Mining industry: Treasure or trouble?

Mining industry: Treasure or trouble?

Emil Salim, Former State Minister of Environment

A few years ago in the annual meeting of the World Bank Group
(WBG), its President, James Wolfensohn, agreed with civil society
to review the WBG role in extractive industries (oil, gas and
mining) to alleviate poverty through sustainable development.

Since September 2001 the World Bank has set up an Extractive
Industries Review Team to hold consultations with stakeholders
consisting of governments, corporations and civil societies.
Consultation is focused on understanding the views of the
respective stakeholders on the WBG role in extractive industries
and identifying areas of consensus and dissenting views in this
regard. On the basis of this understanding the WBG will then make
recommendations on its future policies, programs, projects and
processes in this sector.

Oil, gas, coal and mining activity will continue to grow in
next decades to meet increasing demand. This will lead to more
exploration and exploitation of mining resources in developing
countries and countries in transition. Most of these activities
take place in remote areas with fragile ecosystems and homeland
of indigenous communities.

Governments of these countries consider this as an opportunity
to attract extractive industries to promote development.
Businesses are attracted by the possibility to obtain profits
from this venture.

The WBG is supporting governments to reform national laws,
policies and institutions to promote investment and development
of extractive industries in developing countries. Through capital
investment of international finance corporations (IFC), and risk
financing through multilateral investment guarantee agency
(MIGA), both as part of WBG family have significantly affected
extractive industries development in developing countries over
the last fifteen years.

Close to 4 billion people live today in 56 countries with
mining resources. Among them 1.5 billion people live on less than
US$ 2 a day. In provinces of Indonesia where oil, gas, coal and
mining industries are operating, a large proportion of people are
still poor, such as in Aceh, Riau, South Sumatra, East Kalimantan
or Papua.

In addition to poverty, concern has also been raised by civil
societies all over the world with regard to negative impacts of
extractive industries on environment. In Indonesia, the remains
of open pit mining in Singkep, Bangka, Biliton and Sawahlunto
have left dirty footprints in our ecological systems.

While there are views and opinions that exploitation of oil,
gas, coal and mining resources can contribute positively to
poverty eradication and sustainable development, there are also
numerous studies that point in the opposite direction. It is not
surprising that WBG deems it important to post the question in
one of the many documents: "Treasure or Trouble? Mining in
Developing Countries."

To resolve this issue, since last year regional consultations
have been held on extractive industries for Latin America and the
Caribbean, Eastern Europe and Central Asia and Africa. End of
April in Bali, the Asia Pacific Consultation will be held.

This Consultation is a follow up of the World Summit on
Sustainable Development, Johannesburg last September that has
placed poverty eradication in the mainstream of sustainable
development.

Sustainable development embraces economic, social and
environmental sustainability. The economy needs to sustain growth
while safeguarding nature's life support system and ensuring
poverty eradication.

The basic question for this regional consultation is whether
oil, gas and mining industries can promote sustainable
development and whether they are compatible with WBG's mission of
poverty eradication through sustainable development. Concrete
examples of WBG projects operating in Asia-Pacific will be
raised, such as the MIGA guarantee Lihir gold mine project in
Papua New Guinea, and IFC participation in SEPON mine project in
Lao.

Problems in oil, gas and mining industries have a technical
dimension, as how to cope with disposal of mining waste in the
sea, artisanal and small scale mining, issues of air pollution
affecting climate change. And issues of governance, corruption,
transparency, social and environmental accountability and revenue
management.

Oil, gas and mining are industries that provide huge sums of
earnings, for the corporations, governments and public at large.
However it also leaves behind a deep footprint on environmental
degradation and social ills. If we are marching forward in the
21st century on the path of sustainable development, it is of
crucial importance not to repeat mistakes of conventional
development.

It is necessary to explore new venues and new paradigms to put
extractive industries fully on efforts of poverty eradication
while sustaining the environment. This is the challenge not only
faced by the World Bank Group but also by the government and
industries.

A review of the World Bank's role in extractive industries
will be conducted in the Asia Pacific Consultation Workshop in
Bali, held on April 26-30 by the Extractive Industries Review
Team.

2. 7korea24
2 x 28

Privatization battle is
retreating in South Korea

Privatization encourages competition, which in turn ensures
that higher-quality goods and services are provided at lower
costs. Another benefit is that it also helps spread share
ownership widely among the population.

Therefore, privatization appealed to the previous Kim Dae-jung
administration, which sought to enhance efficiency and reduce
waste in corporate management, in both the private and public
sector, after the 1997-98 financial crisis. It selected 12
government-controlled businesses for privatization and sold off
eight, including telecommunication services.

Now four monopoly utilities - rail, electricity, gas and
residential heating - wait to be digested. But the government is
misguided for backpedaling on privatization since President Roh
Moo-hyun's February inauguration.

The government retreated dramatically when it decided to withdraw
its plan to sell off rail operations to private business concerns
earlier this week. During a face-off with the labor union of the
Korea National Railroad, it agreed to seek an alternative to
privatization and build a social consensus before launching a new
cost-cutting program.

Putting on a bold face, however, the government maintained that
it was an accomplishment to settle a labor dispute through
dialogue and compromise, thus forestalling enormous losses that a
strike can inflict.

Few would debate the government's claim that dispute settlement
has prevented the transportation of passengers and goods - when
the economy is slumping - from becoming painfully disrupted.
However, the government has paid a high price, severely damaging
its own credibility in the eyes of both domestic and foreign
investors.

In a public statement issued after a cabinet meeting last week,
the government said it would be illegal for the union to strike
to protest the privatization plan. It threatened to prosecute
union leaders and demand compensation for torts if they held a
strike illegally.

The administration said that it would continue to own, maintain
and repair railroad facilities and establish a state enterprise
to restructure their operations, instead of privatizing them
immediately. This "phased privatization" would prevent sudden job
losses that an immediate change in ownership would cause.

But before the ink dried on its statement, the government had to
abandon this moderate plan when it gave in to the union's demands
and agreed to seek an alternative. Now the government has no one
else to blame if its determination to privatize other monopoly
utilities is questioned.

Privatization is suggested to plug the holes in the KNR's
management. It has been losing 600 billion won to 700 billion won
annually. If nothing is done to improve its leadership, the
accumulated loss, it is estimated, could top 50 trillion won in
2020.

Alarmed by this depressing prospect, the government managed to
extract a major concession from the union last year - an
agreement for joint efforts to promote privatization and attain
reduced costs.

In return for the concession, the government opted for the idea
of establishing a state-owned corporation as a vehicle that would
smooth the transition to complete private ownership. It also
agreed to a union request that workers dismissed for unlawful
labor activities be reinstated.

Such a compromise looked inevitable. Nevertheless, the change
in policy elicited criticism from a sizable number of management
experts, who called for an immediate sell-off. They said there
was no reason to delay a plan to restructure the hemorrhaging
rail business.

Nothing has since changed to justify a decision to cancel
privatization. Instead, the government will have the same problem
of making up for huge losses with taxpayers' money in the years
ahead as it did in the past. And no viable alternative to
privatization has been found in making railways cut costs now and
earn profits later in competition against buses, trucks and
jetliners.

It is most unfortunate that the incumbent administration is
not as resolute in privatizing state enterprises as its
predecessor. This fact raises the suspicion that it regards
privatization as more harmful than beneficial because it can
concentrate economic power in the hands of a select few and raise
utilities charges.

Such a suspicion is warranted by remarks made by a leading
member of the presidential transition team, who voiced concerns
about the prospect of monopoly utilities being controlled by
private businesses shortly before Roh took office. A final
confirmation will come when the administration submits a bill on
the restructuring of the Korea National Railroad by June as it
promised.