Note by the Centre for Science and Environment, based on extensive research published in its book, Rich Lands, Poor People: is ‘sustainable mining possible?
August 2010
In many mineral rich countries, wealth from mining is being channelised into local development and shared with local communities. The provision of benefit sharing and local area development in the proposed Mines and Minerals (Development and Regulation) Act, 2010, is, therefore, in line with the global best practices
It is now well recognised across the world that the wealth generated by the mining sector comes at a substantial development cost, along with environmental damages and economic exclusion of the marginalised. This has led to new thinking about ways in which mineral wealth can be converted into sustainable development benefits for local communities.
Many mineral rich countries have enacted legislations in which provision of benefit sharing with the local communities is explicitly stipulated. Many of these legislations are built around a comprehensive framework in which compensation, benefit sharing and community development plans are integrated and the roles of local communities, governments and mining companies are clearly delineated.
The proposal for benefit-sharing with the local community (26 per cent of profits), investments in CSR (3 per cent of the turnover) and legislating a Sustainable Development Framework in the proposed Mines and Minerals (Development and Regulation) Act, 2010, is, therefore, in line with the best practices being followed in the world. It is not new and many mineral rich countries (more mineral rich than India) have been following it for years without impacting the genuine profitability of mining companies.
Mineral rich countries like South Africa, Papua New Guinea, Namibia, Ghana, Peru have all enacted legislations to share profits from mining with the local communities.
The Development Forum model of Papua New Guinea (PNG)– a model to establish how the various stakeholders will share the benefits derived from the mining project, which is then recorded as a legal project agreement – is the oldest model of profit sharing with the local communities.
In PNG, all mining projects are mandated to come up with an agreement with all stakeholders and the agreement includes services and benefits that will be provided in the project’s affected area. These include the provision of community infrastructure and the sharing of project’s financial benefits. The PNG Mining Act dictates that owners of private land will receive 20 per cent of the total royalty paid for mining leases on the land. In practice, the amount payable to landowners can exceed 20 per cent, such as in the case of the OK Tedi and Lihir mines, which pay 50 per cent. Mining companies pay the landowners directly and pay the balance to the State; the State, of course, monitors and endorses the landowners’ share for correctness. Finally, the Development Forum in PNG has a firm legal basis. The contracts between the various stakeholders are legally enforceable. Consequently, the forum creates a base for trust and confidence, which is essential to rebuild communities and enhance economic activity.
South Africa has introduced an alternative revenue distribution system with its Mineral and Petroleum Resources Development Act (MPRDA). This Act includes provisions that give local communities powers to benefit substantially from mining projects. They are given the option to obtain a “preferent right” over land registered in their name, which effectively gives them negotiation powers equal to those of the owners of the mineral rights. A preferential right permits the holder to either prospect or mine for the benefit of the community or, alternatively, to lease such rights to a mining company for a fixed consideration payable directly to the community. The charter of the MPRDA gives preferential treatment, in accordance with black economic empowerment, in mine ownership, procurement, employment and community inclusion into mine decision-making structures.
In Peru, provincial and local community discontent with perceived non-participation in the benefits of mining led to political pressure that culminated in a royalty tax being imposed in 2004 (Law of Mining Royalty). The royalty is to be paid to the Central government and then distributed as follows: 20 per cent to the district municipalities where the exploitation takes place (50 per cent of that goes to the communities where the mine is located); 20 per cent to the provincial municipalities where the exploitation takes place; 15 per cent to the regional government; and five per cent to the national universities of the region where the mine is located.
Similarly, in Canada’s North-West Territories, there is a legal provision to share royalty with the local community. Tanzania has a similar, provision but instead of being directly paid to the community, it is routed via the government. Ghana has created a mineral development fund to return part of the income from royalties to communities directly affected by mining. Proceeds are then shared among the local government authority, landowners and communities that are adversely affected by mining. Namibia has also created a Mineral Development Fund (MDF), but its expenditure is more broadly targeted than in Ghana.
In India, presently there is no mechanism of benefit sharing and this has led to mineral rich areas becoming the poorest areas of the country. The provision of benefit sharing in the proposed Mines and Minerals (Development and Regulation) Act, 2010, is therefore a proactive step and must be supported by all including the mining industry. After all, it is proactive provisions like these that will ultimately enable mining companies to obtain the ‘social license to operate’.
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