The IMF/World Bank Structural Adjustment Program and its Consequences for Guyana’s

Environment: An Examination of the Mining and Forestry Sectors

Dr. Patrick WilliamsWWF-Guianas

FORMAT OF PRESENTATION• Background• Overview of Structural

Adjustment and the Environment

• Guyana’s Mining and Forestry Sectors

• Guyana’s Structural Adjustment Program

• Environmental Effects of Gold Mining and Forestry

• Some Initiatives• Concluding Remarks

Background• Oil crisis of the 1970’s caused deterioration of Third

World Economies• Countries unable to repay loans made by IMF, World

Bank and other financial institutions• World Bank/IMF imposed its SAP as a pre-condition for

debt rescheduling and new loans• Economic conditions in the Caribbean forced Guyana,

Jamaica and others to accept the SAP• Guyana had a number of IMF/World Bank support but the

1988 SAP (ERP) was the first full fledged program• The 1998 SAP as in other countries was designed to

restructure the country’s economy• Logging and mining were seen to have the greatest

growth potential and hence were specifically targeted in the program

Structural Adjustment and the Environment

• SAP comprises a set of macro-economic policies targeted at developing countries to assist their ailing economies

• The principal elements of SAP are:– Export led growth– Privatization and liberalization– Free-market economy efficiency

• Principles are reinforced through the following monetary and fiscal policies– Currency devaluation against the dollar– Removal of import and export restrictions– Balancing budgets (by reducing public expenditure and

eliminating price controls)• The link between SAP and the Environment has been a

controversial one, particularly in developing countries• The World Band/IMF showed over 10 years of indifference

to the impact of the SAP on developing countries

Structural Adjustment and the Environment cont’d

• WWF’s landmark research (Ivory Coast, Thailand & Mexico) and publication in 1992 changed the approach

• Results of the study revealed that SAP could have both positive and negative impacts

• High points of the research findings were:– Privileged groups could use natural resources to strengthen

and maintain power– Inequity could be created– The poor and impoverished could become marginalized– Macroeconomic policies and efficiency did not necessarily lead

to sustainable development• WWF’s work led to the proliferation of studies e.g.

– Impact of SAP on women– Impact of SAP on Environment– Impact of SAP on Agriculture– Measuring of Environmental Impacts of Natural Resource

Consumption

Structural Adjustment and the Environment cont’d

• A number of studies were conducted on Guyana but notable gaps still remain

• One major gap is the link between SAP and the Mining and Forestry Sectors and their impact on the Environment

• Measurement of the impact has always been controversial hence the need to develop appropriate indicators (SMART)

Guyana’s Forestry and Mining Resources

Forest Resources• Forests comprise 76% (16.45 mil ha) of Guyana’s 21.5 mil ha (168,000km2)

land area• GFC administers Guyana’s 13.58 mil ha of State Forest• Logging Concessions are issued in three

categories– State Forest Permission (SFP)– Wood Cutting Lease (WCL)– Timber Sales Agreement (TSA)

• The guiding framework for the managementof the forests are:– The National Forestry Policy (1997)– The National Forestry Action Plan– The Biodiversity Action Plan– The Integrated Coastal Zone

Management Action Plan– National Mangrove Action Plan

LAND ALLOCATION IN STATE FORESTS (1999)

99.7646.0262,934.88394All Classes

1.780.81,123.221Kaieteur National Park

5.70.190.049

2.60.20.02

3,600.00287.8731.01

119

Permanent Research AreasIwokrama Research SiteMoraballi ReserveOther Research Sites

21.17.9759.453.7

9.73.727.31.7

13,247.135,003.9437,313.922,327.79

3528202

Production AreasState Forests Permit (SFP)Wood Cutting Lease (WCL)Timber Sales Agreement (TSA)Exploratory Permits (EP)

Total Land Allocated (%)

State Forest (%)

Km2NumberClassification

Status of Forestry in the National Economy

4.172255,42519993.802005,27019984.942645,36019974.542295,04819964.872284,57719954.421974,45219942.851174,10419932.32883,79219922.05723,51919912.14713,3191990

Forestry as % of GDPForestry (US$M)

GDP at factor CostYEAR

Guyana’s Forestry and Mining Resources

Gold Mining Resources

• Gold mining is predominantly located within the forested belt

• Its location also overlaps with a significant number of indigenous settlements and hence a potential source of conflict

• Approximately 6000 – 10000 persons are employed by the sector, a large number illegally

• The last decade has seen the dramatic growth of the sector

Gold production in Guyana

354,269101,8492001330,284105,2892000312,446110,6841999325,512110,0471998194,68698,0511997255,417110,1351996178,35691,4511995251,84999,0951994202,23087,1001993

79,581199259,296199138,717199017,3431989

18,8031988

OMAI (ozs)

OTHER (ozs)

YEAR

17,000,000500,000200,000Approx acreage held/applied for by small & medium operators

1698732

94329

202

Medium Scale Prospecting Permit-Applications-Permits Granted

9600290012500

9000290011900

7800240010200

Existing Claims-Land claims-River ClaimsTotal

206447733

217332549

167336503

Dredges- New licence- Renewed licenceTotal

199419931992

Medium Scale Agreements & Prospecting & Mining Licences

Guyana’s SAP and the Forestry and Gold Mining Sectors

• The SAP (ERP) was launched in 1988 as a radical departure from previous programs

• While there were the usual macroeconomic policies and conditionalities, there were specific policies aimed at the national resources sector

• Incentive regimes were developed for both the mining and forestry sectors

Mining Sector Incentive SchemeLarge scale gold mining operators benefited from:

– Exemption of customs duty and consumption tax on all equipment, processing material and spare parts used in the process of surveying, prospecting and mining

– Exemption of customs duty and consumption tax on outboard engines up to 75 HP and 5% on duty over 75 HP

– Exemption of all customs duty and consumption tax on vehicles imported exclusively for the production process

– Preferential consumption tax rate of 10% on aviation fuel– Stability clause: for each mine developed, these conditions will be

maintained for a period of 15 years from the start of commercialproduction of the life of the deposit, whichever is shorter. Thereafter, the general rules for duties and taxes apply

– There is a sliding scale for the royalty on gold• 5% when the world price of gold is above US$285/ounce• 4% when the world price is between US$250 and US$285/ounce• 3% when the world price falls below US$260/ounce

Mining Sector Incentive Scheme cont’d

Medium and small scale gold mining were considered with the following incentives:– Exemption of customs duty and consumption tax for ATV

vehicles, pumps, matting, dredge flexes and expanding metals– Royalty is the same as for large scale enterprises at 5%– Income Tax is 2% of gross revenue in lieu of income tax.

However, if the permit holder is a body corporate, the corporatetax of 35% of taxable income applies

Mining Sector Incentive Scheme Example

The OMAI and Barama Agreements benefited from the Incentive Schemes in the ERP in the following ways:

OMAI INC (Gold Mining)• Exemption from all forms of taxes directly or indirectly on all

equipment supplies and materials relating to its activities• Vehicles were imported without duties, licensing and

importation fees• Company received either Class I or II shares with fully

deductible exploration expenses from income for income and corporation tax purposes

• Foreign account provided• Irresolvable disputes to be settled by tribunal under the rules of

the London Court of Arbitration

Forestry Sector Incentive Scheme Example

BARAMA COMPANY LTD (Logging)

• Foreign exchange account• Irresolvable disputes to be referred to the International Centre

for Settlement of disputes in Washington DC• Company will be considered a national of another state other

than Guyana• Granted exclusive rights under a 25 year licence automatically

extended for 25 years• Granted a 10 year tax holiday with exemptions from income tax,

with holding tax, consumption tax, property tax, timber export taxes and import duties

• Royalty payments fixed in local currency for 20 years• 15% of its employees could be foreign with option of increasing

that figure if local labour is unavailable• Foreign employees were to be paid in foreign currency

Incentive Scheme EffectsThe incentive schemes had the

following effects on the mining and forestry sectors:

• Capital intensity and use of high technology in mining and logging operation

• The entry of large scale foreign investors in the mining and logging sectors

• The entry of significant numbers of illegal miners and loggers in the sectors

• The expansion of downstream activities

Environmental Effects of Gold Mining and Logging

Mining Impacts(a) Capital intensity and Technology

• High powered suction dredges destroyed river banks • Destruction of wild life habitat• Increased toxic threats and more widespread contamination

e.g. OMAI Tailings Pond accident• Spread of domestic and industrial waste in river courses and

effect on communities

(b) Entry of Large-Scale Foreign Operators• Local watchdog bodies unable to monitor and control

companies due to economic and political influence• Breakdown of environmental standards and flouting of

regulations

Location of Amerindian Settlements

Location of Mineral Resources

Environmental Effects of Gold Mining and Logging

(c) Entry of Illegal Small-Scale Loggers and Miners• Increased use of mercury in the gold-mining industry• Contamination of rivers and streams• Increased turbidity and decline of riverine fish species• Compromised the health of the human population via contamination of

the food chain (mainly fish supply)• Disfigured physical environment from mined out areas• Health problems from malaria infestation caused by water holes in the

mined out areas• Destruction of wildlife habitat by illegal loggers from unsustainable

logging• Wastage of forest resources from chain-saw operators• Watershed damage from poor selection of logging areas• Incursions into protected areas and disturbing areas of high

biodiversity

Environmental Effects of Gold Mining and Logging

(d) Expansion of downstream activities• Escalation of mining activities led to spread effects in

the gold jewelry industry• Further health problems among craftsmen with the

use of mercury

Upper Mazaruni Case Study• WWF sponsored a research project in the Upper Mazaruni

Mining District in 2000. The research was conducted by IAST.• The objective of the project was to identify the sources and to

assess the levels of mercury contamination and to recommend mitigation measures

• The area was selected because it is the heart of the gold miningarea and preliminary studies had been undertaken there in 1996

• Data on mercury were collected from four different sources: – Hair samples– Fish samples– Water samples– Fish consumption

Mercury levels from Hair Samples in Two Mining Locations

Kurupung 74

Isseneru 0

Kurupung 67

Isseneru 0

Percent of population with concentration of less that 6.4 ppm

Kurupung 14 samples

Isseneru 89 samples

Kurupung 12 samples

Isseneru 96 samples

Percent of population with concentration greater than 14 ppm

Sept 2000Feb 2000

•89 – 96% of the population surveyed in Isseneru showed mercury concentrations of > 14 ppm

•12 – 14% of the population sampled at Kurupung showed mercury levels > 14 ppm

•Normal mercury concentration in hair is approximately 1 ppm and a concentration of up to 6.4 ppm is considered safe

•This implies that the majority of the population at Isseneru is at risk and a small proportion at Kurupung as well.

Concentration of mercury in dorsal tissue of fish

0 [1]plecostomusHypostomus0.783 [4]0.567 [3]scomberoidesHydrolycos

0.324 [4]malabaricusHoplias0.123 [5]0.532 [17]macropthalmusHoplias

pesuHolobrycon0.578 [4]0.314 [1]platyrhynchosHemisorbium0.46 [3]unimaculatusHemiodus0.621 [3]0.429 [20]micropoeusDoras0.276 [13]0.928 [4]gibbusCynodon0.004 [1]lugubrisCrenicichla0.172 [3]ocellarisCichla1.034 [1]0.24 [2]macrolepidotusChalceus0.099 [7]0585 [1]cuvieriBoulengerella0.399 [3]sp.Agoniates0.754 [4]0.846 [2]sp.Ageneiosus0.729 [3]0.391 [1]caucanusAgeneiosus

Ave. (ppm) [No. of samples]SpeciesGenusIsseneruKurupung

Concentration of mercury in dorsal tissue of fish cont’d

0.048 [20]0.367 [1]rotundatusTriportheus0.54 [1]boothsTrachycorystes

0.064 [2]macrurusSternopygus0.218 [5]rhombeusSerrasalmus

0 [1]jurupariSatanoperca0.334 [2]thurniroeboides

0.315 [1]kassieRhamdia0.12 [1]0.798 [1]fasciatumPseudoplatystoma1.81 [1]notatusPlatynematichyhys

0 [1]squamosissmusPlagioscion0.019 [1]0.372 [2]blochii-gpPimelodus0.381 [1]0.635 [1]imiriParauchenipterus0.026 [3]spPachypos0.018 [2]spMyleus

0 [1]0.296 [1]pacuMyleus0 [1]0.472 [5]friderici-gpLeporinus

Ave. (ppm) [No. of samples]SpeciesGenusIsseneruKurupung

KURUPUNG

HGFEDCBA

BADCBA

4.8510.5327.507.365.254.9710.7527.358.245.164.1710.1828.506.865.494.6110.3127.956.795.244.6610.0428.306.765.234.7310.2428.137.445.274.079.6229.438.005.394.0710.3029.7712.005.58Upstream

ISSENERU6.6528.1025.204.184.116.0326.1425.987.634.23Upstream6.1023.0025.4560.504.355.2421.8326.8889.165.156.0423.1226.16103.984.426.3825.5826.10103.704.28Downstream

DO/mg/LCond./microsiemensTemp. oC

Turbidity/NTU

pHStation

Physical water quality of fish sampling areas

Inferences from surveysFish consumption• Isseneru residents consumed fish on average 3-4 times per week while

Kurupung residents‘ average weekly consumption was 2 -3 times.

Water quality• Turbidity was higher downstream of mining activities than upstream at the

Kurupung site• Turbidity around Isseneru was comparable with that found upstream in the

Kurupung River where there was no tailings discharge into the river• Dissolved Oxygen was relatively constant at both Kurupung (ave. 6.07)

and Isseneru (ave. 4.60)• pH was also relatively constant at both sites: Kurupung (ave 4.75) and

Isseneru (ave. 5.34)

Fish survey• The difference between the water surrounding Kurupung Village vs

Isseneru may have been due to the divergence in the type of fish that were preponderant in the two sampling areas.

• The results of this survey were therefore inconclusive

Some InitiativesInstitutional Strengthening

– Environmental Protection Act and establishment of EPA

– Policy Framework• National Forestry Action Plan• National Environmental Action Plan• National Development Strategy• National Mangrove Action Plan

– GGMC (GENCAPD) Project– ODA and CIDA Support Project– International Agencies

• WWF Regional Forestry Project• Conservation International Protected

Areas Project• GTZ Mapping Project• UNDP PROFOR Project• TROPENBOS Forest Research

Project– Academic Institutions

• University of Guyana• University of Utrecht• University of Kansas

Concluding Remarks• The World Bank/IMF sponsored SAP had a major

impact on the mining and forestry sectors• The program stimulated investment that brought

technology and increased labour and expanded activities in the sectors

• However, not all the forestry and mining activities were sustainable

• Available evidence suggested that there was significant damage to the bio-physical environment

• The task of environmental conservation and protection cannot be undertaken by the government alone, especially since it is weak and lacks the capacity to carry out its tasks

• There is need to develop partnerships with local and foreign agencies (WB/IMF, UN Agencies, WWF, Universities)