Mining Revenue Streams and their Development Impact on Communities Affected

by Mining

A bridge to Kardu community linking several other communities from the capital Koidu, Kono, built with DACDF funds

Study Commissioned by:

Network Movement for Justice and Development (NMJD)

Sponsored by: IBIS

Produced by John Kanu (Lead Research Consultant)

November 2010

Table of Contents

ACRONYMS................................................................................................................................................... 2

ACKNOWLEDGEMENT.......................................................................................................................................... 3

Executive summary........................................................................................................................................4

RESEARCH METHODOLOGY............................................................................................................................ 6

LIMITATIONS..................................................................................................................................................... 7

INTRODUCTION.................................................................................................................................................. 7

Main research findings...........................................................................................................................8

Community utilization of ceded revenues............................................................................................10

Diamond Area Community Development Fund (DACDF).....................................................................10

The Community Development Fund (CDF)...........................................................................................13

Administrative frameworks, management and disbursement.............................................................14

Recommendations................................................................................................................................15

Annexes................................................................................................................................................16

References............................................................................................................................................26

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Acronyms

ADF Agricultural Development Fund

CF Chiefdom Fund

CMP Core Mineral Policy

CSO Civil Society Organization

CDF Community Development Fund

DACDF Diamond Area Community Development Fund

EITI Extractive Industries Transparency Initiative

GoSL Government of Sierra Leone

GDD Government Diamond Department

Ibis Ibis

KPCS Kimberly Process Certification Scheme

MMRPA Ministry of Mineral Resources and Political Affairs

MMA Mines and Mineral Act

MMO Mines Monitoring Officer

NMJD Network Movement for Justice and Development

SLCB Sierra Leone Commercial Bank

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Acknowledgement

Research on mining related revenues and their impact on mining communities is often a contentious issue everywhere. Not least because accurate data on the world’s extractive sector is difficult to come by, but also because the competing interests of the vast multitude of stakeholders is often a cause for socio-political discord in many of the world’s mining communities. It is therefore important to note that a study of this nature is only possible with the good will and support of such stakeholders. For this purpose, it would be fitting to place on record the contribution of some of such stakeholders.

Firstly, the Director and staff (Mines Monitoring Officers (MMOs)) of the Ministry of Mineral Resources & Political Affairs (MMRPA) provided crucial information on beneficiation data, disproving the view that government institutions are overtly bureaucratic. Discussions with Diamond Traders and the Government Diamond Department (GDD) also provided useful information on data related to mineral trade and statistics.

Although mostly on conditions of anonymity, the contribution of representatives of mining companies provided ‘insider perspectives’ regarding sector taxation and other fiscal regimes some of which contribute to revenues ceded to mining communities.

Similarly, the infectious enthusiasm of NMJD’s Executive Director and his team on extractive sector related issues was a major factor in getting this work done. The support and encouragement of Mrs. Aminata Kelly Lamin and Mohamed Sheik Turay is particularly noted.

The participation of numerous district and chiefdom level stakeholders (councils, Paramount Chiefs, youth, CSOs, affected communities, the elderly and miners, etc) provided varied perspectives and thus, enriched the findings of this research.

The contribution and views of the donor (Ibis) were very enlightening, frank and a clear demonstration to strengthen governance in Sierra Leone’s extractive sector.

Finally, the contributions of a dedicated team of 20 Research Assistants is invaluable. Their passion, patience and commitment are some assets that enabled the completion of this work. The challenges they faced in reaching remote communities is admirable and I feel indebted to all of them.

Disclaimer

Any error, misrepresentation and or omission is entirely the fault of the consultant and should not be attributed to the above

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1. Executive summary

This report presents the findings of a participatory research on mining revenue streams and their impact on communities affected by artisanal and large-scale mining operations. Sponsored by IBIS, the study was commissioned in November 2010 by the Network Movement for Justice and Development (NMJD). The study was conducted in twenty mineral rich chiefdoms in five districts including Kono, Kenema, Tonkolili, Port Loko and Moyamba. A total of 464 stakeholders were consulted (see annex 4).

At national level, interviews with key Ministry of Mineral Resources & Political Affairs (MMRPA) personnel and the Government Diamond Department (GDD) provided useful information on mineral marketing data and the various mining related beneficiation schemes. At sub-national level, interviews with district councils, miners, Diamond Dealing Associations, Paramount Chiefs and representatives of mining companies provided varied and deep insights regarding the dynamics of Sierra Leone’s extractive sector. Focus group discussions involving youth, women and vulnerable groups in mining communities enriched the outcomes of this study. Their varied views regarding revenue disbursements, management and whether or not mining related revenues are making any difference in their communities represent the main impetus of this study.

Preceded by an introductory section and in line with the study Terms of Reference (ToR-see annex 2), the findings of this study are categorized into four parts:

1. A review of extractive sector policy regimes and implications for development in mining communities

2. Community utilization and impact of ceded mining revenues3. Administrative frameworks, management, disbursements4. Recommendations

Based on analysis of stakeholder interviews and available data, the study indentified the Diamond Area Community Development Fund (DACDF) as the most significant revenue stream ceded to communities affected by mining activities. Ushered in by the Mines and Minerals Act (2009), the Community (Agreement) Development Fund (CDF) represents similar potential to support development in mining communities. No data could be obtained in relation to other revenue streams such as the Agricultural Development Fund (ADF,) the Chiefdom Fund (CF), Surface rents and other Socio-economic benefits) all of which, limits the scope this study. The focus of this study is therefore cantered around the legislative frameworks and outcomes on communities of the DACDF and CDF.

The study noted that legislation on current revenue streams were promulgated at various stages of Sierra Leone’s mining history. Because of this, there is no common framework to generate and re-distribute mineral sector related wealth to communities affected by mining. Their purpose as such, is differently understood at community level and their impact varies from community to community.

There is evidence however to suggest that the majority of mining communities have at one time or the other benefited from and implemented basic community development projects in the form of court barriers, local markets development, roads improvement, schools rehabilitation, agriculture,

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scholarships and support to chiefdom administration. While there are some exemptions in which some communities have made impressive gains in utilizing ceded mining revenues, the overall impact of these funds is generally minimal. The majority of these projects are poorly implemented with limited capacity to meet wider community needs including the needs of special interest groups (the elderly and the disabled). In some communities, vital socio-economic projects previously initiated have been abandoned half way in their development. Concerns regarding the effective utilization of ceded mining revenues continue to dominate discussions both at community and national level. Findings indicate that the failure of mining revenues to positively influence development in affected communities is due to the following factors:

1. Weak policy coordination and limited transparency in the administration of community mining beneficiation schemes

2. Lack of a comprehensive monitoring and oversight mechanisms including enforceable sanctions for misuse of revenues

3. The absence of comprehensive guidelines and systematic frameworks for generating, management and disbursement of mining related revenues

4. Delays in the disbursement of funds 5. Limited community knowledge and participatory practice to undertake development

projects

In addition to the above issues, the study also identified specific challenges that further inhibit the impact and effective utilization of revenues ceded to mining communities as follows:

1. The size of funds in some communities is relatively small to undertake meaningful projects2. International economic instability and/or disruption in world market prices for mineral

resources 3. Limited civil society and government collaboration in the implementation of beneficiation

schemes derived from the country’s vast natural resources

In order to fully capture the development potential inherent in ceded mining revenues and enhance socio-economic development in mining communities, the report makes nine recommendations for informed policy decision-making including advocacy action by interested civil society actors. The first five recommendations are aimed at policy level while recommendation 6 is for community level stakeholders. Recommendations 7 &8 are meant for civil society organizations interested in working with mining communities and recommendation 9 is suggested to forge collaboration between government, CSOs and the private sector.

Recommendations:

1. The government (MMR) to review and harmonize the various strands of policies dealing with ceded mining resources: The various mining beneficiation schemes (DACDF, CDF and others) were developed with the passing into law of numerous aspects of the country’s mineral sector. It is now necessary to review and harmonize them to ensure impact and common understanding at community level.

2. Develop a comprehensive paper trail framework and guidelines for calculating and redistributing mining revenues: Guidelines for calculating, redistributing and reporting on

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ceded mining revenues is strongly recommended. The simplification, adaptation and re-introduction of the DfID sponsored tool is a good starting place. The tool is a comprehensive monitoring paper trail mechanism with potential to reduce misappropriation of ceded resources.

3. In line with EITI principles, there is need for the MMR to publish mining related revenues and payments: A major issue related with mining beneficiation schemes is limited community knowledge of the value of ceded revenues due to non-disclosure of payments. In line with EITI principles, publication of payments at both national and community level will enhance transparent handling of beneficiation schemes and ultimately enhance community development.

4. Institute under the auspices of the Office of the President an independent Monitoring Unit to provide oversight over ceded mining related revenues: In view of the substantial size of ceded revenues to mining communities, a monitoring unit, independent of the MMR and possibly under the Office of the President should be considered. This unit should track use and development impact of ceded resources on mining communities.

5. Ensure regular and timely disbursements of due revenues to affected mining communities: Delays in disbursement of due revenues to communities is not only expensive in terms of the effects of inflation building/construction material, but also affect community momentum and quality of community projects.

6. Support community participation at local level: To ensure participation and the creation of project that meet wider community needs including the needs of special interest groups (women, elderly and disabled groups), it is important to support the development of community project committees (CPCs). CPCs should compose of ordinary citizens, representing various social groups and from various sections of their communities and independent of the current chiefdom development committees (CDCs). CPS should be charged with responsibilities of project identification, implementation and end-use reporting of projects progress and utilization of funds.

7. CSOs to provide capacity building support: CSOs interested in promoting development in mining communities should community capacity building on methodologies such as participatory development practices, knowledge of project cycles, planning (CAPs), financial management and project administration.

8. Advocacy action: As the adverse effects of mining mostly impact the health and safety including the environmental wellbeing of communities in mining areas, there is need for CSOs to enhance advocacy at all levels, targeting companies, local and central governments as well as local authority on their mandate to be transparent to communities on major decisions related to mining and ensure maximum benefits to affected communities.

9. Multi-stakeholder (government, civil society and companies themselves) collaboration: For advocacy to be effective there is need to create forums where mining policy information is shared including issues related to the administration, management and implementation of mineral related beneficiation schemes.

1. Research methodology

Conducted in twenty chiefdoms in five districts, the research team adopted a multi research approach and data collection techniques best suited for the purpose. This included a week-long

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mining policy desk review, facilitation of a participatory interview process involving 464 respondents/stakeholders at all levels in the extractive sector. A three-day pre-research training workshop was facilitated by the Lead Researcher in Kenema to validate the data gathering tool (see annex 3) and ensure commonality in research approach and evaluation of ethical and operational issues. The selection of the five districts for this study was based on purposive sampling rationale. Kono and Kenema for example are predominantly rich in diamond deposits and accounts for more than 80% of diamonds produced in Sierra Leone. Tonkolili and Port Loko on the other hand are rich in iron ore and other non-precious minerals while Moyamba is known for its blend of diamonds, bauxite and rutile deposits. For this purpose, the five districts are the current focus and of both artisanal and large-scale mining activities in Sierra Leone.

2. Limitations

Like in every research process, the study has limitations with implication to influence some aspects of its findings. Notable among these limitations were the near absence of revenue utilization data at community level. Inconsistent data recording at national level on the other hand presented enormous challenges to vet the actual volume of ceded mining revenues to communities affected by mining. Difficulty to access remote communities or project sites was also another important challenge.

3. Introduction

Sierra Leone has a diverse and rich mineral resource base, and mining is of vital importance to the country’s economy. The current mineral sector in Sierra Leone can be categorized into three sub-sectors: a) large-scale production of non-precious minerals –rutile and bauxite; b) large-scale production of precious minerals – diamonds; and c) artisanal and small-scale production of precious minerals – mainly diamonds, and to a much lesser extent gold. Oil deposits have also been recently identified and significant exploration plans are underway.

With two key divisions (Mines and Geological Department), the country’s mining industry is governed by the Ministry of Mineral Resources and Political Affairs. Prior to the war, the Sierra Rutile mine produced over 25 percent of the world’s rutile and was deemed as one of the world’s highest grade rutile deposits.1 Interruptions due to the war led in 1995 to the closure of the mine. In 1994, the last full year of production, the rutile mine generated about US$60 million in exports, corresponding to a third of that year’s exports. To restart the mine, the Government entered into an agreement with an investor in 2001, which was modified in 2003. Production resumed in 2005.

The other major non-precious mineral found in Sierra Leone is Bauxite. The Mokanji bauxite mine, together with neighbouring deposits, produced specialty bauxite with little organic material until its closure in 1995 due to the war. Bauxite exports in 1994 totalled about US$16 million. Negotiations on the terms for rehabilitating the bauxite mine have been ongoing. Although the production of bauxite haltingly resumed in 2005, large scale production is yet to commence.

1 Rutile is a mineral that consists of titanium dioxide with little iron.

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Since the end of the war, there has also been an increased interest to rehabilitate or initiate new Iron Ore mines in northern Sierra Leone. African Minerals and London Mining are the two main companies granted exploration and mining concessions in Port Loko and Tonkolili districts. Both companies are currently developing infrastructure to start active mining of Iron Ore. Sierra Leone has also been identified as a potential oil producing country with block deposits along its western and southern sea board.

Meanwhile, Sierra Leone is traditionally known for both kimberlite and alluvial diamond deposits. Diamonds found in kimberlite deposits can only be mined by large-scale corporate operations. For this purpose, the Government entered in 1995 into an agreement with Koidu Holdings, then Branch Energy (a wholly-owned subsidiary of a Canadian company) to mine the Koidu and Tongo Fields Kimberlite mines. After an initial investment of US$ 36 million and inclusion of additional shareholders, production resumed in late 2003.

To date, the vast majority (90-94%, GDD 2010 statistics) of diamonds produced in Sierra Leone comes from artisanal or small-scale alluvial mining deposits2. During the 1970s and 1980s the Sierra Leone diamond industry fell prey to corruption and mismanagement and many of the country’s diamonds were exported illegally. Between 1992 and 2000, official average exports dropped to less than 200,000 carats – just a tenth of official exports in the peak years of the late 1960s – and the per carat value was significantly less than the country’s known run-of-the-mine average.

Not only were the bulk of the country’s diamonds smuggled out, they also became a major source to fuel a war described as most brutal. The diamond areas of Kono and Tongo Fields, the richest diamond areas in the country became primary focus of criminal and rebel activities, attracting a UN Security Council ban on the exportation and sale of the country’s diamonds in early 2000. Until a new international agreement (the Kimbely Process Certification Scheme-KPCS) was reached in late 2000, diamond production fell to a mere 200,000 carats. In sum, a paradox exists between a country faced with deep and widespread poverty against a background of significant mineral endowment.

While much progress has been made in reforming the country’s mining sector including the country being a member of the Extractive Industries Transparency Initiative (EITI), facilitating the restart of large-scale mining operations poses a lot of difficulties for the Government of Sierra Leone (GoSL). Issues of transparency, accountability and government capacity to regulate the industry continue to dominate discussions at various quarters. There has also been a lot of issues between balancing government’s drive to attract investment and ensure maximum tax revenues versus environmental and community livelihoods concerns. Although the Mines and Mineral Act 2009 rebalances fiscal benefits for all parties including communities, the government is sometimes forced to contend with a comparatively low fiscal regime to compensate for the poor state of the country’s infrastructure.

Main research findings

1. A review of extractive sector policy regimes and implications for development in mining communities

Research findings indicate that Sierra Leone’s extractive industry is regulated through two main regimes: fiscal and policy regimes. The fiscal regime, mainly informed by the Income Tax Act of 2000 and some aspects of the Mines and Minerals Act (1996 and 2009) set royalties at 5 percent and (now calculated on market prices rather than ex-mine prices), 6.5 percent (up from 5% previously) for

2 Alluvial diamond deposits are usually between 5-10 meters deep from the surface and widely spread across swamp ecologies along the south and eastern Sierra Leone. Lesser deposits have also been found in the north and other non-traditional mining areas of the country.

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precious stones (an extra 15% levy is made if a stone is deemed as a ‘special’ stone 3), 5% for precious metals (up from 4% previously) and 3 percent for all other minerals. There is also a 30% income tax threshold for mining companies. Despite some improvement made by the MMA 2009, Sierra Leone’s fiscal regime still appear to be on the low side for precious minerals compared with other countries e.g. Botswana. In addition, the Income Tax Act grants mining companies duty-free concession for the importation of machinery and equipment for prospecting and exploration. While the fiscal regime imposes a moderate tax burden and is reasonably free of targeted tax incentives for mining companies, the government is often accused by civil society organizations of not taking full advantage in the acquisition of the country’s vast mineral wealth. On the other hand, the government expects to defray the shortcomings in its fiscal regime by expressing a desire ‘to acquire mining rights or equity in large-scale mining operations on such terms to be mutually agreed’.

In response to evidence linking the country’s mineral wealth to human security and enhance performance, the Government of Sierra Leone (GoSL) has promulgated a number of laws and policies. A review of mineral related policies indicates that policies are meant to safeguard the interests of Sierra Leoneans. However, an irony exists exemplified by a miner-digger clientelism in Kono and Tongo Fields, mainly benefiting foreign interests. Weak institutional capacity in the MMR coupled by relative high investment cost often alienates local individuals wishing to mine or become exporters. In the few cases where locals are able to obtain mining rights, the majority of them are mere ‘paper-fronts’ for outside investors. Box 1 below provides a snapshot of Sierra Leone’s legislative and fiscal policy regimes with direct impact on the mineral sector.

Box 1: The Sierra Leone mineral policy and Fiscal regime

In theory, the above laws or policies are inherently sound and Sierra Leone appears to have made more progress in mineral policy development compared to neighboring mineral rich countries such as Liberia and Guinea. In practice, however, their implementation and enforcement appears to be overridden by special agreements. Findings indicate that there are instances in which investors have sought and received special concessions incorporating different fiscal terms for a mining lease. As a result, the fiscal regime for nearly all large-scale mining operations (rutile, kimberlite, bauxite and Iron Ore) are regulated by separate agreements, which, at best, provides for inconsistencies in the application of mineral regulation. Negotiating a special agreement holds two advantages for mining investors: first, the negotiated terms may be more generous than those envisioned under the general regime, and second, these special agreements typically contain fiscal stability provisions that allow the investor to sue should the government unilaterally change the terms of the agreement. For the government, this practice undermines its policy regime and opens the door to discretionary decisions, which may lead to revenue losses, unequal treatment of investors and governance concerns.

Similarly, the implementation of the above fiscal and policy regimes including beneficiation policies requires high level monitoring and multi-government agency coordination. Despite increased investment in the country’s mineral sector, discussions with mining companies and civil society organizations revealed significant consensus that limited inter-government agency coordination,

3 Special stones are defined in the MMA 2009 to mean a stone with market value above & $500,000

1. The Mines and Minerals Act 1994, 1996 & 2009 6. The Customs 2. The Income Tax Act 7. The Foreign Exchange Control Act 3. The Companies Act (Cap 249, 1960) 8. The Cooperative Societies Act (Cap 253) 4. The Business Registration Act 9. The Environmental Protection Act 20005. The Custom Act 10. The Petroleum Exploration and Protection Act 2001

11. The Core Mineral Policy (CMP) 2003

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monitoring and weak institutional capacity as well as the ‘unharmonized’nature of policies are persistent weaknesses in the administration of the country’s extractive industry. A representative of a mining company in Kono pointed to the above state of affairs as a great cause of investor frustration. All of these have implications for the socio-economic development of Sierra Leone generally, and for mining communities in particular. Cuts in company fiscal contributions due to differential investor treatments coupled by the unpredictability of policies and world market prices for minerals translate into significant reduction of revenues for both national and local development. Weak policy regulatory mechanisms further dictates the irregularity of funds disbursed to mining communities and thus, affects the quality of projects undertaken by communities.

To address the above issues and ensure a more relevant regime that is equitable, transparent and sustainable, the study recommends that the government should further thorough review and harmonization the existing fiscal and policy regimes.

2. Community utilization and impact of ceded mining revenues

As stated earlier, the study is focused on the legislative frameworks and outcomes on communities as a result of the implementation of DACDF and the CDF. Introduced at various stages of Sierra Leone’s mining history and linked to the type of minerals extracted in a given community, findings indicate that the purpose of ceded revenues is differently understood at community level. For this reason, their meaning and impact vary from community to community.

2.1 The Diamond Area Community Development Fund (DACDF):

The largest and most important revenue stream ceded to mining communities is the Diamond Area Community Development Fund or DACDF. The DACDF is commonly linked and paid to diamond producing communities. Following significant reduction in hostilities in Sierra Leone, Cabinet at its 36th Meeting on 20th December 2001 established the Diamond Area Community Development Fund (DACDF). The DACDF represents 25% of 3% tax levied on the value of artisanal diamonds exported from the country. The Government Gold and Diamond Office (GGDO) deposits 0.75% per participating chiefdom of this export value to a joint Ministry of Mineral Resources and Ministry of Local Government account registered with the Sierra Leone Commercial Bank. Diamond producing districts and town councils also now receive 20% from the total allocations made per district. The fund was designed to achieve the following objectives:

To implement post-war transformational efforts whereby communities themselves could benefit from diamond resources (particularly when these resources were re-directed to fuel the civil war)

To reclaim diamond areas that were overtaken by insurgents during the war by returning a portion of mining wealth to communities

To enable local communities, led by the Paramount Chief, to promote their own development agenda that would address issues related to poverty, basic social services and skills development of local youth

To reduce the level of illegal artisanal mining by providing an incentive scheme which links the number of licenses issued to the amount received by each Chiefdom/District located in a diamondiferous area

Access to the Fund is based on criteria such as the number of mining licenses per chiefdom and value (special stones included) of legal diamond exports. Analysis of available data suggests that the

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Fund had risen from a mere Le.116, 848,125 (one hundred and sixteen million, eight hundred forty

eight thousand, one hundred and twenty five Leones) in 2001 to Le.8, 820,483,403 (eight billion, eight hundred twenty million, four hundred eighty three thousand, four hundred and three Leones) in 2006, an increase by 75.4% in 6 years (see annex 1).

Producing slightly above 50% of all diamonds legally exported from Sierra Leone, mining communities in Kono received slightly above 50% of the total DACDF between 2001 and 2006. At 2.5 billion Leones, the second largest recipient district was Kenema. The graph below is an illustration of district level DACDF revenue returns to mining communities between Jan 2001-June 2006.

However, consistent with disruptive global market prices for mineral resources coupled with dwindling artisanal diamond resource base country-wide and to some extent, the lack of data and weak national regulation of mining activities plummeted the DACDF to a mere 2.4 billion Leones between 2006 to 2008. A gradual growth was however observed in 2009. In the meantime, the study observed that DACDF fluctuations and late disbursement of due community revenues is forestalling the achievement of development objectives originally envisioned for mining communities. The line graph below demonstrates DACDF fluctuation between 2006 and 2008 and a gradual rise in 2009.

DACDF fluctuation and implication for development in mining communities

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Impact on communities:

As of the time of this study, 71 chiefdoms, 9 district and 4 town councils country-wide are benefiting from the Fund. Some communities have demonstrated capacity to implement impressive projects such as community markets, barrays, roads, bridges, schools, health facilities and have provided support for higher education and agricultural enhancement. In many of the recipient communities, the Fund has also helped in reducing illegal mining as DACDF revenues are linked to chiefdom’s number of licenses. In the years immediately after the war, the Fund was pivotal in re-asserting government control over diamond mining communities as well as in revitalizing basic social services in areas previously devastated by the war. In chiefdoms such as Kamara and Gbense in Kono, the Fund has been a major catalyst in linking cut-off communities to the main commercial capital, Koidu, as shown on this report’s cover page. Gbense chiefdom, which has so far received Le.819, 076,655 of DADCF resources was the only chiefdom to have kept accurate records of monies received. In some communities, projects such as court barrays (assembly halls) appear to have provided much needed space for youth recreation and socialization and may have contributed to community peace building. Support to chiefdom administration appears to have improved the administration of justice at local level. In some ways, some of the DACDF objectives in terms of supporting transformational activities and minimization of illegal mining are being met.

Critical issues:

On the other hand, findings indicate a mixed bag. Concerns regarding ineffective management and utilization of funds continue to be raised. Current findings reveal that ineffective utilization of DACDF resources is closely linked to poor record keeping, late disbursement of funds, the lack of a comprehensive framework to redistribute revenues to mining communities, limited community participation and knowledge about the full value of ceded funds and the absence of monitoring

“The bridge we built linking Kardu

village to other communities has

enhanced communication and

commerce not only for our chiefdom

but also to several other communities”

(Chief Kamanda, Gbense Chiedom)

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mechanisms. An impressive multi-purpose project initiated in Kenema many years ago have been abandoned half-way in its implementation and no one seem to border. At national level, the abandonment of a DfID sponsored monitoring and operational tool, in favor of direct and often ‘secret’ payments of DACDF cheques to paramount chiefs by politicians raises a lot of transparency questions and suspicion. In addition to the likelihood for the Fund to be seen as ‘patronage’ compensation, the current style of Fund handling undermines accountability. Fund impact at community level is also inhibited by a critical shortage of development skills, participatory practices and planning. Major decisions regarding project choice and expenditure are normally taken by paramount chiefs with a select group of sub-chiefs.

Interventions:

In view of these, the study recommends that it is now necessary to re-think the DACDF policy with the aim to:

Increase community participation and awareness about the Fund, Ensure timely disbursement of funds, Provide capacity building to communities to effectively manage and implement community

projects that meet wider community needs, Institute a credible monitoring mechanism and introduce sanctions for inappropriate

utilization of funds. Institute credible Community Project Committees in every recipient chiefdom to plan and

implement community projects

2.2: The Community Development Fund (CDF):

Articulated in part 16 of the Mines and Mineral Act 2009, the ethos of the Community Development Agreement Fund (CDAF) otherwise known as Community Development Fund (CDF) is significantly different from the Diamond Area Community Development Fund (DACDF). Rather than direct cash payments to affected communities, the CDF is a new requirement for mining licence holders – (all large-scale and most small-scale) to enter into agreement with communities for projects to enhance local development. The scope of projects to be agreed upon includes: educational scholarships, apprenticeships, training, employment opportunities, development of local enterprise, agricultural product marketing. Subject to community needs, project could include infrastructural development, maintenance of housing, health, education, roads, water and electrical power. Minimum company contribution is 0.1% of gross annual turnover and a completed agreement is a legally binding obligation on the mining licence holder. Agreements can be mutually revised at the end of every 5 years. The CDF does not replace other resettlement or compensation obligations.

In further contrast to the DACDF, the CDF is not only limited to diamondiferous communities but also applicable to communities with metal and non-precious minerals. While some communities have in the past benefited from some sort of investor corporate social responsibility (CSR) and other

“What would be best in the use of the DACDF in

our chiefdom is an independent monitoring

team and publication of how much has been

paid” (Augustine Bengu, KDC)

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beneficiation schemes, findings indicate that communities have yet to benefit from the CDF as promulgated in the new Act. However, in communities such as Port Loko and Tonkoli districts where there has been an upsurge corporate investment in Iron Ore mining and exploration, companies have begun discussions with local communities on how to fulfil CDF requirements.

Meanwhile, stakeholder interviews during the data gathering phase depicts tensions between companies and communities. Tensions appear to stem from a number of factors including employment dissatisfaction. Like with the DACDF, the new beneficiation scheme (CDF) lacks clear guidelines for agreements-making between companies and communities. There also remain the contentious issues of monitoring and enforcement of principles. Communities on the other hand lack credible institutional structures and negotiation skills to effectively engage mining companies and secure better development deals for their communities.

To avoid the pitfalls observed in the implementation of the DACDF, it would appear that the intervention of civil society organizations to engage both government and corporate entities is necessary.

3. Administrative frameworks, management and disbursement

While a number of stakeholders play crucial roles in the administration, management, disbursement and implementation of revenue streams flowing back to mining communities, findings indicate that there is no oversight mechanism and a mutually agreed-upon end-use reporting framework. Although the Ministry of Mineral Resources (MMR) is solely charged with responsibility to ensure the implementation and enforcement of provisions pertaining to the Community Development Fund (CDF), the MMA 2009 is unclear on guidelines regarding the development of agreements between communities and mining companies. Although the Minister’s decision is final in an event where a community is dissatisfied with the level of development provided by a company, the Act is once more unclear on penalties in situations where companies categorically fail to support local development. The binding nature of agreements notwithstanding, the administration of the Community Development Fund appears largely an ad hoc arrangement between communities and companies. A recurring question during community interviews was centred on how will communities determine 0.1% of a company’s annual turnover?

In the case of the DACDF, fund administration mainly revolves around the Ministry of Mines. The Director of Mines calculates DACDF and makes allocations based on chiefdom licenses. In collaboration with the Ministry of Local Government, arrangements are made for disbursement every six calendar months (Jan-June and July-Dec). In several cases, this pattern of disbursement is often beset with significant delays (e.g. disbursement from July 2007 was only made in December 2010), causing disruptions and delays in project implementation at local level.

The GDD conduct monthly diamond export evaluations and, calculates 25% from the total value of 3% export tax as DACDF. The Sierra Leone Commercial Bank (SLCB) holds DACDF in a special account until such time when requested by the Ministers of Mines and Local Government for disbursement to mining communities. At district level, MMOs monitor and supply licensing information to the Government Mining Engineer who in turn provides such information to the Director of mines. Paramount chiefs, on behalf of their chiefdoms receive 80% of funds to implement projects. Paramount chiefs are signatories of chiefdom level DACDF accounts and with a select body of sub-chiefs make decisions on behalf of their communities regarding how to utilize funds. Similarly,

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district and town councils receive 20% of funds to support district level development. Once funds have been disbursed, there is currently no formal reporting framework regarding how funds are utilized. There is no formal assessment framework to determine the quality of projects implemented including impact on communities.

Without a paper trail, guidelines and oversight mechanisms, this system of administering beneficiation schemes has a lot of weaknesses and is; accordingly provoking a lot of bitter discourse between government, companies and civil society organizations.

4. Recommendations10. The government (MMR) to review and harmonize the various strands of policies dealing

with ceded mining resources: The various mining beneficiation schemes (DACDF, CDF and others) were developed with the passing into law of numerous aspects of the country’s mineral sector. It is now necessary to review and harmonize them to ensure impact and common understanding at community level.

11. Develop a comprehensive paper trail framework and guidelines for calculating and redistributing mining revenues: Guidelines for calculating, redistributing and reporting on ceded mining revenues is strongly recommended. The simplification, adaptation and re-introduction of the DfID sponsored tool is a good starting place. The tool is a comprehensive monitoring paper trail mechanism with potential to reduce misappropriation of ceded resources.

12. In line with EITI principles, there is need for the MMR to publish mining related revenues and payments: A major issue related with mining beneficiation schemes is limited community knowledge of the value of ceded revenues due to non-disclosure of payments. In line with EITI principles, publication of payments at both national and community level will enhance transparent handling of beneficiation schemes and ultimately enhance community development.

13. Institute under the auspices of the Office of the President an independent Monitoring Unit to provide oversight over ceded mining related revenues: In view of the substantial size of ceded revenues to mining communities, a monitoring unit, independent of the MMR and possibly under the Office of the President should be considered. This unit should track use and development impact of ceded resources on mining communities.

14. Ensure regular and timely disbursements of due revenues to affected mining communities: Delays in disbursement of due revenues to communities is not only expensive in terms of the effects of inflation building/construction material, but also affect community momentum and quality of community projects.

15. Support community participation at local level: To ensure participation and the creation of project that meet wider community needs including the needs of special interest groups (women, elderly and disabled groups), it is important to support the development of community project committees (CPCs). CPCs should compose of ordinary citizens, representing various social groups and from various sections of their communities and independent of the current chiefdom development committees (CDCs). CPS should be charged with responsibilities of project identification, implementation and end-use reporting of projects progress and utilization of funds.

16. CSOs to provide capacity building support: CSOs interested in promoting development in mining communities should community capacity building on methodologies such as

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participatory development practices, knowledge of project cycles, planning (CAPs), financial management and project administration.

17. Advocacy action: As the adverse effects of mining mostly impact the health and safety including the environmental wellbeing of communities in mining areas, there is need for CSOs to enhance advocacy at all levels, targeting companies, local and central governments as well as local authority on their mandate to be transparent to communities on major decisions related to mining and ensure maximum benefits to affected communities.

18. Multi-stakeholder (government, civil society and companies themselves) collaboration: For advocacy to be effective there is need to create forums where mining policy information is shared including issues related to the administration, management and implementation of mineral related beneficiation schemes.

Annexes

Annex 1: DACDF Payment (2001-2006) See XL sheet attached

Annex2: Terms of Reference (ToR)

TERMS OF REFERENCE FOR LEAD RESEARCHER -RESEARCH ON NATURAL RESOURCE REVENUE FLOW TO COMMUNTIES IN SIERRA LEONE.

Background and Justification of the Research:

This study is being commissioned by NMJD and its partners to track quantity and quality of revenues that flow back to mining communities as provided for by the Mines and Minerals Act (MMA) 2009. It will also identify transparency and accountability of the generation, distribution and management of revenues from natural resources especially solid minerals (gold, diamonds, rutile and iron ore) and their flow to mining affected communities.

It will further bring to light the manner of implementation of the provisions of the 2009 MMA in relation to revenues that are returned to affected communities. Thus it will review frameworks for collection and utilization of the said funds that will enhance government and community capacity to implement the provisions of revenues to communities.

The study is crucial in that, it will seek to investigate community participation in natural resource governance (DACDF and CDF) and will also proffer relevant benchmarks for participation of grassroots communities in transforming Sierra Leone thereby reducing mistrust and building peaceful co-existence for the local development. Furthermore, it will identify the reasons for the delay and lapses in the disbursement of the said funds; what could be done to make the current system work and will further identify adjustments and improvements which would strengthen its functioning.

With the 2012 Parliamentary, Presidential and local government elections fast approaching, the findings of this national study on revenue ceding back to mining communities and the management thereof could be used to influence the lens that government and other key stakeholders use to cede back the benefits to mining communities to ameliorate the negative impacts they suffer.

The findings of the study will also inform advocacy for revenue flow to communities for other non-solid minerals (oil) even before the actual start of exploration/exploitation.

Objectives of the Study

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To conduct a national participatory assessment of the DACDF and the 0.1% CDF contribution in five mining districts in order to inform stakeholders in the sector (national and international) about the quantum and quality of resources ceded back to communities, the lapses and gaps in the administration and management with proffered recommendations by October 2010.

To conduct an assessment of Ministry and Company processes, guidelines and quantum of and their challenges concerning DACDF and CDF disbursement.

To assess the practical implementation of the DACDF and CDF disbursement in relation to the regulations within the existing guidelines and identify possible differences in practice in the five mini districts.

To influence changes in policy frameworks (MMA 2009, DACDF guidelines) and systems at national and local levels through targeted advocacy in collaboration with other NGOs and coalitions.

Build the capacity of mining advocacy platforms (CJM, AJME, WF) through research trainings and enhance skills in research work thereby sustaining regular findings and reporting on these revenues at local level.

Areas of inquiry and investigation

1. Assess the DACDF and the CDF on how it is functioning along the supply chain. Are companies reporting their profits? Are they paying the 0.75% contribution to the DACDF? Are the funds managed duly at national level, including assessments of proposal? Are the funds disbursed to the councils and districts proportionally?

Are the funds spent according to the project proposals? Are the projects carried out according to the agreed standards? What is the role of the communities, Wards and Chiefdom Development Committees, Councils,

Minerals Committee and others in overseeing this process? What is the role of the Ministry of Mines representative in monitoring the use of the funds? Are there existing policy frameworks in place for the collection and disbursement of these funds? Are they useful to the communities? How can the NMJD, IBIS and partners effectively monitor the DACDF and the CDF based on

assessment findings?

LOCATION

Kono, Kenema, Moyamba, Port Loko and Tonkolili Districts

B. Research Team/Tasks

The will be composed of the one lead researcher and 5 field assistants and Fifteen Field Assistants. Field Assistants shall be members of the mining advocacy platforms (CJM, AJME, WF, other CS and MDA rep working in the specific district. The task of the lead researchers shall be based on the broad terms of reference below.

KEY RESPONSIBILITIES.

Analysis of existing literature on CDF. Various documents from government department, donors, IFIs, newspaper articles and among others will be used.

Design appropriate research tools for the data collection and facilitate pretesting.

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Train Assistants and Field Assistants in participatory data collection.

To ensure that all research activities is carried out in a way that is sensitive to community and gender issues; in particular to promote the full and equal participation of women in all aspects of the research.

Gather and record information and triangulate information gathered using agreed tools /methodologies.

Compile, and enter data in a computer by districts and review findings and analysis of findings in relation to the overall research.

Ensure that themes of the research are clearly explained and articulated to team members and communities and ensuring participation and involvement of all interest groups.

To organize the rest of the team in each district that are involved in the research.

Research at national Level through interviews with key stakeholders in government who are responsible for the DACDF and the CDF.

Analyse data compiled from the local level and combine and analyse with information gathered at national level.

To analyze findings, drawing key issues and lessons from findings in relation to the main objectives of the research.

Send a draft for advance comments by NMJD and Partners and conduct a validation and debriefing workshops on the final draft.

Produce final and comprehensive report of the findings of the study for publication Be the lead presenter at the launching of the research.

Specific Outputs of the study

The consultant is required to:

Submit a consolidated XX page long report to NMJD. This will be informed by consultations, a validation and contain information on the key inquiry areas, policy recommendations and comments for follow-up.

PERSON SPECIFICATION

A formal training at Bachelors or Masters’ degree level with interest or experience in researching on community Development; experience in mineral resource would be an added advantage.

Microsoft word, excel and other spreadsheets) Knowledge or interest in community participatory approaches, methodologies and tools. Teamwork and good interpersonal skills required. Diplomacy and tact, to be able to mobilise and talk to communities, and with local artisans, community

representatives and local authorities. Good communication skills.

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Ability, flexibility and willingness to work for long hours under difficult conditions and often under pressure is essential.

Knowledge of local dialect will be an added advantage

Annex 3: Data collection tool

Data Collection tool

Research on mining revenue streams (DACDF, CDF and others) flow to affected communities

Name of stakeholder.........................................................................................................................

Chiefdom.............................................................District.....................................................

Name of field researcher...........................................................................................................

Part 1: Institutional interview guide: This part of the tool is to be used for interviews with national and sub-national mining institutions, MMR officers, councils, NGOs and local CSOs as applicable

1. Is your institution/office by law, responsible to collect mining related funds on behalf of communities? -Yes.............................-No..............................

2. What is the name of the fund(s) you collect?-DACDF............................... -CDF....................................-others (specify)..................

3. How often are such fund(s) collected?-Every six months..........-Yearly...............................-Others (specify)................

4. Do you know how much is collected per year?DACDF.........................................CDF.............................................Others (specify)..........................

5. Do you know how much has been collected since the introduction of the policy under which you are authorized to collect mining related fund(s)-DACDF........................CDF...............................Other (specify)..............

6. Where does such fund(s) come from?-0.75% of total diamond export value-0.1% yearly company profit from the sales of minerals-Other (specify)

7. Who are these funds intended to benefit?Chiefdoms?.....................District councils?...........................Others (specify).............................

8. How many chiefdoms or District councils are currently benefiting from such funds?(Total number of chiefdoms......................) (Total number of councils........................) (Others..................)

9. Is there a framework on how funds are:

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a) Collected?b) Calculated?c) Distributed?

10. From national to community level who?a) Manages these fundsb) Their roles and responsibilities

11. At the present rate, are you satisfied with:a) Fund management and administrationb) Implementation and benefit of funds to communities?

12. Who monitors the use and implementation of funds disbursed?13. In your considered view, what could be done differently regarding:

a) Fund managementb) Implementationc) Accountability

Part 2: Corporate interview guide: This part of the tool is to be used for interviews with mining companies

14. By law and in adherence with EITI requirements, what type of community related payments do you make as a result of your mining activities?a) .............................b) .............................c) ..............................d) Other (specify).......

15. How are such payments calculated (specify)?16. Who do you pay to?

a) GoSLb) Councilsc) Chiefsd) Others (specify)

17. How much have you paid so far per year and cumulatively? (check company records where possible and appropriate)

18. Are communities benefiting from your payments? Yes/NoIf yes, in what ways (Please specify)?If No, why not?

19. What are the main challenges associated with such payments?20. What do you want to see done differently?

Part 3: Interview guide with local authorities (chiefs, VDCs)

21. Do you receive mining related payments on behalf of your community? Yes/no22. If yes, what kind(s) of payments?

DACDF.......................CDF............................Surface rents.............Others (specify)

23. How much have you so far received under each stream?-Funds remitted to date?

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-Method and frequency of remittances?

-Total project implementation cost to date?24. For how long (specify period by years)?25. How and what are these funds used for? (specific projects and where possible, visit project sites)

26. How do you normally access these funds? (specify)27. How are decisions (management) made in respect of what should be done with mining monies

received?28. Are the views of women, youth, the elderly and disabled people taken on board when making

decisions about the use of funds or type of projects implemented in your chiefdom? (Give specific examples of where such views have been considered)

29. Give as many specific examples as possible in relation to how communities have benefited from mining funds?

30. What have been the greatest challenges in relation to mining funds in your chiefdom? (e.g accessing funds, late remittances, adequacy of funds, decision-making, participation, corruption, fund management, etc)

31. Who at this level monitors the utilization of such funds32. Looking back now, what would you have liked done differently in relation to management of funds

and implementing of projects?

Part 4: Focus group discussions with beneficiaries (Women, youth, elderly and disabled) to assess fund(s) outcome and relevance at community level. (Please make sure to take note of people assembled in such discussions by category)

33. Are you aware of mining related payments made to your community? (find out how many people know)

34. What is that money called?35. Do you know how much?36. Have you ever participated in deciding how and what should be done with such monies? Yes/No37. Who are the main people making decisions about how and the use of such monies?38. If you ever get a chance to be where decisions are made in respect to the use of such monies, do you

think your view will matter?39. Are project interventions paid for by mining funds responding to your needs? Yes/No40. If no, why?41. If yes, give specific examples of how you or community have benefited?42. What would you like done differently in your community regarding the use of these funds?43. Any other related issues? Many thanks.............JKJKJKJK

Annex 4: Number of study respondents

District chiefdom MMR Officers

Param/ Chiefs

Council Reps.

Civil society Reps.

Mining company

Reps.

Youth Reps

FDG Reps.

Other informants

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(elderly/

disabled)

Tonkolili Kalansog-oyan

1 1 1 - 1 2 8 2

Samaya Bendugu

- 1 1 - - 5 10 2

Kaffeh Simira

- 1 1 - - 3 8 3

Moyamba Mano Dasse

- 1 2 1 - 1 6 1

Upper Banta

- 1 - - - 2 12 2

Lower Banta

1 1 - - - 3 16 2

Bagruwa - 1 - - - 2 15 3

Kenema Kando Leppiama

2 1 1 4 1 8 11 10

Lower Banmbara

1 1 1 - 1 5 - 4

Nongowa - - 3 - 1 6 13 5

Malen-gohun

1 - 2 2 - 2 31 1

Simbaru 1 1 1 2 - 2 26 1

Port Loko Loko Masama

- - 2 2 1 7 12 6

Marampa 1 1 1 - 2 3 6 5

Maforki - 1 4 1 - 16 20 5

Kono Nimiyama 1 1 1 2 1 8 17 7

Sandor 1 - 1 1 3 14 21 6

Gbense - 1 4 4 1 12 16 14

Nimikoro 3 1 1 - 3 - 4 1

Kamara 2 1 1 1 - - 10 1

Totals 15 16 28 20 15 101 262 81

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References

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