to artisanal miners.

It would also be important to determine: an appropriate level for theoperating budgets and their sources of financing; the number andqualifications of personnel needed; and the relations among institutions.

(iii) As part of the international mining cost competitiveness study the coststructure of mining in Mali would be compared to that of other countriesin the Sahel region as well as to that of other gold mining countriesaround the world.

(iv) The international comparative tax study would involve the comparison ofthe fiscal regimes of countries offering investment opportunitiescomparable to those of Mali's mining sector. The effective tax burdencurrently implied by Mali's mining tax regime (for gold, diamonds, andbase metals) would be compared to that of the other countries, and thepros and cons of the tax instruments used would be analyzed. As part of

this study, the mining code's tax regime would be "harmonized" with thegeneral tax code, the customs code and any international commercialagreements to which Mali is a signatory.

(v) Work done under the artisanal mining/local industry development studywould assist in determining how a local small- and medium-scale goldmining industry can be developed on the basis of local investment funds,a free local mineral rights market, and artisanal miners' experience andgold discoveries. It would provide information on the traditional socio-economic structure of artisanal mining geared toward designing a legalentity that can preserve its important features and yet be recognized byMali's legal code. It would also research and propose the type of mineralrights that can be granted to this legal entity of local miners that will bothattract investment to those operations and be feasible from anadministrative and legal point of view.

(vi) The sixth study would involve the institution of environmental safeguardsand the development of environmental criteria for the mining sector. Thestudy would involve an assessment of the current mining activity's impacton the environment, on the health and security of the miners, and on thecountry's archeological cultural property. Recommendations would bemade on the types of environmental regulations and norms that should beput into effect and the appropriate methods for monitoring them. It wouldalso recommend a program of surveying and protection of thearcheological sites found in mining areas.

(b) Policy Deliberations. Following the completion of the studies, the consultants wouldorganize and conduct workshops where the main aspects of a mining policy and strategy(mainly the topics researched in the studies) are initially explained by experts in thefield to workshop attendees and then discussed. This process would approximate is thecustomary method of evaluating policy options and creating the consensus needed foreffective and lasting policy change within the Malian context, the itats gbneraux. Theworkshops would include expert panelists, such as representatives of different miningcompanies, geologists, mining lawyers and mineral economists from various miningcountries of the world, including other African countries with important miningexperience and IDA. Representatives of the concerned Ministries and interested localleaders would be invited to participate. The expert panelists, who will attend theworkshops, will prepare short seminars before the discussions take place on the policyoptions. These seminars will be open to all of the workshop attendees. A firstworkshop would concern the general issues regarding mining policy and stratey-therelative roles of the state, foreign investors, and the local industry; and the competitiveposition of Mali's mining sector vis-a-vis the international mining industry. In thesecond workshop, the mining taxation workshop, the results of the comparative taxstudy would be discussed with mining taxation experts. Issues of alternative taxationschemes, which affect foreign as well as local investors, would be discussed. The thirdworkshop would involve the development of artisanal mining as the basis for a localmining industry. It would be based on the results of the study and would involve adiscussion of the alternative ways to grant mineral rights to artisanal miners, the

ANNEX 11Page 4 of 21

creation of a local mining title market, and the alternative ways to attract localinvestment in mining. A fourth workshop would deal with mining-relatedenvironmental, health. and safety issues. The discussions would center on the measuresto be taken to minimize environmental damage, and health and safety risks of miners.Environmental experts and representatives of NGO's would be invited to discuss theresults of the study.

(c) Policy and Strategy Paper. The consultants would organize committees among theMMHE and the other government ministries concerned to bring the workshopdiscussions to fruition and to define a consensus. Each committee would be chargedwith detailing the strategy and implementation plan for one of the subjects debated inthe workshops. The consultants will help Government lawyers write a policy andstrategy paper, clearly defining the consensus reached in the process of formulatingmining sector policy and strategy at the workshops and subsequent government meetingsheld for that purpose. This activity would lay the foundation for the process oftranslating this statement into laws and regulations and to begin implementing thestrategy.

(d) Institutional Reform. The consultants would assist the MMHE in putting into placean appropriate structure for the sector institutions and in revising their procedures.Their work would be based on the Government's policy and strategy declaration and theresults of the institutional structure study, on which IDA will have been consulted. Theaim of the restructuring would be to increase the efficiency of the institutions byestablishing a clear mandate for each institution, reducing conflicts of interests andimproving the flow of information among and between the institutions. Thereorganization would touch on the various functions of the sector institutions: (a)commercial prospecting and drilling services; (b) investment promotion and analysis ofindustry trends; (c) project economics, finance and taxation; (d) legal services; (e)mining administration, including mining permit and land management; (f) extensionservices to artisanal miners; (g) geological survey activities; (h) safeguarding miners'health, mine safety, and the environment; and (i) negotiating with investors. Thisreorganization will also establish the size of each institution and determine which staffare retained and which are retrenched. It is also proposed that: (a) the institutions beprovided with an adequate operating budget; (b) a voluntary retirement scheme beadopted and funded for staff who cannot be absorbed in the new structure of theinstitutions; (c) a transparent and fair method of awarding mining permits be instituted;(d) a negotiating procedure be defined to simplify and standardize all negotiations withpotential mining investors; and (e) possibly that a "guichet unique" be instituted tosimplify the acquisition of exploration permits. It is extremely important that therestructuring strengthen the coordinating offices that determine the relationship betweenthe institutions concerned with the mining sector, in particular, the mining offices of theMinistry of the Budget and the Ministry of Economy and Finance, and the financeoffice of the MMHE.

(e) Privatization of Public Enterprises. In addition, the consultants would help theGovernment sell or close the Kalana mine (SOGEMORK) and the Tilemsi Phosphatemine (SEPT S.A.), and possibly the other holdings of SONAREM, i.e., Mali Marbresand Eaux Mindrales du Mali. The consultants would synthesize the existing information

and supplement it as needed so that a full technical and economic evaluation (a "duediligence" study) is available on the entities that are still in the Government's portfolio.The consultants would present detailed plans for either privatizing the mines completelyor closing down these entities, depending on the results of the audits.

(f) etal Reform. The mining code and model agreement would be modified as necessaryand environmental regulations prepared. The consultants would help the MMHElawyers modify the legislation, consistent with the policy and strategy that emerge.They would help draft whatever new or modified regulations would be needed to putinto effect the mining sector strategy including the decrees that specify the statutes ofthe sector's new institutions and their procedures. For example, the project would makeavailable resources to help draft appropriate environmental regulations, the normsagainst which mining operations would be monitored, and the decrees granting theinstitutions the power to implement environmental policy. The consultants would alsomake the mining code consistent and cross referenced with the model agreement, thecode's regulations, the general tax code, the customs code and any intemationalcommercial agreements entered into by Mali. In addition, the consultants would helpMali enter into double taxation treaties with the major investment exporting countriesand fomulate the proper documents to harmonize with those new commitments.

C. STAFFING AND LEVEL OF EFFORT REQUIREMENTS

5. To carry out the work the consultancy will be implemented by a team of suitablyqualified and experienced experts. The table below presents the personnel requirements to implementeach of the sub-components of the consultancy:

- w-Cl -

LEVEL OF EFFORT(in person months)

ANALYSIS OF POLICY ALTERNATIVESRole of the State/PS Study

Regulatory expert IComparative Cost Study

Mineral economist 2Comparative Tax Study

Tax expert 2Artisanal Mining Study

Anthropologist 6Mineral economist 2Mining lawyer 1

Environment, Health and Safety StudyEnvironment and mining expert 2

Institutional Structure StudyManagement consultants 3

Technical Audits for PrivatizationsMineral economist 1Geologist/metallurgist 2

POLICY DELIBERATIONS/WORKSHOPSTax experts and industry reps IMining policy experts and industry reps 1Artisanal mining experts 1Environment and mining experts 1

POLICY FORMULATIONMineral economist 3

NSTlTUsIIONAL RESTRUCTURINGLong term management expert 20Negotiations procedure expert 3

LEGISLATIVE REFORMMining/env/tax lawyer 6

TOTAL LEVEL OF EFFORT..............

.. .a.. ...

REPUBLIC OF MALI

MINING SECrOR CAPACITY-BUILDING PROJECr

TERMS OF REERENCE:

TRAINING MANAGEMENT CONSULTANCY

A. BACKGROUND

1. The Government of Mali has submitted a training plan which it intends to implementwithin the scope of the proposed project. The training will be managed by a consultancy whichwill determine the training needs of the officials of the Government of Mali and present a variedprogram of internships and courses, both in-country and abroad.

B. WORK PROGRAM

2. The following presents the types of training that should be included in the program:

(a) A negotiation seminar will be held in-country for one week, once a year for twoconsecutive years. This seminar is meant to benefit the negotiations/mineralcommission that will be responsible for dealing with foreign investors and negotiatingexploration and exploitation agreements with them.

(b) Several managerial geologists from the DNGM will be sent on three-monthinternships in large mining companies to learn mine manent metallurgy andtechnology, and environmental safeguard This internship program would beinitially organized by the consultants but will be later managed and directed by theDNGM so that it may continue past the life of the project.

(c) The consultants will organize another internship program that will place geologists,who will later be extension workers, into small mines in countries with small-scalemining such as Zimbabwe, Chile, or Mexico so that they may learn small-scale mineoperation, and appropriate mining and procssing technology. This program wouldalso be managed in its later stages by the DNGM and sustained past the life of theproject.

(d) The consultants will identify and/or organize courses at a mining college or universityabroad on environmental regulations, norm-setting and monitoring, mine safety andsfeguarding mine worker health for the officials of the DNGM who will beresponsible for monitoring environment, health and safety in the mining sector andin mining operations, metallurgy, mine m nt, and mining technoogy for thegeologists of the DNGM. These courses will be preceded by short-term languagetraining to prepare the trainees in cases where the courses are not being taught inFrench.

(e) The consultants will hire professors and experts to teach the trainers at the localcollege for geologists in Bamako so that they may create new courses in mineraleconomis and finance for officials concerned with mining taxation from the Ministryof Economy and Finance, the Ministry of the Budget as well as the MMHE.Courses will also be taught at an appropriate institution on surveying techniques forarcheological sites found in mining areas.

C ORGANIZATION, CAPABILIES AND DURATION

3. The consultants will determine the training needs, interview candidates for thetraining, set a schedule for the types of training that will be provided and to whom. They willpresent that schedule to IDA within the first three months of the contract and yearly thereaftersince they should progressively update the program schedule as the needs of the mining sectorinstitutions change. The consultants will arrange and be responsible for all travel, food andlodging as well as training arrangements and expenses of the trainees.

4. The consultants should be a consulting educational institution and/or firm specializingin mining education. It shou!d have accreditation as a place of higher learning and have anestablished record in organizing intermships with private mining companies. It should also offercourses in French.

5. The c/intract will be for three years and will involve a 3 person-year level of effort.

6. Aa important part of the consultants' obligations will be to transfer its capability toarrange intetnships and training to the MMHE and to ensure that the function is completelytransferred to the MMHE by the end of the contract.

REPUBLIC OF MAIJ


TERMS OF R RENCE.

NSTITUTIONAL RESTRUCTURING SI1UDY

A BACKGROUND

1. The Government of Mali, with the support of the World Bank (IDA), is planningto carry out a project to assist the country in developing its mining sector by attracting foreigninvestment and to develop a local industry made up of small and medium-scale mines. As partof the project, Mali will have to organize an adequate institutional framework to implement itssector policy and strategy.

2. The present institutional structure reflects the result of nearly thirty years of politicalevolution, from a state-controlled economy (60s-70s) to a more liberal one (late 80s). At eachstep, new entities have been created, without dismantling the old ones, or defining exactly theirrespective mandates. The present Mining Code, enacted in 1970 and revised in 1991, does notdelimit the respective objectives, functions and responsibilities of the different existing institutionsin the sector. This has resulted in a confused structure, characterized by overlapping fields ofactivities and unclear limits of responsibilities, generating, in some cases, conflicts of mandate.

B OBJECTIVE OF THE STUDY

3. To improve the management of the mining sector, the Malian Government intendsto hire consultants to undertake a study to design and plan the implementation of:

(a) an appropriate structure and mandate for the mining sector institutions,(b) the optimal level of staffing and budget,(c) a set of revised procedures to be used to carry out their mandates, in agreement

with the new economic policy of reduced interference of the state in the productionprocesses while taking on a more expanded promotional role, and

(d) a management information system geared to creating checks and balances betweenthe different institutions and creating transparency in their procedures.

4. The aim of restructuring would be to increase the capability of the institutions toregulate the sector in an efficient and effective manner, reducing conflicts of mandates andimproving the flow of information among and between the institutions so as to reduce thepossibility of rent-seeking by individual officials.

C SCOPE OF THE STUDY

5. Specifically, the principal product of the study will consist of two or more alternativeplans for restructuring the institutions, each including: (i) a description of the proposed newinstitutions in the mining sector; and (ii) an implementation plan to set up the new institutions,

their structure, their mandate and procedures. The following are the functions of the presentinstitutions that need to be taken into consideration:

* design and implementation of mining policy and related strategy,* design and implementation of environmental, health and safety norms and

regulations for the mining activity,* granting of mineral rights and keeping a cadastral system up to date,* development, analysis and storage of geological and mining information,* monitoring of work programs and compliance with regulations (legal and

fiscal),* management of the state's shares in mining ventures,* investment promotion and helping investors through the procedures of getting

mining permits,* recording and safeguarding of the archeological cultural property found on

mining sites,* negotiation of mining agreements with private investors,* provision of extension services to artisanal miners, and* provision of commercial drilling services.

6. The plans for restructuring the institutions wili include, for each alternative, thefollowing information:

(a) An overall description and justification for the proposed structure, including ageneral definition of the role of the state within the sector, including the commercialservices function;

(b) A description of the relationships between the different entities, within the sectoras well as outside (other ministries involved within the mining activity, universitiesor technical schools, private or non governmental associations, etc.);

(c) A proposed organization and description of objectives, mandates, functions andresponsibilities for each of the individual entities, including an organizational chart;

(d) A description of the internal functions, procedures and relationships within each ofthe individual organizations;

(e) A profile of key management positions for each new institution;

(f) Training requirements for key personnel;

(g) An aliocation of existing infrastructure, facilities, and equipment (including thatfound in Bamako, Kati, and in the field) between the new institutions, and a listingof the required equipment, particularly the necessary hardware and software for thefunctioning of the geo-data bank, the cadastral sys.em, and the managementinformation system; and

(h) An evaluation of necessary operating budgets (investments, salaries, operating costs),and identification of sources (in coordination with the Ministry of Budget) with

projections to the medium and to the long term. This should include a study of thesalary scales, and of the field allowance scheme (taking into account both nationaland international financing sources and projects).

Implementation plan:

(i) The required revisions to the legal framework necessary to implement the newstructure,

(j) The definition of interim steps to be taken by existing organizations to arrive at thenew structure: for example, possible merging of SONAREM, PDRM, and DNGM;location of office space; redistnbution of infrastructure and equipment; integrationof personnel, etc., and

(k) A plan for the reduction of personnel--relocation, voluntary retirement schemes, andother--a time schedule and the financial requirements and source of funds to payindemnities.

D. ORGANIZATION, WORK PROGRAM AND SCHEDULE

7. The consultants will work in close cooperation with all of the institutions in themining sector and report to the Project Coordinator in Mali.

8. The work program for the study will take 2 months to implement and consist of 3person-months of work, 2 of which will be carried out in Mali, for data gathering, evaluation andpresentation/discussion of a preliminary draft of the study. One month will then be devoted tothe final compilation and preparation of the final report. The study will be accomplished withthe help of Malian experts and government officials estimated to represent approximately 12person months.

EL REPORT

9. The final report will be presented in 5 copies, both in French and in English. It willinclude all of the points discussed in section C above, detailing the design of the new institutionand a plan for implementing the restructuring.

F. STAFFING

10. The team of consultants will include:* a coordinator of the study: A management consultant and economist,with international experience in management, consulting in Africa and publicadministration restructuring,* an information system expert, with intemational experience in miningcadastre and geodata bank management, and* a senior geologist/economist, with international experience in the fieldsof State mining sector institutions, as well as geological mapping, regionalexploration, mineral potential assessment, mining policy and developmentstrategies.

REPUBIJC OF MALI

MINING SECTOR CAPACiTY-BUILDING PROJECr

TERMS OF REFERENCE:

GEOLOGICAL DATA SYNTHESIS AND MAPPING

A. BACKGROUND

1. Considerable geological work has been undertaken in Mali confirming that Mali haspromising mineral potential. This potential, however, has not been developed because notenough exploration and development investment by the private sector has been forthcoming. Alarge amount of geological data has been generated but has not been properly organized,synthesized or made readily available to potential investors. Moreover, the Ministry of Mines,Hydraulics and Energy, which is responsible for the sector through its Direction Nationale de laGeoloyie et des Mines (DNGM) is committed to taking vigorous actions to stimulate privateinvestment in the sector, but it is not organized to actively promote mining to the private sector.The Mining Sector Capacity-Building Project would help the Govermment to attract local andforeign investment in mining by improving the existing geological information and strengtheningthe Government's institutional capacity in investment promotion, among its other activities.

2. A consultancy will be required to coordinate and implement this aspect of theproject's proposed technical assistance to the Government of Mali. It will be in charge of threemajor projects: geological synthesis and thematic mapping; the improvement and modernizationof the documentation center; and investment promotion.

3. It has been demonstrated that there is countrywide geoscience information for whichseveral data bases are available. Mali is a large country (1,241,000 km2 ) but less than 35% of itsterritory is covered by modern, detailed geological or photogeological maps. In western andsouthern Mali, in the highly potential Birrimian Belt covering tens of thousands of squarekilometers, geochemical data are available in addition to geologicail and geophysical data.

B. WORK PROGRAM

The work program will be organized into two Phases:Phase 1: GIS-based geological, geochemical, and geophysical data synthesis in western and

southern Mali; andPhase 2: Geological mapping using LANDSAT imagery and a country-wide integration of

tectonics and structure.

4. While Phase 2 will be an extension of Phase 1, it will be distinct and be contractedseparately. The scope and extent of Phase 2 will be dependent on the results of Phase 1.

5. Phase 1: GIS-Based Geological Geochemical and Geophysical Data Synthesis inWestern and Southern Mali GIS integrated mapping will be carried out in those areas delimitedby the Birrimian belt and intervening granitites on a consistent format synthesizing geological,

geochemical, mineral location, and geophysical data (magnetic, gravity, and radiometric). Mineralanomaly maps (10 sheets at 1:200,000 scale) will be produced in both digital and hard copy form.These will point out anomalies that will provide targets for investment promotion. This willinvolve:

(a) Digitizing and integrating existing databases, and compiling new ones for use in aGIS format;

(b) Filling in gaps in geochemical ground coverage in the two regions together withappropriate ground gravity, magnetic, electrical, and scintillometer measurements;

(c) Digitizing the geochemical analytical results; and

(d) Producing the GIS interpretive mineral anomaly maps together with sheet reportsoutlining relevant geological, geochemical, and geophysical features, and mineralpotential.

6. Phase 2: Country-wide Ihtegration of LANDSAT Imagery, Tectonis, and Structue(Geological Mapping). The basis for mineral exploration in any cotntry is the provision ofgeological maps. Most of Mali has been covered only at reconnaissance scales except in the west,and even there most of the mapping has been carried out using LANDSAT imagery. In this task,further geological mapping will be done to cover the country as a whole.

(a) The 55 LANDSAT images that cover Mali's territory will be purchased. Gravity,aeromagnetic, and other geophysical data will be retrieved from the DNGM.

(b) Appropriate spectral bands of the LANDSAT imagery and existing geologicalinformation, and geophysical data (gravity and aeromagnetic) will be integrated.Geophysical data will be digitized where necessary, converting the data into auniform database, thus permitting extrapolation and interpolation of structure andgeological boundaries and provinces.

(c) Geological thematic maps with gravity/aeromagnetic overlays (28 sheets at 1:500,000scale) will be produced in both digital and hard copy. Sheet descriptions will beprovided outlining pertinent structural features of economic geology.

(d) Geological ground-truth observations will be carried out in key areas so that imagefeatures can be checked against structure, geology, and mineralization. Gravity,magnetic, and electrical profiling will also be carried ouL

(e) Lithospheric thickness estimates will be generated from available gravity andtopographic data via isostatic response functions. Aeromagnetic data may alsofurther delineate the cratonic area. Lithospheric thickness maps (3 sheets at1:1,500,000 scale) will be produced to help delimit diamondiferous kimberliteprovinces.

7. The extent of additional mapping will be determined by the progress in Phase L

C QUALIFICATIONS

& This project will involve the services of a consulting firm or institution withappropriate facilities and qualified staff.

(a) Facility requirements:* digitizing facilities using digitizing tables with appropriate software and/or

scanning equipment with appropriate workstation environment and softwareto digitize color-coded and contour maps;

* appropriate computer facilities to process LANDSAT imagery with minimumdistortion. This includes the use of a high resolution graphics screen andappropriate software with a capability of making high-quality photo outputs;

* appropriate facilities to reprocess existing geophysical data (gravity,aeromagnetic as well as some radiometric). These facilities should include acolor workstation environment with appropriate software to reprocess leveland link geophysical survey data to a common datum;

* appropriate computer facilities and software to model crystal structure anddetermine lithospheric thickness estimates from available gravity, topographic,and aeromagnetic information;

* appropriate GIS software suitable for integrating the digital cartographic anddatabase information will be required;

* appropriate software/hardware facilities (or access to them) will also berequired to design and plot AO size color fill and black and white overlaymaps. The ability to super-impose different images (eg. physical data onLANDSAT) will be an advantage.

(b) Personnel Requirements:

* A team of experts made up of geologists and geophysicists and a remotesensing expert, who have extensive experience in mineral exploration andgeological data manipulation. The team will work both in Mali and abroadand train five Malian counterpart geologists on-the-job throughout theproject. This will involve sending them overseas to headquarters to take partin the work done outside of Mali.

* Two resident experts, geologists. They will have extensive experience inmineral exploration, experience in managing projects and living in Africa, andbe fluent in French. They will coordinate the project and liaise between thework done outside of Mali and the field work being undertaken in Mali. lnaddition, they will coordinate the work performed in Mali and manage theteam of Malian geologists.

* The field work and analyses in Mali are included as part of the consultingcontract and, bence, would be subcontracted to local competent entities.

'v. lDURA1UN

9. The Project would last 4 years and represent an 11 person-year level of effort, notincluding the field work that will be subcontracted out in Mali or the 5 Malian counterpartgeologists being trained.

* Phase 1 will last 3 years and involve hiring I resident expert for 3 years inMali and a team of experts to perform data synthesis and mapping both inMali and at headquarters.

* Phase 2 will last 2 years and involve hiring the team of experts for short termconsultancies in Mali, and data work and generation of products atheadquarters equivalent to 4 person-years. It will also involve the hiring of aresident expert in Mali for 2 years.

10. The long-term experts will have one-year renewable contracts which will be renewedupon satisfactory performance, not only in the geological work but in the transfer of know-howto Malian geologists.

REPUBLIC OF MALI

MINING SECrOR CAPACITY-BUILDING PROJECT

TERMS OF REFERENCE:

UPGRADING THE DOCUMENTATON CENTER

A. BACKGROUND

1. The DNGM's documentation center is the repository for all geological informationand maps generated by the DNGM itself as well as by private firms and donor aid agencies. Atpresent the center cannot accomodate investors' needs for information. The physical facilitiesare in need of repair, the data need to be organized and missing data must be retrieved. TheInternational Atomic Energy Agency (IAEA) is helping the Government organize the center'sinformation on uranium. The project will help the Government extend the methods developedby the LAEA to all other minerals and make limited improvements to the facilities of the centerso as to render it functional to potential investors in search of geological information and/ormaps.

B. WORK PROGRAM

2. The consultants will perform the following activities:

(a) Review the documentation center's organization and legal structure, its mandate andits authority over information. Suggest changes, as appropriate, and agree with theDNGM. Implement the changes by revising the appropriate documents, setting upnew procedures, and helping the DNGM hire new and/or train existing personnel.This task must be coordinated with the institutional restructuring activity;

(b) Perform a spacial analysis of the facilities (including the possibility of relocating fromBamako to Kati) and determine the extent and type of physical rehabilitation thatis required to make the center useful as a resource center and reading room to beused by the DNGM and private investors looking for information and maps. Thistask should also be coordinated with the institutional restructuring activity;

(c) Help the DNGM coordinate the physical rehabilitation of the center and organizethe physical location of the center's documents, files, maps, and other materials.Help the DNGM eliminate unnecessary items and acquire the materials andequipment needed to render the center functional, such as vertical map storagecabinets, proper lighting, etc...;

(d) Identify missing information and retrieve from in- and out-of-country sources, suchas SONAREM, UNDTCD, BRGM, and private companies that have explored inMali;

(e) Review the confidentiality of the DNGM's documents and the availability of data foraccess by local and foreign potential investors. If needed, revise the confidentialitypolicy;

(f) Review the computer facilities of the center which are reported to be old andincompatible with modem formats. Review the IAEA's proposal for purchasing newcomputer equipment as weli as the center's future computing needs. Help theDNGM acquire necessary equipment, as needed;

(g) In coordination with the IAEA expert, set up a system of codification of thedocuments and maps and help record the documents and information in acomputerzed data bank, using the system developed by the [AEA. If necessary,adapt the [AEA system to be applicable to gold and other minerals found in Mali.Train and use Malian data-entry specialists to complete the data bank. TrainDNGM staff on the use of the information system; and

(h) Help establish the center's links with the Pan African Network for a GeologicalInformation System (PANGIS) so that the center's documentation system can besustained in the future through those links.

C QUALIFICATIONS

3. The project would require:

* Initial short term consultancies by a team of management consultantsto organize the administrative and legal framework; an architect to handle thephysical renovation and spacial organization of the center; and a GIS analystto review and help acquire computer equipment and adapt the existingcomputer information system set up for uranium to the needs of the centerrelative to precious and base metals, diamonds and other materials includinghydrocarbons.

* A geologist experienced in bibliographic computer applications on a oneyear long-term assignment to: (a) implement the data organization; (b)provide the training and supervision of the bibliographic data entry; and (c)design the outputs of the system; and 2 short term assignments thereafter tohelp sustain the data entry and organization functions of the center. Thegeologist should have extensive experience in Africa and should speak Frenchfluently.

D. DURATION

4. The project would involve a 2 person-year effort of which 1 year will represent along-term assignment in Mali.

ANNEX 11Page 18 of 21

REPUBLIC OF MAUI

MINING SECfOR CAPACFHY-BUILDING PROJECI

TERMS OF RE NCE.

INVESIENT PROMOIMON

A. BACKGROUND

1. The structure and skills of Mali's mining institutions have been geared towardsexploration, having been developed until the present by donor-financed exploration programs.In keeping with the new philosophy of reduced Government intervention in production andexploration, the aim of this project is to shift some of the focus toward promotion of privatesector investment. In this respect, the Ministry of Mines, Hydraulics and Energy needs assistancein preparing promotional materials, promoting Mali's mining sector to foreign and local investors,organizing the sale of Government mining assets to the private sector, and in attractinginvestment in the related industries of gold refining and goldsmithing. The consultancy willprovide long- and short-term assistance in those areas.

B. WORK PROGRAM

2. Promotional Materials The consultancy will involve preparing promotional materialson the country as a whole and on prospective areas targeted by the geological data work beingexecuted under the project. Some promotional materials have been produced by the UNDP andshould be used in conjunction with new information being developed. The materials will begeared particularly to the investment promotion campaigns, both local and foreign, country-wideand targeted to particular prospective areas. Materials should also be developed for Government-held assets being privatized.

3. Promotonal Campaigns An international promotional campaign should be mountedto promote specific prospective areas, including presentations at international mining conferencesand visits to individual investors as well as some conferences abroad. When the geological datawork is completed and incorporated into promotional materials, the consultants will organize andhold an investor conference in Mali, which will include field trips to the prospective areas andpossibly an auction of exploration permits. The campaign should be carried out in closecoordination with two officials of the DNGM charged with investment promotion. Theconsultants will train these officials to understand the intemational minerals market, theprospective investors and their market strategies, how to approach and keep in contact withrepresentatives of the industry, and how to get information on the industry and its players.

4. The consultants will also help the DNGM to mount a campaign to interest localentrepreneurs in developing small- and medium-scale mines either alone or in joint venture withartisanal miners who have received mining permits for their discoveries and are interested indeveloping small modem mines. This campaign may also include contacting Malians fromoverseas who have expressed interest in investing in Mali

5. Training. The consultants will train, on-the-job, two DNGM officials responsible forinvestment promotion, on how to undentand the international minerals markets by reading theindustry journals; how to know prospectiv invtors and their market strategies by reading theirannual reports; how to approach and keep in contact with representatives of the industry, andhow to get information on the industly and its playeS from key contacts. They will accompanythe officials to intemational mining conferences, and teach them how to make promotionalpresentations there and how to follow up contacts made at the conferences.

6. Privatization of Government-held Asset The consultants will help theGovernment prepare and implement its privatization strategy with respect to Kalana and theholdings of SONAREM by either promoting the properties directly or preparing biddingdocuments which reflect the Government's priorities. Finally, the consultants will help theGovernment evaluate the different bids, arrange for financing and negotiate the deals.

7. Investment Prmotion in Related Industries. Gold mining offers the country a hostof related industries that can increase the value added that remains in the country. That is, thevalue of the output can be increased by performing more processing in the country. The twoimportant industries that can effect this transformation on gold are gold refining and goldsmithing.The consultants will investigate the status of these industries in Mali and prepare a plan forstimulating growth in these industries.

C QUALMICATIONS

8 The consultants will include a team of expert geologists, mineral economists, andmining lawyers who have extensive experience in marketing mining properties, privatization, andnegotiating mining deals between governments and foreign investors. The team leader shouldspeak fluent French and have working experience in West Africa. The international andpromotional campaigns will be carried out with the help of DNGM officials. The localpromotional campaign should be run with Malian counterparts from the DNGM and a localpublic relations consultant who has extensive knowledge of the business community in Mali. Thecontract will include all costs associated with the production of promotional materials and tripsto mining conferences for two Malian Government officials and other operational expenses.

D. DURATION

9. The project will last over a period of 4 years, comprising of 2 person years of short-term consultancies.

REPUBLIC OF MALI

MINING SECTOR CAPACRIY-BUIDING PROJECr

TERMS OF REFERENCE:

LONG-TERM EXPERT ASSISTANCE TO MMHE

A BACKGROUND

1. While the Ministry of Mines, Hydraulics and Energy (MMHE) has a large pool ofgeologists and other technicians, it lacks financial and organizational management skills to managethe activities of the proposed project. A long-term consultant will be hired to help the MMHEcoordinate the activities of the proposed project.

B. WORK PROGRAM

2. The consultant will work within the Ministry of Mines, Hydraulics and Energy tocoordinate and monitor the day-to-day activities of the project, including:

(a) providing assistance on all aspects of the procurement of consultant services,equipment and vehicles, and disbursement of the credit,

(b) coordinating with the IDA Task Manager in supervising the progress of the project,

(c) providing local support and monitoring the work done under the consultingcontracts,

(d) providing a liaison between the Government of Mali, the project and IDA: forexample, ensuring that all of the necessary clearances and approvals from all of thedifferent branches of the Malian Government are obtained in a timely manner, andproviding communications to and from the Government,

(e) receiving training in financial management of projects, as necessary,

(f) preparing all of the necessary supervision and project planning reports on behalf ofthe MMHE,

(g) holding the accounts and records of the project and having them audited byindependent auditors yearly on behalf of the MMHE, and

(h) preparing the annual review meeting, and coordinating and briefing IDA supervisionmissions.

C QUALIFICATIONS AND DURATION

3. The consultant should have worked in the mining sector in Mali for over three yearsin a managerial capacity. She/he should have knowledge of managing and satisfying reporting

requirements of donor aid funded projects. The candidate should be fluent in French and havea good working knowledge of English.

4. The consultancy will last 4 years and involve a 4 person-year level of effort in Mali.The contract will be a 1-year renewable contract to be renewed, subject to IDA's approval.

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