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Carole Biau
Director, Center for Financial Markets
Africa and Capital Markets and Emerging and Frontier Markets and Global Economy and Regional Economics
Carole Biau is a director at the Milken Institute Center for Financial Markets, where she launched and now leads the IFC-Milken Institute Capital Markets Training Program. Hosted at the George Washington University, this program offers an accredited certificate in capital markets development to mid-career policymakers from developing countries. So far, 39...
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Shared-Use Infrastructure: Attaining Win-Win Solutions for Mining Companies, Governments and Communities

By: Carole Biau
January 22, 2016
   
   

In 2015, coal prices fell 32 percent, iron ore dropped 24 percent and copper plunged 25 percent. Zinc declined 30 percent and aluminium, 19 percent. In many cases, reactions by both governments and the industry have been hasty and counter-productive. Some governments, alarmed by rising budget deficits, have attempted to increase mineral royalties levied on mining companies. This sparked heated controversy in Zambia, for example, where copper accounts for more than 70 percent of export earnings and 12 percent of government revenue. Even when legitimate, such moves require careful consultation and phasing. Otherwise, governments risk accelerating mine closures and investment flows out of their country. Meanwhile, some companies have expanded production significantly in the face of the falling prices, hoping to reduce their cost per unit produced through sheer scale. Canada, for instance, exported a higher dollar value of metals and minerals in 2015 than in 2014, despite lower prices. In aggregate, however, this extra output adds to surpluses on the global market and drives prices even lower.

Short-term measures of this sort strain relationships between host governments and mining companies, and create tension among the companies themselves. All parties must consider alternative, longer-term solutions to reduce production costs while keeping investors on the ground and revenue flowing. Solutions should also facilitate the broader objective of economic diversification, thereby reducing countries’ reliance on primary commodities for export revenues and expanding their domestic tax and employment base.

The shared use of mining infrastructure is a potential win-win for governments and private industry alike. Sharing essential infrastructure such as roads, railways and port facilities could reduce companies’ costs significantly. An estimated 60 percent to 80 percent of the costs of new mining projects relate to infrastructure. Sir Paul Collier, senior fellow at the Milken Institute and professor of economics and public policy at Oxford University, and Glen Ireland, a founding partner at Infrashare Partners, discuss this approach in a Milken Institute white paper released today. (The authors also summarize these issues in this month’s Mining Journal.)

A shared-use strategy can do more than simply help cut capital and operating costs. If done right, it also has the potential to:

  • Mitigate environmental and social impacts caused by duplicating large-scale infrastructure; 
  • Safeguard public revenue by ensuring that governments and prospective investors have access to infrastructure built by “first-mover” companies;
  • Foster economic diversification and reduce host-country dependence on mining by linking critical infrastructure to traditionally underserved, sectors such as agribusiness, passenger services and tourism. 

Granted, achieving workable shared-use infrastructure solutions is a challenge. Due to the range of competing interests, several commentators have deemed the idea “too good to be true.” This exposes an unmet need for clear, mutually recognized standards which governments, investors and development finance institutions (DFIs) can incorporate into mining concessions, project loan agreements and mineral rights tender documentation. To move the debate beyond wishful thinking, the Milken Institute is launching an initiative to develop clear, carefully considered principles to guide the shared use of mining infrastructure.

Established principles can exert a powerful, positive influence. More than 80 financial institutions signed on to the Equator Principles, which seek to ensure that major projects follow environmental and social best practices. Together, these institutions account for over 70 percent of international project-finance debt in emerging markets. To take another example, the OECD Guidelines for Multinational Enterprises hold all multinationals headquartered in the 46 signatory countries to voluntary standards of responsible conduct. These companies have $22.6 trillion invested around the world. 

We invite you to join us in the search for regulatory, financial and contractual standards that will enable win-win solutions for mining infrastructure. We are holding a first workshop to canvass stakeholder views on Feb.10 in Cape Town. This coincides with the 2016 Investing in African Mining Indaba conference. Participation in this workshop is limited to a select number of investors, policymakers, regulators and civil society organizations, so please contact me (cbiau@milkeninstitute.org) for details. You are also encouraged to comment on our white paper. These are the first steps in a year-round endeavor, so please join the dialogue.

Declining mineral and metal prices probably will be with us for a while, and policies emphasizing broad-based growth and economic diversification will remain imperative — for developed and developing economies alike. This is a timely opportunity to collectively shape the “rules of the game” for a more sustainable, cost-effective and development-friendly global mining industry.

Comments

  • Very important issue in Africa whose development is raw material driven. How to reduce this constraint? How to become less coal and oil dependent? Mining infrastructure should be part of an overall economic investment strategy. Hopefully the CPT workshop will address this issue.
    We count on Milken expertise and networks.

    Posted by Daniel B., 02/04/2016 (3 years ago)


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