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Extractive IndustriesThe Management of Resources as a Driver of Sustainable Development$

Tony Addison and Alan Roe

Print publication date: 2018

Print ISBN-13: 9780198817369

Published to Oxford Scholarship Online: November 2018

DOI: 10.1093/oso/9780198817369.001.0001

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How Do We Legislate for Improved Community Development?

How Do We Legislate for Improved Community Development?

Chapter:
(p.673) 32 How Do We Legislate for Improved Community Development?
Source:
Extractive Industries
Author(s):

James M. Otto

Publisher:
Oxford University Press
DOI:10.1093/oso/9780198817369.003.0032

Abstract and Keywords

An extractive mining minerals project has a finite lifespan—the project ceases once the minerals have been depleted. Governments have choices in what they want to achieve during a project’s life and have a variety of regulatory and other tools by which to achieve their objectives. Historically, the primary objective is to obtain fiscal revenues from an extractive project and to use larger projects as a means to build infrastructure to benefit society. More recently, governments are looking to achieve benefits for local communities not only in the near term while operations are ongoing, but also on a sustainable basis. Many large projects implement corporate social responsibility programmes, which often include benefits for nearby communities. Increasingly, governments are mandating in legislation that extractive industry projects must have programmes for community development rather than relying on voluntary efforts.

Keywords:   extractive mining, government regulatory tools, fiscal revenues, corporate social responsibility, local communities, community development

32.1 Challenges of Non-renewable Resources-led Development

It is the nature of non-renewable natural resources that an extractive minerals project has a finite lifespan and that once the minerals have been depleted, the project will cease operation. Governments have choices in deciding what they want to achieve from the extraction of minerals during a project’s life and have a variety of regulatory and other tools by which to achieve their objectives. Historically, the primary objective of many governments was to obtain fiscal revenues from an extractive project and to use larger projects as a means to build infrastructure that will benefit society. More recently, governments are additionally looking to achieve benefits for local communities both in the near term while operations are ongoing but also on a sustainable basis. According to MMSD:

At the local level, sustainable development is about meeting locally defined social, environmental, and economic goals over the long term. Interactions between the mine and community should add to the physical, financial, human, and information resources available—not detract from them. The challenge is to ensure that the effects of interactions are regarded as positive by those affected locally as well as by the promoters of the project, and that communities develop in ways that are consistent with their own vision. This may be realized through, for example, the provision of social services, income, or skills development.

(MMSD 2002: 198)

Many large projects implement corporate social responsibility (CSR) programmes which often include benefits for nearby communities. In some (p.674) cases, such programmes can include binding contracts with communities or more informal written approaches, such as a non-enforceable memorandum of understanding. Increasingly, governments are mandating in legislation that extractive industry projects must have programmes for community development rather than relying on voluntary efforts.

One means that regulators have to achieve benefits at the community level is to require extractive companies to enter into community development agreements (CDAs). Not all governments that require community development programmes require CDAs; however, CDAs can be a useful approach that provides both the project and the community with a mutually agreed means to define the attributes of project-assisted development in a way that can help to manage expectations. This chapter looks at one aspect of CDAs—the legislation that can be used to regulate CDA requirements. The concept of a CDA, a contract between an economic enterprise and a community, can be applied to both the mining and oil and gas sectors, but at the present time, the use of CDAs for mining projects is becoming commonplace although they are rarely used in the petroleum sector. Here, the emphasis is on mining-sector CDA legislation.

The term ‘community development agreement’ is sometimes used in a broad sense but for the purposes of this chapter, a CDA is narrowly defined as ‘a legally binding contract between the holder of an authorization granting the rights to extract minerals, and a community (or communities) that will be affected by the exercise of those rights, that addresses matters concerning community development’.

32.2 Respective Roles of Government and Investors in Community Development

The respective roles of government and extractive companies with regard to community development are complex and vary considerably from nation to nation and from project to project. There is a history of mines contributing to community development in ways ranging from the building of company towns, to guaranteeing infrastructure bonds, to paying locally imposed property taxes, to building schools and health clinics, to providing financing and training for local enterprises, and to supporting local sourcing of goods, services, and employees. There has long been a dialogue within the political science field about whether community development should be government- or private-sector-led.1 At the heart of the argument is the issue (p.675) of sustainability: the miner will eventually depart when the mine closes but the government will remain and thus their respective planning horizons and long-term objectives may be quite different. Also, miners are expert at mining, while governments are experienced in developing health, education, and community infrastructure. Historically, miners have tended to regard local communities from the viewpoint of how the community can serve the mine—for example, as a source of employees and housing—rather than how the mine can serve the community, sometimes resulting in non-sustainable enclave-type development. Regardless of the academic argument about whether community development should be government- or miner-led, in practice, most communities do not care, as long as beneficial development takes place:

Few areas present a greater challenge than the relationship between mining companies and local communities.…Widespread community demands for relevant, direct, and sustained benefits from mineral wealth are a relatively recent phenomenon, so frequently neither government institutions nor companies or communities themselves have been properly equipped to respond to them. In areas of weak governance, communities often turn to the operating companies, which have found themselves providing development services to obtain or to maintain their social licence to operate. A new relationship is beginning to emerge, based on recognition of the rights of communities and the need for community participation in decision-making. Moreover, new initiatives seek to avoid the company assuming the role and responsibilities of government, but rather focus on improving the capacity of local government and other local institutions to deliver mine-derived benefits over the long term.

(MMSD 2002: xix)

The legal system can be used to define the respective roles of extractive companies in the community development process. Requiring CDAs in fragile states may have particular significance. If the central government is unable or unwilling to fund development at the community level, a CDA may provide development opportunities otherwise unobtainable. A challenge in drafting CDA legislation is how to balance the respective development roles of government and the miner. Ideally, development efforts under a CDA will act to complement government-led development, not displace it.

32.3 Voluntary vs Mandatory Approaches

If a government desires that mining companies play a role in community development, it may decide to allow that role to be defined voluntarily by the (p.676) miner or may impose mandatory requirements. In the last two decades there have been many mining projects worldwide that have been unable to move from discovery to development because of community opposition. Oftentimes, even if a project is built, it may attract the future ire of communities if their current and evolving expectations are not met. This has led many of the world’s mining companies to place an increased emphasis on CSR programmes including community development. Additionally, mining-sector organizations such as the ICMM have done work to help define community development good practice. In 2003, the council committed its members to a sustainable development framework of ten principles including ‘9. Contribute to the social, economic, and institutional development of the communities in which we operate’.2

In support of this commitment the organization has since prepared a number of supporting ‘tools’ for optional use by its members including: Community Development Toolkit (ICMM 2005, 2012) and Partnerships for Development Toolkit (ICMM 2011). The first of these is discussed and assessed in detail in Macdonald (2017).

Relying on companies to voluntarily assist in community development is risky—not all firms are good corporate citizens and not all are competent to know how to offer such assistance. For this and other reasons, an increasing number of governments are now mandating the use of CDAs or other community development tools in their mining legislation rather than relying simply on voluntary approaches. While many companies baulk at the concept of increased regulation rather than being able to achieve desired outcomes according to their own means, most would agree that CDAs, whether required by legislation or not, can be a useful tool to manage community expectations.

The use of community development statutory requirements does not preclude voluntary programmes—they are not mutually exclusive. Hybrid approaches combining mandated elements and voluntary activities are not uncommon.3 In nations where the mining or environmental law requires community development, that requirement can form the core of or complement a CSR programme. Likewise, law-drafters can utilize concepts originating in voluntary initiatives. For example, when drafting the model CDA regulations published by the World Bank (Otto 2010), the author took into account the ICMM Community Development Toolkit and examined many existing ‘voluntary’ CDAs. An attribute of a good law is being able to achieve a degree of consensus between policy makers, regulators, beneficiaries, and those that will be regulated on issues such as objectives, processes, and good practice.

(p.677) 32.3.1 Legal Mandates: Acts of Law and State Mining Agreements

Governments have two main ways in which to legally impose community development requirements on the private sector—state agreements and statutes. A state agreement is a contractual agreement between the owner of the rights of extraction and the government and sets out the mutually agreed obligations and rights of the parties. During the post-colonial era up through the 1990s, such agreements for individual large projects were commonplace throughout the developing world, but in recent times, their use has been reduced as laws relating to mining (mining law, environmental law, labour law, income tax law, etc.) generally have improved, thereby negating the need for project-specific agreements. Provisions in agreements can find their way into statutes over time. For example, Guinea developed a model mining agreement in 2006 that contained extensive CDA provisions. It introduced a new mining law in 2011 containing similar CDA requirements, obviating the need to address that subject in future agreements (AMLA n.d.a). Like in Guinea, other nations have now addressed community development requirements in their mining laws. According to Schott et al. (2015):4 ‘Since the mid-1980s thirty-two countries have adopted community development provisions in mining codes, with nine countries currently in the process’ (Schott et al. 2015).

Table 32.1 lists countries whose mining law (or model agreement) requires some sort of community development action. The list includes a wide variety of community development related requirements, not all of which include a CDA as defined for the purposes of this chapter. For readers interested in a short description of the specific community development requirement in most of the jurisdictions listed in the table, the author recommends Penagos et al. (2014). For the African nations listed in Table 32.1, their mining laws, including the community development requirements, are accessible through the African Mining Legislation Atlas (AMLA n.d.b).

Table 32.1. Countries where community development is required by law or agreement

Country

Country

Afghanistan

Autonomous Region of Bougainville

Burkina Faso (pending)

Canada (several subnational jurisdictions)

Central African Republic

China

Colombia

Democratic Republic of Congo

Ecuador

Equatorial Guinea

Eritrea

Ethiopia

Fiji (pending)

Ghana

Guatemala

Guinea

India

Indonesia

Kazakhstan

Kenya

Kyrgyzstan

Laos

Liberia

Mali

Malawi (pending)

Mongolia

Mozambique

Myanmar (pending)

Namibia

Nicaragua

Niger

Nigeria

Oman

Papua New Guinea

Peru

Philippines

Sierra Leone

South Africa

South Sudan

Togo

Vietnam

Yemen

Zimbabwe

Source: derived from Dupuy (2014), Penagos et al. (2014), and various CDA-related projects executed by the author.

32.3.2 World Bank Model CDA Regulations and Later Improvements

Given the growing interest in CDAs and their application to extractive projects, in 2010 the World Bank launched a multi-year specialized research project intended to investigate the nature and usage of CDAs and to provide associated information and guidance to governments, industry, communities, and other concerned stakeholders. The work was conducted in several stages. In the initial stage, a review was done of existing CDA agreements and community development extractive industries initiatives worldwide. A conceptual framework was developed to identify key building blocks to (p.678) enable extractive-led community development and that framework was then used to draft preliminary model CDA regulations and guidelines suitable for use with a mining law. The second phase of the project involved extensive consultations with a broad spectrum of stakeholders including reviews of the draft regulations and guidelines. Following this preliminary work, field research was commissioned to assess the community development practice in selected countries and to further evaluate the results of the preliminary phases. Finally, research was done on the processes and frameworks used to negotiate, structure, and implement CDAs. The project culminated with the publication of a major multi-volume sourcebook on CDAs (World Bank 2012).5 For readers who are interested in CDAs, the sourcebook remains one of the most comprehensive sources of information and case studies on the subject.

After publication of the World Bank’s CDA sourcebook, the author of this chapter undertook a number of assignments to assist nations to draft or amend their mining laws. Based on the author’s subsequent experience in drafting mining laws and regulations for nations in the African, Asian, and Pacific regions, including provisions mandating CDAs, he updated and (p.679) improved the model CDA mining regulations, and they have been published by the United Nations.6 The model provisions include both articles for use in the primary mining law as well as detailed regulations. While the model provisions provide a ‘good practice’ basis for legislating CDAs, they are intended only as a starting point for policy makers and legislators. The development of actual mining law provisions and regulations must be crafted to meet unique jurisdictional needs and requirements.

32.4 Legislated Requirements

32.4.1 What Is a CDA?

There are many forms of agreements that aim to provide a formal or semi-formal linkage between an extractive industry project and nearby communities. Such agreements go by many names such as: impact and benefit agreements; access and benefits agreements; indigenous land use agreements; partnering agreements; contracts with the community; landowner agreements; shared responsibilities agreements; community joint venture agreements; empowerment agreements; benefits sharing agreements, and so forth. Some of these agreements are intended as an informal, non-binding means by which the signatories mutually express their views on certain topics, such as in a memorandum of understanding. Others take the form of a legally binding contract or even a treaty. Today, the use of various forms of agreements between extractive companies and communities is becoming widespread, but CDA use is not yet considered standard practice in many nations. However, in some nations, such as Canada, their use is nearly universal for large extractive projects.7 Some agreements are held confidentially, but many are available on publicly accessible databases.8 As was indicated at the beginning, for the purposes of this chapter regarding CDA legislation, a CDA means a legally binding contract between the holder of an authorization granting the rights to extract minerals and a community (or communities) that will be affected by the exercise of those rights that addresses matters concerning community development.

(p.680) One of the advantages of a legislated approach to CDA requirements, versus just allowing a miner to determine whether one is required and what it should contain, is that it avoids problems that arise when every mine is handled on an ad hoc basis. For example, over the past decade in the Solomon Islands, companies exploring for gold, nickel, and other minerals began entering into ad hoc land access agreements, which differed greatly. When it became known to communities that some agreements were substantially more beneficial than others, the viability of some agreements became questionable and pressure was brought on politicians and local leaders to ensure that all communities got a fair deal. As a result, the government requested assistance to draft a standardized model land access agreement that would be suitable for introduction as a requirement under its mining regulations. O’Faircheallaigh has observed:

Agreements between commercial developers and local communities are becoming more common in virtually all parts of the world, from inner city America to remote mining regions. The need for such ‘community development agreements’ (CDAs) is especially acute in mining, where environmental and social costs are often borne by communities while project benefits accrue in national capitals and global financial centres, leading to conflict between local people and miners.

(O’Faircheallaigh 2012: 222)

It is important not to confuse community development requirements, CDA or otherwise, with impact compensation—these are two separate concepts. Most mining laws require that if a mine causes damage to personal or community property or property rights, the owner of that property or right must be compensated by the miner. Compensation payments are different from an investment by the miner in community development. A compensation payment is usually a one-time payment for a real property loss, while CDA funding requirements can be ongoing and seek to achieve development objectives (for example, human capital enhancement, microbusiness creation, etc.).

32.4.2 Parties to a CDA

If a CDA is required by law, who should be a party to the agreement? Obviously, the community and the company holding the extraction rights should be parties, but what is the role of district, provincial, and national government? In many situations, it makes sense for the community’s local government (for example, an elected city council, tribal elders, or mayor’s office) to be a party to the agreement, but where such a government is absent or not respected or accepted by the community, it can be a challenge to identify who is best positioned to represent the community. This is a challenge for policy makers and law-drafters particularly in nations that have a combination of (p.681) elected and traditional leaders. One approach is to require in the law that a CDA be ratified by the community according to such process and in such manner as is customary for such community to make decisions on matters affecting the community as a whole. This approach allows flexibility from one locale to another. In a legislated approach, it can be made clear who the CDA parties are, avoiding the uncertainty that may arise where a purely miner-led voluntary approach is allowed.

The role of higher levels of government can be to act as the regulator of the CDA mandate rather than be a party to it. For example, a ministry of mines can be given the role of: ensuring that all miners who are required to have CDAs do indeed have them; ensuring that a CDA addresses all mandatory subject matter; monitoring a CDA to make sure it is being implemented; taking appropriate actions (such as levying fines or suspension or cancellation of rights) if implementation is not proceeding as required, and so forth. The responsible ministry can also act as a repository of CDAs, provide information about CDA requirements tailored for use by communities (such as maintaining a website), and make compliance reports available to the public.

32.4.3 Participatory Processes: Meeting the Needs of Disparate Communities

The process by which CDAs are negotiated and agreed can be complicated. One of the benefits of a legislated CDA approach is that a clear but flexible roadmap can be provided to guide the parties with regard to the CDA negotiation process. This can be particularly helpful when there are a number of communities involved that may have distinct cultural differences and varying expectations. The use of sociologists, mediators, and others who specialize in local-level negotiations can be an important part of the CDA process.9 An agreement that constitutes a great fit for one community may be inappropriate for another.

There is a real possibility that a community may not want a mine nearby, especially if mine development requires a resettlement process. Its future vision may emphasize preservation of the status quo or slow improvements that will not endanger social value systems. Evans has summarized the differing objectives that sometimes occur between well-intentioned miners and local communities:

Today, mining companies are clamoring to take the lead in defining sustainability, offering schools, and hospitals and jobs in return for the mineral wealth, supposedly extracted with minimal long-term environmental harm. However, for (p.682) communities facing the bulldozer, the concept of and the reality of ‘sustainable mining’ is not necessarily the same.

(Evans et al. 2001: 250)

In most nations, minerals belong to the state and it is often in the state’s interest to see its mineral resources developed for the good of all its citizens, even if a local community opposes mining. Participatory processes where a community is hostile to a mine can thwart the dialogue necessary to create a CDA. A mining law that requires CDAs needs to address this situation, either by embracing the concept of prior informed consent or by providing an exemption from a CDA requirement in certain situations.

32.4.4 Community Contract Negotiating Capacity

As defined in this chapter, a CDA is a legally binding contract. A basic principle underlying contract law is that a contract is a legally binding agreement between two or more competent and consenting parties. Gibson and O’Faircheallaigh have discerned:

Once a decision to negotiate is made, a community and its leaders need to undertake a hard-headed assessment of their position in relation to the company, the government authorities that will approve or reject the project, and the wider economic and political context.

(Gibson and O’Faircheallaigh 2010: 11)

However, many communities lack the capacity and competency effectively to negotiate or understand the ramifications of terms in a community development agreement. Lacking such capacity, they are vulnerable to agreeing to terms that may not be in their long-term best interest. Over time, a lop-sided agreement risks becoming obsolete when the community realizes that the agreement is suboptimal. For this reason, some CDA legislation requires that CDAs address key mandatory issues and that the community either be provided with experienced counsel or be assisted to develop its own negotiating capacity. For example Section 123 (10) of the mining law of the Autonomous Region of Bougainville requires:

If in the opinion of the Secretary a qualified community that is entitled to a community development agreement lacks the capacity to effectively negotiate a community development agreement, the holder of a large-scale mining lease shall assist to build that capacity including the provision of such funds to the qualified community for capacity-building and preparation as are reasonable in the circumstances.10

If CDAs are created in an unregulated environment, there can be a greater likelihood that a community may not have the capacity and competence protection that the Bougainville legislation provides.

(p.683) In some cases, NGOs may be able to play an important advisory role where such legal protection is unavailable. For example, in Ghana, NGOs were made part of the group that negotiated the CDAs for the Ahafo gold project.11 In a case-study-based analysis of CDAs, Brereton et al. (2011: 15) note that ‘the success of a CDA relies heavily on all parties having the capacity to participate constructively in the agreement making process, support the agreement over time and deliver on their respective commitments’.

32.5 Mining Act and Mining Regulations Provisions

In this section, the core issues that underlie a CDA requirement in a mining act and the associated regulations are introduced. Such core issues also can apply to a petroleum law but few nations have moved to apply CDA requirements to oil and gas projects. It is typical in mining acts that CDA-related provisions are few, short, and to the point with details instead provided in the mining act regulations. In addition to the general examples provided in this section, detailed and comprehensive CDA model mining act provisions and regulations recommended by this author may be accessed in the annex of Otto (2017).

32.5.1 Which Operations Require CDAs?

The mining industry is comprised of many types and sizes of projects and not all operations are amenable to CDA requirements. For example, imposing CDA requirements on an artisanal miner or a small quarry would not be practical. This is also true for operations that will have a short duration or that will generate only minimal revenues. It is therefore necessary for a mining law to define the types and scale of operations that will be subject to CDA requirements. Generally, CDAs make sense where the scale and duration of a project have the potential to make a substantial contribution to local sustainable development without imperilling the economic viability of the project. One approach is to determine whether CDA requirements make sense on a case-by-case basis. However, an approach that relies on administrative discretion to make such a determination poses risks for the project investor, government, and the affected communities. Other approaches can provide greater certainty.

If the mining law makes provision for several types of mining authorizations, the CDA requirement can be applied to specified licence types, such as a large-scale mining licence, or alternatively, some licence types can be exempted (artisanal mining licence, quarry licence, etc.). The following (p.684) example illustrating a linkage between licence type and a CDA requirement is from South Sudan:

68. Community Development Agreements

(1) A Large-Scale Mining Licence Title Holder shall

(b) enter into Community Development Agreements with such communities in cooperation with relevant government authorities.12

Another similar approach is to require CDAs if certain scale-of-operations criteria are exceeded. An example of this approach is found in the Sierra Leone mining act:

139. Where community development agreement is required.

(1) The holder of a small-scale or large-scale mining licence is required to have and implement a community development agreement with the primary host community if its approved mining operation will or does exceed any of the following limits:

(a) in the case of extraction of minerals from primarily alluvial deposits, where annual throughput is more than one million cubic metres per year;

(b) underground mining operations, where annual combined run-of mine ore and waste production is more than one hundred thousand tonnes per year (waste material not exiting mine mouth to be excluded);

(c) in the case of open-cast mining operations extracting minerals from primarily non-alluvial deposits, where annual combined run-of mine ore, rock, waste and overburden production is more than two hundred and fifty thousand tonnes per year; or

(d) where the licence holder employs or contracts more than one hundred employees or workers at the mine site on a typical working day (including all shifts).13

32.5.2 Which Communities Qualify for a CDA?

If a mining law requires that a miner enter into community development agreements it is important to define what constitutes a community for the purposes of such a requirement. For the purposes of CDAs, ‘community’ can generally be considered ‘a particular area or place considered together with its inhabitants’.14 (p.685) However, in order to be practical, this broad definition needs to be refined. For example, the area around a mine may be populated by numerous clans or small family units each of which may consider themselves a community. To require a separate agreement with every clan or family would place an undue burden on both the miner and the regulator. Additionally, since being party to a CDA implies the receipt of benefits, every community would like to qualify for an agreement, even if located far from the project. If the number of communities is too large, the benefits may be too diluted to achieve meaningful sustainable development. This then leads to the concept of ‘qualified community’ where the law defines the term using parameters that limit the sphere of beneficiaries.

Some governments may desire to focus the community development agreement effort on a single qualified community that can act as a regional facilities hub for other neighbouring communities. By concentrating expenditure on a single ‘host’ community, it may be possible to build infrastructure, such as a hospital, that would not be possible if the available CDA resources were disbursed among several or many communities. This single host community approach was embodied in the Sierra Leone mining act:

139. Where community development agreement is required.

(1) The holder of a small-scale or large-scale mining licence is required to have and implement a community development agreement with the primary host community…

(2) The primary host community is the single community of persons mutually agreed by the holder of the small-scale or large-scale mining licence and the local council, but if there is no community of persons residing within thirty kilometres of any boundary defining the large-scale mining licence area, the primary host community shall be the local council.

(3) If the holder of the small-scale or large-scale mining licence and local council cannot agree on which community is the primary host community, the licence-holder may notify the Minister requesting clarification, and the Minister shall notify the licence holder and local council within sixty calendar days from the date of such notice, specifying which community is the primary host community.15

Similar single host community provisions are provided in the 2011 Mozambique model mining agreement,16 the Nigerian mining regulations,17 and the mining (p.686) regulations of Yemen.18 One of the challenges of the primary host community approach is that other communities nearby may feel slighted, resulting in possible hostile attitudes. To alleviate this, broader poverty reduction initiatives that encompass communities that do not have a CDA may be useful. A possible problem with a mandated primary host community requirement is that once a company has met its statutory CDA requirement, it may have little incentive to work further afield with other communities.

While some governments focus CDA resources on a single qualified community, others take a more egalitarian approach and a project may be required to enter into CDAs with all communities that meet prescribed criteria. This approach has merit in that it can avoid situations where one community is perceived to receive benefits to the detriment of other communities, perhaps setting the stage for a hostile situation. The following example is from the mining law of the Autonomous Region of Bougainville in Papua New Guinea:

2. INTERPRETATION.

(1) In this Act, unless the contrary intention appears:

‘Qualified Community’ means any community of more than 1,000 persons who by tradition or by circumstances constitute a social community that usually reside within:

(a) a large-scale mining lease area and any associated lease for mining purposes area; or

(b) fifteen (15) kilometres of any boundary defining a large-scale mining lease; or

(c) an area-of-influence, identified in an environmental impact assessment prepared as a requirement under the PNG Environment Act 2000, that will be affected in a major way by large-scale mining lease operations; or

(d) a village or township that will house more than ten (10) per cent of the workers employed or contracted by a large-scale mining lease holder, and which is thus eligible to enter into a community development agreement with the holder of a large-scale mining lease;

123. COMMUNITY DEVELOPMENT AGREEMENTS

(5) Subject to Subsection (6), the holder of a large-scale mining lease is required to have and implement community development agreements with all qualified communities that are willing to enter into a community development agreement.19

(p.687) Where a mining law seeks to provide an egalitarian approach, it may strive to provide CDA benefits to a wide number of small disparate groups by requiring such ‘sub-communities’ to aggregate into a more manageable ‘qualified community’ that is then the party to the CDA. Since the benefits that derive from a CDA can be substantial, there is a strong incentive for smaller communities to join together to form a community that qualifies for a CDA. The following example is also from the Autonomous Region of Bougainville in Papua New Guinea:

91. INTERPRETATION FOR THIS PART.

In this Part, words and expressions shall have the meanings ascribed to them in the Act and as follows:

‘Sub-Community’ means any social community of less than 1,000 persons that otherwise meets the definition of a qualified community.

92. IDENTIFICATION OF QUALIFIED COMMUNITIES.

(3) Sub-communities may join to form a Qualified Community and any such joining shall be recorded in a registry of sub-communities comprising the Qualified Community.

(4) Sub-communities do not qualify for a community development agreement.20

32.5.3 Mandatory CDA Obligations under the Mining Act

In this author’s opinion, when drafting CDA requirements for a mining law, at least four core obligations should be addressed for projects that are required to have CDAs:

  • the project has a development obligation with regard to certain communities

  • the project’s development activities must be agreed in its CDAs

  • the agreed CDA activities must be implemented

  • the activities must be periodically reported so that the regulator can verify that the CDA is being implemented.

Below are sample clauses extracted from the model mining act CDA article recommended by the author in Otto (2017) that address these obligations:

The holder of a large-scale mining licence must assist in the development of qualified communities affected by its operations to promote sustainable (p.688) development, enhance the general welfare and the quality of life of the inhabitants and must recognize and respect the rights, customs, and traditions of local communities.

The holder of a large-scale mining licence is required to have and implement community development agreements with all communities that meet the definition of a qualified community that are willing to enter into a community development agreement.

The holder of a large-scale mining licence is required to reasonably comply with its approved community development agreements.

The holder of a large-scale mining licence must:

(a) expend on community development no less than [x per cent] of its annual gross sales revenues, in such manner, at such time and on such activities as are prescribed; and

(b) submit annually, at such time and in such form and manner as are prescribed, a community development expenditure report;

(c) submit semi-annually, at such time and in such form and manner as are prescribed, a community development agreement report for each community development agreement associated with its mining licence; and

(d) periodically, as is prescribed, update its community development agreement(s).

The requirement in the last example clause also requires the licence holder to annually expend a minimum amount on community development (including but not limited to expenditure on CDA activities) based on a specified percentage of its gross revenue. In this author’s experience, this is an important option for policy makers to consider. By providing a sure and unambiguous income stream, there is a much higher prospect that CDA activities will be implemented, and also that the beneficiary communities will have a better understanding of funding levels, thus acting as a way to manage expectations. Such a provision also aids CDA negotiations because the funding requirement is set out in the law and is not open to negotiation. In discussions with industry, the author learned that many mines voluntarily expend around 2 per cent of gross revenues on CSR programmes, but the amount is highly variable from project to project. Thus, a statutory requirement for CDA-related expenditure of around 2 per cent would probably not be considered as unreasonable by many mining companies.

As a further aid to CDA negotiations, the author also recommends that mining law regulations be adopted to statutorily set out topics that a CDA must address. In practice, such regulations provide a blueprint for negotiations and protect the interests of communities by ensuring that key subject (p.689) matter is covered. The model regulations provided in Otto (2017) contain a list of mandatory topics that a CDA must cover. One of the key topics addressed in the regulations is a requirement for a CDA to contain a ‘development plan’ jointly prepared by the miner and the community which forms the core of the CDA. The model regulations articles that related to a development plan were inspired by the findings of a major study of mining and its role in sustainable development undertaken by the Mining, Minerals, and Sustainable Development Project (MMSD 2002: xxviii):

The CSDP [community sustainable development plan] should be based on the community’s concept of how the mine can best contribute to achieving its social, environmental, and economic goals. The plan should provide the fundamental framework for relationships among the company, the community, and the government (and any other parties) through the project life and into post-closure. It should identify the specific actions needed and the respective roles and responsibilities to achieve the agreed-upon vision. It could also create some obligations, on all sides, for taking those steps. Independent mechanisms for monitoring and evaluation, including clear and agreed indicators of performance, need to be included. The plan will need to evolve and be amended over the life of the project to reflect changing priorities and capacities.

(MMSD 2002: xxviii)

While the model regulations in Otto (2017) set out a list of mandatory topics that must be addressed in a CDA, they do not specify how each of the topics is to be resolved. For example, the regulations require that a CDA must contain grievance and dispute resolution provisions but do not say what they are—that is for the miner and the community to negotiate and agree. In this way, each agreement is different, recognizing that every community and project will have their own unique needs and attributes. It is important to distinguish between obligations imposed under the mining law and those that arise under the terms of a negotiated CDA: the former are statutory obligations and the latter, contractual obligations.

32.5.4 Enforcement, Offences, and Penalties

A mining law that requires the use of CDAs and that imposes related obligations often contains provisions to enforce compliance. Failure to comply with a statutory obligation is deemed an offence and a substantial fine may result for non-compliance. Additionally, linking non-compliance to an administrative action, such as suspension or cancellation of the extractive right, is a valuable enforcement tool for regulators. For obligations arising under the CDA, in contrast to those arising under the mining law, the parties to the agreement have recourse to the appropriate court or other dispute resolution methods set out in the agreement.

(p.690) 32.5.5 Applicability to Pre-existing Mining Rights

One of the challenges in drafting a mining law that requires CDAs is how to handle pre-existing projects and arrangements. Should all such projects be exempt? How should pre-existing arrangements between a mine and community be addressed? One approach is to allow such projects a defined time period in which to obtain required CDAs that meet new statutory requirements. The author has drafted the following example of such an approach: ‘the holder of an authorization to conduct large-scale mining operations that currently is in force but that was granted prior to the adoption of this Act is required to comply with this article and must be in compliance with this article no later than two years from the effective date of this Act’.

Another approach, which the author of this chapter does not advocate, is for a new mining law to remain silent on the transition issue. In this latter approach (taken by Nigeria and Sierra Leone in their most recent mining laws) all miners of a certain scale must have CDAs, but no time period for effecting the requirement by pre-existing operations is stated; in effect, upon the day that the law becomes effective they are liable to have CDAs. It is then left to the regulator to determine when to commence an enforcement action. This approach allows a great deal of flexibility, but some regulators may be hesitant to commence enforcement.

It is a fundamental nature of a new law that the ‘rules of the game’ change, otherwise why not just keep the existing law? When a country imposes CDA requirements in a new law, the policy principle driving those requirements is that the nation has certain expectations with regard to community development that must be met according to the new system, not the old one. Thus, if a miner has a pre-existing approach to community development it must ensure that its approach conforms to the new law.

32.5.6 Legal Effect of a CDA

As has been mentioned earlier in this chapter, there are many forms of agreements between extractive firms and communities. A law requiring CDAs should clearly define the legal nature of required CDAs. A CDA, as defined in this chapter, is a legally binding contract and is enforceable by recourse to the appropriate court.

32.5.7 Effect of Transfer of the Underlying Exploration/Mining Right

Extractive industry projects typically go through several phases including exploration, development, extraction, rehabilitation, and post-closure. For many projects, ownership of the respective rights granted during the various phases may change. This is particularly true of the transition from the (p.691) exploration phase to the development phase. A key part of a law addressing CDAs is to define at what phase such agreements are required and to require that a CDA entered into by a company will be honoured by a successor company. Many laws that require CDAs impose the requirement at the development stage. Requiring a CDA at the exploration stage is impractical because the nature and location of the resource will at that stage be unknown.

32.6 Conclusions

The use of CDA legislation to achieve community-level benefits is just one option for governments. Some governments may place no direct emphasis on community development with the expectation that a community that is located in close proximity to a mine will benefit from project-related employment and other linked opportunities. Many extractive companies have CSR programmes that may be directed, at least in part, toward community development. Other nations prefer that, instead of benefits flowing to a community via a direct link between the project and the community, the community will be a recipient instead of a portion of the fiscal revenues generated by the project.21 The widespread use of CDA legislation is a relatively new phenomenon and the efficacy of CDAs as a means to achieve community-level benefits is still to be determined. However, when compared to approaches that rely entirely on voluntary actions by companies/projects, statutorily mandated CDAs greatly reduce the risk that sustainable community development will not take place. If the CDA legislation is robust, such as the model legislation appearing in Otto (2010) and Otto (2017), it can provide a clear roadmap for mandatory processes, approvals, monitoring, and enforcement, all of which are lacking in an unregulated approach to mine-assisted community development. Some of the advantages of a regulated CDA approach versus a mining law that is silent about community development include:

  • the different roles and responsibilities of the miner, communities, and government can be made clear

  • communities that are qualified for development assistance are identifiable

  • qualified communities will have a written and enforceable contract with the miner that identifies their rights and obligations regarding development

  • (p.692) the expectations of the community can be aligned to a practical level of funding

  • miners will know the minimum level of annual development funding that they must provide

  • CDA minimum content guidance can ensure that key issues are addressed

  • formal grievance and dispute resolution approaches can be established

  • the probability of development implementation is high because non-compliance can result in fines, penalties, or possible cancellation of the right to mine in addition to civil action arising through the application of contract law.

One of the downsides of a regulated CDA requirement is that it can impose an administrative burden on the regulatory agency. It may be necessary to hire officers and provide them with appropriate training and resources.

While a CDA—either one required by law or one entered into voluntarily—is no guarantee that the boom and bust cycle that communities experience when a mine closes will be avoided; if the agreement includes objectives that address sustainable development, it can be hoped that mine closure will have a lesser impact than had the CDA not been in place. Miners have always had the option to assist in community development. The question for government is whether it is satisfied with allowing miners to offer development assistance on an ad hoc basis or whether that assistance should be required by law and regulated.

References

Bibliography references:

AMLA (African Mining Legislation Atlas) (n.d.a). ‘Article 130, Code Minier 2011, Loi L/2011/006/CNT (Guinea)’. Article 130, Code Minier 2011, Loi L/2011/006/CNT (Guinea). Available at: http://www.a-mla.org.

AMLA (African Mining Legislation Atlas) (n.d.b). African Mining Legislation Atlas. Available at: http://www.a-mla.org.

ATNS (Agreements, Treaties and Negotiated Settlements Project) (n.d.). ‘ATNS Database’. Available at: http://www.atns.net.au.

Brereton, D., J. Owen, and J. Kim (2011). ‘Good Practice Note—Community Development Agreements’. St Lucia: Centre for Social Responsibility in Mining, University of Queensland. Available at: http://www.eisourcebook.org/cms/files/csrm_good_practice_notes_on_cdas_document_final_260911.pdf.

Crowson, P. (2003). Astride Mining: Issues and Policies for the Minerals Industry. London: Mining Journal Books.

Crowson, P. (2007). ‘Adding Public Value: The Limits of Corporate Responsibility’. Oxford: Oxford Policy Institute.

(p.693) Dupuy, K. (2014). ‘Community Development Requirements in Mining Laws’, The Extractive Industries and Society, 1(2): 200–15.

Evans, G., J. Goodman, and N. Lansbury (2001). Moving Mountains: Communities Confront Mining and Globalisation. Otford, New South Wales: Mineral Policy Institute and Otford Press.

Evans, G., G. Russell, and R. Sullivan (2001). ‘An International Regulatory Framework?’ in G. Evans, J. Goodman, and N. Lansbury (eds), Moving Mountains: Communities Confront Mining and Globalisation, 207–22. Otford, New South Wales: Mineral Policy Institute and Otford Press.

Gibson, G. and C. O’Faircheallaigh (2010). ‘IBA Community Toolkit: Negotiation and Implementation of Impact and Benefit Agreements’. Toronto: Gordon Foundation. Available at: https://www.afoa.ca/afoadocs/L3/L3a%20-%20IBA_toolkit_March_2010_low_resolution.pdf.

ICMM (2005). Community Development Toolkit. London: ICMM.

ICMM (2011). Mining: Partnerships for Development Toolkit. London: ICMM. Available at: http://www.icmm.com/mpd.

ICMM (2012). Community Development Toolkit—Revised. London: ICMM. Available at: https://www.icmm.com/en-gb/publications/mining-and-communities/community-development-toolkit.

ICMM (2013). The Mining Sector in Brazil: Building Institutions for Sustainable Development. London: ICMM.

ICMM (n.d.). ‘ICMM 10 Principles: Principle 9’. Available at: https://www.icmm.com/en-gb/about-us/member-commitments/icmm-10-principles/icmm-principle-9.

Macdonald, C. (2017). ‘The Role of Participation in Sustainable Community Development Programmes in the Extractives Industries’, WIDER Working Paper 2017/28. Helsinki: UNU-WIDER.

Miningfacts.org (2012). ‘What Are Impact and Benefit Agreements (IBAs)?’ Vancouver: Fraser Institute. Available at: http://www.miningfacts.org/Communities/What-are-Impact-and-Benefit-Agreements-(IBAs)/.

MMSD (2002). Breaking New Ground. London: Mining, Minerals and Sustainable Development Project/IIED. Available at: http://pubs.iied.org/pdfs/G00910.pdf.

O’Faircheallaigh, C. (2012). ‘Community Development Agreements in the Mining Industry: An Emerging Global Phenomenon’, Community Development, 44(2): 222–38. Available at: http://www.tandfonline.com/doi/abs/10.1080/15575330.2012.705872.

Otto, J. M. (2010). ‘Mining Community Development Agreements: Source Book (Vol. 4): Community Development Agreement Model Regulations and Example Guidelines’. Washington, DC: World Bank. Available at: http://documents.worldbank.org/curated/en/2010/06/16798660/mining-community-development-agreements-source-book-vol-4-4-community-development-agreement-model-regulations-example-guidelines.

Otto, J. M. (2017). ‘How Do We Legislate for Improved Community Development?’ WIDER Working Paper 2017/102. Helsinki: UNU-WIDER. Available at: https://www.wider.unu.edu/publication/how-do-we-legislate-improved-community-development.

Penagos, M. D., J. Mandelbaum, and P. Toledano (2014). ‘Requirements for Community Development Agreements in Mining Laws’. Available at: http://ccsi.columbia. (p.694) edu/files/2015/01/Community-Development-Requirements-in-Mining-Laws-Matrix-November-2014-.pdf.

Richards, J. (ed.) (2009). Mining, Society and a Sustainable World. Heidelberg: Springer.

Sarkar, S., A. Gow-Smith, T. Morakinyo, R. Frau, and M. Kuniholm (2010). ‘Mining Community Development Agreements—Practical Experiences and Field Studies’. Washington, DC: Environmental Resources Management for the World Bank. Available at: http://www.sdsg.org/wp-content/uploads/2011/06/CDA-Report-FINAL.pdf.

Schott, J., F. M. Conteh, N. King, D. Desai, and N. Menzies (2015). ‘Development from the Ground up? Mining Community Development Agreements in Sierra Leone.’ World Bank ‘Governance for Development’ blogsite. Available at: http://blogs.worldbank.org/governance/development-ground-mining-community-development-agreements-sierra-leone.

Sosa, I. and K. Keenan (2001). Impact Benefit Agreements between Aboriginal Communities and Mining Companies: Their Use in Canada. Toronto: Canadian Environmental Law Association & Environmental Mining Council of British Columbia. Available at: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.473.2025&rep=rep1&type=pdf.

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Notes:

(1) For an introduction to mining and its growing role in local and sustainable development, and its potential negative impacts, the author recommends Evans et al. (2001), Richards (2009), Crowson (2003, 2007), and the various publications of the Mining, Minerals and Sustainable Development (MMSD) project (IIED n.d.).

(2) See ICMM (n.d.) for the full set of sustainable development principles.

(3) A good example is Brazil with the situation there being described in some detail in ICMM (2013).

(4) Based largely on work by Dupuy (2014).

(5) The author of this chapter was lead author of the World Bank model CDA regulations (Otto 2010).

(6) The model CDA mining law articles and regulations may be accessed in the annex section of Otto (2017).

(7) In Canada, the use of ‘impacts and benefits agreements’ between aboriginal groups and companies that extract minerals from their lands is widespread, and although such agreements are not required by statute, they are common, with over 180 in use in 2012. Miningfacts.org (2012) defines an impact and benefits agreement as ‘a formal contract outlining the impacts of the project, the commitment and responsibilities of both parties, and how the associated Aboriginal community will share in benefits of the operation through employment and economic development’. Sosa and Keenan (2001) provide a good overview of impact and benefits agreements in Canada.

(8) See for example the Agreements, Treaties and Negotiated Settlements Project collection (ATNS n.d.).

(9) Gibson and O’Faircheallaigh (2010) offer CDA negotiations advice, including whom to include in negotiation processes, in the form of a detailed negotiations toolkit.

(10) Bougainville Mining Act 2015, Section 123(10).

(11) For case studies of CDA processes and participants see Sarkar et al. (2010).

(12) Section 68, Mining Act, 2012 (South Sudan).

(13) Section 139, The Mines and Minerals Act, No.12 of 2009 (Sierra Leone).

(14) This is one of several definitions for the word ‘community’ offered by Oxford Dictionaries, at: http://www.oxforddictionaries.com/us/definition/american_english/community (accessed 15 April 2016).

(15) Section 139, The Mines and Minerals Act, No.12 of 2009 (Sierra Leone).

(16) Section 19.2, unpublished 2011 Mozambique Model Mining Agreement.

(17) Section 193(5), Nigerian Minerals and Mining Regulations, S.I. 47 of 2011.

(18) Article 73, Executive Regulation of Law No. (22) for the year 2010 regarding Mines and Quarries (Yemen).

(19) Sections 2 and 123, Bougainville Mining Act, 2014 (Autonomous Region of Bougainville, Papua New Guinea).

(20) Sections 91 and 92, Mining Regulations, 2015 (Autonomous Region of Bougainville, Papua New Guinea).

(21) Examples of where a portion of a project’s fiscal revenues are allocated by law, rather than through the budgeting process, back to local communities: property taxes in the United States; a statutory portion of income tax in Peru; a statutory portion of royalty in Brazil.