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.