Guinea: Mining and Infrastructure

Guinea

Mining and Infrastructure

February 2010

The World Bank

Acknowledgements

This Note was prepared by a team includingBoubacarBocoum (Senior Mining Specialist, COCPO), BoutheinaGuermazi (Senior ICT Specialist, CITPO), Dana Rysankova (Senior Energy Specialist, AFTEG), Jane Hopkins (Senior Agriculture Economist, AFTAR), Katharina Gassner (Senior Economist, FEUFG), Pascal Dooh-Bill (Finance Specialist, WBIPP), Peter Kristensen (Sector Leader, AFTEN), and SilueSiele (Senior Transport Specialist, AFTTR).

A consultant team in Guinea including HabibDiallofor the energy sector, IbrahimaSoumahfor the mining sector, and BahnaSidibefor the transport sector researched and compiled available sector data in the country which formed the basis for the analysis undertaken in this Note. World Bank Country Manager, SiakaBakayoko, provided guidance to the team and facilitated interaction with the Government Authorities, and KoffiEkouevi kindly provided comments to the final version.

Among many others, the team would like to particularly thank the many participants who took part in the two-day workshop convened by the Government on December 10 and 11, 2009 focusing on Mining and Infrastructure.

Contents

Executive Summary

1.Guinea’s Mining and Infrastructure Challenge

1.1 Country Overview

1.2 Infrastructure in Guinea and the link to development

1.3 The role of the private sector

2.The Mining Sector in Guinea

2.1 Overview

2.2 Guinea’s mining potential

2.3 Harnessing the mining sector for infrastructure investment

3.Mining and Energy

3.1 The potential for hydro power

3.2 The importance of national and regional interconnection

3.3 Recommendations

4.Mining and Transport

4.1 The transport needs

4.2 Recommendations

5.Using Guinea’s mining sector as platform for infrastructure development

5.1 De-enclaving existing infrastructure

5.2 The mining sector as provider of financing for new infrastructure

5.3 Using royalties to fund public infrastructure

5.4 Recommandations

6.Using Infrastructure as a Vehicle for Sustainable Development

6.1 Addressing Economic Geography questions

6.2 Addressing the role of Agriculture

6.3 Addressing sustainable development questions: environment and social inclusion

6.4 Addressing Governance, Transparency, and Anti-corruption

7.Next steps

Annex A1 Additional resources

Annex A2 World Bank Contacts

Annex B: Maps

Executive Summary

Guinea has exceptional subsoil potential. The bauxite deposits of Guinea are estimated at about one third of the world’s known reserves. Guinea has also about 3 billion tons of high grade iron ore deposits, gold, potential of 30 million carats of jewelry-quality diamonds, and several important deposits of silver, zinc, uranium, and platinum, as well as a potential for oil. The mineral sector has an excellent opportunity to serve as driver for growth in the country, and the infrastructure required for developing the mineral sector could well serve for developing other sectors, including agriculture and forestry, for which the country has also high potential and natural endowments.

In the past, and still today, the infrastructure supporting the mineral sector hasmainly been purpose-built by private mining companies, but is lacking the integrated vision that would enableeconomic growth and social development for the broader population, such as access to roads for agricultural and trade purposes and multi-purpose power stations.

Investment prospects in the mining industry are announced to be considerable, including by new partners such as China. Depending on commodity prices and the investment risk-level of the country, potential investments have been estimated to be as much as US$15 to 20 billion. But, there is very little fiscal space in the Government’s own budgets to initiate major investments. In this situation, it seems appropriate to explore options for the government to enter into partnership with the private sector to harness the potential for mining infrastructure to serve multiple purposes.

In order to achieve public-private partnerships, a number of issues need to be addressed even once agreement on collaboration in principle has been achieved. The identification of potential multi-purpose infrastructure projects requires clear articulation of a strategy forward and the setting out of capacity needs and service specification on public and private side. For the Government, this calls for planning and prioritization of projects and for preparing and committing to a supporting legal and regulatory framework. For the private companies, information sharing and willingness to start a dialogue with the Government are the starting points. Incentives for the private sector to assume the additional risks of constructing and (where relevant) maintain and operate multi-purpose infrastructure assets need to be found and addressed early on.

In the particular context of Guinea, options for cross-border solutions to infrastructure challenges need to be incorporated into all forward planning and project identification activities. The importance of cross-border infrastructure stems from the potential for large-scale projects, in particular hydro generation, and the location of the country which favors transit transport, notably from land-locked neighboring countries to the sea ports on the coast. In a recent Africa wide study, the benefits from regional power integration alone were estimated at $2 billion/year for the continent.[1]

The way forward for infrastructure development in Guinea requires an open discussion of governance issues, in particular given the large role played by extractive industries in the country. The overall country risk matters, in particular after recent events, but there are a number of initiatives Guinea benefits from regarding the governance agenda including the Governance of the Mineral sector – Value chain approach (see separate report), and the West Africa Mineral Sector Strategic Assessment – WAMSSA (see separate report).

More generally, supporting improved public administration and management beyond infrastructure should be a strategic aim for the re-engagement of the international community in Guinea.

In setting out the way forward to initiate the infrastructure debate, it is useful to distinguish short- and longer-term activities. Table ES1 gives a summary view of the recommended approach. Key points can be summarized as follows:

Short term activities:

  1. Focus on high impact/high feasibility projects

In the short term, the Government and development partners should concentrate public resources and donor assistance on infrastructure projects which satisfy the twin-conditions of (i) having a high growth and/or development impact, and (ii) display advanced preparation and reasonable ease of implementation. Among these projects are

a)The Western Bauxite Corridor (Boke Pole)

  • Rail and port infrastructure (new rail tracks and interconnection with Anaim rail line; new port facilities in Kamsar)
  • Thermal generation plant associated with new planned aluminium plant (Sangaredi, Kamsar, Dian-Dian)
  • Hydro-generation plantKaleta

b)The Iron Ore Eastern corridor (Nzerekore Pole), in particular discussions surrounding the Trans-Guinean rail (very long-term), and more importantly the recent announcement of BHP Billiton and ArelorMittal about a possible joint venture related to iron ore in southern Guinea and Northern Liberia, which is expected to become effective in August 2010.

c)In addition, known bottlenecks should be added to the list of high impact projects. Among these are,for example,

  • road links connecting the country with Cote d’Ivoire, Liberia and Sierra Leone;
  • power transmission lines to tap into the regional network and the West Africa Power Pool.
  1. Initiate dialogue with mining companies on sharing infrastructure

Given the limited resources available to the government from its own budget and donors, entering into dialogue with private mining operators regardingopening and possibly expanding purpose-built infrastructure is recommended. This requires at a minimumi) a discussion ofoptions for exchanging and using mining royalties to fund infrastructure, and ii) the preparation of the legal and regulatory framework to implement a mining-infrastructure PPP (public-private partnership).

Shared power generation plant, benefitting mining purposes and local communities, are relatively tractable projects that can lend themselves to narrowly-defined negotiations and contracts between the private and public sector. Nonetheless, it should be envisaged that only the construction, and not the long-term maintenance and operation of the infrastructure will be taken on by the private sector until the stability of the political situation and government commitment to public-private contracts is tested further.

  1. Issue a strong policy statement showing commitment and a credible plan forward

Finally, it is highly recommended that the government issues a strong policy statement in the short term, setting out a credible approach to the infrastructure challenge and showing its active engagement on the issue.

Medium to long term activities

  1. Develop sector investment plans

In parallel with addressing the investment needs sketched out above, it is recommended that the government agree on a medium to long-term national infrastructure policy and associated investment plan in the different sectors. Spelling out the government’s policy objectives explicitly will allow prioritizing among the many investment needs the country faces and provide the basis for preparing the medium to long-term infrastructure project pipeline. A national infrastructure strategy for Guinea should also be aware of the opportunities offered by regional initiatives, such as regional power pools harnessing the region’s potential for large scale hydro generation, and increased road and rail connectivity with neighboring countries to enhance trade channels.

The implementation of the medium- to long-term strategy requires securing needed funds from internal and external public and private sources, and capacity building in the government to ensure appropriate planning, execution and monitoring of policy objectives and investment projects.

  1. Addressing performance gaps of existing infrastructure service providers

Assessing the performance of existing service providers, in particular of EDG in thepower sector, and developing a program to address the most pressing shortcomings should be an integral piece of the strategy forward. Strengthening the technical and financial capacities of EDG will also allow the company to assist in activities of national planning of the power grid and generation capacity and be a partner in the negotiations with the private sector.

  1. Know your terrain – Spatial analysis

A spatial analysis can assist the government with setting priorities by formulating the trade-offs involved in policy choices such as concentrating resources in a small number of mining areas compared to a strategy aimed at enhancing spatial equity.[2]

  1. Institutional, legal and regulatory framework

It is necessary to review the existing legal and institutional framework to gain a clear picture of the available options for engaging the private sector in provision of infrastructure other than via mining companies. This could imply

  • private participation in form of Independent Power Producers (IPPs), or water and power concessions, in particular to maintain and operate infrastructure built by mining companies whose core strength is not in operation of utility services;
  • the possibility of agribusiness engaging in a PPP arrangementsfor irrigation or feeder roads

At the beginning of the engagement with the private sector, is possible to achieve a limited number of contracts on a one-by-one basis, often with the private sector being able to dictate the conditions under which it will engage in a joint project with the government. It is likely that the first public-private contracts concluded in the country will imply a significant risk premium for the private sector to compensate for political and economic risk and the risk of an untested government represents. If the situation improves going forward, the one-by-one approach is costly and inefficient and a coherent legal and regulatory framework allowing the preparation of a project pipeline should be developed.

  1. Governance framework

The political situation following the December 2008 eventshas increased the risk profile of the country and led to a slow-downor halt of planned infrastructure projects.Moreover, addressing the infrastructure challenge is made more difficult by the three-fold crisis of food, fuel and financial crisis having reached developing countries in 2008. Previous crisis have shown that infrastructure is among the expenditure categories cut most severely by governments under financial stress.[3] But such behavior comes at great development cost as subsequent rehabilitation of facilities is exponentially more costly than regular maintenance; in the medium and long term, inadequate infrastructure slows economic development and hinders poverty reduction.

The discussion and recommendations provided in this note help identify priorities and next steps as the country gets back on development track following anticipated 2010 elections.

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Guinea: Mining and Infrastructure

Table ExSum 1: Roadmap for the Way Forward

Overarching Objective / Next steps (short term activities) / Medium to Long term activities
Strategy / Provide policy direction and framework / Issue policy statement on highest level:
  • set out planned government approach to infrastructure challenge;
  • articulate a credible strategy going forward;
  • demonstrate commitment to meeting objectives
/
  • Develop sector strategies for each infrastructure sector

Planning / Identify infrastructure needs and develop national investment plan /
  • Identify infrastructure bottle-necks the easing of which would have high impact in terms of growth
  • Review existing
  • Advanced planning
  • Identify potential for multi-purpose infrastructure for these
  • Earmark scarce public funds for
/
  • Identification of high-impact projects
  • Spatial analysis to identify ‘growth corridors’ and priority investment

Private sector dialogue / Achieve mutually beneficial long-term partnership with private sector /
  • Initiate dialogue
  • Determine mutual standpoint

Legal and regulatory framework / Reduce investment uncertainty /
  • Engage technical assistance for one-off contractual
/
  • Review Doing Business environment and develop action plan

Governance / Enhance Transparency and accountability in the mining sector /
  • Engage technical assistance to implement a EITI++ approach
  • Provide TA for negotiation of new mineral sector agreements
/
  • Establish a social accountability mechanism
  • Build capacity of government agencies

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Guinea: Mining and Infrastructure

1.Guinea’s Mining and Infrastructure Challenge

After a brief general overview, this note will concentrate on the mining, energy and transport sectors. This is due to the importance of the extractive industry for economic growth in Guinea and the energy and transport infrastructure needs associated with mining activities. Energy and transport have broad areas of influence on growth and social development but also carry risk in terms of environmental and social impacts.

Guinea is a country of about 10 million inhabitants that is regarded as one of the potentially richest countries in West Africa, thanks to its abundant subsoil potential and natural endowment for agriculture, as well as for its hydro resources. Recent civil unrest in Guinea has interrupted the strategic approach to the country’s development challenges. The country is now in the process of reengaging with development partners and private investors. Presenting a challenge for any growth strategy formulated going forward,Guinea has sparse infrastructure networks, which are currently incapable of providing a broad platform for economic resurgence.

Figure 1: Administrative Map of the Republic of Guinea

1.1 Country Overview

The last Country Assistance Strategy the World Bank published for the Republic of Guinea expired in FY06.[4] Similar to today, the growth potential of Guinea was identified as lying in its abundance of minerals, its excellent conditions for agriculture and its strategic location that favors trade. Internal and external constraints were identified as keeping Guinea from realizing its potential, including an inhospitable investment climate due to a weak regulatory framework, institutional and regulatory constraints on trade and regional integration, and overall weak governance. Exogenous factors increasing the country’s vulnerability to shocks included the continued instability in the sub-region and heavy dependence on a single commodity, bauxite, for export revenue.

Recent political developments including the 2008 coup d’état has put the development of the country on partial and temporary hold. Past events notwithstanding, once the political situation has improved sufficiently to attract investors, the country could catalyze growth in several areas, including:

Mining—Guinea has exceptional subsoil potential. The bauxite deposits of Guinea are estimated at about one third of world’s known reserves. Guinea has also about 3 billion tons of high grade iron ore deposits, Gold, potential of 30 million carats of jewelry-quality Diamonds, and several important deposits of silver, Zinc, Uranium, and Platinum, as well as a potential for oil.

Agriculture and water resources—Guinea has an abundant natural endowment for agriculture, forestry and tree crops. The variety of geographic regions and climate endows Guinea with strong agricultural potential: Guinea enjoys among other things large areas of arable lands, heavy rain falls and immense water resources which can be harnessed for power generation. In addition, Guinea has 300km of sea coast that offer transportation facilities and fisheries.

1.2 Infrastructure in Guinea and the link to development

Guinea faces infrastructure challenges linked to it being a low-income, post-conflict and resource-rich country, a situation aggravated by low population density and disperse habitat.

Reliable and affordable infrastructure services are critical for sustainable development, and a necessary condition for reaching economic, social and environmental goals. Infrastructure has received considerable attention in the context of reducing poverty and inequality –for example, Dercon et al (2007) estimate that changes in access to quality roads increased consumption growth in rural Ethiopia by 16% and reduced poverty by 7%.[5]Indirectly, infrastructure influences the achievement of most MDGs, be they related to outcomes in health, education, gender or income poverty, through its effect on householdopportunities. Each year 529,000 women die due to childbirth complications. Most of these deaths could be prevented through timely access to essential childbirth-related care, for which road access is crucial.[6] In Guinea, infrastructure accessible to the population at large is lagging due to years of unrest and instability.