Mining: Reining in Cowboy Mining Companies

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Reining in Cowboy Mining Companies

By Amanda Wilson

WASHINGTON, Sep 26, 2011 (IPS) - In the seemingly lawless global free-for-all to lay claim to reserves of the world's most precious remaining natural resources, experts warn that "cowboy mining companies" are plundering the earth's riches and leaving little left for the rest.

But laws do exist, and better governance of what is known in technical terms as "resource extraction" can help prevent such abuses, according to University of Oxford economics professor Paul Collier.

Collier, who spoke at World Bank meetings here last week at a panel session hosted by the Revenue Watch Institute (RWI), said civil society has a key role to play.

RWI is a policy organisation that advises governments and citizen groups on "effective and sustainable" resource use.

In a new book edited together with Anthony Venables, "Plundered Nations? Successes and Failures in Natural Resource Extraction", Colliers argues three factors are necessary to make sure everyone gets a fair share of the resource pie.

The book features case studies of eight resource-rich countries and presents analyses of the countries' use of their resources according to certain indicators. The countries include Cameroon, Chile, Iran, Kazakhstan, Malaysia, Nigeria, Russia and Zambia.

According to the authors, two of the countries, Chile and Malaysia, have a successful history of natural resource use, while the other countries largely fell victim to the so-called "resource curse".

"Actually the reason why success is so rare is that actually there is a whole chain of decisions, all of which have to go right in order to harvest the enormous opportunity of natural assets," they say.

Malaysia, for example, reduced poverty from 50 percent of the population in 1970 to less than four percent by 2007 because of successful natural resource extraction governance.

"That could have been resource-rich Africa," Collier said.

According to Collier, that chain includes three important steps necessary for avoid plunder. According to a "first discover, then capture" mantra, Collier said governments should first obtain geological information in order to know the extent and value of their countries' natural resources before ever letting companies break ground to dig.

Then, governments should retain a "substantial" portion of companies' profits from resources through taxes and, lastly, should use that money for public projects that support livelihoods and diversify economies.

"The few can steal from the many or the present can expropriate what should belong to the future, but both plunder," Collier said. "Natural assets should benefit all future generations."

Karin Lissakers, executive director of RWI, said weak legal codes in the area of resource extraction often prevent countries from benefiting from their natural resources.

"Public audits, conflict of interest laws, companies being required to sign a pledge to meet standards...these are the kinds of things you can do to increase the revenue stream," Lissakers said, adding that contracts should be made public.

She said that Guinea, an African country rich in copper, approved a new mining code in early September, with policy help from RWI. The new mining code in Guinea doubled taxation on iron ore extraction, which will mean an addition three billion dollars per year in tax revenue for a country where, according to Think Africa Press, 47 percent of the population lives on less than one dollar per day.

According to Collier, for a resource extraction law to be effective, government approval is just the first step. He said the law also needs a "critical mass of citizens who know what that rule is for and scrutinise it to make sure what is needed is being done".

One tool meant to enhance the ease of public oversight, supporters say, is the Extractive Industries Transparency Initiative (EITI). EITI is a set of principles under which extraction companies disclose how much they pay governments in taxes and other payments, and governments publish what they receive from companies.

EITI is funded in part by the United Nations and the World Bank and supported by non-governmental, civil society organisations such as the Open Society Foundation, Publish What You Pay International, and Oxfam.

Last week in New York at the launch of a major global government transparency initiative, the Open Government Partnership (OGP), U.S. President Barack Obama announced that the U.S. would implement EITI, which was first put forward in 2002. Thirty five-countries are now implementing EITI and 12 countries have achieved EITI Compliant status.

Another such initiative is the Natural Resource Charter, a proposed blueprint for better managing how profits from the world's resources are divvied up. The charter offers concrete guidelines for how revenues from resources should be invested, with an aim toward more widespread social and economic benefit.

"For a government that wants to get it right, this is a how-to guide," Collier said. "For the citizens who are afraid their nation is going to be plundered, this is what you need to look at."

Not all efforts to rein in rogue mining companies have met with success. A bill that would have held Canadian mining companies, many of which are based in Toronto, accountable to foreign practices guidelines, failed to pass in the Canadian parliament last year. Bill C-300 lost by a narrow, six vote margin of 140 to 134.

Collier said the scenario could have turned out differently if there had been more pressure from Canadian citizens for parliamentarians to pass the law. Lissakers said company opposition to the law was probably a factor in its failure.

"There are some real cowboy mining companies in Canada," Lissakers said, adding that Canada was objecting to including some resource extraction governance provisions in a major report from the Group of Twenty (G20), a group of the world's most influential economies. "There is quite a lot of work to be done."