Document of The World Bank

FOR OFFICIAL USE ONLY

Report No. 47926-TZ

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR33.5 MILLION (US$50 MILLION EQUIVALENT)

TO THE

UNITED REPUBLIC OF TANZANIA

FOR A

SUSTAINABLE MANAGEMENT OF MINERAL RESOURCES PROJECT

May 13,2009

Oil, Gas and Mining Policy Division Sustainable Development Network Eastern Africa Country Cluster 1 Africa Region

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS (Exchange Rate Effective April 15,2009)

A S M CASM

DA D O EA EITI

EMU ESMF

FDI GST IBRD

I C M M

IDA

IFR IP I S 0

JAST

LGAs LSM MCDP

MCIMS

MEM M I S MKUKUTA

MRI N A O NEMC

Currency Unit = Tanzanian Shilling (TZS) TZS 1 = US$0.00075 US$1 = TZS 1,330

FISCAL YEAR July 1 - June 30

ABBREVIATIONS AND ACRONYMS

Artisanal and Small Scale Mining Communities and Artisanal Small- scale Mining Designated Account Development Objectives Environmental Assessment Extractive Industries Transparency Initiative Environmental Management Unit Environmental and Social Management Framework Foreign Direct Investment Geological Survey o f Tanzania International Bank for , Reconstruction and Development International Council on Mining and Metals International Development Association Interim Financial Report Implementation Progress International Organization for Standardization Joint Assistance Strategy for Tanzania Local Government Authorities Large Scale Mining Mwadui Community Diamond Partnership Mining Cadastral Information Management System Ministry o f Energy and Minerals Mineral Information System Mkakati wa Kukuza Uchumi na Kupunguza Umaskini Tanzania (National Strategy for Growth and Reduction o f Poverty) Mineral Resource Institute National Audit Office National Environmental Management Council

OECD

P A D PDO PEFA

PEFAR

P F M PFMRP

P M T PRSC PSC PTC PSIA QDS REMA RMO RPF SDR SEAMIC

SESA

SIDO

SMMRP

STAMICO U D S M UNDP

UNEP

UNIDO

VAT VETA

Z M O

Organisation for Economic Co- operation and Development Project Appraisal Document Project Development Objective Public Expenditure and Financial Accountability Public Expenditure and Financial Accountability Review Public Financial Management Public Financial Management Reform Program Project Management Team Poverty Reduction Support Credits Project Steering Committee Project Technical Committee Poverty and Social Impact Analysis Quarter Degree Sheets Regional Miners Associations Resident Mines Office Resettlement Policy Framework Special Drawing Rights Southern and Eastern African Mineral Centre Strategic Environmental and Social Assessment Small Industries Development Organization Sustainable Management o f Mineral Resources Project State Mining Corporation University o f Dar-es-salaam United Nations Development Programme United Nations Environment Programme United Nations Industrial Development Organization Value Added Tax Vocational Education and Training Authority Zonal Mines Office

FOR OFFICIAL USE ONLY

Vice President: Obiageli Ezekwesili Country Director: John Murray McIntire

Sector Director: Somit Varma Sector Manager: Paul0 de Sa

Task Team Leader: Christopher Gilbert Sheldon

This document has a restricted distribution and may be used by recipients only in the performance o f their off icial duties. I t s contents may not be otherwise disclosed without Wor ld Bank authorization.

Tanzania Sustainable Management o f Mineral Resources Project

CONTENTS

Page

STRATEGIC CONTEXT AND RATIONALE ................................................................. 1 I . A . B . C .

I1 . A . B . C . D . E . F .

I11 . A . B . C . D . E . F .

I V . A . B . C . D . E . F . G .

Country and Sector Issues ................................................................................................... 1

Rationale for Bank Involvement ......................................................................................... 6

Higher-level Objectives to which the Project Contributes ................................................. 7

PROJECT DESCRIPTION ............................................................................................. 7 Lending Instrument ............................................................................................................. 7 Program Objective and Phases ............................................................................................ 7 Project Development Objective and Key Indicators. .......................................................... 7 Project Components ............................................................................................................ 8

Lessons Learned and Reflected in the Project Design ...................................................... 15

Alternatives Considered and Reasons for Rejection ......................................................... 16

IMPLEMENTATION .................................................................................................... 16 Partnership Arrangements (if applicable) ......................................................................... 16

Institutional and Implementation arrangements ................................................................ 1 7 Monitoring and Evaluation o f OutcomesResults ............................................................. 1 8 Sustainability ..................................................................................................................... 18

Critical Risks and Possible Controversial Aspects ........................................................... 19

Credit Conditions and Covenants ..................................................................................... 20

APPRAISAL SUMMARY ............................................................................................. 20 Economic and Financial Analyses .................................................................................... 20

Technical ........................................................................................................................... 2 1

Fiduciary ................................................................................................................ 22

Social ..................................................................................................................... 24 Environment ...................................................................................................................... 25

Safeguard Policies ............................................................................................................. 25

Policy Exceptions and Readiness ...................................................................................... 26

* . .

. .

Annex 1: Country and Sector o r Program Background ......................................................... 27

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ................. 31

Annex 3: Results Framework and Monitoring ........................................................................ 33

Annex 4: Detailed Project Description ...................................................................................... 38

Annex 5: Project Costs ............................................................................................................... 46

Annex 6: Implementation Arrangements ................................................................................. 48

Annex 7: Financial Management and Disbursement Arrangements ..................................... 52

Annex 8: Procurement Arrangements ...................................................................................... 63

Annex 9: Economic and Financial Analysis ............................................................................. 70

Annex 10: Safeguard Policy Issues ............................................................................................ 71

Annex 11: Project Preparation and Supervision ..................................................................... 74

Annex 12: Documents in the Project File ................................................................................. 76

Annex 13: Statement of Loans and Credits .............................................................................. 77

Annex 14: Country at a Glance ................................................................................................. 79

Annex 15: Mining Sector Brief.. ................................................................................................ 81

Annex 16: Maps ......................................................................................................................... 103

List of Tables and Figures

Table 1 . Contribution of Minerals to the Economy. 2004-2008 (percent) .............................. 2

Table 2 . Value o f Mineral Exports. 2004-2008 (US$ million).,, ............................................ 2

Table 3 . Project Costs ....................................................................................................... 14

Table 4 . R i s k s and Risk Mitigation Measures .................................................................... 19

Table 5 . Technical Aspects ................................................................................................ 22

Figure 1 . The Extractive Industries Value Chain (EITI++) ................................................ 6

TANZANIA

SUSTAINABLE MANAGEMENT OF MINERAL RESOURCES

PROJECT APPRAISAL DOCUMENT

AFRICA

COCPO

Date: May 13,2009 Country Director: John McIntire Sector ManagedDirector: Paul0 De Sa

Team Leader: Christopher Gilbert Sheldon Sectors: Mining and other extractive (1 00%) Themes: Administrative and civil service reform (P); Regulation and competition policy (P); Participation and civic engagement (P); Decentralization (P); Environmental policies and institutions (S) Environmental screening category: Partial Assessment

Project ID: PO96302

Lending Instrument: Technical Assistance Loan

[ ]Loan [XI Credit [ ]Grant [ 3 Guarantee [ ]Other:

For Loans/Credits/Others: Total Bank financing (US$m): 50.00

Borrower: Ministry o f Finance and Economic Affairs P.O. Box 9111 Dar es Salaam, Tanzania

Responsible Agency: Ministry o f Energy and Minerals 75433 Samora Avenue P.O. Box 2000 Dar es Salaam, Tanzania Tel: (255 22) 2120568, Fax: (255 22) 2120589

Estimated disbursements (Bank FY/US$m) FY 4nnual Cumulative

2010 2011 2012 2013 2014 8.00 12.00 17.00 12.00 1.00 8.00 20.00 37.00 49.00 50.00

Project implementation period: Start: June 9,2009 End: June 30,2014 Expected effectiveness date: September 30,2009 Expected closing date: June 30,2014 Does the project depart f rom the CAS in content or other significant respects? Re$ PAD I.C. Does the project require any exceptions from Bank policies? Re$ PAD I K G.

I s approval for any policy exception sought from the Board? Does the project include any critical risks rated “substantial” or “high”? Re$ PAD III. E. Does the project meet the Regional criteria for readiness for implementation? Re$ PAD IKG. Project development objective Re$ PAD II. C., Technical Annex 3 To strengthen the Government’s capacity to manage the mineral sector to improve the socio- economic impacts o f large and small-scale mining for Tanzania and Tanzanians and enhance private local and foreign investment. Project description Re$ PAD II.D., Technical Annex 4

[ ]Yes [XINO

[ ]Yes [XINO

[ ]Yes [XINO

[XIYes [ ] N o

[XIYes [ ] N o

Have these been approved by Bank management? [ ]Yes [ IN0

The Project i s comprised o f the following four components:

Component A. Improving the Benefits o f the Mineral Sector for Tanzania: Artisanal and Small-Scale Mining, Local Economic Development and Skills Development. The component’s main objective i s to improve the benefits o f mining for Tanzania and Tanzanians by implementing the national artisanal and small-scale mining development strategy, to strengthen l i n k s between the mineral sector and the local economy, with emphasis on sk i l ls development required for the mineral sector.

Component B. Strengthening Governance and Transparency in Mining. Four sub-components will support (i) strengthening the Ministry o f Energy and Minerals legal services unit; (ii) reviews o f the Mineral Policy, the Mining Act, and related laws with emphasis on harmonization o f laws; (iii) establishing a legal and regulatory framework on value addition activities; (iv) creating public awareness on the Mineral Policy and legal and regulatory frameworks, and o n the fiscal regime; (v) activities related to the implementation o f the Extractive Industries Transparency Initiative; (vi) an institutional analysis to identify needs for capacity building and strengthening linkages and coordination with other government institutions that take part in the administration o f the mineral sector; (vii) strengthening the new mining cadastral information management system by improving i t s hardware, software, and human resources and by formulating mechanisms to sustain the system; (viii) the Government o f the United Republic o f Tanzania’s (the Government) efforts to address environmental and social aspects o f mining based on the baseline survey’s findings and recommendations for artisanal and small-scale mining and the Strategic Environmental and Social Assessment studies.

Component C. Stimulating Mineral Sector Investment. The three subcomponents include: (i) strengthening the Geological Survey o f Tanzania and updating, maintaining and developing geoscientific data and products; (ii) financing a strategic assessment o f STAMICO, the state-owned mining company, exploring existing institutional capacity and options for self-financing, as a pre- condition for i t s future role with the private sector for both large- and small-scale opportunities; (iii) strengthening mineral resources promotion, statistics development and communication.

Component D. Project Coordination and Management. This component will support Project management costs including but not l imited to: (i) Project management; (ii) procurement; (iii) monitoring and evaluation; and (iv) Project exit studies to evaluate overall performance, in particular achievement o f Project goals, strengths and weaknesses, and the way forward. Which safeguard policies are triggered, if any? Re$ PAD IKF . , Technical Annex 10

Environmental Assessment (OPBP 4.0 l), Involuntary Resettlement (OP/BP 4.12).

This technical assistance project i s not anticipated to have any large scale, significant adverse or irreversible impacts. Rather, the Project effort to promote sustainable management in the mining sector, including environmental and social management, i s anticipated to yield positive environmental and social impacts. The Project physical activities+) establishment o f stationary and mobile demonstration units to promote progressive mining technologies, (ii) rehabilitation o f the existing gemstone carving center building in Arusha, (iii) small grants program to promote mining or alternative livelihoods, and (iv) airborne geophysical survey and geological survey- may have l imited and localized adverse impacts (noise, dust, mining waste disposal, water pollution, occupational health and safety impacts, etc.). Activities will be screened and potential impacts managed through the implementation o f the Environmental and Social Management Framework prepared by the Government. A wider Strategic Environmental and Social Assessment will also be undertaken during Project implementation.

In accordance with the Bank’s Involuntary Resettlement Policy, the Government prepared a Resettlement Policy Framework (RPF). While no resettlement i s envisaged or planned under the Project, the RPF will be available should a resettlement situation arise.

Significant, non-standard conditions, if any, for: Re$ PAD III. F. Board presentation: Standard conditions.

Credit effectiveness: 1. Standard conditions (legal opinion). 2. Project Implementation Manual, satisfactory to IDA.

Covenants applicable to Project implementation: Preparation and submission to IDA o f an Artisanal and Small-scale Miners Grant Program Manual, in form and substance satisfactory to IDA (condition o f disbursement for the small grants program Project sub-component).

I. STRATEGIC CONTEXT AND RATIONALE

A. Country and Sector Issues

Recent Economic and Sector Developments

1. Tanzania ranks 162 out o f 177 countries in the UNDP Human Development index (2006). A recent Household Budget Survey depicts mixed progress on poverty reduction in Tanzania. The ownership o f durable consumer goods, housing quality, and some social indicators, such as education, have improved across the board, a reflection o f the higher economic growth and public spending over the past six years. On average, income inequality did not worsen. However, other important measures o f poverty, such as basic-needs income poverty, show l i t t le progress or even deterioration.’ The same is true if other social indicators, such as those for nutrition and water access. From 200 1-2007, basic-needs income-poverty incidence f e l l slightly in mainland Tanzania. The poverty headcount declined, as did the depth and intensity o f poverty, and the reduction in headcount poverty ratio has been more or less uniform between rural and urban areas. That said, the decline is less than envisaged under the objectives laid out in Tanzania’s National Strategy for Growth and Reduction o f Poverty, the MKUKUTA, or targets associated with the f i rst Millennium Development Goal. Poverty in Tanzania mainland f e l l by 2.2 percentage points from 35.7 percent in 2000-2001 to 33.5 percent in 2007. This implies an increase in the total number o f poor when the increase in population i s taken into account.

2. Tanzania has sustained economic growth in recent years, with GDP growth estimated at 7.4 percent in 2008. However, existing domestic trends, such as rising inflation and a widening current account deficit, are affecting the economy. Inflation has been on an upward trend. I t rose above the MKUKUTA target o f 4 percent since 2004 and significantly accelerated in 2007 and 2008 as international commodity inflation added to domestic pressures. These resulted in its reaching an annual rate o f around 12-13 percent in the last quarter o f 2008. The sharp increase in the last quarter o f 2008, despite the marked decline in oil/food prices in international markets, seems to indicate that inflationary expectations are deeply embedded.

3. The external position o f Tanzania i s currently strong, while a resilient outlook for gold exports compared with other commodities and falling o i l prices will be helpful going forward. However, during the past five years the composition o f balance o f payments has become more vulnerable. The current account deficit exceeds levels o f foreign aid, making balance o f payment dependent on private inflows, particularly foreign direct investment (FDI). The current international crisis could expose these vulnerabilities, in particular through shocks to the level o f FDI inflows as well as impact on tourism receipts.

4. Tanzania’s financial sector i s not exposed directly to the assets that have triggered the financial crisis, and i t s banks are mostly sound. Although the systemic risk in the banking system i s low, branches o f several international banks affected by the crisis operate in Tanzania. Tanzania’s economy has shown resilience to the effects o f the crisis so far, but a prolonged world recession could, over fiscal year 2009-201 0, have a more serious impact on growth and the level o f fiscal spending, putting pressure on external accounts. The main channels for this would

Consistent with most surveys, this does not capture the imputed value o f housing or the use o f consumer durables and social services.

1

be through tourism, FDI, and portfolio flows (particularly in mining and tourism), lower regional exports o f manufactured goods and services, lower prices for cash crops, and a potential reduction in foreign aid. Projections by the Tanzanian authorities put GDP growth at 6.5 percent in 2009.

Gold Diamonds

5. During the past 10 years, Tanzania’s mining industry has experienced a boom in both mineral exploration and mining activities. Notable developments include the commissioning o f six large-scale gold mines at Nzega, Geita, Bulyanhulu, North Mara, Buhemba, and Tulawaka. During this period, more than 15 mineral prospects o f gold, nickel, and uranium have also been developed to various stages o f exploration. This has resulted in an increase o f the country’s annual gold production from less than one ton per annum in 1998 to about 50 tons in 2008, making Tanzania the third largest gold producer in Africa, and making the mining industry the second fastest growing sector o f Tanzania’s economy after tourism. Despite the increase in mining production, i t s share in both GDP and government revenue has remained relatively small. The share o f minerals in GDP averaged about 3 percent over 2000-2008 while i t s contribution to government revenue i s 1.5 percent. Nevertheless, mining export accounts for up to 48 percent o f merchandize export, and up to 24 percent o f total exports. Furthermore, the cumulative total FDI in the mining industry during the past 10 years has exceeded US$ 2.5 bil l ion and employed around 1 percent o f wage earners. Table 1 shows the contribution o f minerals to GDP, exports, and government revenue; Table 2 shows they type and value o f mineral exports from 2004-2008.

596.62 639.63 772.06 888.87 93 1.33 33.68 25.35 25.91 28.91 22.38

Source: Tanzanian authorities.

Tanzanite Other Gemstones

24.25 34.02 36.20 48.55 45.49 2.64 6.51 10.26 35.60 4.36

Silver 2.95 I 1.60 I 5.54 I 5.32 I 6.68 Salt 2.05 I 1.63 I 2.00 I 2.17 I 2.38

6. Factors that led to the rapid growth o f the mineral sector in Tanzania include a conducive geological environment; political stability; increase in gold prices (from US$287 per ounce in 1998 to US$687 per ounce in 2008, with record high prices within that time period) spurring

Phosphate Bauxite Gypsum

Marble Total Value

Copper Ore

2

0.5 1 0.03 0.28 0.72 0.28 0.03 0.05 0.57 0.48 0.05 0.03 0.07 0.65

0.20 5.00 0.09

674.87 720.49 872.22 1,032.05 1,037.34

extraction; and major economic reforms undertaken since the mid-1 990s that transformed the sector from state-directed to market-oriented. Reforms included enactment o f a new mineral policy in 1997 followed by the enactment o f internationally competitive sector fiscal and legal regimes.

7. The developments in the minerals sector pose challenges and create opportunities for Tanzania. The country has substantial potential to produce precious and semi-precious metals, base metals, ferrous metals, and industrial minerals to satisfy i t s domestic demand and for export; it i s also capable o f producing large quantities o f colored gemstones (including diamonds and tanzanite) and semi-precious minerals for foreign exchange earnings. Tanzanian mining i s characterized by large-scale mechanized mines and small-scale operations (a key activity in rural areas) that include local entrepreneurs and artisans. Small-scale operations are rudimentary and conducted in an ad-hoc manner. They are characterized by a lack o f adequate controls and monitoring; minimal adherence to safety and environmental standards; and a virtual absence o f supporting physical or institutional infrastructure. Mining i s a priority sector for growth and poverty reduction in the MKUKUTA.

8. The Sustainable Management o f Mineral Resources Project (SMMRP) has been designed to help the Government meet these challenges and take advantage o f opportunities within the sector. The SMMRP i s built o n a strong analytical foundation, fol lowing o n an IDA-supported Mineral Sector Development Technical Assistance Project, which came into operation in mid- 1994. Analytical work and activities under this Project helped to attract investments for mineral exploration and mine development through a first generation o f improvements to the mineral sector framework, including improvements o f institutions and agencies administering the sector. However, the sector’s rapid growth, particularly in small-scale and artisanal mining, swiftly overstretched the Government’s institutional capacity. Existing institutions lack adequate tools, expertise, and the organizational setup required to oversee and support a modern, market-driven mineral sector.

9. While Tanzania has succeeded in attracting investments, the Government and communities have become increasingly dissatisfied with the mineral sector’s level o f contribution to the economy. Criticisms include inadequate institutional capacity to oversee the sector, particularly in auditing investment costs, environmental management costs, and enforcing safety and occupational health standards; inadequate value added in exported minerals; slow pace o f transforming and modernizing artisanal and small-scale mining; and insufficient integration o f mining into the national economy. Many o f these issues are addressed in a recent, in-depth case study o f the mining sector in Tanzania conducted by the International Council on Mining and Metals (ICMM).2

10. These concerns also prompted the formation o f a Mineral Policy Review Committee (Kipokola Report) in 2004; this was succeeded by a Presidential Commission o n the Mineral Sector in 2008 (Bomani Report). These in-depth reviews o f the mineral sector aimed to identify improvements in sector capacity to stimulate additional economic growth. The recommendations from the Kipokola and Bomani reports provided inputs into the Government’s current pol icy

Making Mining Count in Tanzania, Resource Endowment Initiative, ICMM, UNCTAD, and the World Bank, October 2006.

3

reform process. Both reports emphasized the urgent need to build capacity within government institutions and agencies so as to (a) enable sustainable development o f a modern, market driven sector, with adequate benefits for the country; (b) establish a modern, transparent administrative and oversight set-up for the sector; (c) consolidate the mineral sector growth achieved since the late 1990s; and (d) continue developing basic geo-information to sustain investment promotion. Given the recent economic downturn and credit crisis, it is crucial that Tanzania maintain i t s attractiveness as a mining investment destination and position i t s e l f wel l for the eventual upturn.

11. Concerns over the mining sector, including the level o f revenue generated by the sector and captured by the Government (through royalties, taxes, and so on), also prompted the Government to commit publicly, in late 2008, to implementation o f the Extractive Industries Transparency Initiative (EITI) in the mining (and gas) sector. The Government (with Norwegian and World Bank support) launched EITI in a multi-stakeholder workshop in December 2008. A follow-on workshop with a wide range o f stakeholders-including c iv i l society representatives and, notably, small-scale miners-was held in late January 2009 to agree a draft EITI work plan. In February 2009, Tanzania was accepted as an EITI Candidate Country by the international EITI Board. Formation o f Tanzania’s EITI multi-stakeholder working group, to take EITI implementation forward, i s now being finalized. Implementation o f EITI in Tanzania will partially be supported by the SMMRP, in addition to other resources that the Government will pursue (e.g., EITI multi-donor trust fund, bilateral assistance).

Fiscal and Legal Framework

12. Tanzania’s mining industry i s regulated at the national level. The principal laws governing the mining sector are the Mining Act (CAP 123, R.E. 2006), the Explosives Act (CAP 45, R.E. 2002), the Environmental Management Act (CAP 191, R.E. 2004), and the Income Tax Act (CAP 262, R.E. 2004). The Income Tax Act, coupled with Tanzania’s Investment Act, established the fiscal framework governing the mining sector and contained provisions that guarantee profi t and capital repatriation as well as access to international arbitration process. Tanzania’s fiscal “package” includes income tax, royalty, withholding tax, and customs duty rates. It also contains a tax incentive that includes the possibility for large-scale mining projects to enter into a development agreement with Government that stabilizes the tax regime as it was on the signature date o f the development agreement.3 Further details can be found in the more detailed sector brief in Annex 15.

13. According to the Mining Act, minerals in or under the land are the property o f and under control o f the Government. Rights for prospecting and mining for minerals are licensed under the Mining Act, and licenses are granted on a f i rs t come, first serve basis, except in cases where licenses are subject to a competitive bidding process, such as for existing, well-defined deposits or operation^.^

14. Tanzania’s legal system i s rooted in English common law, statutes, case law, and customary law. English common law applies only in the absence o f statutory l aw and does not

Farrel, McDermott, and Snow. 2007. “Mining.” Getting the Deal Through in Association with McMillan Binch Mendelsohn. Ibid

4

apply where commercial law has largely being enacted. Customary law applies generally to matters o f ancestral land ownership, inheritance, and in matters o f marriage.

Institutional Framework

15. The principal regulatory body governing the mining sector i s the Ministry o f Energy and Minerals (MEM). The Commissioner for Minerals is appointed by the President to supervise and regulate the implementation o f the Mining Act. The Minister and Commissioner are recognized licensing authorities under the Mining Act. An inspector o f mines oversees the sector according to the provisions o f the Mining Act.’ Geo-science issues are managed by the Geological Survey o f Tanzania (GST), an executive agency under MEM.

16. Environmental issues are the responsibility o f the National Environmental Management Council (NEMC), which also works with the MEM Environmental Management Unit on mining sector environmental issues.

Sector Challenges

17. Major challenges facing the sector include:

Due to relatively large investments and revenue generated by the sector, high expectations on the benefits o f mining for Tanzania and communities in the mining areas;

Emerging public perceptions calling on the Government to undertake policy changes to increase benefits for Tanzania;

Investor perception o f uncertain investment climate pending finalization o f ongoing mining sector policy reform;

Lack o f infrastructure for roads, rail, and power-most mines are not connected to the national grid and generate their own electricity using diesel generators at high cost;

Maintaining Tanzania’s competitiveness as a mineral investment destination given the global commodities and credit crisis;

Inadequate funding for Government sector institutions;

Lack o f capacity to manage the sector effectively - prospecting and mining license applications are backlogged for more than 12 months, MEM lacks the resources to conduct mines inspections on license requirements, health, safety and environment;

Lack o f diversification o f minerals from gold and gemstones into base metals and other minerals; and

Inadequate integration o f mining into the national economy.

Ii Ibid

5

B. Rationale for Bank Involvement

18. Mining i s a priority sector for growth and poverty reduction. MKUKUTA calls for updating mining policy and legislation along with developing and promoting an enabling environment for investment in mineral value-addition. The Joint Country Assistance Strategy identifies the Bank as having the technical expertise to take the lead in assisting Tanzania in the mining sector. The previous Bank-supported Mineral Sector Development Technical Assistance Project was effective in laying the foundation for the initial growth phase in the sector, and the Bank has maintained sector dialogue with Tanzania since the closure o f this Project. Given the Bank’s technical expertise in the mining sector and success under the earlier Project, the Government requested further Bank assistance in the mining sector to build on progress and support relevant institutions to improve the governance, effectiveness, and contribution o f the sector to national development. Notably, the Government has not requested Bank assistance with the Government-led reform o f the mining policy and legal/fiscal framework. Instead, the Government has requested that Bank assistance focus on artisanal and small-scale mining, promotion o f transparency and harmonization in the policy/legal/regulatory framework, human resource and institutional capacity building, and improvements in geological information.

19. The Bank has extensive experience in the sector and can draw on lessons learned through operations in neighboring countries, such as Mozambique, Uganda, and Zambia. The Bank i s uniquely positioned to offer assistance covering the full spectrum o f the extractive industries value chain (also known as the “EITI++” approach). The SMMRP wi l l directly cover l i n k s 1, 2, 3, and 5 o f the value chain (see Figure l), namely access to resources (such as via strengthening o f the mineral rights cadastre), monitoring operations (such as via enhanced capacity for inspections), collection o f taxes and royalties (for example via more regular, strengthened audits), and efficient, sustainable utilization o f revenue (such as via pilots on local budgeting and planning in mining communities); the Project will also partially cover link 4 on revenue allocation. Since mining revenue in Tanzania i s collected centrally as general revenue6, link 4 i s covered primarily under the Bank’s macroeconomic work, including in regard to public financial management as Tanzania has a highly-decentralized public financial management system, with centrally-collected funds distributed to districts and regions. Some o f the limited mineral-related funds paid directly to local governments will be covered under the Project’s local economic development sub-component.

Figure 1. The Extractive Industries Value Chain (EITI++)

Link 1 Link 2 Link 3 Link 4 Link 5

In LGAs where a large-scale mine(s) i s operating under a Mining Development Agreement, the mining company pays an additional, annual US$200,000 levy directly to the local government.

6

6

C. Higher-level Objectives to which the Project Contributes

20. The proposed Project is aligned with the 2007 Joint Assistance Strategy for Tanzania (JAST) and the Bank’s program o f support within the JAST, which includes a balance o f sustainable development and protection o f Tanzania’s natural resource base. It places high priority on small-scale miners and value addition as part o f the country’s broader emphasis o n poverty reduction and rural economic renewal. The Project i s expected to improve the capacity o f this sector to stimulate additional economic growth in l ine with cluster 1, Economic Growth, o f the MKUKUTA.

21. The Project seeks to enhance principles o f good governance and transparency in the sector. To that end, it will support transparency o f the mining sector legal and regulatory framework, to support the Government’s objective o f ensuring that mining sector development and investment conforms to international good practice, adjusted to the particular conditions o f Tanzania. The Project focuses on spurring local economic development through mineral sector development, reducing conflict and improving management o f environmental and social issues related to mineral sector development, and increasing growth and enhancing competitiveness in the mining sector.

11.

A.

22.

B.

23.

C.

24.

PROJECT DESCRIPTION

Lending Instrument

The Project will be a sector-specific technical assistance Credit implemented by MEM.

Program Objective and Phases

N o t applicable.

Project Development Objective and Key Indicators

In l ine with the Government’s vision, the Project Development Objective (PDO) is:

To strengthen the Governments capacity to manage the mineral sector to improve the socio- economic impacts of large and small-scale mining for Tanzania and Tanzanians and enhance private local and foreign investment.

The PDO has three main aspects: (i) socio-economic impacts; (ii) Government capacity; and (iii) investment.

25. Investment in the minerals sector has a long lead time and, given the current global economic slowdown and credit crisis affecting the minerals sector, the indicators below reflect what the Government and Project team believe can be achieved and measured during the l i f e o f the Project. However, i t should be noted that the major benefits o f any new mining investment will most l ikely occur after the close o f the Project, as was the case with the previous Mineral Sector Development Technical Assistance Project. The Project will measure enhanced investment through both the level o f mining revenue to Government and the attractiveness o f

7

Tanzania for mining investment. Activities to improve management o f mineral t i t les and minerals audit functions are expected to lead to increased license fees and royalty collections o f a modest 5 percent during the l i fe o f the Project. The key indicator chosen in regard to mineral sector investment is Tanzania’s ranking as a mining investment destination to help position it for international mining investment when market conditions improve. Likewise, while productivity o f artisanal and small-scale miners i s expected to increase as a result o f the technical assistance, other economic factors may negatively affect household income. Therefore income levels and production levels will be monitored.

26. The key performance indicators designed to measure success o f the Project are:

(i) Socio-economic Impacts:

Percent increase o f household income levels in selected artisanal and small-scale mining (ASM) communities. Percent o f citizens in participating communities who consider that their views have been taken into account in the local economic development strategic planning process (perception survey).

(ii) Capacity:

Time to process mineral rights (months); Annual publication o f mining sector revenue.

(iii) Investment:

0

Improvement in Tanzania’s ranking as a mining investment destination as evidenced by independent investor survey (Fraser Institute); Percentage increase in mining revenue.

D. Project Components

27. The Project i s financed by an IDA Credit o f US$50 mi l l ion equivalent, with US$5 mi l l ion equivalent co-financing from the Government. Additional cost information i s included in Table 3 below the description o f Project components and in Annex 5. The Project includes four components: (a) Improving the Benefits o f the Mineral Sector for Tanzania: Artisanal and Small- Scale Mining, Local Economic Development Planning, and Ski l ls Development; (b) Strengthening Governance and Transparency in Mining; (c) Stimulating Mineral Sector Investment; and (d) Project Coordination and Management. Additional detail i s provided in Annex 4.

ComDonent A. Improving the Benefits of the Mineral Sector for Tanzania: Artisanal and Small-scale Mining, Local Economic Development and Skills Development (US$15.9 million, o f which US%15.0 million IDA and U S 0 . 9 million from Government)

8

28. This component’s main objective i s to improve the benefits o f mining for Tanzania and Tanzanians by implementing the national ASM development strategy7, to strengthen l i n k s between the mineral sector and the local economy, and sk i l ls development required for the mineral sector. Benefits will be directed through MEM to artisanal and small-scale miners, local communities in mining areas and Tanzanian miners.

29. A.1. Baseline Studies (USJO. 6 million IDA, US$O.l million from Government). This sub-component wi l l provide baseline information to inform Project components and for monitoring and evaluation. It wi l l build on previous studies to: (a) conduct assessment, map the extent o f artisanal and small-scale mining activities, and data interpretation and compilation into ASM database; (b) study socio-economic impacts and benefits o f Geita (Geita Gold Mining), Kahama (Bulyanhulu Gold Mine) and Mirerani (TanzaniteOne) large-scale mines; (c) assess institutional capacity for acquisition o f mining statistics and capacity for data management; and (d) prepare a strategy and framework for Project monitoring and evaluation.

30. A.2. Extension Services for ASM (US$4.8 million IDA, US$0.2 million from Government). This component will strengthen Government capacity to provide extension services through Zonal and Resident Mines Offices (ZMOs and RMOs), which are not adequately equipped to perform these duties effectively. MEM i s currently strengthening i ts capacity in order to adequately implement the small-scale mining development strategy. The goal i s to enable ZMOs and RMOs to build trust with mining communities, provide extension services, and demonstrate different strategic and technical approaches in a holistic manner to stimulate legal and responsible mining activity. This wi l l allow ZMOs and RMOs to address such mining-related issues as mining and processing technology, financial management, environment, and health, community consultation, gender training, and organization and formalization o f artisanal mining activities. The offices will also work with the miners, through educational, communications, and other tools, to address the serious issue o f Albino killings, which occur due to the belief that this increases artisanal mining prospects. MEM wi l l work mainly with community based artisanal and small-scale miners by providing technical support to encourage their formalization. ASM communities receiving extension services are expected to improve the quality o f their lives through higher productivity and lower negative social and environmental impacts.

31. The Project will support MEM’s Minerals Division efforts to (a) strengthen the Small- Scale Mining Section at Ministry headquarters; (b) strengthen capacity for extension services provision in ZMOs and RMOs; (c) strengthen the capacity o f the Mineral Resource Institute (MRI), Vocational Education and Training Authority (VETA), the Small Industries Development Organization (SIDO), and the Southern and Eastern African Mineral Centre (SEAMIC) to offer short-term courses to small-scale miners; (d) establish small-scale mining centers for extension services and provide demonstration center mines with training manuals, demonstration materials, and training o f trainers at Chunya (gold), Mpanda (gold), Morogoro (gold), Manyoni (gold), Geita (gold), Bukombe (gold), Mirerani (tanzanite), and Mbinga (sapphire). Environmental and Social Impact Assessments will be conducted on identified operations prior to selection, and the Government’s role wi l l be to facilitate training, while ownership and operational matters will remain in the hands o f license and mine owners; (e) strengthen capacity o f ZMOs and RMOs to

’ Mkakati wa Kuwaendeleza Wachimbaji Wadogo, 2006.

9

provide extension services through training o f extension officers and provide them with training manuals and Transportable Demonstration Units equipped with pieces o f equipment for demonstration to enhance their capacity, mobility, and quick response in events o f mineral rushes; (0 prepare standard training manuals and codes o f practice for small-scale mining on mining practice, health and safety, basic geology, and mineral processing for specific minerals and o n cross-cutting issues such as HIV/AIDS , environment (including mercury abatement), entrepreneurship, and social responsibility; and (g) promote initiatives by large-scale mining companies for training and extension services for small-scale miners in Geita, Mirerani, Kahama, and Kabanga to capture lessons learned and strategies to manage potential conflict between ASM and large-scale mining.

32. A.3. Targeted Programs for the Development of Specific Industrial Minerals and value added in Gemstones (US$3.2 million IDA, US$O.5 million from Government). The MKUKUTA identifies the promotion o f mineral value addition as one o f i t s poverty-fighting priorities in Tanzania. In 2003, MEM established the Arusha Gemstone and Carving Centre for the purpose o f training small entrepreneurs in value-addition activities for gemstones and ornamental stones. The centre i s halfway complete in terms o f rehabilitation o f buildings, training, and equipment. MEM’s aim i s to upgrade the Centre into an international Gemological Institute that would run training, production, and promotion o f gemstone and ornamental stone products.

33. This sub-component wil l support technical assistance programs for domestic entrepreneurs to further develop the production and marketing o f industrial minerals, and support value addition in gemstones and semi-precious minerals as well as the establishment o f an integrated pi lot breeder for downstream products. The latter would serve as training and an industrial and marketing center intended to develop a competitive small-scale industry for stone carving and lapidary and gold-based jewelry. Training and support will enable Tanzanians to work independently in value added activities and become investors in this sector. Support will also be provided for piloting initiatives for “fair trade” in A S M products.

34. The sub-component will support (a) strengthening the Arusha Carving Centre; (b) establishing lapidary and jewelry sections and training programs at the Arusha Carving Centre; (c) empowering entrepreneurs to produce and market specified industrial minerals locally; and (d) supporting fair trade initiatives.

3 5. A.4. Financial Assistance to Small-Scale Miners and Value Addition Activities (US$4.8 million IDA). Artisanal and small-scale miners fa l l under the category o f micro, small and medium entrepreneurs. This group i s faced with critical problems, in particular access to financing and credit. Lack o f funds for capital and support operations contributes to poor standards in small-scale mines and poor responsiveness to other initiatives, such as training and extension services. Lack o f entrepreneurial skills i s identified as one o f the factors hindering small-scale miners f rom accessing available financial and credit schemes existing in Tanzania.

36. This sub-component aims to provide individual businesses with financial skills to manage self-employment and micro-enterprises; deliver training and assistance to engage marketing and advisory services and select and purchase equipment; and offer help to communities in selecting

10

community-level investments in productive infrastructure, including hubs for marketing and mineral transformation, processing and downstream production, and businesses to supply mines and miners with goods and service. Working with Regional Miners Associations (REMAs) and other stakeholders, it will promote: (a) training small-scale miners in entrepreneurial skills; (b) strengthening and supporting schemes for equipment leasing and local fabrication o f tools and equipment in small-scale mining centers; and (c) development o f a program to provide financial assistance in the form o f small grants to support miners and community based mining organizations on programs such as environmental improvement, small diversification projects, improvement o f health and safety in mines, and technology in small-scale mining areas. The program would evaluate proposals on a competitive basis and require al l proposed projects to adhere to good practices in social and environmental responsibility. The small grants program will ro l l out in two phases, the second contingent upon the success o f the first.

37. A.5. Linkages between Mining and the Local Economy (US$1.2 million IDA, US$O.l million from Government). Inadequate integration o f mining into the national economy i s identified as one o f the challenges facing the mineral sector. This sub-component aims to strengthen linkages between large and small-scale miners and their respective Local Government Authorities (LGAs) by supporting preparation o f strategic plans for local and regional economic development with the participation o f the miners, mining companies, and communities in the planning process. The Project will support a pi lot study to test the implementation o f this subcomponent in Geita, Kahama, Tarime and Biharamulo districts. Successful strategies will be rolled over systematically to other mining districts to enable local and regional economies to take advantage o f mining investment as a catalyst for broader development in the region, including l i n k s to infrastructure, supply chain opportunities, skills transfer, and diversification.

38. The sub-component will support selected LGAs to (a) mainstream mining into strategic planning at the district level by developing local economic development strategic plans in a participatory manner, with mining companies, local business, community and c iv i l society (b) integrate artisanal and small-scale mining activities into the district administrative structure and (c) develop mechanisms to empower communities in selected mining areas to invest strategically in provision o f goods and services to mines.

39. A.6. Human Resource Development for the Mining Industry (US$0.4 million IDA). Technical ski l ls development and training for the mining industry in Tanzania i s s t i l l in i t s infancy. This sub-component’s goal is to facilitate formulation o f a framework for sk i l ls development planning, training, certification, and maintenance o f standards to support productivity and occupational health and safety in the mining industry. The sub-component will benefit the country by increasing opportunities for Tanzanians in higher value occupations and building the sk i l ls base for the future. The sub-component will assist MEM in (a) conducting a needs assessment for human resource development for the mining industry; and (b) establishing and supporting a framework to administer skills planning, qualifications, apprenticeship and learnership for the mining industry.

ComDonent B. Strengthening Governance and Transparency in Mining (US$8.7 million, of which US$7.4 million IDA and US$1.3 million from Government)

11

40. B.1. Legal Reform and Fiscal Transparency (US$l. 7 million IDA, US$O.l million from Government). This sub-component will build on previous studies and experience and support the ongoing review and updating o f the legal, fiscal, and regulatory frameworks for the mineral sector in Tanzania.

41. The sub-component will support the following activities (a) strengthening MEM’s legal services unit; (b) supporting reviews o f the Mineral Policy, the Mining Act, and related laws with emphasis on harmonization o f laws; (c) establishing a legal and regulatory framework on value addition activities; (d) creating public awareness on the Mineral Policy and legal and regulatory frameworks, and on the fiscal regime; and (e) supporting activities related to the implementation o f EITI.

42. In addition, the Government and the Bank will dialogue on possible support for the Government to develop a legal and regulatory framework for radioactive minerals, which are currently being explored by investors. Before such support would be provided, the Bank would require clarity on the expected end-use o f the mined product, assurance o f Tanzania’s compliance with International Atomic Energy Agency norms, and additional World Bank approval.

43. B.2. Institutional Capacity Building (US$1.6 million IDA, US$O.l million from Government). MEM underwent comprehensive restructuring following the organization efficiency results in 2001 and 2006. Despite the changes, MEM has continued to face various challenges that have necessitated review o f i t s functions and organizational structure to enhance i t s efficiency.

44. This sub-component will support an institutional analysis to identify needs for capacity building and strengthening linkages and coordination with other government institutions that take part in the administration o f the mineral sector. The Project has already identified the need to strengthen MEM’s auditing and inspection functions, including environmental impact assessment review and compliance monitoring, mine occupational health and safety, and technical audits for royalty payments and fiscal issues. The sub-component includes the following activities: (a) functional review o f MEM; (b) strengthening o f the mines inspection section; (c) strengthening o f the Mineral Audit Section; (d) training o f MEM staff; and (e) improvement o f working tools and equipment for ZMOs and RMOs.

45. B.3. Improving the Mining Cadastral Information Management System (US$l.8 million IDA, US$O.8 million from Government). This sub-component will build on the new mining cadastral information management system (MCIMS) that was developed with support from the Nordic Development Fund. The MCIMS was constructed around a centrally located database in Dar es Salaam with a Wide Area Network connecting the system to MEM’s 20 regional offices. By end-2007, MCIMS had inadequately trained administrators and operators, lacked adequate equipment in the regional offices, faced huge application backlogs that affect data integrity, and had not incorporated into the MCIMS all primary mining licenses issued to small-scale miners. Currently, approximately 10,000 pending- license applications date back to 2007.

12

46. The sub-component aims to support MEM’s efforts to strengthen the M C I M S by improving i t s hardware, software, and human resources and by formulating mechanisms to sustain the system. The sub-component will support (a) assessment o f cadastre needs, including strategy, hardware, software and training; (b) system upgrades; (c) staff training in M C I M S operations; (d) improvement o f central registry and sub-registries at ZMOs and RMOs; (e) field verification o f small-scale mining licenses to support the full incorporation o f the small-scale mining sub-sector into the MCIMS; and ( f ) strengthening o f the M C I M S and clearance o f the existing backlog o f license applications.

47. B.4. Environmental and Social Management (US$2.3 million IDA, US$0.3 million from Government). Recognizing the nature and sensitivity o f the mining and environmental impacts associated with it, MEM has established the Environmental Management Unit (EMU). Since its inception, EMU has been working with N E M C to make sure that social and environmental impacts o f mining activities in the country are minimized. The sub-component’s goal is to support efforts to address environmental and social aspects o f mining based on the baseline survey’s findings and recommendations for artisanal and small-scale mining and the SESA studies. A 2004 U N I D O study also identified mercury contamination in artisanal gold miners as a serious environmental and health issue. A Poverty and Social Impact Analysis (PSIA) will also be conducted to assist the decision-makers to make informed policy choices.

48. Activities supported by this sub-component include (a) strengthening the EMU (training and equipment) so it i s able to execute i t s functions effectively; (b) conduct a Strategic Environmental and Social Assessment (SESA); (c) conducting a PSIA; (d) establishing an environmental database linked to Mining Cadastral and Geological and Mineral Information System (MIS); (e) preparing and updating environmental and social guidelines and codes o f practice (based o n results o f SESA) on issues such as mine closure, small-scale mining and mercury, consultation and gender, community complaint mechanisms and resettlement framework based on internationally accepted best practices; ( f ) environmental and social awareness programs in small- and large-scale mining areas; (g) development o f a framework for abandoned mines; and (h) strengthening environmental monitoring capacity at MEM headquarters, RMOs, ZMOs, and LGAs through training and technical support and improving work environment.

ComDonent C. Stimulating Mineral Sector Investment (US$25.0 million, of which US$23 million IDA and U S 2 . 0 million from Government)

49. C.1. Strengthening of the Geologic Infrastructure (US$21.7 million IDA, US$1.8 million from Government). This sub-component will build upon work conducted under the Minerals Sector Development Project financed joint ly by the Nordic Development Fund and the Tanzanian Government between 2006 and 2007.

50. The sub-component will support GST to (a) complete high resolution airborne geophysical survey and conduct ground fol low up in selected areas o f the country, including Chunya, Dodoma, Kiomboi, Kondoa, Manyoni, Babati, Handeni, Kilindi, Mvomero, Bahi, and Chamwino districts; (b) acquire and update geo-data and information through geological mapping and geophysical and geochemical surveys, and publish related maps and reports,

13

particularly for selected areas in Kiomboi, Mbulu, Hanang, Babati, Singida, Kondoa, Kiteto, Handeni, Kilindi, Manyoni, Dodoma, Kongwa, Mpwapwa, Iringa, Ludewa, Kilolo, Mufindi, Njombe, Bagamoyo, Mvomero, Kilosa, Mbarali, Kyela, Chunya, Bahi, Chamwino, Songea, Mbinga, and Namtumbo districts; (c) computerize, digitize, and upgrade the existing MIS; (d) conduct staff training and laboratory upgrade to I S 0 accreditation; (e) update and maintain the geological map library and rock and mineral core sample archives; and (0 make geoscientific data and information (including metallogenic maps) readily accessible to potential investors and stakeholders and infrastructure planning authorities.

5 1. C.2. Future Role of State Mining Corporation (STAMICO) (USS0.2 million IDA). This sub-component wi l l finance a strategic assessment o f STAMICO , the state-owned mining company, exploring existing institutional capacity and options for self-financing, as a pre- condition for i t s future role with the private sector for both large- and small-scale opportunities.

52. C.3. Mineral Sector Investment Information and Promotion (US$l.O million IDA, US$O.l million from Government). The sub-component intends to strengthen mineral resources promotion, statistics development and communication. It will link the GST and Mineral Rights Registry databases and support MEM’s efforts to (a) strengthen the Mineral Economics and Trade Section that deals with statistics and promotion; (b) enhance the Information, Education and Communication Unit to enhance the public image o f the mineral sector; (c) upgrade the Management Information System Unit; (d) improve data capture, preparation and dissemination o f sector statistics and promotional materials; and (e) improve communications in the mineral sector by implementing a communications and promotion strategy, including issue specific communicationshformational tools to educate the public about the mining sector (for example, with regard to the Albino issue).

Component D. Project Coordination and Management (US$2.5 million, of which US$2.0 million IDA and US$0.5 million from Government)

53. A Project team consisting o f MEM staff and financed by MEM will coordinate Project implementation. A Project Steering Committee (PSC) and a Project Technical Committee (PTC) will be established. Additional experts will be hired temporarily to support and train the Project Management Team (PMT). This sub-component wi l l support Project management costs, including but not limited to (a) Project management; (b) procurement; (c) monitoring and evaluation; and (d) coordination o f Project exit studies to evaluate the overall performance o f the Project, in particular achievement o f goals, strengths and weaknesses, and the way forward.

14

E. Lessons L e a r n e d and Reflected in the Project Design

54. Overall, the main lessons learned f rom global initiatives and capacity building operations for sustainable management o f the mineral sector in various regions include (a) the need to establish a sector-specific focus and improvements with clear delineation o f authority and responsibility o f various ministries and agencies involved in the sector; (b) beneficiary participation in Project preparation, organization, implementation, and coordination at the field level; (c) sustainability o f Project components built around institutional champions for different components; and (d) strong ownership and political commitment to Project objectives.

55. O n the policy level, project implementation experience has demonstrated that Government ownership i s crucial for successful outcomes o f Bank financed projects. The Bank has maintained an active dialogue with Government authorities several years, who have demonstrated such ownership and commitment to the Project. Project preparation involved consultations with the Ministry o f Finance and Economic Affairs, Revenue Authorities, and Local Government Authorities, to ensure that it i s fully in line with the Government’s development goals and incorporates i t s vision.

56. The Project i s built on foundation laid by the Mineral Sector Development Technical Assistance Project, successfully completed in 2001. The lessons drawn f rom the former Project have found their reflection in design o f this operation, including (a) Government’s commitment to institutional reform; (b) integrated and phased approaches for Mineral Sector development; (c) enhanced multi-stakeholders’ participation and consensus o n the objectives and results o f Mineral Sector development; (d) regional development initiatives and measures, taking stock o f the economic activity being generated by mining non-renewable mineral resources; (e) improvement and management o f the mineral sector information system and databases; (f) close correlation o f the programs for institutional capacity building with the specific Project activities to be executed by institutions and agencies under the Project; (8) cost-effective and pragmatic approach to the Project supervision in a spirit o f cooperative ‘partnership between the Government and Bank. The Project recognizes the importance o f engaging in an integrated approach to sector reform by including the activities that will contribute to the main components o f the Government initiatives, such as extension services for ASM, improving mining cadastral information management system, stimulating mineral sector investment, and strengthening linkages between mining and the local economy.

57. The Project contains extensive measures to support responsible artisanal and small-scale mining that reflects best international practice learned through the Bank’s involvement in hosting the Communities and Artisanal and Small-scale Mining (CASM) Secretariat. C A S M experience has shown small-scale mining issues need to be addressed in a holistic manner where trust i s built with artisanal and small-scale miners and environmental and social improvements are coupled with formalization and improved incomes. Lessons learned f rom the UNEP Global Mercury Program implementation activities in Tanzania are also being incorporated into Project.

58. The involvement o f communities and c iv i l society in mining sector projects can be very effective in improving development impacts. The SMMRP includes direct involvement o f communities and c iv i l society in the local economic development component through

15

participation in the strategic planning process at the local level. The artisanal and small-scale mining activities are directed to community based miners. The Environmental and Social component includes involvement o f c iv i l society in the PSIA and SESA as well as consultation on procedures, guidelines, and environmental and social awareness programs. The Mineral Sector Information and Promotion Sub-component includes involvement o f c iv i l society and the media in communication campaigns. In addition, Tanzania i s implementing EITI, which includes self-selected representation from c iv i l society in the EITI multi-stakeholder working group.

F. Alternatives Considered and Reasons for Rejection

59. The Project i s formulated as a technical assistance investment operation. An alternative approach, addressing issues under other existing Bank investment projects, was rejected as a piecemeal, partial approach that would not have addressed the sector’s issues in a comprehensive, integrated manner. To avoid overlap with the Private Sector Competitiveness Project, the SMMRP does not include direct financial support to create new businesses to supply the mines, but instead concentrates on making local businesses aware o f opportunities and directing them to the Private Sector Competitiveness Project for direct support. Likewise, the SMMRP dropped an earlier sub-component to strengthen the Tanzanian Revenue Authority to collect taxes from large-scale mines, as this i s now covered by the Tax Modernization Project.

60. Another approach considered was including aspects o f the agenda under the Poverty Reduction Support Credit. However, the activities to be undertaken are more appropriately addressed by a sector specific technical assistance operation, particularly given the relatively large investment component to upgrade geological information and data. A smaller project addressing urgent issues on legalhegulatory and fiscal reform and community benefits o f mining was also considered and rejected, as it would not have addressed the fundamental building blocks for future investment in the sector, such as institutional capacity and geological information.

61. As lack o f infrastructure impedes mining investment, the Project considered support for infrastructure but determined this was outside the scope and resources o f the Project. That said, geological information acquired under the Project will be fed into the infrastructure planning process. Thus, the conclusion was to design a broad technical assistance operation focused wholly o n the mining sector, which could readily build o n the Mineral Sector Development Technical Assistance Project, which closed in 200 1.

111. IMPLEMENTATION

A. Partnership Arrangements (if applicable)

62. The Project will be financed by IDA, with links to several partners and initiatives. This includes EITI, with interested partners including the Bank, the Embassy o f Norway in Tanzania, the Canadian High Commission in Tanzania, and the international EITI Secretariat in Oslo. The Project will have strong l i n k s to this process and will support implementation o f EITI through the two years to EITI validation.

16

63. The Project will link to C A S M to share experiences and ensure that it applies the latest methods in ASM. The Project includes funding for Tanzanian miners and relevant Government officials to participate in the C A S M annual conference and learning events. The Project will also partner with the C A S M supported Association for Responsible Mining in the introduction o f the Fair Trade gold mining standards to Tanzania.

64. The Project also builds on the progress o f the Nordic Development Fund mining sector project that closed in 2008. The Nordic Development Fund supported geological mapping and the installation o f the mining cadastre. The SMMRP expands the geological mapping program and completes the cadastre.

B. Institutional and Implementation Arrangements

65. A three-tier mechanism for Project coordination and management i s proposed, as detailed in Annex 6. High-level guidance, strategic oversight, and coordination o f the various agencies involved in execution o f Project activities will be the responsibility o f the Project Steering Committee (PSC). The PSC will be chaired by the Permanent Secretary, MEM, and will comprise the Permanent Secretary, Ministry o f Finance and Economic Affairs; the Permanent Secretary, Vice President’s Office - Environment; the Permanent Secretary, Prime Minister’s Office - Regional Administration and Local Government; the Permanent Secretary, Ministry o f Lands, Housing and Human Settlements Development; the Chief Executive Officer, Geological Survey o f Tanzania (GST); and the Deputy Attorney General, Attorney General’s Chambers. The objective of the PSC i s to ensure coordination and linkages across relevant agencies and with international partners and to provide guidance to MEM on strategic decisions related to (i) the Project and other donor funded activities in the mining sector, as wel l as (ii) on h o w the mining reforms can contribute to broader economic development in the country.

66. A Project Technical Committee (PTC) will ensure execution o f decisions taken by the PSC , coordinate implementation o f Project activities in respective areas o f responsibility, review procurement documents, technical specifications, and consultant reports, report to the PSC on progress, and review the annual work plan and budget and progress reports before submission to the World Bank. The PTC, chaired by the Commissioner for Minerals, MEM, will be comprised o f the Project Manager, SMMRP, MEM; the World Bank Desk Officer, Ministry o f Finance and Economic Affairs; Project Coordinator, GST; Heads o f Units at MEM responsible for Environmental Management, Legal Services, and Management Information Systems; and Heads o f Sections in the Minerals Division, MEM, responsible for Small-scale Mining Development, Mines Inspections, and Licensing and Mineral Rights Management.

67. A Project Management Team (PMT) within MEM will carry out day-to-day Project management activities, including procurement, disbursement, financial management, and monitoring and evaluation for the Project. The PMT, comprising staff o n MEM’s payroll, will be fully dedicated to the Project and will report to the Commissioner for Minerals, MEM. The P M T will be strengthened by additional experts on a short-term basis for specific activities related to administration o f the small grants program for small-scale miners, human resources development, and monitoring and evaluation.

17

68. To facilitate the management and implementation o f the Project, a Project Implementation Manual will include a detailed description o f (a) the mechanism o f operation and interaction between these tiers; (b) the level o f authority entrusted to each tier; (c) their organization, responsibilities, functionality; and (d) their relation among themselves and with the PMT. The Project Implementation Manual, subject to the Bank’s prior review and approval, will be prepared by the Recipient by Project effectiveness. As a condition o f disbursement for the small grants program for small-scale miners, at the beginning o f Project implementation the Recipient will prepare an Artisanal and Small-scale Miners Grant Program Manual to be agreed with IDA.

C. Monitoring and Evaluation o f OutcomesResults

69. The Project management team in MEM will be responsible for monitoring and evaluating the Project, in accordance with the indicators and benchmarks included in Annex 3. The Project will initially engage the services o f a specialist to establish a system o f monitoring and evaluation for MEM and train MEM staff.

70. Baseline studies to be undertaken as part o f Project component A will provide input to the monitoring and evaluation framework and generate data on which progress over the course o f the Project can be tracked and compared. Other data systems within MEM, such as investment indicators and licensing indicators, will also feed into monitoring and evaluation. ZMOs and RMOs will also be key to providing data in regard to activities targeting artisanal and small-scale miners. The ASM assessment and large-scale mining benefits studies to be undertaken at the start o f the Project are expected to be replicated at the end o f the Project so that a comparison o f poverty alleviation and gender-sensitive socio-economic impacts under the Project can be made. The Project will also finance exit studies to evaluate the overall performance o f the Project, in particular achievement o f Project goals, strength and weakness, and the way forward.

71. N o t later than 45 days after each quarter, the MEM team will submit to the Bank quarterly progress reports covering al l Project activities, including procurement, and a financial summary report. Bi-annual reviews, the f i rs t one to take place six months after effectiveness, should provide detailed analysis o f implementation progress toward development objectives and include an evaluation o f financial management as well as a post-review o f procurement aspects.

D. Sustainability

72. Key parameters for the sustainability o f the Project include the Government’s commitment to continue implementing i t s reform agenda for the sector, to address concerns expressed by the public about the perceived lack o f benefits f rom mining. The mineral sector remains one o f the priority growth sectors to bring about development and improvement of socio-economic conditions in Tanzania. Improving sector management will make benefits at the local level more obvious and increase Tanzania’s attractiveness to other investors. In the long run, the investments in the mineral sector are expected to provide sustained revenue that can be put toward maintaining systems (e.g., the mining cadastre) for the proper oversight and management o f the mineral sector. Training o f trainers among A S M in demonstration centers will support sustainability o f extension service and training o f ASM.

18

73. At the national level, the Project will help to improve the Government’s capacity to manage the sector properly, improve capacity to ensure that the revenue due to Tanzania f rom mining operations (particularly gold) flows to the Treasury, and support local economic development and value addition for mining in Tanzania. The Project i s also expected to strengthen Tanzania’s capacity to address environmental and social impacts o f mining through the relevant policyhegulatory framework and enhancement o f institutional and human resource capacity to implement policies and regulations in this regard.

Tanzania.

established and commitment o f Ministry o f Finance and Economic Affairs confirmed.

Adequate liaison with Ministry o f Finance and Economic Affairs

Participatory monitoring and evaluation processes will aim to expose the problems. Multiple oversight layers at local, central, and inter- sector levels will help identify issues. Robust evaluation and selection criteria and process for the small grants program to be developed.

74. At the community level, Project outcomes’ sustainability will be supported by positive changes fostered by including mining communities in essential decision making processes. Specifically, they are expected to see increased influence over local economic development, use o f money generated by mining activities to foster development at the local level, and improved socio-economic linkages to the mines. By supporting artisanal and small-scale miners’ efforts to improve their methods and techniques, the Project i s expected to improve management o f mineral resources toward sustainable livelihoods. It is important to note that mining operations mostly take place in rural areas and in a country where poverty i s widespread.

M

S

E. Critical R i s k s and Possible Controversial Aspects

75. taking into account mitigation measures.

Table 4 below summarizes the critical risks, risk mitigation measures, and the risk rating,

Central and local government entities too weak to implement Project activities and comply with Bank requirements and safeguards.

Government does not sustain its commitment to mineral sector reform, including EITI.

Government does not remain committed and fails to pay i ts counterpart contributions. Project benefits are captured by elites. The risk i s most likely under the small grants component.

M

19

Foreign investors not responsive to positive developments in sector reform.

Maintain active, good dialogue with the Tanzania Chamber o f

Local population in small- scale mining not responsive to government attempts to formalize, regularize and improve the sector. Current economic slowdown and credit crisis w i l l erode benefits o f reform.

L

Public not convinced that country i s benefiting enough from mining sector operations.

Dialogue on the preparation o f policy on radioactive minerals raises reputational risk to Bank.

L i t t le control over current international investment climate and general downturn in commodity prices, although gold prices have not dropped precipitously and Tanzania mainly mines gold. Reforms w i l l increase comDetitiveness o f Tanzania for mineral investment and

M

Minerals and Energy and support Tanzania in international mining investor events. Project activities are designed to improve Tanzania’s relative attractiveness for investment when the global investment climate improves. Involvement o f non-government entities in the organization o f the sector, and work with the community groups; extension services to artisanal and small-scale miners targeted to improve their techniques, health, safety, etc.

undertaken with Project support to demonstrate and clarify the actual benefits (economic, financial, social, infrastructure etc.) o f the mines. Project components designed to involve local stakeholders and improve benefits.

International Atomic Energy Agency norms and Bank legal and safeguards policies and subject to review.

Radioactive minerals policy needs to be in accordance with

M

L

Overall risk rating

position the country for future upswing. Benefits studies o f each o f the large-scale mines in the country w i l l be I S

M

F. Credit Conditions and Covenants

76. Conditions for effectiveness include:

Standard conditions (legal opinion); and

Preparation o f a Project Implementation Manual, satisfactory to IDA.

77. Conditions for disbursement include:

0 Preparation o f an Artisanal and Small-scale Miners Grant Program Manual, satisfactory to IDA.

IV, APPRAISAL SUMMARY

A. Economic and Financial Analyses

78. SMMRP i s a technical assistance Credit and, as such, does not lend i tse l f easily to economic analysis. However, some macroeconomic indicators can be projected and compared with present performance, in particular (a) annual investment for exploration by mining companies; (b) increased fiscal revenue from the expected increase in sector exploration and development activities, and (c) increased production from ASM. W h i l e any cost-benefit analysis must be considered approximate, it i s reasonable to expect the overall value o f just one new

20

mining investment to be around US$250 million. Similarly, it can be expected that new data from the Project’s geological information activities and investment promotion component will promote such investments.

79. I t is l ikely the current worldwide downturn in investments will slow investments in Tanzania over the next few years, and thus the majority o f new investments will occur after the close o f the Project, with attribution to achievements-in terms o f improved geological information, improved sector framework, enhanced capacity o f the Government to manage the s e c t o r - o f the Project’s activities. It is anticipated that one or two new mines will open as a result o f the Project. On average, about 40-50 percent o f each investment flows to the Government in benefits over the l i fe o f the mine (through royalty, income tax, tax on salaries, and related sources). As such, new exploration investments would contribute, at a minimum, an expected amount equivalent to 1.5 x US$250 mi l l ion x 0.40 = US$ l50 million.

80. Increased license fees and royalty collection from mining are expected to increase (conservatively) by 5 percent over the l i fe o f the Project. Based on Tanzania’s current mining revenue (US$50 million), it i s expected that the Project would contribute to an increase in revenue o f about US$2.5 mi l l ion per year under the Project and beyond.

8 1. Extension services and the demonstration centers for artisanal and small-scale miners are expected to increase production and income o f miners by an average o f 10 percent (real increase) and to benefit 50,000 miners. These figures translate into US$5 mi l l ion per year at an estimated current daily income o f US$4 per day per miner. Results from this component will happen only once Project activities ro l l out in earnest, but would continue progressively over the l i fe o f the Project and beyond.

82. Based on these estimates, the Project i s expected to have a positive economic contribution. Economic and financial analysis i s included in Annex 9.

B. Technical

83. The Project has been prepared with the cooperation o f mining technical experts in the Bank and MEM. The Project will establish an enabling institutional and regulatory environment to help attract and sustain mining investment. Expert technical assistance will help to build Government capacity to establish professional relations with private companies to foster the development o f the mining sector. A s such, the Project will strengthen institutional capacity within MEM and i t s regulatory environment to administer and regulate exploration and mining projects and to achieve socially and environmentally acceptable private mineral investment in the sector.

84. The Project covers a range o f technical issues that are important building blocks o f a strong sector and strengthens Government technical competency to promote sustainable development o f mineral resources, as shown in Table 5.

21

85. The benchmark standard for technical sk i l ls i s international good practice, but with emphasis on appropriate technology in the area o f artisanal and small-scale mining and local value added activities, such as jewelry manufacturing.

C. Fiduciary

86. A financial management assessment was carried out at MEM, in line with the Financial Management Practices Manual issued by the World Bank Financial Management Sector Board in November 2005. The objective o f the financial management assessment was to determine whether the MEM, the entity implementing the SMMRP, had acceptable financial management arrangements in place. The results were that MEM had adequate financial management arrangements that satisfy the World Bank’s minimum requirements under OP/BPlO.O2. The overall Project financial management risk was assessed as modest with mitigation measures put in place to have a l o w residual risk.

87. The review took into consideration the financial management performance o f the IDA projects, Tanzania Energy Development and Access Expansion Project and the Songo-Songo Gas Development and Power Generation Project, currently being implemented by MEM together with the Ministry’s latest available audit reports, which were rated satisfactory.

88. The assessment also drew on 2006 and 2007 Tanzania Public Expenditure and Financial Accountability Reviews (PEFARs), which indicated that there had been major improvements in Tanzania’s public financial management system over the last 10 years. The Government had implemented measures to reduce fiduciary risks: it approved and implemented new public finance, audit, and procurement acts, made the Integrated Financial Management System fully operational, recruited qualified accountants and internal and external auditors, strengthened the National Audit Office, and reformed the public procurement system. These measures have improved both the quality and timeliness o f financial reporting and more accurate and timely information available regarding financial flows. All ministries, including MEM, are now submitting their annual financial statements within the statutory period.

89. Despite these achievements, fiduciary risks in the areas o f internal controls, oversight functions, and procurement remain weak. Appropriate risk mitigating measures were identified and incorporated in the Project design. These include adequate financial management

22

supervision during the Project supervision; strengthened internal audit and audit committees; annual fiduciary assessments through PEFARs; and adequate supervision and quality assurance o f the Project by the oversight agencies. Programs such as the Public Financial Management Reform Program and the Local Government Reform Program are being used by the Government to fund these mitigation measures at central and local government levels. More details about the financial management assessment are found in Annex 7.

90. Public Procurement Ac t (CAP 410, R.E. 2004) and related regulations were established in response to the findings and recommendations o f the 2003 Country Procurement Assessment Review and are now functional.

91. MEM’s Procurement Management Unit, currently supporting two ongoing projects in the energy sector, will carry out the procurement activities for the SMMRP. Procurement for the Project will be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated M a y 2004, revised October 2006; and “Guidelines: Selection and Employment o f Consultants by World Bank Borrowers” dated M a y 2004, revised October 2006.

92. The procurement capacity review o f MEM identified the key risks for Project implementation. The overall Project risk for procurement was ranked “High” prior to mitigation measures given weak procurement capacity o f MEM and inadequate experience o f MEM’s Procurement Management Unit in regard to World Bank procurement guidelines. To mitigate the risks, an action plan was agreed upon to address areas where the implementing agency and Project team, in particular, need to be strengthened to meet good performance criteria for procurement. The action plan includes (a) training o f the procurement staff to enhance their knowledge and skills in procurement o f works and goods and selection o f the consultancy contracts o f great value; (b) preparation o f a draft Procurement Plan for the f i rs t 18 months before negotiations; (c) training o f the procurement staff in the establishment and management o f an adequate procurement database and filing system; and (d) determining the N C B contracts under prior review in the Procurement Plan. MEM has recruited a Procurement Specialist for two months to support the Procurement Management Unit in the preparation o f the Procurement Plan for the first 18 months o f the Project. MEM has also agreed to hire a Procurement Specialist during Project implementation. Procurement capacity will be reviewed periodically and following mitigation measures the procurement risk i s expected to be reduced to substantial.

93. Small Grants Program: The Community Procurement Handbook, prepared by the MEM and cleared by IDA, will include the procurement procedures, methods and requirements related to contracting by the community based organizations. As a pre-requisite for communities’ entry into the Small Grants Program, they shall be trained in procurement basics, as wel l as the methods, requirements, procedures, as expounded in the Community Procurement Handbook.

94. A Procurement Plan for the first 18 months o f Project implementation has been developed. It will be updated annually, or as required, to reflect the actual Project implementation needs and improvements in institutional capacity. I t will be available at MEM, in the Project’s database, and in the Bank’s external web site. Procurement arrangements are detailed in Annex 8.

23

D. Social

95. In l ine with the Tanzania JAST, which aims to promote governance and social accountability, this Project aims to strengthen Tanzania’s capacity and accountability and promote benefits sharing in the mining sector, while mitigating potential social, poverty and gender impacts. With respect to promoting pro-poor and gender-sensitive strategies in the sector, the Project goal i s to strengthen institutional and human resource capacity and enhance accountability, notably in key demand-and supply-governance institutions at the national, district and village levels. In this context the Project activities are designed to promote greater use o f country systems as well as a more effective use and strengthening o f the country’s social safeguard systems.

96. To contribute to the analysis o f the planned pol icy reforms in the sector, a Poverty and Social Impact Analysis (PSIA) will be undertaken with the view to collecting socio-economic data that will help decision-makers to make informed pol icy choices. The PSIA process will also be used to develop relevant governance and social accountability indicators and recommend measures aimed at mitigating any potentially adverse impacts, while at the same time enhancing pro-poor and gender-sensitive pol icy reform and positive impacts. This analytical and operational work will consider large, small, and artisanal mining. In addition, a Strategic Environmental and Social Assessment (SESA) o f the sector and site specific environment and social impact assessments wil l be conducted to provide detailed sectoral socio-economic impact assessments.

97. As a technical assistance operation the exact nature and location o f activities for the artisanal and small-scale mining will be known only during Project implementation. The Government commissioned, as part o f Project preparation, an Environmental and Social Scoping Study on the basis o f which an Environmental and Social Management Framework (ESMF) was developed. This framework highlights the Project activities, potential related r isks and recommends mitigation measures. In accordance with the Bank’s Involuntary Resettlement Policy, OP/BP 4.12, the Government also prepared a Resettlement Policy Framework (RPF). While no resettlement i s envisaged or planned under the Project, the RFP i s available should a resettlement situation arise.

98. The mining industry i s becoming more sensitive to community needs and efforts are being made to enhance community consultation, participation and ownership as wel l as avoid gender biases in the mining community programs. The Project will work with key stakeholder, Government, companies, communities, including women to further promote inclusion, enhance social accountability and governance with a v iew to achieving increased productivity and better development outcomes in the mining areas. With regard to gender bias the Project will conduct training on how to better engage community groups, redress unintended gender bias and provide more direct and indirect employment opportunities for women and men. By developing a consultation strategy, a social accountability plan and gender-sensitive pol icy reforms, i t ’ s anticipated the Project will improve key stakeholders ability to design sustainable and gender- sensitive benefit sharing in community programs and foster good practice in public-private partnership in the mining area.

24

E. Environment

99. The proposed technical assistance Project has been rated environmental category B under the Bank’s Environmental Assessment Policy (OPBP 4.01). It i s expected to have significant positive environmental impacts through improving environmental management o f the mining sector, promoting modern mining technologies and enhancing environmental management capacity in MEM. As a technical assistance operation, most o f the activities have no physical “footprint.” The Project i s not expected to have any major adverse environmental impacts, although some Project activities, namely stationary and mobile demonstration un i t s to promote progressive mining technologies, rehabilitation o f the gemstone carving center building and small grants program, may have l imited and localized adverse environmental impacts and are not expected to result in relocation o f people or displacement o f livelihoods. Since the exact location and design o f some o f these activities are to be determined during implementation, the project has prepared and disclosed an ESMF and RPF that explains how impacts would be addressed if they should arise. The ESMF would be used to prepare an Environmental Management Plan as needed, and the RPF would be used to prepare a Resettlement Action Plan in the unlikely event there i s a need for resettlement. Once locations and designs for the artisanal mining training and demonstration centers are determined, detailed environmental and social management plans will be prepared, as necessary, and have been budgeted for under the Project.

100. It i s widely understood that mining activities often have risk o f significant adverse impact on natural habitat, people and their livelihoods, cultural resources, and indigenous peoples. To help the Government address such safeguards concerns for future mining investments (which are not part o f this Project), a key component o f this Project i s the preparation o f a SESA. The SESA will help the Government to (a) look more broadly at Tanzania’s policies and regulations for addressing these sensitive environmental and social issues in the mining sector; (b) identify key gaps through multi-stakeholder consultations, including culturally appropriate consultations with indigenous peoples; and (c) strengthen Tanzania’s institutional capacity to address these impacts through the environmental and social impact assessment process as potential investments in the sector are identified in the future.

101. The Project i s expected to strengthen Tanzania’s institutional and human resources capacity to address environmental impacts o f mining through the pol icy and regulatory framework. Although the proposed Project includes support to artisanal and small-scale mining activities, the interventions are designed to have positive impacts to the environment by way o f implementing programs to modernize and improve the formalization and promotion o f artisanal and small-scale mining (at the moment, such activities are often undertaken informally, and thus environmental standards are dif f icult to impose). Interventions will focus o n mitigating impacts o f artisanal and small-scale activities on the environment, including “hot spot” areas such the Lake Victoria basin. Further, the Project seeks to complement ongoing initiatives, e. g. on mercury abatement in artisanal and small-scale gold extraction.

F. Safeguard Policies

102. The Project triggers OP 4.01 on Environmental Assessment and OP 4.12 on Involuntary Resettlement. Compliance with the policies will be ensured through implementation o f the

25

ESMF and RPF. The ESMF and RPF and their summaries in Swahili were disclosed in Tanzania o n April 2,2009 at a Disclosure Workshop and v ia the World Bank InfoShop o n April 16, 2009. There i s no expectation that the minor c iv i l works envisioned by this Project will impact natural habitats, physical cultural resources, or indigenous peoples that may be found in various locations in Tanzania, and therefore these safeguards policies are not triggered by the Project.

Safeguard Policies Triggered by the Project Yes N o Environmental Assessment (OP/BP 4.0 1) [X 1 [I Natural Habitats (OP/BP 4.04) [I [XI Pest Management (OP 4.09) [I [XI Physical Cultural Resources (OP/BP 4.1 1) [I [XI Involuntary Resettlement (OP/BP 4.12) [X 1 [I Indigenous Peoples (OP/BP 4.10) E l [XI Forests (OP/BP 4.36) [I [XI Safety o f Dams (OP/BP 4.37) [I [ XI Projects in Disputed Areas (OP/BP 7.60)* [I [ XI Projects on International Waterways (OP/BP 7.50) [I [ XI

G. Policy Exceptions and Readiness

103. designed. In regard to readiness:

There are no pol icy exceptions and the Government i s ready to implement the Project as

The detailed Procurement Plan for the first 18 months o f the Project has been agreed; The format o f the Interim Financial Reports (IFRs) has been agreed; The terms o f reference for the external auditor have been agreed; The terms o f reference for the PSC and PTC have been developed and members o f each committee identified; core P M T staff who have worked effectively together on Project preparation will continue on Project implementation; Safeguards requirements have been completed; Results indicators and monitoring and evaluation arrangements have been agreed and most baseline data has been collected, with outstanding baseline data to be collected as part o f Project implementation (see Project sub-component A1 ).

* By supporting the proposedproject, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas

26

Annex 1: Country and Sector o r Program Background TANZANIA: Sustainable Management o f Mineral Resources Project

1. Tanzania, while r ich in natural resources, continues to rank l o w on the UNDP human development scale. Poverty remains widespread, with higher levels concentrated in rural areas. Tanzania achieved a measure o f macroeconomic stability and strong growth from the mid- 1990s, which helped increase private sector growth and investment. However, a slowdown in foreign investment, trade, and tourism caused by the current global economic decline may hinder economic performance in 2009-201 0. The Economist Intelligence Unit annual real GDP growth forecasts for 2009 and 2010 have decreased from previous estimates o f 6.9 percent and 7.1 percent to 5.7 percent and 6.1 percent, respectively'; Tanzanian authorities are projecting a GDP growth rate o f 6.5 percent in 2009. This falls short o f the 8 percent growth target needed to achieve the country's ambitious poverty reduction goals.'

2. The deteriorating economic condition, long-standing constraints such as poor energy and transport infrastructure, and excessive bureaucracy may impede the Government's efforts to pursue further market-oriented reform and to translate these successes into increased employment and improvements in welfare, especially as high inflation continues to erode living standards and global conditions limit access to financing."

3. Tanzania's economy i s based largely on agriculture, which accounts for more than hal f o f GDP and employs some 80 percent o f the work force. However, agriculture's slow evolution, with l o w productivity o f subsistence agriculture and overall lack o f non-farm income generating activities, has limited opportunities for rural populations to significantly increase cash income.

4. Along with agriculture, mining has been a key sector o f the economy for many decades. Tanzania's vast natural resources include significant deposits o f gold, diamonds, and base metals. It i s known for the unique gemstone tanzanite and hosts commercial quantities o f natural gas on the island o f Songo Songo in the Indian Ocean (of f the Rufiji Delta). Tanzanian mining encompasses large-scale mechanized mines and small-scale operations that include local entrepreneurs and artisans. Small-scale operations are rudimentary, conducted in ad hoc manner, and characterized by a lack o f adequate controls and monitoring, minimal adherence to safety and environmental standards, and a virtual absence o f supporting physical or institutional infrastructure.

5. Except when a 1990 review o f investment explorations sparked an exploration boom, much o f the country has yet to be explored, which creates the opportunity for major new finds. The areas o f highest potential for discoveries are the various Archaean greenstone belts in the Lake Victoria district (including Geita, Rwamagaza, Musoma-Mara, Kilimafedha, Kahama, Iramba-Sekenke and Nzega) and in the Proterozoic rocks o f southern Tanzania (containing the Lupa and Mpanda goldfields)." Tanzania's potential to produce greater precious and semi precious metals and colored gemstones, base metals and ferrous metals, and industrial minerals

* Economist Intelligence Unit (EIU), Tanzania Country Report, January 2009. Ibid

Io Ibid I' Mining Journal, Tanzania Country supplement, August, 2008, http://www.mining-iournal.com

27

i s high enough to satisfy i t s domestic demand, exports, and bring in higher foreign exchange earnings.

6. Despite Tanzania’s rich endowment o f diverse mineral resources and a long tradition o f gold, diamond and gemstone finds, mining declined progressively after the 1950s. Since the late 1990’s, however, mining has undergone major growth and rebounded, due to strong government leadership and a market-based approach. A Mineral Sector Development Technical Assistance Project which came into operation in mid-1994 with IDA support. This helped to attract investments for mineral exploration and mine development through a f i rs t generation o f improvements to the frameworks o f the mineral sector, including improvements o f institutions and agencies administering the sector.

7. The sector’s rapid expansion, marked by increased exploration and mining investments from US$1.3 mill ion to US$2.5 billion between 1997 and 2007, has led to increased annual gold output from 1 to 50 tons, making Tanzania the third largest African gold producer. Over the same period, the value o f export earnings accrued from minerals increased from 1 to 52 percent and formal employment in the minerals sector increased from 1,700 to more than 13,000 employees. Total mineral exports in 2006 were valued at US$857 million, o f which gold contributed US$640 million, tanzanite US$44 mill ion and diamonds US$26 million. Official exports o f copper in 2006 totaled 7.24Mlb (3,285t), valued at US$19.9 million. Silver i s produced as a by-product o f gold mining, and 15t, valued at US$5.5 million, were exported in 2006.12 Moreover, since the early 1990s’ more than 50 multinational companies and more than 250 local companies have acquired mineral rights in Tanzania, many o f these gold prospects. Although i t s contribution to GDP i s s t i l l small at 2.7 percent, mining i s the second most important generator o f foreign exchange for Tanzania after tourism and continues to be a high priority sector for the Government.

13

Fiscal, Regulatory, and Legal Framework

8. Apart from a favorable geological environment, the successes achieved in Tanzania’s minerals sector are due largely to the major reforms that have been undertaken since the mid- 1980s, including a new mineral policy and the enactment o f internationally competitive fiscal and legal regimes for the mineral sector. In 2006, some additional changes were made to the 1998 Mining Act following a review o f the mineral policy.

9. Tanzania’s mining industry i s regulated at the national level. The principal legislation governing the mining sector i s the Mining Act (CAP 123, R.E. 2006), the Explosives Act (CAP 45, R.E. 2002), the Environmental Management Act (CAP 191, R.E. 2004), and the Income Tax Act (CAP 262, R.E. 2004). The Income Tax coupled with Tanzania’s Investment Act set out the fiscal framework governing the mining sector and contain provisions that guarantee profit and capital repatriation as well as access to international arbitration process. Tanzania’s fiscal “package” includes income tax, royalty, withholding tax, and customs duty rates. I t also contains a tax incentive that includes the possibility for large-scale mining projects to enter into a

Mining Journal, Tanzania Country supplement, August, 2008, http://www.mininn-iournal.com 12

l3 ibid

28

development agreement with Government, which stabilizes the tax regime as it was on the signature date o f the development agreement.

10. According to the Mining Act, minerals in or under the land are the property o f and under control o f the Government. Rights for prospecting and mining for minerals are licensed under the Mining Act and licenses are granted o n a first come, first served basis, except in cases where licenses are subject to a competitive bidding process.

11. Tanzania’s legal system i s rooted in English common law, statutes, case law, and customary law. English common law applies only in the absence o f statutory law and does not apply where commercial law has largely being enacted. Customary l aw applies generally to matters o f ancestral land ownership, inheritance and in matters o f marriage.

12. The principal regulatory body governing the mining sector i s the Ministry o f Energy and Minerals (MEM). There i s a commissioner for minerals (the Commissioner) within the Ministry appointed by the President who i s tasked with supervising and regulating the implementation o f the Mining Act. Both the Minister and the Commissioner are the recognized licensing authorities under the Mining Act. There are also inspectors o f mines who oversee the sector according to the provisions o f the Mining Act.

Sector Challenges

13. The rapid growth o f Tanzania’s mineral sector, particularly small-scale and artisanal mining, has overstretched institutional capacity. Government institutions lack adequate tools, expertise, and organizational setup required to oversee and support a modern, market-driven mineral sector. While Tanzania has been successful in attracting investments, the Government and communities have become increasingly dissatisfied with the mineral sector’s level o f contribution to the economy and the inadequate institutional capacity to oversee the sector. This i s a particular concern in such areas as investment and environmental management cost auditing; safety and occupational health standards enforcement; inadequate value added in exported minerals; slow pace o f transforming and modernizing artisanal and small-scale mining; and insufficient integration o f mining into the national economy. Other challenges facing the sector include:

High expectations on mining benefits for Tanzania and communities in the mining areas. Emerging public perceptions calling on the Government to undertake policy changes to increase benefits for Tanzania. Investor perception o f uncertain investment climate pending mining sector pol icy reforms. Lack o f infrastructure for roads, rai l and power. Most mines are not connected to the national grid and generate their own electricity using high cost diesel generators. Maintaining Tanzania’s competitiveness as a mineral investment destination given the global commodities and credit crisis. The lack o f Government capacity to effectively manage the sector. Prospecting and mining license applications are backlogged for more than 12 months, and MEM lacks the resources to conduct mines inspections on license requirements, health, safety, and environment. Lack o f diversification o f minerals from gold and gemstones into base metals and other minerals.

29

14. To address these concerns, the Government formed a Mineral Policy Review Committee (Kipokola Report) in 2004, which was succeeded by a Presidential Commission on the Mineral Sector (Bomani Report) in 2008 to conduct an in-depth review o f the mineral sector, with a view to improving the capacity o f the sector to stimulate additional economic growth. The recommendations from Kipokola and Bomani reports provided inputs into the Government’s process o f policy review, which i s currently underway. Both reports emphasized the urgent need to build capacity within government institutions and agencies, so as to: a) enable sustainable development o f a modern, market driven sector, with adequate benefits for the country; b) establish a modern and transparent administrative and oversight setup for the sector; c) consolidate the mineral sector growth achieved since the late 1990s; and d) continue developing basic geo-information to sustain investment promotion.

1 5. The Government has formulated the Sustainable Management o f Mineral Resources Project to help address the outstanding pol icy and institutional issues intended to improve benefits o f the mineral sector in a sustainable way. Further details o n the mining sector are contained in the Mining Sector Br ie f in Annex 15.

30

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies

TANZANIA: Sustainable Management o f Mineral Resources Project

Mineral Sector Development Technical Assistance Project (IDA 26480 - US$11.12m)

Accountability, Transparency and Integrity Program

US$40.00m) (IDA 41710 -

Extractive Industries Transparency Initiative (EITI) (TF090446) Development o f National Statistical System for Tanzania

Private Sector Competitiveness Project (IDA 41360 - US$95.0m)

Tax Modernization Project (IDA 4 1900 - US$12.0m) Energy Development and Access Expansion Project (IDA 43700 - US$ 105.0m)

Enhance the Government’s capacity to: (i) promote mineral investments; (ii) modernize policy, regulatory and fiscal fiameworks; (iii) oversee, administer and enforce compliance with applicable laws and regulations; and (iv) restructure mineral institutions and agencies, incorporating international experiences and practices, particularly on environmental matters. Strengthen the legal and judicial system through establishment o f a harmonized national legal ftamework by amending key legislation, streamlining processes, and improving capacity for legal research. Enhance public financial accountability, through improved capacity at the Ministry o f Finance and Economic Affairs, line ministries and agencies, so as to achieve sound macroeconomic and fiscal management. Support implementation o f EITI, a platform for governance reform in mining sector (reconciliation o f payment and revenues; capacity building in government and civi l society) in Tanzania.

Project i s under preparation. Focus on establishment o f a sustainable national statistical system to provide reliable, accurate, and timely statistical information for the design, monitoring, and evaluation o f public policy and programs. In particular, the Project aims to: (i) strengthen statistical capacity o f the relevant statistical agencies through training and adoption o f new information, communication and technology; carry out legal and institutional reforms that promote statistical development; (iii) establish l i n k s among producers and users o f statistics; and (iv) promote statistical information sharing among data producers and users to strengthen decision and Dolicv making. Contains a business competition component to develop new private business that can be utilized by domestic businesses looking to provide goods and services to the mining sector. Also contains support for training institutions to develop and provide training demanded by the private sector. Provides support to the Tanzanian Revenue Authority, including large taxpayers unit on mining taxation audit and collection.

Improve the quality and efficiency o f the electricity service provision in the three main growth centers o f Dar es Salaam, Arusha, and Kilimanjaro and to establish a sustainable basis for energy access expansion. Contains activities helping to ensure that the large mines are on the electrical grid.

Completed in 200 1

Moderately Unsatisfactory

NIA

NIA

Moderately Unsatisfactory

Satisfactory

Satisfactory

Satisfactory

Moderately Satisfactory

N IA

NIA

Moderately Satisfactory

Moderately Satisfactory

Satisfactory

31

Minerals Sector Development Project (SDR 6.95m) NEMC and Belgian Artisanal Mining Research

32

Development o f the geophysical and geochemical surveys and Nordic Completed establishment o f Mining Cadastral Information Management System. Enhancing environmental quality through improved gold Belgian Technical Under recovery in artisanal and small-scale gold mines in Tanzania.

Development Fund

Corporation Preparation

Annex 3: Results Framework and Monitoring

TANZANIA: Sustainable Management o f Mineral Resources Project

Project development objective (PDO) and outcomes

Use of Project Outcome Information Project Outcome Indicators

- small-scale mining for Tanzania and T

a) Improved socio-economic impact o f mining in the targeted areas.

b) Improved technical and institutional capacity.

c) Increased attractiveness for private investment in mining sector.

Intermediate Outcomes Component A: Improving the Benefi Economic Development and Skills D Improved technical and environmental performance o f small scale and artisanal miners.

Increased formalization o f A S M .

Improved services and/or l ivelihood for local communities in selected mining areas by Project end.

izanians, and enhance private local and foreign inves Socio-economic Impacts

Percentage increase (1 0%) o f household income levels in selected A S M communities.

Percent o f citizens in participating communities who consider that their views have been taken into account in the local economic development strategic planning process (perception survey).

Capacity

Time to process mineral rights (exploration licenses, 2 months).

Annual publication o f mining sector revenue.

Investment

Improvement in Tanzania’s ranking as a mining investment destination as evidenced by independent investor survey (Fraser Institute).

Percentage (5%) increase in mining revenue. Intermediate Outcome Indicators

nent.

Improved income levels support community poverty reduction. Formalized artisanal and small scale miners gain access to Government support.

Improved socio-economic outcomes.

Increased confidence in the sector by investors and communities.

Revenue f rom the extractive industries sector is transparently disclosed to the benefit o f people o f Tanzania.

Government can use increased revenue for poverty reduction and infrastructure.

Use of Outcome Information of the Mineral Sector for Tanzania: Artisanal and Small-Scale Mining, Local

,elopment. Improved performance in selected A S M c o k u n i t i e s as evidenced by - Increased production (quantity, US$). - Number o f environment plans (mercury and

tail ing management) in place.

Number o f small scale miners who received formal training in mining.

Number o f A S M associations and enterprises established and operational under a mineral right.

Number o f A S M licenses.

Number o f LGAs in large-scale mining areas w i th strategic plans developed in participatory manner.

A S M communities are healthier as a result o f improved mit igation o f negative A S M health and safety impacts.

Improved community capacity to get better development outcomes from mining activities, including gender aspects.

Improved socio-economic impacts for communities to improve quality o f life, reduce conflict, and improve investment climate.

33

Skills development.

I opportunities-for Tanzanians. Component B: Strengthening Gover Legal and regulatory framework for

Mining technical sk i l l s accreditation framework established. increased employment

Consistent standards leading to

the-mining sector that i s modem and transparent

Monitoring and Evaluation

Improved efficiency, quality and reliability o f Mineral Rights service delivery

Project reporting (biannual). Track Project progress and impacts.

Improved technical capacity for mines inspections, exploration verification, and mineral audits.

Development o f capacity for management o f environmental and social issues in mining.

Component C: Stimulating Mineral Modem and readily accessible geological data and information.

Improved investment promotion and statistics

Improved education and communication on the mineral sector

w e and Transparency in Mining Revised mineral law and regulations disseminated.

Draft legal and regulatory frameworks on value addition developed.

Percentage o f pending mineral rights applications reduced (80%) from 2007 level o f 10,000,

Number o f mines inspections (including environmental) and remedial actions; number o f audits.

Percentage o f increase in collection o f license fees.

Specific environmental and social policies and guidelines (mine closure, mercury) developed.

Computerized environmental management system developed.

:ctor Investment Percentage (1 4%) o f country covered by geophysical airborne surveys at 1: 100,000 scale.

Area o f coverage (14%) by new geological maps (1 : 100,000 scale), as percentage o f the total area o f Tanzania.

Percentage (65%) o f geological maps digitized (map MIS).

Area covered (100%) by new metallogenic map o f Tanzania for mineral promotion (1 :2,000,000) as percentage o f total area o f Tanzania.

Annual mining sector statistics report published.

Legal, regulatory and fiscal framework for the mining sector improved.

Service delivery by government on mining improved. Increased attractiveness o f Tanzania as a mining investment destination.

Improved transparency and confidence o f royalty income.

Knowledge and management o f environmental issues.

Reduced risk o f environmental impacts through better approval and risk management.

Increased investor awareness and attractiveness o f Tanzania.

Increased knowledge o f geology and mineral potential to better plan infrastructure for h t u r e needs.

Increased knowledge and awareness leading to better informed decision making.

Positive publid awareness increases public-private confidence and synergy.

34

C 0

6: * 8 3

v, m 6: * I

v)

8 E 2

C 0

k

T- t k? d

e i-

e,

a .-i

g a 2

El

i- o e, .-i

a

g a 2 8 e c)

.? a

a 2

e i- o .? a

2 0

h - t 6

2 0 a 2 ,x

t 6

0 0 v1

N

t

I

1 s 2

n

+ b n

Annex 4: Detailed Project Description TANZANIA: Sustainable Management of Mineral Resources Project

1. The Project includes four components: (a) Improving the Benefits o f the Mineral Sector for Tanzania: Artisanal and Small-scale Mining, Local Economic Development Planning, and Skills Development; (b) Strengthening Governance and Transparency in Mining; (c) Stimulating Mineral Sector Investment; and (d) Project Coordination, Management and Monitoring and Evaluation.

Component A. Improving the Benefits of the Mineral Sector for Tanzania: Artisanal and Small-Scale Mining, Local Economic Development and Skills Development (US$15.9 million, of which US$15.0 million IDA and US$0.9 million from Government)

2. The main objective o f this component i s to support the implementation o f the national A S M ~trategy '~, which aims to improve sustainability o f small-scale mining and address technical, environmental, and social conditions o f small-scale mining operations. The component will also address linkage o f the mineral sector with the local economy and sk i l ls development required for the mineral sector. The Project will support activities intended to (a) improve existing information about the mineral sector through baseline studies; (b) improve extension services for small-scale and artisanal miners; (c) stimulate development o f industrial minerals and value added activities; (d) improve small-scale miners' access to credit facilities; and (e) enable local governments to integrate mining into district economic and administration planning. The main beneficiaries will be MEM and, through it, artisanal and small-scale miners, local communities in mining areas and Tanzanian miners.

3. A.1. Baseline Studies (uS$O. 6 million IDA, US$O.l million from Government). In the past decade, a number o f studies were conducted on various aspects o f mining in Tanzania. The Mineral Sector Development Technical Assistance Project facilitated a country-wide survey on the status o f artisanal and small-scale mining activities in 1997. Mining companies have conducted environmental studies in compliance with law, which requires them to undertake Environmental Impact Assessments and submit reports to the Government. Other government institutions, such as NEMC, have also commissioned a number o f studies related to environmental management. Most o f these studies are issue-based and require regular updating and expansion in order to provide a country-wide perspective. This sub-component will provide baseline information to inform Project components and for use in monitoring and evaluation. The sub-component will build o n previous studies to (a) assess and map the extent o f artisanal and small-scale mining activities, interpret data, and compile it into an A S M database; (b) conduct a study on socio-economic impacts and benefits o f the Geita (Geita Gold Mining), Kahama (Bulyanhulu Gold Mine) and Mirerani (TanzaniteOne) large-scale mines; (c) assess institutional capacity for acquisition o f mining statistics and capacity for data management; and (d) prepare a strategy and framework for Project monitoring and evaluation.

4. A.2. Extension Services for Artisanal and Small-scale Mining (US$4.8 million IDA, US$0.2 million from Government). The Government has prepared a national strategy to develop small-scale mining that hinges on identifying and allocating exclusive areas for small-scale

l4 Mikakati ya Kuwaendeleza Wachimbaji Wadogo, 2006

38

mining; imparting training and skil ls; facilitating geological investigations; improving credit and financing; promoting value addition; improving marketing; streamlining the fiscal framework; enhancing regularization and coordination; and addressing cross-cutting issues such as environment, health and safety, gender, HIV/AIDS , and social responsibility. In recognition o f the legal, technical, and organizational problems facing artisanal and small-scale miners, MEM runs an extension services program designed to improve artisanal and small-scale mining activities through training and awareness campaigns. Extension service is offered through ZMOs and RMOs, which are not adequately equipped to perform these duties effectively. The rapid expansion o f artisanal and small-scale mining and the relative mobil i ty o f miners, particularly in the event o f mineral “rushes,” make it dif f icult for extension officers to reach out to miners adequately. MEM i s strengthening i t s capacity to adequately implement the small-scale mining development strategy by establishing a Small-scale Mining Development section under the Commissioner for Minerals, and by enabling ZMOs and RMOs to build trust with mining communities and provide extension services, demonstrate different strategic and technical approaches in a holistic manner to stimulate legal and responsible mining activity, and address specific mining-related issues, including mining and processing technology, financial management, environment, health (including the Albino issue), community consultation, organization and formalization o f artisanal mining activities.

5. This sub-component will provide technical assistance to support the design and implementation o f the pi lot sub-projects, training, extension services, and good practice manuals. I t s goal i s to support the strengthening and creation o f regional centers o f excellence for training and outreach in the area o f small-scale and artisanal mining. MEM will also work with large- scale mining companies that have established small-scale miners’ assistance initiatives, such as the Mwadui community diamond partnership, the small-scale miners’ assistance program at Mirerani, and the model mine program for small-scale mining at Nor th Mara mine. The Project will also support related diversification and training initiatives for Tanzanians. Among these will be short-term courses for small entrepreneurs and work with educational institutions, including vocational and technical schools and training authorities. MEM will work mainly with community based ASM, supporting them to become formalized and therefore avail themselves o f MEM’s technical support. A S M communities receiving extension services are expected to improve the quality o f their lives through higher productivity and lower negative social and environmental impacts.

6. The Project will support MEM’s Minerals Div is ion to (a) strengthen the Small-scale Mining Section at Ministry headquarters; (b) increase capacity for extension services provision in ZMOs and RMOs; (c) boost the capacity o f the MRI, VETA, SIDO, and SEAMIC to offer short-term courses to small-scale miners; (d) establish small-scale mining centers for extension services and provide demonstration mines with training manuals, demonstration materials, and training o f trainers proposed at Chunya (gold), Mpanda (gold), Morogoro (gold), Manyoni (gold), Geita (gold), Bukombe (gold), Mirerani (tanzanite), and Mbinga (sapphire). Environmental and Social Impact Assessments will be done on identified operations prior to selection, and the Government’s role will be to facilitate training, while ownership and operational matters will remain in the hands o f license and mine owners; (d) strengthen capacity o f ZMOs and RMOs to provide extension services through training o f extension officers and provide them with training manuals and Transportable Demonstration Units outfitted with pieces o f equipment for demonstration to enhance their capacity, mobility, and quick response in events o f mineral rushes; (e) prepare standard training manuals and codes o f conduct for small-scale

39

mining o n mining practice, health and safety, basic geology, and mineral processing for specific minerals and o n cross-cutting issues such as HIV AIDS, environment, entrepreneurship, and social responsibility; and (0 promote initiatives by large-scale mining (LSM) companies for training and extension services for small-scale miners in Geita, Mirerani, Kahama, and Kabanga to capture lessons learned and strategies to manage potential conflict between A S M and LSM.

7. A.3. Targeted Programs for the Development of Specific Industrial Minerals and Value Addition in Gemstones (US$3.2 million IDA, US$O.5 million from Government). MKUKUTA identifies the promotion o f mineral value-addition as one o f its priority areas in fighting poverty in Tanzania. In 2003, MEM established the Arusha Gemstone and Carving Centre for the purpose o f training small entrepreneurs in value addition activities for gemstones and ornamental stones. The Centre i s halfway complete in terms o f rehabilitation o f buildings, training, and equipment. MEM’s aim i s to upgrade the Centre into an international Gemological Institute that would run training, production, and promotion o f gemstone and ornamental stone products.

8. This sub-component will support technical assistance programs for domestic entrepreneurs to further develop the production and marketing o f industrial minerals; value- added activities in gemstones and semi-precious minerals; and the establishment o f an integrated pi lot breeder for downstream products, including a training and an industrial and marketing center, with the goal o f developing a competitive small-scale industry for stone carving and lapidary and gold-based jewelry. Training and support will enable Tanzanians to work independently in value added activities and become investors in this sector. Support will also be provided for piloting initiatives for “fair trade” in artisanal mined products such as gold and gemstones. The sub-component will support (a) strengthening the Arusha Carving Centre; (b) establishing lapidary and jewelry sections and training programs at the Arusha Carving Centre; and (c) empowerment o f entrepreneurs to produce and market specified industrial minerals locally, mainly kaol in (Pugu/Makete), gypsum (Makanya/Mandawa/Itigi), lime/limestone (Tanga/Songwe/Kasulu), Pozollana (Rombo), diatomite (Kagera River), brick clay (Mbozi/Bukoba), and salt making (Singida/Mbeya/Mtwara/Dodoma) for large-scale mining and other manufacturing industries; and (d) support for fair trade initiatives.

9. A.4. Financial Assistance to Small-Scale Miners and Value Addition Activities (US$4.8 million IDA). Artisanal and small-scale miners fa l l under the category o f small and medium entrepreneurs. This group i s faced with critical problems, in particular access to financing and credit. Lack o f funds for capital and support operations contributes to poor standards in small- scale mines and poor responsiveness to other initiatives, such as training and extension services. Lack o f entrepreneurship sk i l ls i s identified as one o f the factors hindering small-scale miners from accessing available financial and credit schemes existing in Tanzania.

10. This sub-component aims to provide individual businesses with financial skills to manage self-employment and micro-enterprises; offer training and assistance to engage marketing and advisory services and to select and purchase equipment; and deliver help to communities in selecting community-level investments in productive infrastructure, including hubs for marketing and mineral transformation, processing and downstream production, and businesses to supply mines and miners with goods and service. The Project will collaborate with REMAs and other stakeholders to promote (a) training o f small-scale miners o n entrepreneurship skills; (b) strengthening and supporting schemes for equipment leasing and local fabrication o f tools and equipment in small-scale mining centers; and (c) development o f a small grants program to

40

provide financial assistance in the form o f small grants to support miners and community based mining organizations on programs such as environmental improvement, small diversification projects, improvement o f health and safety in mines, and technology in small-scale mining areas. The program would evaluate proposals on a competitive basis and contain a screening mechanism where al l proposed projects will be required to adhere to good practices in social and environmental responsibility. The small grants program will be comprised o f two phases, with the second phase contingent upon the success o f the first.

11. A.5. Linkages between Mining and the Local Economy (US$1.2 million IDA, US$O.l million from Government). Inadequate integration o f mining into the national economy i s identified as one o f the challenges facing the mineral sector. This sub-component aims to strengthen linkages between large- and small-scale miners and their respective LGAs by supporting strategic planning for local and regional economic development with the participation o f the miners, mining companies, and communities in the planning process. The Project will support a pi lot methodology to test the implementation o f this subcomponent in Geita, Kahama, Tarime and Biharamulo districts. Successful strategies will be rolled over systematically to other mining districts to enable local and regional economies to take advantage o f mining investment as a catalyst for broader development in the region, including l i n k s to infrastructure, better integration o f corporate community development activities, supply chain opportunities, sk i l ls transfer, and diversification. The sub-component will support selected LGAs to mainstream mining into strategic planning at district level by developing local economic development strategic plans in a participatory manner. With mining companies, local business, community and c iv i l society, the Project will utilize OECD best practice on local economic development and the local economic development methodology developed within the World Bank. Selected LGAs will integrate artisanal and small-scale mining activities into the district administrative structure, and mechanisms will be instituted to empower communities in selected mining areas to invest strategically in provision o f goods and services to mines.

12. A.6. Human Resource Development for the Mining Industry (US$0.4 million IDA). Technical skills development and training for the mining industry in Tanzania is s t i l l in i t s infancy. For a long time, training in geology and for mining technicians was being provided at the University o f Dar es salaam and at the Mineral Resources Institute in Dodoma, respectively. Recently, degrees in Mining and Mineral Processing were introduced at UDSM, and curricula for mining technicians were introduced by VETA and by the Dar es Salaam Institute o f Technology. Students who graduate f rom these training institutions require extensive on-the-job training to acquire skills and competencies required in the mines, such as those required for blasters, shift bosses, mine overseers, mine surveyors, on-setters, and other positions. Currently, such training i s done by individual mines on an ad hoc basis, and there i s no established framework for developing, facilitating, and certifying most o f the competencies. Sk i l ls development has been identified by the private sector as a major issue, and the Chamber o f Minerals o f Industry i s currently developing a training scheme for vocational sk i l ls such as mechanical and electrical technicians to address this need.

13. This sub-component aims to facilitate the formulation o f a framework for sk i l ls planning, training, certification, and maintenance o f standards to support productivity and occupational health and safety in the mining industry. The sub-component will increase both opportunities for Tanzanians in higher value occupations and the benefits to Tanzania while building the ski l ls base for the future. The sub-component will support MEM in (a) conducting a needs assessment

41

for human resource development for the mining industry, and (b) establishing and supporting a framework to administer sk i l ls planning, qualifications, apprenticeship and continuing education for the mining industry.

ComDonent B. Strengthening Governance and Transparency in Mining (US$8.7 million, of which US$7.4 million IDA and US$1.3 million from Government)

14. B.l. Legal Reform and Fiscal Transparency (USSl. 7 million IDA, US$O.l million from Government). This sub-component i s designed to build on previous studies and input from the PSIA to support the ongoing review and updating o f the legal, fiscal, and regulatory frameworks for the mineral sector in Tanzania. These would incorporate international best practices, adjusted to the conditions o f Tanzania, and would follow a participatory approach including stakeholders, other Government institutions and agencies, the private sector and civil society. Particular attention will be devoted to the roles and responsibilities o f central and regional/district authorities, as well as sharing o f benefits from mining with local governments and communities, by applying adequate governance and transparency approaches. Support will be given to E IT I implementation efforts and to raise public awareness on the revised policy and legislation.

15. The sub-component will support the following activities: (a) strengthening o f MEM’s legal services unit; (b) completion o f reviews o f the Mineral Policy, the Mining Act, and other related laws with emphasis on harmonization o f laws; (c) establishment o f a legal and regulatory framework on value addition activities; (d) creation o f public awareness on the Mineral Policy and legal and regulatory frameworks, and on the fiscal regime; and (e) launch o f activities related to the implementation o f EITI.

16. The Government and the Bank will dialogue on possible support for the Government to develop a legal and regulatory framework for radioactive minerals, which are currently being explored by investors. Before such support would be provided, the Bank would require clarity on the expected end-use o f the mined product, assurance o f Tanzania’s compliance with International Atomic Energy Agency norms, and additional World Bank approval.

17. B.2. Institutional Capacity Building (USJ1.6 million IDA, US$O.l million from Government). Comprehensive restructuring o f MEM following the organization efficiency results was done in 2001 and 2006. Despite the changes, MEM has continued to face various challenges that have necessitated the review o f i t s functions and organizational structure to enhance i t s efficiency. In the last two decades, the mineral sector has grown vastly, bringing a new demand for streamlined and specialized management o f the sector. MEM has reorganized by establishing the Environmental Management Unit, the Legal Services Unit, Information, Education, and Communication Unit, and the Management Information Unit to service both the Energy and Minerals Divisions. The Minerals Division has been reorganized to include the Mineral Economics and Trading Section, Mines Inspectorate Section, Small-Scale Mining Development Section, the Explosives Management Section, the Minerals Audit Section, and Licensing and Mineral Rights Management Section.

18. This sub-component w i l l support an institutional analysis to identify needs for capacity building and strengthening linkages and coordination with other government institutions that take part in the administration o f the mineral sector. The Project has already identified the need

42

to strengthen MEM’s auditing and inspection functions, including environmental impact assessment review and compliance monitoring, mine occupational health and safety, and technical audits for royalty payments and fiscal issues. The Project will therefore support strengthening o f units and sections that deal with legal, environment, statistics, communication, information technology, small-scale mining, mines inspections, and minerals auditing under different components o f the Project. ZMOs and RMOs will also be re-equipped. This sub- component includes the following activities (a) functional review o f MEM; (b) strengthening o f the mines inspection section; (c) strengthening o f the Gold Audit Section; (d) training o f MEM staff; and (e) improvement o f working tools and equipment for ZMOs and RMOs.

19. B.3. Improving the Mining Cadastral Information Management System (US$1.8 million IDA, US$0.8 million from Government). This sub-component will build on the new M C I M S that was developed with the support from the Nordic Development Fund. The M C I M S was constructed around a centrally located database in Dar es Salaam with a Wide Area Network connecting the system to MEM’s 20 regional offices. By end-2007, M C I M S was faced with challenges o f not having adequately trained administrators and operators, lack o f adequate equipment in the regional offices, huge application backlogs that affect data integrity, and the fact that not al l primary mining licenses issued to small-scale miners are incorporated in the MCIMS. Currently there are approximately 10,000 pending license applications dating back as far as 2007.

20. The sub-component aims at supporting MEM to strengthen the M C I M S by improving the hardware, software, human resources, and to formulate mechanisms to sustain the system. It will support (a) assessment o f Cadastre needs including strategy, hardware, software and training; (b) system upgrades; (c) training o f staff in M C I M S operations; (d) improvement o f central registry and sub-registries at ZMOs and RMOs; (e) conducting f ield verification o f small-scale mining licenses to support the full incorporation o f the small-scale mining sub-sector into the MCIMS; and (0 strengthening o f the M C I M S and clearance o f backlogged applications.

2 1. B.4. Environmental and Social Management (US$2.3 million IDA, US$0.3 million from Government). Recognizing the nature and sensitivity o f mining and the environmental impacts associated with it, MEM has established an EMU. Since its inception, EMU has been working together with N E M C to make sure that social and environmental impacts o f mining activities in the country are minimized. Mercury i s widely used in artisanal gold mining, and a 2004 U N I D O study identified mercury contamination as a serious environmental and health issue. Tanzania participated in the UNEP Global Mercury Program, which provided technical assistance to reduce or eliminate mercury use and contamination. The sub-component supports proactive and reactive activities aimed at addressing environmental and social aspects o f mining based on the findings and recommendations o f baseline survey for artisanal and small-scale mining and the SESA studies. To promote social accountability and demand for good governance while drawing on the experience o f demand for good governance networks (e.g., SASANET, ANSA-Africa, ANSA-EAP), the Project will scale up and mainstream support for transparency, civic engagement and participatory policy reform dialogue to enhance sustainable development in the sector. A Poverty and Social Impact Analysis (PSIA) will also be conducted to assist the decision-makers in making informed policy choices. This process will encourage opportunities to build multi-stakeholder coalitions and identify demand-side champions o f reform, existing good practices, critical institutional entry points, constraints and promote an

43

enabling environment for capacity building. With respect to impact measurements, the Project wi l l support training in the development o f social accountability and DFGG-based outcome indicators and results monitoring.

22. The sub-component wi l l enable the Project to (a) strengthen the EMU (via provision o f training and equipment) so that it i s able to execute i t s functions effectively; (b) conduct a SESA; (c) conduct PSIA; (d) establish an environmental database linked to mining cadastre and MIS; (e) preparation and updating o f environmental and social guidelines and codes o f practice (based on results o f SESA) on issues such as mine closure, small-scale mining and mercury, consultation and gender, and resettlement framework based on internationally accepted best practices; (0 environmental and social awareness programs in small- and large-scale mining areas; (g) development o f a framework for abandoned mines; and (h) strengthening environmental monitoring capacity at MEM headquarters, N O S , ZMOs, and LGAs through training and technical support and improving work environment.

Component C. Stimulating Mineral Sector Investment (US$25.0 million, of which US$23.0 million IDA and US$2.0 million from Government)

23. C.1. Strengthening of the Geologic Infrastructure (US$21.7 million IDA, US$1.8 million from Government). This sub-component will build upon work conducted under the Minerals Sector Development Project, financed jointly by the Nordic Development Fund and the Tanzanian Government between 2006 and 2007. The aim i s to continue with improvement o f information by acquiring new information and updating existing data and information. The upgraded information will be made available to investors to facilitate the promotion o f private investment in exploration and mining and to support adequate planning o f mineral development by Government. The Project wi l l support strengthening GST to make it a geological center o f excellence for East Africa.

24. The sub-component wi l l provide support necessary to allow GST to (a) complete a high resolution airborne geophysical survey and conduct ground flow up in selected areas o f the country, including Chunya, Dodoma, Kiomboi, Kondoa, Manyoni, Babati, Handeni, Kilindi, Mvomero, Bahi, and Chamwino districts; (b) acquire and update geo-data and information through geological mapping, as well as geophysical and geochemical surveys, and publish related maps and reports, particularly for selected areas in Kiomboi, Mbulu, Hanang, Babati, Singida, Kondoa, Kiteto, Handeni, Kilindi, Manyoni, Dodoma, Kongwa, Mpwapwa, Iringa, Ludewa, Kilolo, Mufindi, Njombe, Bagamoyo, Mvomero, Kilosa, Mbarali, Kyela, Chunya, Bahi, Chamwino , Songea, Mbinga, and Namtumbo districts; (c) computerize, digitize, and upgrade the existing MIS; (d) strengthen the GST (training and laboratory upgrade); (e) update and maintain the geological map library and rock and mineral core sample archives; and (0 make geoscientific data and information (including metallogenic maps) readily accessible to potential investors and stakeholders and infrastructure planning authorities.

25. C.2. Future Role of State Mining Corporation (STAMICO) (US$0.2 million IDA). This sub-component wi l l finance a strategic assessment o f STAMICO, the state-owned mining company, exploring existing institutional capacity and options for self-financing, as a pre- condition for i t s future role with the private sector for both large- and small-scale opportunities.

44

26. C.3. Mineral Sector Investment Information and Promotion (USSl. 0 million IDA, US$O.l million from Government). Despite the remarkable investment growth in the mining sector, value addition in produced and exported minerals i s insignificant (currently standing at 0.3 percent), thus not contributing fully to j ob creation or economic growth. The main challenges, therefore, are to continue attracting investment in mining and ensuring that value addition activities are realized within the country. The sub-component aims to strengthen the promotion o f Tanzania’s mineral resources. I t will link up the GST and the Mineral Rights Registry databases. The sub-component will provide MEM with the support necessary to (a) strengthen the Mineral Economics and Trade Section that deals with statistics and promotion; (b) strengthen the Information, Education and Communication Unit; (c) strengthen the Management Information System Unit; (d) improve data capture and preparation and dissemination o f sector statistics and promotional materials; (e) improve communications in the mineral sector by implementing a communications and promotion strategy, including issue specific communicationdinformational tools to educate the public about the mining sector (for example, with regard to the Albino issue).

ComDonent D. Project Coordination and Management (US2.5 million, o f which US$2.0 million IDA and US$0.5 million from Government)

27. The sub-component will support Project coordination and implementation, including procurement, financial management, and disbursement, which will be managed by MEM staff organized into a Project team. Additional experts may be hired to j o i n the team. The PSC, chaired by the Permanent Secretary, will also be formed, consisting o f Permanent Secretaries from major stakeholders within Government, Deputy Attorney General, Attorney General’s Chambers and the Chief Executive Office, and GST. The PTC will also be formed to advise the PSC on the progress o f the Project. This sub-component will support (a) Project management; (b) monitoring and evaluation o f Project implementation; and (c) coordination o f Project exit studies to evaluate the overall performance o f the Project, in particular achievement o f Project goals, strength and weaknesses, and the way forward.

45

Annex 5: Project Costs TANZANIA: Sustainable Management of Mineral Resources Project

Component A. Improving Benefits o f Mineral Sector for 4.9 11.0 15.9 Tanzania: Small-scale and Artisanal Mining, Local Economic Development and Ski l ls Development

Component B. Strengthening Governance and Transparency in Mining

5.6 3.1 8.7

Component C. Stimulating Mineral Sector Investment 5.2 19.7 24.9

Component D. Project Coordination and Management 1.4 1.1 2.5

Contingency 1.8 0.6 2.4

PPF Refinancing 0.0 0.6 0.6

Total Project Costs 18.9 36.1 55.0

Project Cost Estimates by Type o f Expenditure

Consultants Goods Works Training Operating Costs Small Grants Sub-total Project Preparation Facility Contingency TOTAL

24,030,000 10,68 1,000

696,000 4,875,000 3,058,000 4,000,000

47,340,000 600,000

2,060,000 50,000,000

-

4,694,000

4,694,000

306,000 5,000,000

-

24,030,000 10,68 1,000

696,000 4,875,000 7,752,000 4,000,000

52,034,000 600,000

2,366,000 55,000,000

46

Project Cost Estimates By Component by Type o f Expenditure

Component A - Improving Benefits Consultants 3,579,000 Goods 4,570,000 Works 486,000 Training 1,573,000 Operating Costs 773,000 Small Grants 4,000,000 Sub-total 14,98 1,000

Component B - Strengthening Governance and Transparency Consultants 3,089,000 Goods 1,745,000 Works Training 2,148,000 Operating Costs 343,000 Sub-total 7,325,000

Component C - Stimulating Investment Consultants Goods Works Training Operating Costs Sub-total

16,437,000 4,065,000

150,000 1 , 1 19,000 1,286,000

23,057,000

Component D - Project Coordination and Management Consultants 925,000 Goods 301,000 Works 60,000 Training 35,000 Operating Costs 656,000 Sub-total 1,977,000

Project Preparation Facility Contingency

600,000 2,060,000

-

9 16,000

9 16,000

- -

1,345,000 1,345,000

-

- 1,926,000 1,926,000

-

- 507,000 507,000

306,000

TOTAL 50,000,000 5,000,000

3,579,000 4,570,000

486,000 1,573,000 1,689,000 4,000,000

15,897,000

3,089,000 1,745,000

2,148,000 1,688,000 8,670,000

-

16,437,000 4,065,000

150,000 1,119,000 3,2 12,000

24,983,000

925,000 301,000 60,000 35,000

1,163,000 2,484,000

600,000 2,366,000

55,000,000

47

Annex 6: Implementation Arrangements TANZANIA: Sustainable Management o f Mineral Resources Project

Proiect ImDlementation Period

1. completion date i s June 2014.

The Project will be implemented over the period o f five years (2009-2014). The Project

ImDlementing Agencv

2. Energy and Minerals (MEM).

Overall Project coordination and management will be responsibility o f the Ministry o f

Proiect Management

3. A three-tier mechanism will be used to ensure smooth management and coordination o f Project implementation. For day-to-day Project management, including coordination, procurement, financial management and disbursement, and reporting, the Project Management Team (PMT) i s established in MEM, drawn from existing MEM staff. The PMT reports to the Commissioner o f Minerals within MEM. As such, there will be no separate Project Implementation Unit, which i s in line with the Accra Agenda for Action.” The P M T was established to help with Project preparation activities. The P M T i s composed at a minimum of: the Project Manager, responsible for the overall management o f Project activities and compliance with i t s objectives; the Project Accountant, responsible for accounting, financial management, and financial reporting; and the Procurement Specialist, responsible for carrying out the procurement activities consistent with the procedures approved by IDA and reporting on their progress. The Project team will be strengthened by additional experts contracted on a short- te rm basis for specific activities related to administration o f the Small Grants Program, procurement, training activities, and monitoring and evaluation activities, among others.

4. For pol icy level intervention, an inter-ministerial body, the Project Steering Committee (PSC), will oversee Project implementation and be responsible for timely decision making. The PSC will be chaired by the Permanent Secretary, MEM, and will comprise the Permanent Secretary, Ministry o f Finance and Economic Affairs; the Permanent Secretary, Vice President’s Office - Environment; the Permanent Secretary, Prime Minister’s Office - Regional Administration and Local Government; the Permanent Secretary, Ministry o f Land and Human Settlement Development; the Chief Executive Officer, Geological Survey o f Tanzania (GST); and the Deputy Attorney General.

5. A Project Technical Committee (PTC) will ensure execution o f decisions taken by the PSC and coordinate implementation o f Project activities in respective areas o f responsibility. The PTC, chaired by the Commissioner for Minerals, MEM, will be comprised o f the Project Manager, SMMRP, MEM; World Bank Desk Officer, Ministry o f Finance and Economic Affairs; Project Coordinator, GST; Heads o f Units at MEM responsible for environment, legal services, communication, procurement, and management information technology; and Heads o f

’* Accra Agenda for Action, September 2-4,2007, Accra Ghana.

48

Sections in the Minerals Division, MEM, responsible for small-scale mining, promotion, mines inspectorate, and mineral rights.

6. The representation in the PSC i s defined to ensure participation f rom al l the key ministries and agencies responsible for one or more aspects o f Project implementation. The PSC Chair, through the PMT, would convene the PSC meetings as necessary, but not less than biannually. Decisions made at these meetings will be brought to the notice o f the PTC for their further execution, with the P M T providing procurement and financial management support along with coordination among the Ministry o f Finance and Economic Affairs and various beneficiary government agencies.

ResDonsibilities o f the Proiect Steering and Technical Committees

The main responsibilities o f the PSC are to:

Provide transparent national level pol icy coordination related to mining sector development and i t s linkage with broader socio-economic reforms objectives; Ensure that policy decisions and actions are taken in a timely fashion; Facilitate adoption and implementation of the policy decisions; Oversee Project implementation and coordinate the activities o f the various agencies involved in execution o f separate components, sub-components or activities, including environmental and social aspects; Oversee functioning o f both the PTC and P M T and review the Project progress reports; Guide and approve the common governance regime for the SMMRP during Project implementation; and Adopt the annual work plan, and corresponding budget and Procurement Plan.

The main responsibilities o f the PTC are to:

Ensure execution o f the decisions made at the PSC; Review terms o f reference for procurement o f consultants and technical specifications for procurement o f goods and provide input to the PMT; Review the consultants’ reports and recommendations, especially those requiring Government decisions and actions; Coordinate implementation o f Project activities in the areas o f responsibility indicated in the Project Implementation Manual; Report to the PSC on the progress o f Project implementation on a quarterly basis; Review annual work plans and budgets as well as quarterly and annual performance reports prior to submission to the PSC and World Bank.

Activities related to extension services for artisanal and small-scale mining, which comprise the major share o f Project funds, will be performed through ZMOs and RMOs. The Project will assist MEM with financing and technical assistance in strengthening and enhancing their capacity in order to adequately implement the small-scale mining development strategy and enabling ZMOs and RMOs to build trust with mining communities and successfully implement the activities in eight Zones (21 regions).

49

10. A detailed description o f three-tier management structure, including the terms o f reference for the PSC and PTC, which have been prepared, will be included in the Project Implementation Manual to he prepared by the Recipient and approved by IDA prior to Project effectiveness.

11. The Artisanal and Small-scale Miners Grant Program Manual for implementation o f the small grants program for small-scale miners will be prepared by the Recipient and approved by IDA prior to disbursement o f funds for this Project sub-component. The Manual will inter alia:

Establish a mechanism for MEM to process grant proposals, from their identification to approval;

Set out the description o f activities to be implemented, including the outputs and performance targets to be achieved and arrangements for monitoring and reporting on implementation;

Set out the eligibility criteria for the small grants program, including but not limited to eligible beneficiaries, eligible activities, requirements o f compliance with procedures and guidelines as set forth in the ESMF and RPF, the Bank’s Anti-corruption Guidelines, and requirements o f adequate technical, financial management, and procurement capacity;

Establish terms and conditions o f the grants, including minimum rate o f the beneficiary’s contribution, either in-cash or in-kind, the modalities o f the proceeds transfer by MEM to the beneficiary, maintenance o f adequate financial/accounting records, MEM’ s right for inspection o f the operations implemented under the program, and auditing o f the relevant records and documentation;

Establish the modality o f transfer o f funds by MEM to beneficiaries, the right o f MEM (by i t se l f or with the Bank) to inspect beneficiaries’ operations and suspend grant proceeds should a beneficiary not perform its obligations under the grant, and the obligation o f the beneficiary to refund any grant that has been used for ineligible expenditures.

Accounting, Financial Reporting, and Audits

12. A financial management assessment has been carried out (see Annex 7), and MEM has agreed to procedures that comply with Bank norms. , The Project Accountant will maintain (i) records o f accounts, including records o f al l receipts and payments; and (ii) an asset register o f al l goods procured under the Project. A monthly financial report, including bank reconciliation, will be prepared along with statements o f expenditure and summary sheets as required by IDA for replenishment o f the Special Account and provided to the Project Coordinator and the Commissioner o f Minerals. A quarterly summary financial report will be included in the quarterly progress reports o f the Project in a form satisfactory to IDA. The Project Accountant will retain al l records o f payments and receipts and make such records available for annual audit or such internal audit as may be required by the MEM and/or the Auditor General. Statements o f expenditure will be audited annually by independent auditors under terms o f reference satisfactory to IDA. The audit reports will be submitted to IDA not later than six months after the end o f each calendar year.

13. The Project team will manage al l procurement activities for the Project on behalf o f a l l the beneficiary agencies. The procurement activities will be consistent with World Bank/IDA

50

procedures as laid out in “Guidelines: Procurement under IBRD Loans and IDA Credits” and will comply with al l legal covenants o f the Financing Agreement. Procurement under the Project will involve mainly hiring o f consultants, and also the procurement o f equipment, motor vehicles, c iv i l works, supply and installation works, IT office equipment and furniture, and consumables, using a mix o f international and national procurement procedures. There will be limited community driven development sub-projects to support miners and community with such initiatives as environmental improvement, small diversification projects, improvement o f health and safety in mines, and technology in small-scale mining areas. The sub-projects will be funded on a matching-grant basis and will use community procurement procedures.

Monitoring and Evaluation

14. The Project team will be responsible for monitoring and evaluation o f Project implementation according to the indicators and benchmarks included in the Project Appraisal Document, ESMF, RPF, Financing Agreement, and Project Operations Manual. N o t later than 45 days after the end o f each quarter, the Project team will submit to IDA quarterly progress reports covering al l Project activities, including a procurement progress report and a financial summary report. Biannual reviews, the first one to take place six months after effectiveness, wil l provide detailed analysis o f implementation progress toward development objectives and will include an evaluation o f financial management as well as a post-review o f procurement matters.

51

Annex 7: Financial Management and Disbursement Arrangements

TANZANIA: Sustainable Management of Mineral Resources Project

Introduction

1. This report i s a record o f the results o f the assessment o f the proposed financial management arrangements for the Sustainable Management o f Mineral Resources Project (SMMRP) implemented by Ministry o f Energy and Minerals (MEM). The objective o f the assessment i s to determine: (a) whether MEM has adequate financial management arrangements to ensure SMMRP funds will be used for purposes intended in an efficient and economical way; (b) that SMMRP financial reports w i l l be prepared in an accurate, reliable and timely manner; and (c) that the entities’ assets will be safeguarded. The financial management assessment was carried out in accordance with the Financial Management Practices Manual issued by the Financial Management Sector Board on November 3,2005.

Country Issues

2. The various public financial management (PFM) assessments carried out for the last six years revealed that the Government has taken significant steps to improve i t s public financial management system and i s now recognized as one o f the best public financial management systems in Africa. Improvement o f PFM systems has been a major priority for the Government for the past 10 years. The Government has implemented measures to reduce fiduciary risks, including the approval and application o f new public finance, audit, and procurement acts, the full operationalization o f the Integrated Financial Management System, recruitment o f qualified accountants, internal and external auditors, strengthening o f the National Audit Office (NAO) and reform of the public procurement system. Due to the above measures, both the quality and timeliness o f financial reporting has improved and there i s more accurate and timely information available regarding financial flows. All ministries, departments, and agencies and Local Government Authorities are now submitting their annual financial statements within the statutory period. Based on the findings and recommendations o f the 2003 Country Procurement Assessment Review, a new public procurement law and i t s associated regulations are in place. The Public Procurement Regularity Authority was established and i s now functional.

3. There are ongoing efforts to strengthen the N A O by way o f independency and capacity building through a new enacted Public Audit Act approved in June 2008. The aim o f these efforts i s to enable the N A O to use modernized audit techniques and to focus more on value for money audit. In addition, new audit manuals and procedures have been developed and Value for Money audits are now conducted. As a result o f these enhancements, in fiscal years 2005, 2006 and 2007, the N A O was able to submit the Government audit reports within the statutory period.

4. The PFM policy dialogue takes place in the context o f the annual joint PEFAR and Government budget support program (review mission). With a number o f development partner- assisted initiatives, such as the Public Financial Management Reform Program (PFMRP), Local Government Reform Program, and Local Government Support Project, the Government i s working to rapidly enhance the financial accountability framework at all levels in order to

52

mitigate fiduciary risks in public expenditure management. Also, these initiatives and reforms have been supported through the Poverty Reduction Support Credits (PRSCs).

5. Recently there has been a serious Government commitment against corruption: the Government has taken decisive actions to investigate and prosecute wrong-doers in the external payments arrears fraud case and has followed up on audit findings. The President has recently directed al l relevant Government officials to be more accountable in the use o f public funds and fol low up o f the audit findings marks a significant improvement in Government’s strengthening public accountability.

6. effectiveness, transparency, and accountability in the use o f public funds.

Despite the above efforts taken to reform Government PFM, challenges remain to ensure

Financial Management Risk Assessment and Mitigations

The objectives o f the Project’s financial management system are to:

Ensure that funds are used only for their intended purposes in an efficient, economical way; Ensure that funds are properly managed and f low smoothly, adequately, regularly and predictably in order to meet the objectives o f the Project; Enable the preparation o f accurate and timely financial reports; Enable Project management to monitor efficient Project implementation; and Safeguard the Project assets and resources.

Furthermore, the fol lowing are necessary features o f a strong financial management system:

MEM should have an adequate number and m i x o f skilled and experienced staff; The internal control system should ensure the conduct o f an orderly and efficient payment and procurement process, and proper recording and safeguarding o f assets and resources; The accounting system should support the Project’s requests for funding and meet i t s reporting obligations to fund providers, including the Government , IDA, other donors, and local communities; The system should be capable o f providing financial data to measure performance when linked to Project outputs; and An independent, qualified auditor should be appointed to review the Project’s financial statements and internal controls.

The table below summarizes the Project financial management r isks as wel l as the necessary mitigating measures.

53

Type of Risk

INHERENT Country c Level

Risk Rating

Entity Level

Project M Level

Overall M Inherent Risk CONTROL RISK

and Budgeting

Planning M

Accounting Policies, Procedure

Information S stems

(Pre- investment)

ISKS M

M

Brief Explanation

Takes into account overall country weak internal controls, internal audit and oversight bodies.

M E M has a track record managing IDA projects and audit reports have been unqualified.

Project design focus on being fully mainstreamed into MEM.

Medium Term Expenditure Framework planning and budgeting process will be applied and will include Project disbursement reouirement. The Project relies on the Government accounting and financial regulations and rules, including IFMIS.

Risk mitigating measures incorporated into Project Design

Issues are being addressed at the country level through the country’s PFM strategic plan under implementation action aiming to strengthen the public financial management system supported by the Bank and other development partners through the PFMRP. Monitored thorough PRSC supervision and annual PEFA reviews. MEM has both internal audit unit and Audit Committee in place. These will play an oversight role in ensuring that the Project funds are used for intended purposes and that accountability and value for money are achieved. Also follow-up on the implementation of the recommendations arising from the annual audit report and internal audit reports. Annual external financial audit will include procurement audit. Both Songo Songo Gas Development and Emergency Power Projects were satisfactorily implemented by M E M and received clean audit reports throughout the implementation period.

Regular review /monitoring of Project budget performance including timely release o f Project funds wil l be part of the quarterly interim financial reports to be reviewed by the Bank and Project Steering Committee.

Computerized system wi l l be used. Staffing arrangements are also adequate to effectively account for the Project’s funds, although the Project Accountant will need to be trained in World Bank financial management and disbursement procedures.

Rating Board Approval

I

L N

I

54

Type o f Risk

Internal Controls

Funds Flow

Financial Reporting

Auditing

Overall Control Risk OVERALL RISK Zisk rating; H

Risk Rating

investment) (Pre-

M

L

M

S

M

M

Yigh Risk), S

Brief Explanation

This takes into account the overall country-level fiduciary and governance environment, which also affects the Project implementing agencies.

The disbursement procedures have been designed to ensure smooth flow of funds. The Project Accountant appointed has had no previous experience with World Bank financial reporting.

NAO needs to be strengthened. There i s also the risk that a l l the projects units may not be reviewed by the internal audit unit.

‘bstantial Risk), M (Mol

Risk mitigating measures incorporated into Project Design

There will be adequate World Bank financial management supervision during Project implementation; strengthened internal audit and audit committees; annual fiduciary assessments through Public Expenditure Financial Assessment Reviews.

The internal auditor’s work will be monitored and reviewed by Ministry’s Audit Committee as part of implementation support to ensure internal control systems are functioning adequately and that issues raised in the internal and external auditor’s reports are addressed by management. The recommended report based disbursement method allows up to six months’ funding to be made available in the Designated Account.

Format for quarterly interim financial reports has been prepared and agreed with the Bank. MEM has adequate staffing arrangements to prepare the interim financial reports given that it has accountants who are currently managing World Bank Projects. Capacity building where necessary wil l be provided during Project implementation. There are on going efforts to strengthen the NAO by way o f independence and capacity building through a newly enacted Public Audit Act approved in June 2008. Audit terms o f have been agreed.

it Risk), L (Low Risk)

Rating Board Approval

I

Strength and Weaknesses

10. The Project’s financial management i s strengthened by the fol lowing features:

Tanzania now has a sound P F M system, and the government continues to strengthen P F M reforms through PFMRP, which i s monitored by development partners. MEM has experience managing other IDA projects and has adequately qualified and experienced accounting personnel; more capacity building i s been provided under PFMRP- P F M reform program.

55

The various oversight bodies and committees in place’ would provide an oversight role in ensuring Project results are achieved and audit issues arising from the internal and external audit reports are addressed by the Project management.

11. The implementing entity (MEM) does not have any significant financial management weaknesses. However, it will be necessary to have the Project Accountant trained in World Bank procedures that can be performed internally, given the strong experience o f the other staff in the MEM accounting department, or externally by the Bank. The external audit terms o f reference were agreed before negotiations.

Overview of Financial Management Implementation Arrangements

12. therefore be responsible for:

MEM will be responsible for the overall implementation o f the Project. MEM will

Procurement, including purchases o f goods, works, and consulting services; Project monitoring, reporting, and evaluation; Contractual relationships with IDA and other co-financiers; and Financial management and record keeping, accounts, and disbursements.

13. related to Project implementation.

MEM will also constitute the operational link to the IDA and Government o n matters

14. The Permanent Secretary, MEM, will be the Project Accounting Officer and will assume overall responsibility for accounting for the Project funds. The Accounting Officer will ensure that the Project financial management activities are carried out efficiently and in accordance with acceptable accounting standards, Public Finance Act (CAP 438, R.E. 2004), and IDA Financing Agreement.

Financial Management Arrangements

15. Planning and Budgeting: The overall Project budget and a disbursement schedule will be drawn up and included in the P A D and will be included in the Ministry’s annual budget. The annual work plans and budgets will be prepared and approved based o n the policy guidelines issued by Ministry o f Finance and Economic Affairs under the Medium Term Expenditure Framework. Detailed cost tables for the Project have been prepared and agreed upon during negotiations. The budget process i s participatory, as each department prepares i t s own budgets (in accordance with its key objectives), which are subsequently consolidated by the Accounts unit. Budgets will need to be approved before the new financial year begins and monitored during Project implementation using unaudited interim financial reports (IFRs),

16. Accounting Policies, Procedures and Information systems: The government’s accounting policies and procedures will be used for this Project. The government accounting system i s cash based, and accounts are prepared on the government computerized system called ‘Epicor’. The Project accounting arrangements shall comply with IDA Financing Agreement and government financial laws and regulations and specifically, in accordance with Regulation 53 Sub-section (1) o f the Public Finance Regulations o f 200 1.

56

17. Staffing and Training: The MEM accounting department i s headed by the Chief Accountant. The capacity o f the accounting staff i s satisfactory. Staff capacity is been strengthened through the on going P F M reform programs with the support o f DPs under PFMRP. The Ministry has assigned an Accountant to handle SMMRP financial affairs, but the accountant will need to be trained in World Bank Financial Management and Disbursement Procedures. In order to ensure that the Project is effectively implemented, the Ministry will ensure that appropriate staffing arrangements are maintained throughout the l i f e o f the Project. Several staff members already have experience handling IDA projects and therefore are familiar with the financial reporting and disbursement requirements. Additional regular FM training on World Bank financial procedures will be provided to the Ministry’s accounting staff during Project implementation.

18. Internal Controls: MEM’s internal control systems indicated satisfactory levels o f segregation o f duties and controls. The government’s regular financial ru les and procedure that apply to ministry operations will be used in this Project. This includes regular post audits by the Ministry’s Internal Audit unit. The internal control environment revolves around the internal audit function, which reviews day to day operations o f Ministry and donor funds, including adequacy and effectiveness o f the internal controls. Ministry’s Audit Committee will provide an oversight role over financial matters affecting the Project. I t s major role will include fol lowing up on implementation o f internal and external audit queries.

19. Internal Audit: MEM’s Internal Audit unit i s independent and headed by a Chief Internal Auditor who reports directly to the Permanent Secretary. The unit has an audit strategy and plan based on risk assessment o f the Ministry. Internal audit guidelines have been developed and training has been completed for the existing internal auditors. The internal auditor’s work related to the SMMRP will be monitored and reviewed by Ministry’s Audit Committee as part o f implementation support to ensure internal control systems are functioning adequately and that Management addresses issues raised in the internal auditor’s report.

20. Strengthening o f Internal Audit functions across government i s underway. This includes capacity building o f internal auditors in modern audit techniques and making the new and independent Internal Audit departments operational based on international practices in internal auditing.

Funds Flow Arrangements

21. implementing the Project:

Bank Account(s): The fol lowing bank accounts will be maintained for the purposes o f

Designated Account: Denominated in US dollars, disbursements f rom the World Bank (IDA) will be deposited on this account.

Project Account: This will be denominated in local currency. Counterpart funds and transfers from the Designated Account (for payment o f transactions in local currency) will be deposited on this account in accordance with Project objectives.

57

22. These bank accounts shall be opened at Bank o f Tanzania in accordance with the Project financing agreement. The account signatories will be in accordance with the Government’s accounting policies and procedures.

23. F low o f Funds: IDA will make initial advance disbursements f rom the proceeds o f the Credit by depositing into SMMRP operated Designated Account based o n a six month forecast; thereafter IDA will replenish the Designated Account upon submissions o f quarterly IFRs within 45 days after the end o f the calendar year quarterly periods. These IFRs will contain the accountability o f funds previously disbursed to the Project and cash f l ow forecasts for the next six month period o f Project implementation. Funds from the Designated Account can be transferred to the Project account denominated in local currency to pay for Project expenditure in Tanzanian shillings. Counterpart funds from the Government can be deposited in the Project account denominated in local currency (Tanzania shillings) to be utilized to pay Project expenditure. The counterpart funds will be replenished on a quarterly basis and in l ine with the existing exchequer procedures. The fund f low diagram provides further details.

58

FUNDS FLOW DIAGRAM

I I yment for SMMRP 4 , e s under Ministry l e v

24. IDA Disbursements Method

a) Report-based Disbursements: IDA disbursements will be made into the respective Designated Account based on quarterly IFRs, which would provide unaudited accountability o f funds disbursed to the Project and cash flow forecasts for the next six months upon which disbursement replenishments would be made. Initial six month cash flow forecasts upon which the advance disbursement will be made from the IDA Grant should be prepared by Date o f Effectiveness. A duly authorized Withdrawal Application for the cash to be disbursed to the Designated Account will be provided along with the IFRs. The IFR together with the Withdrawal Application will be reviewed by the Bank’s

59

Financial Management Specialist and approved by the Bank Task Team Leader before the request for disbursement i s processed.

b) Other Methods: In addition, the direct payment method o f disbursement (direct payments to suppliers for works, goods, and services upon the borrower’s request) may be used whenever needed. Payments may also be made to a commercial bank for expenditures against pre-agreed special commitments. These payments will also be reported in quarterly IFRs. The IDA Disbursement Letter will stipulate the minimum application value for direct payment and special commitment procedures as well as detailed procedures to be complied with under these disbursement arrangements.

25. Remedies for non compliance: If ineligible expenditures are found to have been made from the Designated and Project Accounts, the borrower will be obligated to refund the same. If the Designated Account remains inactive for more than six months, IDA may reduce the amount advanced. IDA will have the right, to be reflected in the terms o f funding agreement, to suspend disbursement o f the funds in response to non-compliance with significant conditions, including reporting requirements.

26. required:

Documentation requirements for report-based disbursement: the fol lowing reports are

Unaudited IFRs. Designated USD Account Activi ty Statement. Designated USD Account Bank Statements. Summary Statement o f Designated USD Account Expenditures for Contracts Subject to Prior Review. Summary Statement o f Designated USD Account- Expenditures not Subject to Prior Review. Projected cash f low forecast requirements for the next two reporting quarters (six month period).

All documents supporting the reported expenditures, such as invoices, statements, and bills o f lading, should be maintained by the implementing entities and made available for review by auditors as set out in the Financing Agreement.

27. Submission o f Withdrawal Applications to IDA: An advance will be made into a Designated Account immediately after effectiveness. MEM should submit to the Wor ld Bank the init ial withdrawal application together with a six month cash f low forecast after Project has become effective. Subsequent replenishments to the Designated Account will be made on quarterly basis after the submission by MEM o f the above listed documentation requirements for report based disbursements within 45 days after the end o f the calendar quarter.

28. reports and bank statements within 45 days o f the end o f each o f the calendar quarterly period.

Due date for submission o f the above report: The Bank must receive al l disbursement

29. arrangements for the Project as detailed in Annex 8.

Procurement arrangements: The Procurement Specialist has assessed the procurement

30. Financial Reporting: Formats o f the various periodic unaudited IFRs to be generated from the financial management system have been prepared by MEM and agreed with the Bank. There must be clear linkages between the information in these reports and the Chart o f Accounts. The

60

IFRs will be designed to provide quality and timely information to Project management, implementing agencies, and various stakeholders monitoring the Project’s performance.

The contents o f the IFRs should specify:

o Sources and Uses o f Funds; o Uses o f Funds by Project Activity/Component.

The Project’s financial statements should be prepared in accordance with International Public Sector Accounting Standards (which inter alia include the application o f the cash basis o f recognition o f transactions). The Financing Agreement will require the submission o f audited financial statements for SMMRP to the Bank within six months after the year end.

The SMMRP Financial Statements will comprise:

1. A Statement o f Sources and Uses o f Funds/Cash Receipts and Payments that recognizes al l cash receipts, cash payments and cash balances controlled by the entity and separately identifies payments by third parties on behalf o f the entity.

2. The Accounting Policies Adopted and Explanatory Notes. The explanatory notes should be presented in a systematic manner with items on the Statement o f Cash Receipts and Payments being cross referenced to any related information in the notes. Examples o f this information include a summary o f fixed assets by asset category and a summary o f withdrawals from the Bank.

3. A Management Assertion that Bank funds have been expended in accordance with the intended purposes as specified in the relevant World Bank legal agreement.

Indicative formats o f these statements will be developed in accordance with IDA requirements and agreed with the Country Financial Management Specialist.

3 1, External Audit: Per the Public Finance Ac t o f 2001 , the N A O is responsible for auditing al l government organizations, including local authorities and public corporations and donor funds. The Controller and Auditor General has the power to authorize any person registered as an auditor under the Auditors and Accountants Ac t o f 1972 and approved by the Controller and Auditor General to conduct an audit on his behalf.

32. SMMRP annual external audit will be carried out by the N A O or such other person registered as an auditor and approved by the Controller and Auditor General. The Auditors will provide a single audit report on the Project financial statements (including the Designated Account). The auditors will be required to submit a single audit opinion o n the annual SMMRP financial statements based on International Standards on Auditing (IFAC/INTOSAI pronouncements) and submit the audit report within six months o f the end o f the financial year. In addition, the Auditors wil l provide a detailed management letter containing the auditor’s assessment o f the internal controls, accounting system and compliance with financial covenants in the Financing Agreement. Audit terms o f reference have been agreed during negotiations.

61

Project’s annual financial statements audit opinion

Financial Management Supervision Support Plan

By December 3 1 each year (within six months after end o f the fiscal year, which i s June 30 o f every year during Project implementation)

33. Based on the outcome o f the financial management risk assessment, the following implementation support plan i s proposed:

Financial Management Activity Frequency

Quarterly Annually As these become available

Desk reviews Interim financial reports review Project audit report review Review of other relevant information such as systems audit reports On site visits Review o f overall operation of the financial management system Monitoring of actions taken on issues highlighted in audit reports, auditors’ management letters, systems audit report and other reviews Transaction reviews (if needed)

Capacity building support Financial management training sessions

Annually based on the modest risk rating

As needed

Annually based on the modest risk rating but can be done as needed should any issue arise

Before Proiect start and thereafter as needed

34. Financial Management Conditionalitv: N o financial management effectiveness conditions. However, a condition o f negotiations was to agree the external audit terms o f reference with MEM. This condition was met.

35. Financial Covenants: Standard IDA financial covenants include the following:

0

Maintenance o f a satisfactory financial management system for the Project; Submission o f audited Project financial statement within six months after the end o f the financial year; and Submission o f unaudited IFRs within 45 days after each calendar year quarterly period.

36. Conclusion o f the assessment: A description o f the Project’s financial management arrangements above indicates that they satisfy the Bank’s minimum requirements under OPh3P10.02 and the system i s adequate to provide, with reasonable assurance, accurate and timely information on the status o f the Project as required by IDA. The financial management risk rating was found to be modest, but with the mitigation measures built into the system the risk rating i s reduced to low. This rating has been arrived at after taking into consideration the following important issues (a) the implementing Ministry has had prior experience o f managing World Bank financed Projects; (b) these other Projects received unqualified (clean) audit reports; and (c) satisfactory IFRs have been submitted in a timely manner.

62

Annex 8: Procurement Arrangements TANZANIA: Sustainable Management of Mineral Resources Project

A. General

1. Procurement for the proposed Project would be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated M a y 2004, revised October 2006; and “Guidelines: Selection and Employment o f Consultants by World Bank Borrowers” dated M a y 2004, revised October 2006 and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual Project implementation needs and improvements in institutional capacity.

2. Procurement of Works: Works to be procured under this Project would include those related to provision and renovation o f the infrastructure for the Gem Centre; renovation and improvement o f the GST laboratory and refurbishment and installation o f IT for GST and expansion and refurbishment o f M C I M S registry at headquarters. The works seem to be o f smaller value in nature and the Bank’s current Standard Bidding Document (SBD) for small Works will be adopted. Procurement for al l International Competitive Bidding (ICB) will be carried out using the SBDs and Standard Bid Evaluation Forms. The Government has already prepared Standard Bidding Documents for National Competitive Bidding (NCB) procedures for procurement o f works which have been found acceptable to IDA, except for the provision o f Domestic Preference given to domestic suppliers/contractors which is not as per Bank’s guidelines. The Government may use these documents when carrying out procurement o f works through N C B procedures with the exception o f the provision o f Domestic Preference. C iv i l works estimated to cost more than US$5,000,000 equivalent per contract would be procured through ICB. Civ i l works estimated to cost less than US$5,000,000 equivalent per contract would be procured through NCB, except for minor works contracts estimated to cost less than US$50,000 per contract would be procured using Shopping method. Direct contracting may be used when it can be justified that a competitive selection i s not advantageous and meets the requirements o f paragraph 3.6 o f the Procurement Guidelines after consultation with the Bank. The prior review threshold for works contracts would be US$5,000,000 equivalent per contract. However, a specified number o f N C B contracts will be identified in the Procurement Plan each year or whenever there is a revision to the originally agreed Procurement Plan to be prior reviewed. Prequalification o f contractors, if any, would be used only for large contracts o f over US$lO.O mi l l ion or in cases where special expertise i s required.

3. Procurement o f Goods: Goods to be procured under this Project would include motor vehicles; motor cycles, computers and accessories, audiovisual equipment, office furniture, rock carving, jewelry and lapidary equipment, and transportable containers equipped with gemological, mining and mineral processing equipment. The Project wil l also involve procurement o f environmental monitoring equipment, field equipment for geological survey and for mine inspections. Procurement for al l I C B contracts would be carried out using the Bank’s SBDs and Standard Bid Evaluation Forms. The Government has already prepared SBDs

63

Documents for N C B procedures for procurement o f goods which have been found acceptable to the Bank, except for the provision o f Domestic Preference given to domestic suppliers/contractors which is not as per Bank’s guidelines. The Government may use these documents when carrying out procurement o f goods through N C B procedures with the exception o f the provision o f Domestic Preference. Goods estimated to cost more than US$500,000 equivalent per contract would be procured through ICB. Goods estimated to cost less than US$500,000 equivalent per contract would be procured through N C B procedures, except for goods contracts estimated to cost less than US$50,000 per contract which would be procured using Shopping method. Direct contracting may be used when it can be justified that a competitive selection i s not advantageous and meets the requirements o f paragraph 3.6 o f the Procurement Guidelines after consultation with the Bank. The prior review threshold for goods contracts would be US$500,000 equivalent per contract. However, a specified number o f N C B contracts wil l be identified in the Procurement Plan each year or whenever there is a revision to the originally agreed Procurement Plan to be prior reviewed.

4. Selection of Consultants: Consultancy services would include those for baseline surveys for eight mining zones, geological survey, finalization o f proposed mineral pol icy and regulatory framework etc. The consulting services would be provided by consulting f i r m s and some would be provided by individual consultants. The consulting services contracts would as far as possible be awarded under the Quality and Cost Based Selection (QCBS). Other methods o f selection would be determined for each assignment depending on the type o f assignment and the provisions o f the Consultant Guidelines and will be indicated in the procurement plan. Quality- Based Selection (QBS) would be followed for assignments which meet the requirements o f paragraph 3.2 o f the Consultant Guidelines; Fixed Budget (FBS) would be followed for assignments which meet the requirements o f paragraph 3.5 o f the Consultant Guidelines; Consulting f i r m s for carrying out standard or routine nature assignments such as audits would be selected through Least Cost (LCS) in accordance with o f paragraph 3.6 o f the Consultant Guidelines; and Single-Source Selection (SSS) would be followed for assignments which meet the requirements o f paragraphs 3.9 -3.12 o f the Consultant Guidelines and will always require the Bank’s prior review regardless o f the amount. Consulting services estimated to cost less than $200,000 equivalent per contract would be procured fol lowing the procedures o f Selection Based on Consultants’ Qualifications (CQS) in accordance with paragraphs 3.7 and 3.8 o f the Consultant Guidelines. Individual Consultants (IC) would be selected on the basis o f their qualifications in accordance with Section V o f the Consultant Guidelines. Under the circumstances described in paragraph 5.4 o f Section V o f the Consultant Guidelines, such contracts may be awarded to individual consultants o n a sole-source basis. Shortlists for consultants’ services for contracts estimated to be less than US$200,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines. Consultancy services estimated to cost above US$200,000 equivalent per contract for f i r m s and single source selection o f consultants will be subject to prior review by the Bank. The selection o f Individual Consultants will normally be subject to post review. Prior review o f the evaluation process for contracts above U S $ 100,000 will be done in exceptional cases only, e.g., when hiring consultants for long-term technical assistance or advisory services for the duration o f the Project. These prior review contracts will be identified in the procurement plan.

5. Training and Workshops: Training and workshops will be based o n the capacity building needs assessment to be carried out for Department o f Minerals and MEM Procurement

64

Management Unit staff. Detailed training plans and workshop activities wil l be developed by the Ministry during Project implementation, and included in the Project annual work plan and budget for the Bank’s review and approval.

6. Operating Costs: Operating costs for the implementation o f this Project will consist o f venues for workshops and training; servicing o f office machines and equipment; purchase o f materials for workshops; operation and maintenance costs for vehicles; office supplies; communication charges; bank charges; advertising costs; and per diem and travel costs for staff when travelling on duty but excluding salaries o f civil/public servants.

7. Grants: Financial assistance will be provided in the form o f small grants to support miners and community based mining organizations on programs such as environmental improvement, small diversification projects, improvement o f health and safety in mines, technology in small-scale mining areas, etc. Prior to disbursement o f grants to the community based mining organizations, they will receive training in procurement contained in a Community Procurement Handbook. The Handbook should be prepared by the Ministry and will be cleared by IDA prior to its use. The Handbook will contain procurement procedures, methods and necessary information relating to contracting by the Community based mining organizations.

B. Assessment o f the Agency’s Capacity to Implement Procurement

8. Procurement activities will be carried out by the Procurement Management Unit o f the Ministry. The Public Procurement Ac t (CAP 410, R.E. 2004) requires every Procuring Entity to establish a Procurement Management Unit to manage al l procurement and disposal activities except adjudication and award o f contracts. The Procurement Management Unit has been established in accordance with the Public Procurement Ac t and i s headed by a Principal Supplies Officer, assisted by four procurement and supplies officers and supported by a secretariat o f six staff including secretaries. The Procurement Management Unit staff are also involved in carrying out procurements for the ongoing Tanzania Energy Development and Access Expansion Project and Songo Songo Gas Development and Power Generation Project financed by IDA and the Government

9. An assessment o f the capacity o f the MEM to implement procurement actions for the program was carried out in February 2009. The assessment reviewed the organizational structure, functions, staff skills and experiences, and adequacy for implementing the program.

10. The key issues and risks concerning procurement for implementation o f the program have been identified and mitigation measures proposed. The assessment found out that staff dealing with procurement have experience mainly in procurement o f consultancy services and lack experience in procurement o f works and goods through I C B procedures as well as in selection o f large value consultancy contracts. I t was also noted that in the ongoing procurements under Government funding, staff f rom the relevant section typically prepare the bidding/proposal documents, while the Procurement Management Unit carries out a review o f the documents. MEM has recruited a Procurement Specialist for two months to support the Procurement Management Unit in the preparation o f the Procurement Plan for the first 18 months o f the Project. MEM has also agreed to hire a Procurement Specialist during Project implementation.

65

11. measures, which are designed to reduce the risk to substantial:

The overall program risk for procurement i s high prior to the fol lowing risk mitigation

Inadequate procurement planning Inadequate procurement filing and record keeping

New prior review thresholds and lack o f adequate procurement capacity within MEM

o f consultancv contracts consultancv contracts Prepare a draft Procurement Plan By negotiations Borrower for the first 18 months. Train staff in data management and establish acceptable procurement implementation o f IDA filing and record keeping Identify NCB contracts in the During preparation Borrower and Procurement Plan to be prior or updating o f IDA reviewed Procurement Plans

Within six months o f Borrower and

the program

1

Ref' No'

12. Procurement Plan: The Borrower has prepared a detailed Procurement Plan for the f i rs t 18 months o f the Project providing procurement methods, selection methods, and prior review thresholds. The plan has been reviewed and agreed upon between the Borrower and IDA during negotiations. The final plan will be available at MEM. It will also be available in the Project's database and in the Bank's external website. The Procurement Plan will be updated in agreement with the IDA annually or as required to reflect the actual Project implementation needs and improvements in institutional capacity.

2 3 4 5 6 7 8 9 Review Expected

Procurement P-Q Preference (Prior, Opening Method Comments Estimated by Bank Bid- cost USD

Contract (Description)

(yeslno) Post) Date

13. Frequency o f Procurement Supervision: In addition to the prior review supervision to be carried out f rom Bank offices, the capacity assessment o f the Implementing Agency recommends one supervision mission every six months to visit the field to carry out post review o f procurement actions.

ME/008/200 9/201O/HQ/ w/ 01

ME/008/200 8/2009/HQ/ w/ 02

C. Details o f the Procurement Arrangements Involving International Competitive Bidding and Other Methods

Renovation and Partitioning of Office accommodation (for consultants) Rehabilitation of existing facilities of Arusha carving centre

I. Goods, Works, and Non Consulting Services

Post

Selected for Prior Review

(a) List o f contract packages to be procured fol lowing I C B and other methods for the first 18 months o f the Project:

1 May 2010

1 May 2010

60,000.00

250,000.00

N/A

N/A

66

GOOUS ME/008/200 9/201O/HQ/ G/Ol ME/008/200 9/201O/HQ/ GI02

ME/008/200 9/201O/HQ/ G/O3 ME/008/200 9/201O/HQ/ GI04 ME/008/200 9/201O/HQ/ GI 05 ME/008/200 9/201O/HQ/ G106 ME/008/200 91201 OIHQI GI07

ME/008/200 9/201O/HQ/ G/08

(b) I C B contracts for works estimated to cost above US$5,000,000 equivalent per contract, for goods estimated to cost above US$500,000 equivalent per contract. However, a specified number o f N C B contracts have been identified in the Procurement Plan to be prior reviewed. All direct contracting will be subject to prior review by the Bank.

Supply of Motor 980,000.00 ICB N/A No Prior 1 Oct vehicles, trucks, and 2009 motorcycles. Supply of field 496,576.00 NCB N/A No Selected 1 Oct survey, camping and for Prior 2009 personal protective Review equipment

and Fittings 2009 Supply of Furniture 21 3,000.00 NCB N/A No Post 1 Oct

Supply of ICT 153,500.00 NCB N/A No Post 1 Oct equipment and 2009 accessories. Supply of ICT 454,000.00 NCB N/A No Post 1 May equipment and 201 0 accessories. Supply of Motor 820,000.00 ICB N/A No Prior 1 May vehicles 2010

Supply of Aluminum 340,000.00 NCB N/A No Post 1 May boxes, iron frames, 201 0 Furniture and Fittings

Supply of equipment, 677,000.00 ICB N/A No Prior 1 May chemicals, 2010 consumables for chemical and photolithography laboratories

11. Consulting Services

1

(a) List o f consulting assignments for the f i rst 18 months o f the Project.

2 3 4

Ref. No. Estimated Selection Description of Assignment 1 ig 1 Method

ME/008/20 09/201 OIH Q/G/ 01 ME/008/20 09/201 O/H Q/G/ 02 ME/008120 09/201 O/H QIC103

Review Expected by Bank Proposals (Prior I Submission

1 Oct. 2009 Consultancy Services for Design and 10,000.00 CQS Supervision of Office Renovation (for consultants) Consultancy Services for Designs 40,000 .OO CQS And Supervision for rehabilitation of Arusha Carving Centre. Consultancy services to develop 125,000.00 CQS training programmes and train small scale miners on health, safety, Environment, Legal, social responsibilities, entrepreneurship, marketing, taxation and HIWAIDS issues and printing of manuals and code of conduct small scale activities.

1 Oct. 2009 I Post 1 Dec. 2009

7

Comments

67

ME1008120 091201 OIH QIC104

ME1008120 091201 OIH QIC105

ME1008120 091201 OIH QICl06

ME1008120 091201 OIH QICl07 ME1008120 091201 OIH QlCl08 ME1008120 091201 OIH QlCl09

M El008120 091201 OIH QICII 0 ME1008120 091201 OIH QICII 1 M€/008120 091201 OIH QICII 2

M El008120 091201 OIH QICII 3 ME1008120 091201 OIH QICII 4

ME1008120 091201 OIH QICII 5

ME1008120 091201 OIH QICII 6

M El008120 091201 OIH QICII 7

Consultancy services to carry out assessment and map Artisanal and Small-Scale Mining activities in 8 mining zones and development of a respective Database. Consultancy services to examine and recommend a strategy to improve mining investment impacts and benefits of Geita, Bulyanhulu and Mirerani TanzaniteOne mines. Consultancy services to assess available mining statistic, institutional capacity and management for data- acquisition, and preparation of a strategy and plan for such purposes. Consultancy services to prepare strategy and framework for Project Monitoring and Evaluation. Consultancy services to prepare communication strategy for EITI.

Consultancy services to carry out needs assessments of Cadastre needs including a strategy, Hardware, Software and Training and prepare strategy for cadastre system. Consultancy services to conduct SESA for the mineral sector.

Consultancy services to conduct Poverty and Social Impact Assessment (PSIA). Consultancy services to conduct airborne geophysical surveys in 34 Quarter Degree Sheets (102,000 sq.km) (including field reconnaissance, mobilization and demobilization). Consultancy services to monitor airborne geophysical survey work.

Consultancy services to evaluate existing geological, geophysical geochemical data, process, interpret, prepare report, conduct methodological orientation and update geochemical and geological manuals. Consultancy services to facilitate accreditation for Aul Base Metals and installation of Laboratory Information Management System at GST. Consultancy services to prepare and implement communication and promotion Strategy (Including spec issues e.g. Albino)-including co- ordinating awareness campaigns for the mineral sector. Consultancy services for preparation of terms of references for project activities requiring consultancy services.

155,000.00

170,000.00

30,000.00

35,000.00

8,000.00

105,000.00

250,000.00

120,000.00

13,025,000.00

540,000.00

145,500.00

60,000.00

170,000.00

275,000.00

CQS

CQS

CQS

CQS

IC

CQS

QCBS

CQS

QCBS

QCBS

QBS

CQS

CQS

QCBS

Post

Post

Post

Post

Post

Post

Prior

Post

Prior

Prior

Post

Post

Post

Prior

1 Dec.2009 I

1 Jan. 2010

1 Jan. 2010 I

I

1 Oct. 2009

30June2010 -I- 1 Feb2010 7-

6 Aug 201 0

6 Aug 201 0

29 April 201 0

28 May 201 0 I 16 Sept 2009 i-

68

(b) Consultancy services estimated to cost above US$200,000 equivalent per contract and single source selection o f consultants will be subject to prior review by the Bank. Prior review o f the evaluation process for individual consultant contracts above US$lOO,OOO will be done in exceptional cases only, e.g., when hiring consultants for long-term technical assistance or advisory services for the duration o f the Project.

Consulting Services - Firms’

Consulting Services - Individuals (IC)

(c) Short l i s ts composed entirely o f national consultants: Short lists o f consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines.

A l l values Direct Contracting A l l > 200,000 QCBS/ Other’ A l l

< 200,000 A l l values sss All >100,000 IC - Qualification None (Post review) unless

specified in the PP3 <100,000 IC - Qualification None (Post review) A l l Values IC - sss A l l

(QBSFB S/LCS) CQS/ Other’ (QBS/FBS/LCS) None (Post Review)

Thresholds for Procurement Methods and Prior Review

General: terms o f reference for al l contracts shall be cleared by the Bank.

1. Shortlists for consultancy services for contracts estimated to be less than US$200,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines.

2. 3.6 respectively o f the Consultant Guidelines.

QBS, FBS, and LCS for assignments meeting requirements o f paragraphs 3.2, 3.5, and

3. The selection o f Individual Consultants will normally be subject to post review. Prior review wil l be done in exceptional cases only, e.g., when hiring consultants for long-term technical assistance or advisory services for the duration o f the Project and prior review o f these contracts will be identified in the Procurement Plan.

69

Annex 9: Economic and Financial Analysis TANZANIA: Sustainable Management o f Mineral Resources Project

Economic Analysis

1. analysis. As such, traditional N P V and ERR analysis do not apply.

SMMRP i s a technical assistance loan and as such does not lend itself easily to economic

Economic Indicators

2. Even though the Project does not lend itself easily to economic analysis, some macroeconomic indicators can be projected and compared with present performance, in particular (a) annual investment for exploration by mining companies; (b) increased fiscal revenue from the expected increase in sector exploration and development activities, and (c) increased artisanal and small-scale mining (ASM) production.

3. Mining i s an important contributor to the formal economy in Tanzania and has in recent years been one o f the most dynamic sectors, accounting for an average o f about 3 percent of GDP over 2000-2008 and 48 percent o f merchandized exports and 24 percent o f total exports.

4. While any cost-benefit analysis must be considered approximate, it i s reasonable to expect the overall value o f just one new mining investment to be around US$250 million. Similarly, it can be expected that new data from the Project’s geological information activities and investment promotion component will fwrther such investments.

5. I t i s l ikely that the current downturn in investments worldwide will slow investments in Tanzania over the next few years. However, i t is reasonable to expect that one or two new mines will open as a result o f the Project. From the investment about 40-50 percent o f the economic value added will f l ow in benefits to Government over the l i f e o f the mine (through royalty, income tax, tax o n salaries, and other economic flows).

6. Tanzania’s economy:

O n top o f the likely returns described above, the fol lowing activities will also stimulate

Increased license fee collection from mining activities, which are one o f the Project’s indicators. The target i s an increase in revenue collection o f 5 percent. Based on Tanzania’s current mining revenue (US$50 million), i t i s expected the Project will contribute with an increase in revenue o f about US$5 mi l l ion per year o f the Project and beyond.

Extension services and the demonstration centers will improve the incomes o f artisanal and small-scale miners. I t i s expected the Project will contribute to an average increase in real income o f artisanal and small-scale miners by 10 percent and the benefitting population will be 50,000. These figures translate into US$5 mi l l ion per year at a current daily income o f US$4 per ASM. Results from this component will happen only once Project activities ro l l out in earnest, but would hereafter continue progressively over the l i fe o f the Project and beyond.

70

Annex 10: Safeguard Policy Issues TANZANIA: Sustainable Management of Mineral Resources Project

1. The Project i s expected to have positive environmental and social impacts by improving environmental and social management in the mining sector, promoting modern technologies and enhancing environmental and social management capacity in the Ministry o f Energy and Minerals (MEM). As a technical assistance operation, most o f the activities have no physical “footprint,” and focus on policy and regulatory strengthening. However, Project physical activities, namely stationary and mobile demonstration units promoting progressive mining technologies for small-scale mining, rehabilitation o f the gemstone carving center building, small grants program, and airborne geophysical survey and geological survey, may have localized and limited adverse environmental and social impacts (such as noise, dust, mining waste disposal, water pollution, and occupational health and safety impacts). Improvement o f the pol icy and regulatory framework under the Project may also lead to future increases in commercial scale mining, ASM activities, and associated environmental and social impacts. As a result, the Project triggers OP 4.01 on Environmental Assessment and OP 4.12 o n Involuntary Resettlement, and i s rated EA category B.

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.0 1) [XI [ I Natural Habitats (OP/BP 4.04) [I [XI Pest Management (OP 4.09) [ I [XI Physical Cultural Resources (OP/BP 4.1 1) [ I [XI Involuntary Resettlement (OP/BP 4.12) [XI [ I Indigenous Peoples (OP/BP 4.10) [ I [XI Forests (OP/BP 4.36) [ I [XI Safety o f Dams (OP/BP 4.37) [ I [XI Projects in Disputed Areas (OP/BP 7.60) [I [XI Projects on International Waterways (OP/BP 7.50) [ I [XI

2. Environmental Assessment. To ensure compliance with OP 4.01, and since the exact locations o f Project activities for artisanal and small-scale mining will be determined only during the implementation o f the Project, an Environmental and Social Management Framework (ESMF) was prepared. The ESMF provides mechanisms for ensuring that potential environmental and social impacts are screened for during the Project implementation and specific mitigation measures are developed. Based on the screening, site specific environmental assessments or environmental and social management plans may be developed consistent with the National Environment Policy o f 1997, the Environmental Impact Assessment and Audit Regulations o f 2005, and World Bank environmental and social policies. The ESMF also outlines the grievance redress mechanism.

3. The ESMF preparation included extensive consultations with stakeholders at the national and local levels, including government ministries/agencies, mining companies, other private sector actors, artisanal miners, NGOs, people and communities in mining areas. Field visits were also conducted in selected SMMRP target sites o f the country. Review o f existing information and data on SMMRP components and other previous studies was also undertaken. ESMF implementation, including capacity building measures for MEM and other key stakeholders

71

responsible for ESMF implementation, i s budgeted for under the Project. The effectiveness o f ESMF wi l l be assessed through annual reviews that are stipulated in the ESMF.

4. Strategic Environmental and Social Assessment. To guide legal and regulatory reform in the mining sector, a Strategic Environmental and Social Assessment (SESA) o f the sector will be prepared during Project implementation. SESA wi l l be guided by the initial scoping study o f the mining sector issues that was prepared during Project preparation and included in the ESMF document.

5. Involuntary Resettlement. To ensure compliance with OP 4.12, a Resettlement Policy Framework (RPF) was prepared. Whi le no resettlement i s planned or envisaged under the Project, should a resettlement situation arise during Project implementation, the Resettlement Policy Framework will be available to provide guidance to ensure that needs o f the people who may be affected by the resettlement are met in accordance with the Bank’s Involuntary Resettlement Policy. The RPF may also guide the Government for developing i t s future resettlement policies.

6. Other Safeguard Policies Considered. OP 4.10 on Indigenous Peoples was not triggered as possible impacts o f the Project on indigenous peoples o f airborne geophysics (a small airplane flying temporarily overhead) were not considered significant. Prior to flying any area there will be an information campaign make people aware o f the flights. OP 4.04 on Natural Habitats and OP 4.1 1 on Physical Cultural Resources are not triggered because the Project will take place in existing mining areas which were visited during ESMF preparation. These areas have been degraded, and no natural habitat or physical cultural property issues have been identified during site visits or desk studies, hence the risk o f the Project affecting natural habitats or physical cultural property there i s considered negligible. To eliminate any risk with respect to these policies, however, activities that could trigger them will be explicitly screened for and excluded from the Project.

7. Information Disclosure. To ensure compliance with World Bank and Tanzanian policies on disclosure o f information, the ESMF and RPF and their summaries in Swahili were disclosed in Tanzania and in the World Bank. A Disclosure Workshop with key stakeholders was held in Dar Es Salaam on April 2, 2009; the documents were also disclosed via the World Bank InfoShop on April 16,2009.

8. Safeguards Implementation. The Ministry o f Energy established and staffed an Environmental Management Unit (EMU) mandated under the National Environmental Policy and formed an ASM Section to improve the socio-economic situation in the small-scale mining sector. The units, responsible for mining related environmental and social issues, are staffed with experienced and internationally trained technical civil servants committed to proper oversight and management o f environmental and social issues in the Project and in the mining sector. Environmental and social management during Project implementation will also draw on the existing local government structures, particularly the Environmental Management Officers, local Environmental Management Committees, and other LGAs whose roles in the Project are described in the ESMF.

9. Safeguards Capacity Building. The Project will further enhance Government’s capacity to address safeguard issues in the mining sector, particularly supporting (a) strengthening EMU;

72

(b) preparing and updating environmental guidelines and codes o f practice with regard to mine closure, small-scale mining, and resettlement based on internationally accepted best practices; (c) establishing an environmental database linked to mining cadastre; (d) coordinating collaborative environmental and social management programs between small-scale mining, large-scale mining, LGAs, and other stakeholders in major mining centers; and (e) strengthening environmental and social monitoring capacity at headquarters, Resident Mines Officer, Zonal Mines Officer, and LGAs through training and technical support.

10. Safeguards Covenants in the Legal Agreement. Compliance with the provisions o f ESMF, RPF, and other safeguards related measures will be reflected in the corresponding covenants in the Project legal agreement between Tanzania and IDA.

73

Annex 11: Project Preparation and Supervision

TANZANIA: Sustainable Management o f Mineral Resources Project

Planned Actual PCN review December 2005 December 2005, January

Concept stage PID to PIC February 2009 February 2009 Concept stage ISDS to PIC February 2009 February 2009 Appraisal March 2009 April 2009 Negotiations April 2009 April 2009 BoardRVP approval June 2009 Planned date o f effectiveness Planned date o f mid-term review Planned closing date

200916

September 2009 December 201 1 June 20 14

Key institutions responsible for preparation o f the Project: Ministry o f Energy and Minerals Ministry o f Finance and Economic Affairs

Bank staff and consultants who worked on the Project included:

Name Title Unit Christopher Sheldon Sr. Mining Specialist, Task Team Leader COCPO Allison Berg Sr. Strategy and Operations Officer COCPO Nataliya Cherevatova Operations Analyst COCPO Peter van der Veen Consultant COCPO Sheila Shahriari Extended Term Consultant COCPO Leo Maraboli Consultant COCPO Maythinee Sriboonruang Program Assistant COCPO Martin Fodor Sr. Environmental Specialist AFTEN Naima Hasci Sr. Social Scientist AFTCS Vedasto Rwechungura Program Officer AFTFP Kathryfi Funk Country Program Coordinator AFCTZ Gisbert Kinyero Procurement Specialist AFTPC Donald Mneney Sr. Procurement Specialist AFTPC Edith Mwenda Sr. Counsel LEGAF Adam Nelsson Country Officer AFCEl Mercy Mataro Sabai Sr. Financial Management Specialist AFTFM Luis Schwarz Sr. Finance Officer LOAFC Hubert Mengi Consultant AFTFM Justina Kajange Program Assistant AFCEl Vildan Verbeek-Demiraydin Sr. Economist AFTRL

l6 After initial concept review in 2005, the Project preparation stalled and was again resumed by the Government in the second half o f 2008. The slightly updated Project design was presented for a virtual review in January 2009.

Bank funds expended to date on Project preparation: Bank resources: US$484,34217

0 Trust funds: N/A 0 Total: US$484,342

Estimated approval and supervision costs: 0

0

Remaining costs to approval: US$120,000 Estimated annual supervision cost: US$lOO,OOO

l7 Amount includes U8$378,373 for the prior fiscal years o f the Project preparation

75

Annex 12: Documents in the Project Fi le TANZANIA: Sustainable Management of Mineral Resources Project

Documents from the Government

Environmental and Social Management Framework (2009) Application for EITI Candidate Status and EITI Work Plan (2009) Report o f the Presidential Commission on the Mineral Sector - Bomani Report (2008) Mkakati wa kuendeleza Wachimbaji Wadogo, 2006 - Small-scale Mining Strategy (Ministry o f Energy and Minerals) Report o f the Mineral Policy Review Committee - Kipokola Report (2004) MKUKUTA - Tanzania’s National Strategy for Growth and Reduction o f Poverty (2005-2010) Mining Act (CAP 123, R.E. 2006) Environmental Impact Assessment and Audit Regulations (2005) Environmental Management Act (CAP 191 RE 2004) Mining Regulations (1 999) World Bank Documents

Tanzania Country Brief (2009) Tanzania Sustainable Management o f Mineral Resources Project: Integrated Safeguards Data Sheet - Concept Stage (2009) Tanzania Sustainable Management o f Mineral Resources Project: Project Information Document - Concept Stage (2008) Tanzania Joint Assistance Strategy (2007) Tanzania Sustaining and Sharing Economic Growth: Country Economic Memorandum and Poverty Assessment (2007) Investment Climate Assessment: Improving Enterprise Performance and Growth in Tanzania (2004) Tanzania Mineral Sector Development Technical Assistance Project: Implementation Completion and Results Report (2002) Tanzania Mineral Sector Development Technical Assistance Project: Memorandum and Recommendation o f the President (1 994) Tanzania Mineral Sector Development Technical Assistance Project: Credit Agreement - Conformed Copy (1 994)

Other Documents

Breaking the Curse - Southern Africa Revenue Watch, Third World Network, The Justice Network for Africa, Christian Aid, Action Aid (2009) Golden Opportunity - published by Christian Council o f Tanzania, National Council o f Muslims in Tanzania (BAKWATA), and Tanzania Episcopal Conference, financed by Norwegian Church Aid and Christian Aid (2008) Demystification o f Mining Contracts in Tanzania - Policy Forum (2008)

76

Annex 13: Statement o f Loans and Credits

TANZANIA: Sustainable Management o f Mineral Resources Project

Difference between expected and actual

disbursements Original Amount in US$ Millions

IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d Project FY Purpose I D

PO92898 PO98496

2008 2008

TZ-Performance Results & Accountability TZ-Sci.&Tech. High Educ. Prog-Ph.1 (FY08 TZ-Energy Development & Access Expansion TZ Second Central Transport Corridor TZ-Zanzibar Basic Educ. SIL (FY07) TZ-Water Sector Support SIL TZ-Marine & Coastal Env Mgmt SIL (FY06) TZ-Private SectoriMSME Competitiveness TZ-Agr Sec Dev (FY06) TZ-Accountability,Transparency&Integrity Financial Sector Support TZ-Tax Modernization Project TZ-LOC Govt Supt SIL (FY05) TZ-Soc Action Fund 2 SIL (FY05) TZ-Health Sector Development I1 (FY04) TZ-Central Transp Corridor Prj (FY04) TZ-HIV/AIDS APL (FY04) TZ-Dar Water Supply & Sanitation (FY03) TZ-Partic Agr Dev & Empwrmnt SIL (FY03) TZ-Songo Gas Dev & Power Gen (FY02) TZ-Forest Conserv & Mgmt SIL (FY02) TZ-Lower Kihansi Env Mgmt TAL (FY02) Regional Trade Fac. Proj. - Tanzania TZ-Privatization & Priv Sec Dev

Total:

0.00 0.00

40.00 100.00

0.00

0.00 0.00 0.00

0.00 29.54 0.00 89.51

-3.79 8.35

0.00 0.00

P101645 2008 0.00 105.00 0.00 0.00 0.00 104.17 19.85 0.00

P103633 P 102262 PO871 54 PO82492

2008 2007 2007 2006

0.00 0.00 0.00 0.00

190.00 42.00

200.00 5 1 .OO

0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00

0.00 172.42 0.00 40.22 0.00 153.38 0.00 31.63

0.00 1.48

31.92 13.95

0.00 0.00 0.00 0.00

PO85009 POX5752 PO70544 PO9923 1 P100314 PO70736 PO85786 PO82335 PO78387 PO7 10 14 PO59073 PO67103

2006 2006 2006 2006 2006 2005 2005 2004 2004 2004 2003 2003

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

95.00 90.00 40.00 15.00 12.00

150.00 150.00 125.00 122.00 70.00 61.50 56.58

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 91.34 0.00 45.50 0.00 39.27 0.00 14.43 0.00 6.96 0.00 75.27 0.00 31.58 0.00 27.02 0.00 25.20 0.00 16.83 0.00 8.18 0.00 7.92

29.96 -5.11 13.06 4.24 5.16

-30.52 24.70

-36.21 20.78

8.44 2.66 1.82

0.00 0.00 0.00 0.00 0.00 5.79 0.00

18.44 0.00 1.99

-2.98 0.00

PO02797 PO58706 PO73397 PO69982 PO49838

2002 2002 2002 2001 2000

0.00 0.00 0.00 0.00 0.00

183.00 31.10 9.80

15.00 45.90

0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00

0.00 79.89 0.00 8.37 0.00 2.87 0.00 6.62 0.00 16.20

50.16 2.87

-1.63 4.45

14.04

51.97 2.45 0.17 0.00

14.04

0.00 1,999.88 0.00 0.00 0.00 1,124.32 180.63 91.87

77

TANZANIA: Statement of IFC’s Held and Disbursed Portfolio In Mil l ions o f US Dollars

Committed Disbursed

IFC IFC

FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

2001 AEF Boundary Hi1 0.20 0.00 0.00 0.00 0.20 0.00 0.00 0.00 2005 BBL 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 2002 Exim Bank 0.83 0.00 1 .oo 0.00 0.83 0.00 1 .oo 0.00 2000 IOH 2.10 0.00 0.00 0.00 2.10 0.00 0.00 0.00 2000 NBC 0.00 10.00 0.00 0.00 0.00 4.00 0.00 0.00 1994 Tanzania Brewery 0.00 3.43 0.00 0.00 0.00 3.43 0.00 0.00

Total portfolio: 13.13 13.43 1 .oo 0.00 13.13 7.43 1 .oo 0.00

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic.

Total pending commitment: 0.00 0 00 0.00 0.00

78

Annex 14: Country at a Glance

TANZANIA: Sustainable Management of Mineral Resources Project POVERTY and SOCIAL

T a nza nla 2007 Population, midyear (millions) 40.4 GNipercapita (Atlasmethod, US$) 400

6.3

Average annual growth, 2001-07

Population (Sy 2.5 Laborforce (Sy 2.4

M o s t recent est imate ( l a tes t year aval lable, 2001.07)

P 0 vert y (%of populatio n below natio nal po varty line) 36 Urban population (%oFtota/popuiation) 25 Life expectancy at birth (pars) 52 infant mortality (per 1OOOlive births) 74 Childmalnutrition (%ofchildrenunder5) 17 Access to an improvedwater source (Kofpopulation) 55 Literacy (%of population age E? 69 Gross prlmaryenrollment (%of school-age population) 1Q

M aie la

GNi (Atlas method, US$ billions)

Female m KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1987 1997

GDP (US$ billions) .. 7.7 Gross capital formation1GDP .. 14.9 Exports of goods andservices1GDP .. 13.2 Gross domestic savings/GDP .. 5.4 Gross national savings/GDP .. 3.8

Current account baiance/GDP .. -0.4 interest payments/GDP .. 0.5 Total debt1GDP .. 69.9 Total debt serviceiexports 35.4 12.8 Present value ofdebt/GDP Present value of debtlexports

1987.97 1997-07 2006 (average annualgrowh) GDP 2.7 6.1 6.7 GDP per capita -0.4 3.5 4.1 Exports of goods and services 14.3 n .1 0.2

Sub. Saharan Low.

A f r i ca Income

600 952 762

2.5 2.6

36 51 94 27 58 59 94 99 88

2006

14.2 6.7 219 n.8 m.7

-11.0 0.3

29.9 3.5

14.0 614

1296 578 749

2.2 2.7

32 57 85 29 68 61 94 0 0 89

2007

6.2

2007 2007.11

7.1 4.5

Development diamond.

Life expectancy

GNI Gross

capita enrollment per primary

I

Access to imDrOvedwatersource

- Tanzanla Lowincomegroup

Economic ratios.

Trade

Domestic Capital savings formation

Indebtedness

-Tanzania ~ Lowincome group

STRUCTURE o f t he ECONOMY

(%of GDP) Agriculture industry

Services M anufacturing

1987 1997

46 8 143 6 9

38 9

Househo Id final consumption expenditure .. 86.3

Imports of goods and SeNlCeS .. 25.7 General gov't final consumption expenditure , 8.3

(average annual gro wh) Agriculture industry

Services Manufacturing

1987.97 1997-07

3.2 4.5

10 6.9 18 5.9

0.7 8.7

Household final consumption expenditure 3.7 2.5

Gross capital formation 4 . 3 7.0 imports of goods and services 14 4.5

General gov't final consumption expenditure -9.7 17.4

2006

45.3 17 .4 6.9

37.3

72.8 6.3

27.8

2006

3.8 8.6 7.1 7.2

6.2

7.4 3.6

ns

2007

2007

Growth o f capi ta l and GDP (Oh) 20 T ip

- 0 i ; ; : ; : i

02 03 04 O S OB 07

-GCF - 9 - G D P

Growth o f expor ts and Impor t s (%)

30 T 20

10

0

-10 7

Note 2007 data are preiiminaryestimates This table was producedfrom the Development Economics LDB database 'Thediamonds showfourkey indicators in the country(in bold) comparedvnthits income-groupaverage lfdataare missing, thediamonddil

be incomplete

79

Tanzania

PRICES and GOVERNMENT F I N A N C E

D o m e s t i c p r i ces (%change) Consumer prices 29.9 Implicit GDP defiator

Governmen t f inance (%of GDP, includes current grants) Current revenue Current budget balance Overall surplusldeficit

1987

T R A D E

(US$ millions) Total exports (fob)

Coffee Cotton Manufactures

Total imports (cif) Food Fuel and energy Capital goods

Export pnce index(2OOO=WO) Import pnce index(2OOD=WO) Terms o f trade (2000=80)

B A L A N C E o f P A Y M E N T S

(US$ millions) ~xpor ts of goods and services Imports of goods and services Resource balance

Net income Net current transfers

1987

348 IO 44 63

1099 86

157 552

81 1x3 72

1987

442 1,277 -834

-I49 446

Current account balance -538

Financing items (net) Changes in net reserves

533 5

Memo: Reserves including gold (US$ millions) Conversion rate (DEC, local/US$)

EXTERNAL DEBT and RESOURCE FLOWS

32 64 3

1987

5,508 IBRD 325 IDA 801

(US$ millions) Total debt outstanding and disbursed

Total debt service IBRD IDA

156 47 10

Composition of net resourceflows Official grants 461 Official creditors WO Private creditors 38 Foreign direct investment (net inflows) 0 Portfolio equity(net inflows) 0

World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers

23 95 28 67 29 38

1997

154 20 6

P2 0 9 -14

1997

744 17 t30

1270 97

7 3 5u

100 It3 84

ni

1997

1276 1,948 -672

-P2 -3

-797

928 -P9

622 672 1

1997

6,910 34

2,306

169 24 32

43 1 183 -22 158

0

150 183 36

u 7 20 727

2006

5 4 4 2

116 -8 0 -0 6

2006

1,759 68 115 t13

3,661 272

1,065 2155

119 166 72

2006

3x33 4,565 -1431

-182 58

-1,556

1,601 -48

2,259 1,2519

2006

4,240 0

1,056

It3 0

51

4.97 524

1 474

3

599 416 31

385 20

365

2007

5 4 6 0

t24 6 8 -u 2

2007

1981 73 726 155

4 321 2 7

1224 1232

726 6 7 75

2007

2 686 1245 0

2007

0 1585

0 n

536 475

1 474

x) 464

/Expor t and Impor t leve ls (US$ mill.)

15 000

O7 I I 01 02 03 04 05 06

Exports E lmpons i

Current accoun t ba lance t o G D P (%)

0

5

10

I 15 -

/ C o m p o s i t i o n o f 2006 debt (US$ mill.) I

E 1,346

A - IBRD E - Eilaterd B - IDA D - Other mdtllatwd F - Private C - I M F G. Short-terr

Note This table was produced from the Deveiopment Economics LDB database 9/24/08

80

Annex 15: A Brief on the Mineral Sector of Tanzania

Prepared by the Ministry of Energy and Minerals

1. Tanzania’s mining industry has experienced a boom in both mineral exploration and mining, activities during the past ten years. Notable developments during the boom period include commissioning six large-scale gold mines at Nzega, Geita, Bulyanhulu, Nor th Mara, Buhemba, and Tulawaka. During this period more than fifteen mineral prospects o f gold, nickel and uranium, have also been developed to various stages o f exploration. This development has increased the country’s annual gold production f rom less than one tonne per annum in 1998 to about 50 tomes in 2008, making the mining industry the second fastest growing sector after tourism and increasing i t s contribution to the GDP from 2 percent in 1998 to 3.5 percent in 2005 (based on 1991 prices). Furthermore, the cumulative total direct foreign investment (FDI) in the mining industry in the past ten years exceeded US$2.5 bi l l ion and employed around 1 percent o f wage earners.

2. Factors that led to the rapid growth o f the mineral sector in Tanzania include: conducive geological environment; major economic reforms undertaken since the mid- 1990s (mineral policy o f 1997, enactment o f internationally competitive fiscal and legal regimes for the mineral sector); and the country’s political stability.

3. These developments pose challenges and create opportunities as more goods and services are needed to support this fast growing sector. Capacity building i s thus essential to meet the demands in the country for delivering essential services and goods such as reliable power supply, mining equipment and other consumables for the mining industry.

Tanzania Mineral Endowment

4. Mineral exploration and geological work undertaken so far reveal that Tanzania has a diverse mineral resource base. Most mineralization fall into a number o f geological environments. These include the following:

Gold occurrences hosted by the Archean greenstone belts and banded i ron formations around the southern and eastern parts o f Lake Victoria. Gold and base-metal occurrences in the Proterozoic Ubendian Supergroup in southwest o f Tanzania. Kimberlite pipes in the central and southern parts o f the Archean craton. Nickel, cobalt, copper, tin and tungsten bearing rock formations in the Karagwe - Ankolean Supergroup in northwest Tanzania. Major gemstone occurrences in the proterozoic Usagaran (eastern Tanzania) and Ubendian Supergroups. M a i n gemstone types include: tanzanite, ruby, green garnet, green tourmaline, rhodolite, sapphire, emerald, aquamarine and chrysoprase. Carbonatites associated with the East Afr ican Rift Valley system. I ron ore hosted in anorthositic intrusives in the Proterozoic Ubendian Supergroup. Evaporites in the Rift Valley and younger formations along the coastal belt. Coal resources in the Karoo Supergroup in south-western Tanzania. Uranium occurrences in the Karoo Supergroup in southwestern and southern Tanzania and in superficial deposits within the Archaean craton in central Tanzania.

81

A variety of industrial minerals such as kaolin, diatomite, gypsum, pozollana, limestone, meerschaum, bentonite, ball clay and dimension and art stones (granites, marble, anyolite) occurring in different rock formations.

Legal Framework and Fiscal Regime

5. The current legal framework and fiscal regime for the mineral sector are the outcome o f policy reforms that were initiated in 1985. The country moved from a command economy to the free, private-led economy. Consequently, the mineral policy o f 1997 and Mining Act o f 1998, changed Government’s role from being owner and operator o f mines to that o f administrator, regulator, facilitator and service provider to the industry.

(0 Legal Regime

6. Tanzania’s globally competitive and investor-friendly Mining Act, enacted in 1998, guarantees investors’ security o f tenure, repatriation o f capital and profits, and transparency in the issuance and administration o f mineral rights on a first-come, first-served basis. I t also addresses adequately environmental concerns.

7. Mining Act No. 5 o f 1998 sets out the legal framework governing mineral exploration, exploitation and marketing. Various mining regulations have been established under the Act, 1998 to regulate mining activities. These are:

The Mining (Mineral Rights) Regulations 1999; The Mining (Mineral Trading) Regulations 1999; The Mining (Safe-working and Occupational Health) Regulations 1999; The Mining (Environmental Management and Protection) Regulations 1999; The Mining (Salt and Iodation) Regulations 1999; The Mining (Provisional Licenses) Regulations 1999; The Mining (Mirerani Controlled Area) Regulations 2001 ; The Mining (Diamond Trading) Regulations 2002; The Mining (Gemstone Board) Regulations 2004; and The Mining (Dispute Settlement Resolution) Rules 1999.

(io Licensing Procedure

8 . The Act establishes state ownership o f minerals and provides rights and conditions for granting rights to explore, develop and produce such minerals. Licensing procedures are streamlined to ensure transparency to ‘and fairness by conferring ownership o f mineral rights on the first-come, first-served principle. There are seven types o f licenses issued under the Act:

(a) Prospecting License

9. penalties, specialized sk i l ls development and mineral administration, as follows:

’ The Act groups minerals into categories for purpose o f facilitating targeting o f incentives,

building materials; or all minerals other than building materials or gemstones;

82

gemstones.

A Prospecting License i s granted for an initial prospecting period o f three years, except in the case o f an application for a Prospecting License for gemstones where the period may not exceed two years and i s not subject to renewal. A Prospecting License covering a preliminary reconnaissance period for al l minerals other than building materials and gemstones may be granted for a period not exceeding two years. The holder shall relinquish 50 percent o f the prospecting area on each renewal.

10. The size o f each Prospecting License shall be as follows:

for a Prospecting License with a preliminary reconnaissance period, the maximum area shall be 5,000 square kilometers. for a Prospecting License for al l minerals other than building materials or gemstones the maximum area during the initial prospecting period shall be 200 square kilometers. for a Prospecting License for gemstones or building materials the maximum area shall be 10 square kilometers.

(b) Retention License

11. The holder o f a Prospecting License, other than a Prospecting License for building materials or gemstones, may be granted a Retention License for a period not exceeding five years when an exploration program and feasibility studies have identified the existence o f a significant ore body that cannot be immediately developed as a mine due to adverse market conditions. The license may be renewed for a single period o f five years.

(e) Special Mining License

12. A Special Mining License i s granted in respect o f the development and production stages o f a large mining operation. The license may be granted for a period not exceeding 25 years. On application duly made, i t may be renewed for a period not exceeding 25 years.

13. Application for a Special Mining License must be accompanied by a proposal o f mining operations, Environmental Management Plan, employment o f citizens o f Tanzania and an Environmental Impact Assessment. The application under this license must also be submitted to the Mining Advisory Committee for advice before issuance o f license.

(d) Mining License

14. A Mining License may be granted for a period not exceeding ten years, or the estimated l i fe o f the ore body which it i s proposed to mine. It may be renewed for a period not exceeding ten years. Each application under the Mining License must include a feasibility study that shall set out the proposed program o f mining operations and must be accompanied by an Environmental Management Plan and an Environmental Impact Assessment.

15. The size o f each Mining License shall be as follows:

83

for a Mining License for al l minerals other than building materials or gemstones the maximum area shall be 10 square kilometers; and for a Mining License for building materials the maximum area shall be 0.5 square kilometers.

(e) Gemstone Mining License

16. A Gemstone Mining License confers on the holder the exclusive right to carry on mining operations for gemstones in the mining area. The license may be granted for a period not exceeding ten years, and may be renewed for the period not exceeding ten years. N o Gemstone Mining License shall be granted to a non-citizen o f Tanzania, unless the Gemstone Mining License i s held by that person in undivided participating shares with a citizen o f Tanzania whose share or shares amount to not less than twenty five per cent. For a Gemstone Mining License, the maximum area shall be 1 .O square kilometers.

@ Primary Prospecting License

17. A Primary Prospecting License authorizes the holder to prospect for minerals for any area located in the Zone for which the Zonal Mines Officer has responsibility. The license shall be granted for a period o f one year, and may be renewed for a like period or periods.

(9) Primary Mining License

18. A Primary Mining License confers on the holder the exclusive right to carry on mining operations in the mining area. The license i s granted for a period o f five years and may be renewed for the l ike period. The holder o f one or more Primary Mining Licenses may apply to convert the license or licenses to a Mining License or a Gemstone Mining License.

19. The size o f each Primary Mining License shall be as follows:

0

for a Primary Mining License for al l minerals other than building materials the maximum size shall be 10 hectares; and For a Primary Mining License for building materials the maximum size shall be 2 hectares.

20. the purpose o f conversion to Mining License or Gemstone Mining License.

The above maximum sizes shall not apply to Primary Mining Licenses amalgamated for

21. individual who i s not a citizen o f Tanzania, or to a company, unless:

A Primary Prospecting License and a Primary Mining License cannot be granted to an

0 i t s members are al l citizens o f Tanzania; i t s directors are al l citizens o f Tanzania; control over the company, both direct and indirect, i s exercised from within Tanzania by persons al l o f whom are citizens o f Tanzania.

84

(iii) Fiscal Regime

22. Tanzania’s globally competitive and investor-friendly fiscal regime was formulated in 1997. Applicable legislation under the fiscal regime includes the Financial Laws (Miscellaneous Amendments) Act, 1997 and The Value - Added Act, 1997. Royalty on minerals i s administered under the Mining Act, 1998.

23. Tanzania offers internationally competitive tax incentives that guarantee investors’ security o f tenure, repatriation o f capital and profits, and transparency in the issuance and administration o f mineral rights. The tax structure and incentives include:

e

e

e

e

e

e

e

e

b

e

e

e

e

Depreciation allowances for depreciable assets (a deduction equal to the amount o f capital expenditure (=lo0 percent depreciation allowance) in the year o f expenditure, which also can be carried forward; Import and excise duty for mining equipment at 0 percent during exploration and mine development up to the f i rs t anniversary o f commercial operation; and thereafter a cap limit o f 5 percent applies; Losses carried forward for unlimited period; Other major taxes applicable include a 30 percent corporate tax, after capital allowances and adjustment for losses carried forward; Royalty payment: 5 percent on diamonds and rough gemstone; 0 percent o n cut gemstone; and 3 percent on other minerals; Withholding tax: P 10 percent on dividend; P 3 percent on technical services or 20 percent if management fees exceed 2 percent o f

operating costs (amended, 2004, whereas foreign 15 percent and local 5 percent); and l+ on interest 0 percent. VAT Special Rel ie f (goods and services purchased or imported are subject to VAT, however, the VAT Act provides rel ief to mining companies on certain goods and services); Fuel Taxes (Fuel Levy and Excise duty on fuel): US$200,000 per annum; Local Levy: US$200,000 are paid to Local Government per annum; Banking and Foreign Exchange: investors are allowed to open foreign account to service loans; Ring fencing: none; Tax stability: full mine project l i fe or 25 years, whichever comes first; State participation in any mineral venture i s not mandatory.

(iv) Stability Agreements

24. The current agreements made under Section 10 o f the Mining Act, 1998 are restricted to assurances o f stability o f the fiscal regime applying to a particular investor at the time the Agreement is made. The agreement covers the l i f e o f the mine project. However, the agreement must be registered by the Minister o f Finance and Economic Affairs in the Register o f Tax Agreements.

85

Mineral Exploration Trends in Tanzania

25. Since 1994, there has been a mineral exploration boom, whereby more than 50 multinational companies and more than 250 local companies have acquired mineral rights. The companies used geological maps for basic data and information during initial exploration activities. By the end o f 2005 there were a total o f 4,073 prospecting licenses issued to different companies. The majority o f these licenses targeted gold deposits in the Archaean greenstone belts around Lake Victoria. Other licenses were for base metals, iron ore, nickel, industrial minerals, platinum group metals, and gemstones.

26. The basic data and information on the country’s mineral potential i s collected through geological mapping and publication o f geological maps. The country i s sub-divided into 322 Quarter Degree Sheets (QDS), each measuring 54 kilometers by 54 kilometers, or 2916 square kilometers). Up to 2008, eighty six percent (86 percent) o f the 322 QDS has been geologically mapped. O f these, 77 percent have been mapped at a scale o f 1:125,000 (50 percent published and 27 percent not yet published.). The remaining 9 percent o f the mapped QDS are at the scale o f 1 : 100,000 whereby 2 percent have been published and 7 percent are not yet published. The published geological maps show type o f rocks, structures, potential mineral resources (mineral showings and occurrences), and soil types. The maps are accompanied by reports o f the respective QDS.

27. The 1 : 100,000 map scale shows more detailed information than the 1 : 125,000 map scale. In view pf this geological maps are currently being published at the scale o f 1:100,000. Furthermore stakeholders prefer the 1 : 100,000 scale for easy integration o f other geoscientific data. The geological maps at 1 : 125,000 scale therefore, need to be updated to 1 : 100,000 scale.

28. completed:

Under a Nordic Development Fund Project, between 2003-2007 the following work was

1.5 percent geological mapping was completed and maps published at 1 : 100,000 scale (ie., five QDS out o f the remaining 320 QDS); 3 percent o f the 322 QDS covered by high resolution airborne geophysical surveys (Le., 11 QDS out o f 322 QDS) and published at scale o f 1 : 100,000; and 1.5 percent or five QDS geochemical maps published at 1 : 100,000 scale (out o f 322 QDS).

29. Under the SMMRP, the aim i s to accomplish the following:

Geological mapping and publishing o f QDS maps: 6 percent or 18 QDS to be mapped and published at 1:100,000 scale (an increase o f 6 percent o f the QDS). GST will continue to publish 6 percent o f the unpublished maps which will constitute14 percent o f the QDS published at 1 : 100,000 scale.

Geochemical survey: 5 percent proposed to be surveyed (nine QDS out o f the remaining 308 QDS) or decrease by 5 percent o f the maps); after the Project only 13 percent coverage o f geochemical survey out o f the 322 QDS.

86

Geophysical survey: 34 QDS will be covered making 11 percent coverage out o f the remaining 31 1 QDS, and maps will be published at scale o f 1:100,000; after the Project, 14 percent coverage will be realized (i.e,, increase o f 11 percent from the current 3 percent).

Bingwa and Tembo Kitongo Luhala

3 0. Multinational companies active in mineral exploration in Tanzania include Barrick Gold Corporation, AngloGold Ashanti, Minieres du Nord, IAMGOLD, and Randgold. Investment in exploration activities has led to the upgrade o f more than 12 economic gold prospects which are at various exploration stages. These include:

0.2 13.7 Exploration 10.5 1.4 Exploration 0.2 14.4 Exdoration

Miyabi Kisuge Hill

8.3 1.5 Exploration 9.0 1 .O Exploration

Mining Trends in Tanzania

32. The earliest organized mineral prospecting and mining in Tanzania took place during the German colonial period, beginning with gold discoveries in the Lake Victoria region around 1894 (Nilsen, 1980). After 1930, gold production was substantial and increased steadily until 1966 when Geita Gold Mine closed. B y 1967, the gold industry had declined to insignificant level due to the closure o f the mine and production was mostly from artisanal mining.

33. In 1967, the Government took the first step to develop the mineral sector by adopting a state-directed economic development strategy. Among other things, the strategy directed that medium- to large-scale private-owned investments in the mining industry were prohibited except with State participation o f not less than 50 percent. This led to the establishment o f State Mining Corporation (STAMICO) in 1974. However, artisanal- and small-scale mining has been the key rural mining activity in Tanzania for many years and was the major producer o f minerals in Tanzania for the period between 1987 and 1996. I t i s estimated that this activity employs more than 500,000 people.

34. With the country’s change in macroeconomic policy to free market economic policies from 1985, many private foreign and local investors showed interest and subsequently invested in the mineral sector. In 1992, there were 10 Prospecting Licenses and nine Mining Licenses

87

granted to private investors; the number has increased to over 5,900 Prospecting Licenses and 220 Mining Licenses in 2008, including six special mining licenses for gold. Annual gold production from these mines i s about 50 tonnes, putting Tanzania among the third leading gold producing countries in Africa. Major players in the mining industry are shown in Annex A1 . 35. Since 1998, production has increased following the construction o f Golden Pride, the first o f six large-scale, mechanized mines, two o f which (Geita and Bulyanhulu) are o f world-class deposits. The six mines are:

0

0

0

0

0

0 Buzwagi Mine (under construction).

Golden Pride (Nzega), with 2.8 mill ion ounce resource, became operational in 1998; Geita Gold Mine, with 20 mill ion ounce resource, became operational in 200 1 ; Kahama Gold Mine (Bulyanhulu), with 14.6 mill ion ounce resource, became operational in 2000; North Mara Mine, with 4.1 mill ion ounce resource, became operational in 2001 ; Tulawaka Mine, with 1.7 mill ion ounce resource, commenced production in March 2005;

36. In addition to gold, diamond mining, which had been relatively minor, received a major boost with the discovery o f the Mwadui kimberlite pipe in 1940. Commercial production started in 195 1 as the Williamson Diamond mine and continued progressively until mid 1960s. Mwadui (Williamson) i s famous for the “Mwadui Pink,” a 24 carat flawless pink diamond set in a brooch given to then Princess Elizabeth on her engagement to Prince Phillip. Between 1967 and 1997, diamond production at Mwadui mine had been affected by both global diamond production and internal policies. However, since 1998, production has increased due to the new investment put into the mine.

37. There has been significant increase in tanzanite mining activities in the country. The only large-scale gemstone mine i s that o f tanzanite at Mirerani. Traditionally, tanzanite has been mined by small-scale miners since i t was discovered in 1967. Exploration work conducted in 2002 calculated an indicated resource o f 4.6 Mt o f ore with a grade o f 22 carats/tonne (4.4 g/t), containing 50 mill ion carats o f A and B grades tanzanite. In 2003, a large-scale, mechanized tanzanite mine was opened at Mirerani. Re-evaluation o f the deposit in 2004, revealed indicated resource between 0.95 and 1.26 Mt o f ore with between 63 and 83 mill ion carats o f tanzanite.

38. Other than gold, diamonds and tanzanite, which are produced by large-scale mining, production o f other mineral commodities have been relatively modest. In the past few years, significant production o f coal, phosphate, kaolin, gypsum, salt and varieties o f gemstones (tanzanite, garnets, sapphire) have been produced mainly from small and medium to scale mines (Annex A2 and A3).

Artisanal and Small-scale Mining

39. Small-scale and artisanal mining has been a key rural mining activity in Tanzania for many years. I t was the major producer o f minerals in Tanzania for the period between 1987 and 1997. The definitions o f artisanal and small-scale mining are not clear in Tanzania. Most people involved in the mineral sector imply that small-scale miners are those working in Primary Mining license areas and artisanal miners are those individuals mining haphazardly without proper authority.

88

40. The Mineral Policy recognizes the positive contribution o f the artisanal and small-scale mining sub-sector to the economy. For simplicity, artisanal miners are mobile operators who often employ traditional tools and techniques in exploration and mining. Small-scale miners on the other hand, own mining licenses and are relatively organized compared with artisanal miners. The Government i s committed to supporting small-scale mining by facilitating the transformation o f current artisanal mining activities into more organized and modernized small- scale mining units.

41. In the late 1 9 8 0 ~ ~ the Government organized a series o f miners’ associations to transform and upgrade artisanal mining into organized and modernized mining, principally in gold and gemstones. This move coincided with a major increase in artisanal mining activity.

42. has been hampered by many technical problems:

Despite the country’s favorable geology, the artisanal and small-scale mining sub-sector

Unprotected and un-reclaimed trenches and pits after mining has ceased, causing safety problems to the miners themselves as well as to local people in general and animals; Uncontrolled use o f reagents used to recover gold causing environmental and health problems; Poor techniques for crushing and milling the extracted material, as well as lack o f protection, causing poor recovery o f minerals and health problems, particularly those related to exposure and absorption o f dust; Use o f contaminated water and lack o f sanitary and hygiene facilities, increasing the potential for transmission o f certain diseases; and Development o f mining activities without a proper environmental management plan which leads to continual contamination and pollution o f soil and surface and underground water in artisanal and small-scale mining areas.

43. In realizing the potential for growth and the need for improving the sub-sector, the Ministry o f Energy and Minerals formulate strategies in 2006 aimed at developing small-scale mining in Tanzania. The strategies address the following specific goals:

Improving information and statistics on artisanal and small-scale mining; Identifying and allocating exclusive areas for small-scale mining; Training and providing extension services; Facilitating geological investigations in small-scale mining areas; Improving credit and financing; Promoting value addition; Improving marketing; Streamlining the fiscal framework; and Enhancing regularization and addressing cross-cutting issues such as environment, health and safety, gender, HIV/AIDS , and social responsibility.

Some o f the proposed artisanal and small-scale mining strategy activities will be supported by the SMMRP.

89

44. included:

Other initiatives to promote development o f small-scale mining in Tanzania have

0

0

Training in collaboration with stakeholders such as UNIDO, USAID, UNDP, VETA, DflD, and the World Bank, particularly in the Lake Zone area; Demonstration training using successful small-scale mines, such as the operations o f Christopher Kadeo o f Rwamgasa village (Geita district) and Yusuph Money (Mirerani - Simanjiro district); Establishment o f a Mining Technological Demonstration Centre in Matundasi - Chunya district. Establishment o f mine offices near mining sites, e.g., in Tunduru, Handeni, and Mirerani, and improvement o f existing offices through the provision o f tools to facilitate supervision o f mining activities and increase in extension services; Efforts to create markets in mining sites, e.g., MEREMETA (Geita) and FBME bank, which has buying centers in Geita and Musoma; Provision o f brokers’ licenses (although currently there are few such license holders).

0

0

0

Initiatives by LSM to develop ASM

(i) Mwadui Community Diamond Partnership (MCDP)

45. M C D P i s a community development initiative led by D e Beers Group, which committed US$2 mi l l ion for the project. Further funding i s being solicited from other sources including local funds from the Government.

46. M C D P main objectives are: to alleviate poverty through multi-stakeholder partnership and address political and socio-economic challenges that are being faced by the artisanal and small-scale diamond mining sub-sector.The expected deliverables are as follow:

0

0

0

0

0

0 Improved geological database.

Poverty alleviation through creation o f small and medium businesses, j o b creation, provision o f health, education, water and electricity infrastructures; Availability o f credit facilities to assist artisanal and small-scale diamond miners; Improved regulation o f the artisanal and small-scale diamond mining sub-sector; Availability o f reliable markets and fair prices for Tanzanian diamonds; Enhanced safety, health, and environmental standards; Increased Government tax revenue through close regulation o f the artisanal and small-scale diamond miners;

In late 2008, DeBeers sold i t s interest in the Williamson diamond mine to Petra Diamonds, who have expressed interest in continuing the MCDP.

(ii) The Transformation of Artisanal Gold Mining Activities into Small-Scale Mining Operations Initiative

49. Barrick Gold Corporation has developed a program to improve the productivity, safety and environmental management o f small-scale miners around Nor th Mara and Bulyanhulu gold

90

mines. In order to implement the program effectively, the company has identified six work streams:

0 Forming and registering cooperative societies and their registration o f bylaws (the

0

Acquiring land for mining, services, and waste management;

Cooperative Societies Act, 2003); Managing the transfer o f mineral rights ownership; Developing training programs (Mining Act- Safety Regulations, 1999) and building capacity in the form o f business skills; Identifying and sourcing appropriate technology that i s safe, easy to operate and maintain, and environmentally acceptable; Identifying and soliciting adequate funding so that operations can sustain themselves as businesses.

50. At North Mara, four cooperative societies have been formed and registered:

0

Mara Miners Cooperative Society Ltd; M l ima Mgosi Cooperative Society Ltd; Msege Miners Cooperative Society Ltd; Nyamagunchara Miners Cooperative Society Ltd.

The four societies are based on closeness, infrastructure, and common challenges. They employ 1,513 people (973 men and 540 women).

5 1. The desired transformation o f artisanal and small-scale miners into cooperative societies can be more easily achieved through the recognition o f the importance o f education, ensuring that people participate, acquisition o f appropriate land and technology, and adequate funding. T o realize the desired outcome and benefits, the company intends to:

0

0

Address safety and health issues o n the rock face; Improve on mining methods and schedules; Have a centralized, decent processing plant that conforms to agreed base lines; Improve logistics to support production.

53. The approximate cost for one model mine with production and ventilation shafts, central processing plant with a capacity o f Stph, a processing plant to produce sellable gold, and gold trading through responsible mining i s US$2.7 million. The breakdown i s as follows:

Processing plant USD 1.5 mi l l ion Mining and logistics USD 0.5 mi l l ion Infrastructure USD 0.3 mi l l ion Working costs USD 0.4 mi l l ion

54. To achieve the responsible metal trading objective, Barrick Gold i s discussing with the Rand Refinery o f South Africa, which i s planning to build and operate the refinery in Mwanza, and i s willing to buy gold f rom artisanal and small-scale miners.

91

Socio-economic Benefits

55. The mining industry’s contribution to Tanzania’s GDP has been increasing over the years, f rom 2 percent in 1998 to 3.7 percent in 2007. This contribution has been attributed to large-scale and medium- and small-scale mining activities. However, medium- and small-scale mining has been an important contributor to local economies, providing a means whereby large numbers o f people can complement income derived from other primary activities, such as subsistence or seasonal agriculture. Consequently, the sector plays a significant role in changing the social and cultural interaction and economic wellbeing o f the majority o f Tanzanians by providing them with employment, thereby reducing poverty. Tanzania benefits socially and economically from the mining projects as highlighted in Annex A4.

56. Despite the positive aspects, artisanal and small-scale mining are linked to environmental damage. Factors that lead to serious environmental concern include lack o f appropriate mechanized mining methods, lack o f properly established social structure within mining areas and lack o f awareness o f environmental issues. The contribution o f large-scale mining operations does not reach the local governments and communities surrounding the mines directly, apart from non-obligatory contribution towards health, education, communication and water supply for some o f the mines.

57. This situation has resulted in local communities’ perception that there are no benefits from the mining industry. To correct this situation, in recent years the Government has started reformingh-estructuring local governments with the aim o f enabling them to be more autonomous and work towards structural improvement o f the welfare of the population, alleviation o f poverty, disease, ignorance, social injustice and inequalities. Proper coordination and transparency in the mining industry, can contribute towards poverty reduction and community development, both in the vicinity o f mining operations and in a broader regional and national context. To achieve this, the Government i s implementing EITI.

Value Addition

58. Tanzania’s abundant mineral resources improve i t s chances o f developing value addition to minerals. Value-added activities such as gemstone cutting, goldsmithing, and production of industrial minerals and ornamental and dimension stones. Pursuing such activities will enhance the mineral industry’s contribution to the economy and increase employment opportunities for Tanzanians.

59. Strategies to be considered to foster value addition activities include: introducing an attractive taxing system for the design o f gemstones and precious metals; securing export processing zone areas for the design o f , gemstones and goldsmithing; encouraging local entrepreneurs to design gemstones; amending the investment and finance acts to provide tax exemption for gemstone cutting and designing machines, goldsmith machines and their spare parts; introducing gem and jewelry shows in the country in collaboration with the gemstones and gold business stakeholders; encouraging mineral traders and goldsmiths to participate in international gem and jewelry shows; advertising and improving such businesses; and establishing lapidary and jewelry sections at the Arusha Carving Centre.

92

Arusha Gemstone Carving Centre

60. The concept o f establishing a demonstration and training centre in Arusha was initiated during the f i rst World Bank-funded Project in 1995-2000. Unfortunately, funds were lacking for this activity. MEM continued with the concept o f establishing the Arusha Gem Centre in 200 1 , where partial rehabilitation o f buildings was carried out followed by procurement and installation o f rock-carving equipment. MEM’s role as a developer o f the gem centre was to design, construct, and then hand it over to a capable institution. The emphasis up to the present has been on training in carving o f ornamental stones. MEM aims to turn the Centre into a fully-fledged gemological centre with carving, lapidary, and jewelry sections, which trains, conducts business, and promotes mineral products. Eventually, the Centre will have to be handed over to a reputable institution to continue with training and other activities.

Administration of the Mineral Sector

(i) MEM’s Vision and Mission

61. exploitation and utilization o f energy and mineral resources in Tanzania by 2025.

The vision o f MEM i s to be the highest contributor to GDP through sustainable

(ii) MEM’s Mission

62. The mission o f MEM i s to spearhead sustainable development o f energy and mineral resources by providing best services and a conducive investment environment to our customers through competent and skilled staff.

(iii) MEM’s Organizational Structure

63. A comprehensive restructuring o f the Ministry o f Energy and Minerals (MEM) commenced in 2001 under the public sector restructuring program. The Mineral Resources Division was restructured into a Minerals Division and Geological Survey o f Tanzania and Madini Institute as government executive agencies in order to increase efficiency. Improvement o f the structure was made in April 2006 when changes were affected to include the post o f Deputy Commissioner for minerals and units o f Procurement Management; Information, Education and Communication; Environment Management and Legal Services. On January 13, 2009, this structure was expanded to include a Management Information Systems Unit and Minerals Auditing Section in the Minerals Division. The Ministry’s current organizational chart i s as presented in Annex A5.

Functions o f Sections under the Minerals Division

(i) Mineral Economics and Trading Section

64. Despite the remarkable investment growth in the mining sector, value addition in produced and exported minerals i s insignificant (currently standing at 0.3 percent). Thus, it does not contribute fully to job creation or economic growth. The main challenge i s to continue attracting investment in mining and ensuring that value addition activities are promoted. This i s

93

aligned with the MKUKUTA and the 2005 Chama Cha Mapindu Election Manifesto, which emphasized the need for value addition to increase national wealth, reduce poverty, and create jobs, and the need to develop and promote an enabling environment for increased mineral sector investment.

65. In order to effectively and efficiently address the above challenges, MEM has established the Mineral Economics and Trading Section. MEM has undertaken several initiatives aimed at promoting value addition in minerals, such as preparing draft legislation to govern value addition and establishing the Arusha Gemstone Carving Centre.

(ii) Small-scale Mining Development Section

66. The small-scale mining sub sector has been growing tremendously despite the fact that i t s contribution to the country’s economy i s yet to be realized. The sub sector i s currently not wel l organized, monitored and controlled. To address this, MKUKUTA has come up with strategies aimed at transforming the small-scale miners into sustainable sub-sector. Furthermore, the Mineral Policy o f 1997 and the 2005 Chama Cha Mapindu Election Manifesto emphasized modernization o f the sub-sector to ensure that i t becomes sustainable and contributes significantly to the economy.

67. Based on the above challenges, MEM established the Small-Scale Mining Development Section so as to adequately deal with the small-scale mining sub-sector and to enhance its contribution to the economy.

(iii) Mines Inspectorate Section

68. The number o f large-scale mining licenses has increased from two in 1990 to 212 in 2005. Likewise, the number o f valid small-scale mining licenses increased from 2,609 in 2000 to more than 8,600 in 2005. This increase in large- and small-scale mining activities has necessitated closer monitoring o f the mining operations to ensure compliance with mining laws and regulations for sustainable development o f the sector. Furthermore, the Mining Policy o f 1997 and MKUKUTA put emphasis on the development o f a system that ensures safe and sustainable mining operations.

69. established the Mines Inspectorate Section.

In order to ensure compliance with mining laws and regulations in the mines, MEM has

(iv) Licensing and Mineral Rights Management Section

70. The fast expanding mineral sector has scaled up the mineral rights licensing function. This i s depicted by the increase in the number o f large-scale prospecting licenses from 454 in 1995 to 3,433 in 2005. T o ensure security o f tenure, transparency and efficiency in mineral rights licensing activities, MEM initiated the Mining Cadastre Information Management System (MCIMS) in 2004. Furthermore, MKUKUTA stresses the establishment and implementation o f the M C I M S to enhance efficiency in processing mineral rights.

71. efficiency in processing and granting o f mineral rights.

MEM established the Licensing and Mineral Rights Management Section to enhance

94

(v) Explosives Management Section

72. Increased mineral exploration and mining activities in the country has led to increased demand for the acquisition and use o f explosives. For example, quantity o f explosives used in the country for mining purposes in 1990 amounted to 834 tonnes. At the end o f October 2006 the amount o f explosives used for mining purposes was 18,000 tonnes, which i s a substantial increase. Use o f explosives needs to be carefully regulated otherwise they can be used in clandestine activities l ike terrorism and illegal fishing. The Explosives Act o f 1963 and its Regulations o f 1964 empower the Commissioner for Minerals to regulate manufacturing, importation, exportation, transportation, storage and usage o f explosives in the country.

73. management o f explosives used in mining activities.

MEM established the Explosives Management Section to address administration and

(vi) Minerals Auditing Section

74. Despite the remarkable investment growth in the mining sector, the contribution o f the sector to the economy has not been fully realized. There has been an outcry from the public that, the mining companies operating in the country have been over-invoicing capital and operating expenses, under-declaring values o f exported minerals, and avoiding environmental safeguards in order to maximize profi t at the expense o f the rightful share o f the Government revenue. The Government’s institutional capacity to monitor large-scale, foreign investment has been surpassed by the rapid growth o f the mining sector. Therefore, there i s a need to build Government’s capacity to enable it to regulate and control the sector efficiently and be able to receive i t s rightful share o f revenue.

75. MEM has undertaken several initiatives including hiring o f a foreign firm, M/S Alex Stewart Assayers and Government Business Corporation, to undertake gold auditing o f the large- scale gold mines. These initiatives have enabled the Government to understand the scope o f the challenge and establish the Mineral Auditing Section in order to effectively and efficiently monitor and audit mineral production and exports, investments and operating costs and environmental safeguards.

(vii) Environmental Management Unit

76. The energy and mineral sectors’ exploration and exploitation activities have significant negative impacts on the environment. MEM has recognized this and developed strategies stipulated in the mineral and energy policies aimed at mitigating environmental degradation impacts and enhancing positive impacts. In addition, Articles 30, 3 1 and 32 o f the Environmental Management Act, 2004 require each sector to form a Unit that would coordinate environmental management activities in the respective sector. The Chama Cha Mapindu Election Manifesto o f 2005 emphasized environmental protection and management during energy and mineral resources exploration and exploitation.

77. MEM established the Environmental Management Unit, which aims to develop and promulgate sectoral environmental strategies to mitigate environmental impacts resulting f rom the minerals and energy exploration and exploitation activities.

95

(viii) Legal Services Unit

78. The legal services activities at MEM were decentralized, with each division having i t s own legal officers. This arrangement hindered efficiency o f the legal services in the Ministry and resulted in allegations that the public i s not benefiting from several mining and energy contracts. At the same time, energy and mineral sectors’ activities have attracted several local and foreign investors and these require well-coordinated, holistic approach to legal advice and review so as to ensure that the country benefits f rom these agreements and contracts.

79. development o f the energy and mineral sectors.

MEM has established the Legal Services Unit to provide legal. advice relevant to the

(ix) Zonal Mines Offices (ZMOs)

80. In order to achieve mineral sector objectives, it was necessary to bring extension services close to people. The Mining Ac t No.5 o f 1998 enforces this policy. Section 23 o f the Mining Ac t No. 5 o f 1998 says that, “the Minister in consultation with the Mining Advisory Committee shall establish Zonal Mines Office for the purpose o f this Act, and appoint the area o f Tanzania for which each such Zonal Mines Office shall be responsible.”

8 1 . MEM established ZMOs to facilitate the administration and management o f the Mining Act, 1998 and Mining Regulations o f 1999 at the respective Zonal areas effectively and efficiently. There are eight ZMOs located, respectively, in: Arusha, Dar es Salaam, Mbeya, Mpanda, Mtwara, Mwanza, Shinyanga, and Singida.

(x) Resident Mines Offices ( M O s )

82. To bring services related to development o f the mining sector in the country close to the public, MEM established RMOs to facilitate the administration and management o f the Mining Ac t No. 5 o f 1998 and Mining Regulations of 1999 at the regional and/or district areas effectively and efficiently. RMOs are opened at areas where there i s a great deal o f mining activities, and are usually located at the district’s headquarter and operate under the supervision o f the respective ZMO.

83. Chunya, Songea, Tunduru, Musoma, Geita, Bukoba, Tabora, Kahama, Dodoma and Kigoma.

There are 14 RMOs located, respectively, in: Handeni, Tanga, Merelani, Morogoro,

Policy and Legal Reforms

84. Since 1997 when the mineral pol icy was adopted, there have been significant achievements in the sector, including the increase o f mineral exploration activities, commencement of large-scale mines, increased employment, increased small-scale mining activities, increase o f mineral exports, and increase o f minerals contribution to GDP. These achievements resulted from the conducive investment climate introduced through a new Mining Ac t and fiscal regime. Despite these achievements, there have been several complaints and concerns along the fol lowing lines:

96

The nation does not benefit substantially from the mining sector because o f generous tax exemptions; There i s no strong administrative and monitoring capacity o f the mining activities; Social services provided by mining companies to surrounding communities are voluntary and discriminatory; Compensation to people displaced by mine development i s not adequate; The Government favors foreign companies at the expense o f i t s nationals; Mining companies utilize mergers and acquisitions to evade paying taxes; The Government does not facilitate transformation o f small-scale miners; Nuisance taxes, bureaucracy and hostile/cumbersome tax administration affect the growth o f legal/formal mining business Contribution o f the mineral sector to the economy i s low compared to the high rate o f growth o f the sector; Inadequate integration o f the mineral sector in the economy; Inadequate improvement o f artisanal and small-scale miners in areas o f entrepreneurship, technology, marketing, health, safety, and environment; Inadequate Government capacity to regulate and control the mineral sector; Inadequate local beneficiation and value addition o f mineral products; Lack of strategic Government participation in mineral sector projects to stimulate integration o f mining in the national economy.

85. legal and fiscal frameworks for the mineral sector. The following have been complated:

These challenges prompted the Government to embark on review o f the policies, and

The Kipokola Committee was commissioned in 2004 to review Tanzania’s Mineral Policy; The Government negotiating committee was formed in 2007 to review existing mining development agreements with mining companies to achieve a win-win situation; The Bomani Commission was formed in 2008 to further scrutinize the Mineral Policy and legal, regulatory, and fiscal framework for the mineral sector.

86. revising the 1998 Mining Act and i t s regulations.

MEM i s currently in the process o f reviewing the Mineral Policy o f 1997 with a view to

Annexes

Al , Major Mining Companies Active in Tanzania A2. Mineral Production Statistics, 2001 -2007 A3. Mineral Exports, 200 1-2007 A4. Economic Contributions by Mining Companies-General Economic Indicators A5. Organizational Structure o f the Ministry o f Energy and Minerals o f Tanzania

97

- i

0 0 hl

- 3 3 3 N

- N 3 3 N

- 3

3 3 N

T

- ffi 3

0 0

ri 0 0 N

L 0 a

c;'

cr;' c)

2 E P s $

I

N

- I

N r n

~ w"

W

I

in L 0 Y

9 3

4 8

E 8

E H u

0 E

w d

Q)

13 I

in Q)

E cd a

.I

€ 6

s M E E

h s E 0

P L E

.I

in

.1 Y

a .H

Y

6 3

iG

0

0

$

a E

E

.e(

2!

E .I

v1

2

2

B

z s Q)

E

L 0 a

.I

Y

4 E 2 E € b

3

0

E 0

I

L

.I Y

3 Y in

E

8

2

B E H Q) M

Q)

n

A5. Organizational Structure of the Ministry of Energy and Minerals of Tanzania

MINISTER I

v

APPROVED ORGANISATION STRUCTURE OF T M YINDTRY OF ENERGY ANDMINERALS (Appro& by tho Pnr#urt M lp J.nu.y, 2009)

ADhuNmTIoNAplDwLiMAN~uncES MANAGEMMT DMSION

DIRECTOR

NEiWAL AUDIT UNIT

CHIEF IIYTICENAL AUDITOR

PROCUREMWT MANAGEMENT UNIT POUCY AND P J A W G DMSION

pJFomnON. E w C A n o N AND

CHIEF ACCOUhTAN F"c1PAL INFORMATION OFFICER

ENERGY AND PETROLEUM

I- - -- - -7 I

. - - - - - - I : Proposed or already an Erecutiw Agency

MINES INSPECTORATE

SMALL SCALE MMING

1

MMERALS ECONOMlcS C 'IRADING

LICENCING AND M-L RKiHIs

H MINERALS AUDITING

ZONAL MINES OFFICE I 4 RESIDENTMINESOFFICE I

102

TANZANIA

TANZANIA