Enhancing Local Benefits from extractive industries investments: the public investment channel Javier Aguilar, ELB program manager EI week, Washington DC, March 2009 ELB E nhancing managerial and oversight capacities L for reaching ocal communities which B expect to (should) receive tangible enefits from extractive industries investments Outline 1. The Public Investment Channel: ELB’s framework 2. IFC’s ELB Advisory Program: LAC experience 3. Building blocks: adjustable to country context 1. The Public Investment Channel: ELB’s framework • Importance of benefiting communities affected by extractive industries investments: - clear macro benefits: taxation, fiscal revenues, exports - what are the actual/expected local benefits? • Alternatives: CSR, Procurement, Employment, Fiscal - + outreach 1. The Public Investment Channel: ELB’s framework Extractive Industry Companies Yields Benefits to Communities Amount invested depends on the Community company Investment Employment Suppliers, spin off businesses Royalties, Revenues and Taxes to Government 1. The Public Investment Channel: ELB’s framework • Government (national, subnational) responsibilities: to provide access to basic services, rural infrastructure and technical assistance • Restriccions: mandatory (voluntary), defined public sector rules (private) • Source of fiscal revenue: tax, royalty or participation • Legal foundation: single contract, sectoral law, decentralization framework • Design: share, distribution, allocation, administration, reporting, accountability 1. The Public Investment Channel: ELB’s framework The Challenge: Support EI investments TThhee 44RR cciirrccllee in effectively contributing to local 11.. RReessoouurrcceess 22.. RReessuullttss development AAssssoocciiaatteedd ttoo eexxttrraaccttiivvee IImmpprroovveedd sseerrvviicceess iinndduussttrriieess’’ ooppeerraattiioonnss SSaattiissffiieedd bbaassiicc nneeeeddss 44.. RReecceeppttiivviittyy 33.. RReeccooggnniittiioonn ffrroomm tthhee ppooppuullaattiioonn ttoowwaarrddss OOff tthhee iimmppaacctt tthhaatt eexxttrraaccttiivvee EExxttrraaccttiivvee iinndduussttrriieess IInndduussttrriieess ccaann hhaavvee 2. IFC´s ELB Advisory Program: LAC experience • Started operations in LAC on March 2005 Enhancing the development Objective performance of large investments from oil, gas and mining sectors. • Focused on extractive industries: Royalties at the sub-national level We provide advisory services on: • Revenue Management: Improve local public investment performance financed by royalty transfers. • Social Accountability: Empower civil society to help local governments become socially accountable. 2. IFC´s ELB Program: LAC experience Evolution of Oil and Mining Royalty Transfers in Colombia and Peru 2,000 Situation of EI in Peru and Colombia 1,800 Royalties transfers in Colombia Mining Canon transfers in Peru 1,600 High royalties flows BUT local 1,400 poor communities are not n1,200 benefiting – high potential for o i l l i1,000 development impact. M $ S 800 U • missing opportunity for local 600 development 400 •negative effect on EI 200 investment in the region. 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 How we are doing it: Pilot: Cajamarca (Yanacocha) capacity building/monitoring Publicize Results: Industry fora/Business Development Replicate: Peru/Colombia – Several OGM companies Scale up: Industry Programs in Peru and Colombia/Toolkits Pilot Project Example: Baños del Inca, Cajamarca • Objective: improve local government use of mining royalties for public investment Annual Investment at District Municipality of Los Baños del Inca 8 6.7 7 6 n5 o i ll 3.6 Mi4 $ S3 U 2 1.4 0.7 0.6 1 0 2002 2003 2004 2005 2006 Results Municipal investment increased from $1.4 mm (2004) to $6.7 mm (2006). • # of projects increased from 33 (2004) to 188 (2006). • Key sectors targeted: health & education (41%), electricity and infrastructure (21%), local economic development (28%).