usaid partnering manual with extractive industries

8/6/2019 USAID Partnering Manual With Extractive Industries

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ALLIANCE INDUSTRY GUIDE:

EXTRACTIVES SECTOR


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March 2010

Tis publication was produced by SSG Advisors or the United States Agency orInternational Development Ofce o Development Partners/Private Sector Alliances. It was written and prepared by Tomas Buck o SSG Advisors with assistance rom Cecilia Brady and ormatted by Newcomb Studios.

Te Ofce o Development Partners/Private Sector Alliances wishes to recognize TomasBuck or his leadership and research in developing this guide, as well as to o er our pro oundthanks to all the individuals who contributed their time and ideas towards its production.

This publication is made possible by the support of the American Peoplethrough the United States Agency for International Development(USAID.) The contents of this publication are the sole responsibility of SSG Advisors and do not necessarily re ect the views of USAID or theUnited States Government.

Photo Credits:

Front cover: Yose Hadar, World Bank Page 1: Gennadiy Ratushenko, World Bank Page 3: Unknown photographer, World Bank Page 4: Tomas Buck, SSG AdvisorsPage 5: Curt Carnemark, World Bank Page 6: Yose Hadar, World Bank Page 7: Unknown photographer, World Bank Page 8: Curt Carnemark, World Bank Page 9: Yuri Mechitov, World Bank Page 10: Yuri Mechitov, World Bank Page 11: Curt Carnemark, World Bank Page 12: Tomas Buck, SSG AdvisorsPage 13: Curt Carnemark, World Bank Page 14: Anatoliy Rakhimbayev, World Bank Page 15: Curt Carnemark ,World Bank Page 17: Yuri Kozyrev, World Bank Page 18: Unknown photographer, World Bank Page 19: Curt Carnemark, World Bank Page 20: Yuri Kozyrev, World Bank Page 21: Tomas Sennett, World Bank Page 22: Julio Etchart, World Bank Page 23: Curt Carnemark, World Bank Page 24: Yuri Mechitov, World Bank Page 25: Steve Schmida, SSG AdvisorsPage 27: Tomas Sennett, World Bank Page 28: Arne Hoel, World Bank Page 30: Curt Carnemark, World Bank


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ASM . . . . . . . . . Artisanal MiningBP . . . . . . . . . . . Beyond Petroleum ( ormerly British Petroleum)CSO . . . . . . . . . . Civil Society OrganizationCSR . . . . . . . . . . Corporate Social Responsibility DRC . . . . . . . . . . Democratic Republic o the CongoEIA . . . . . . . . . . Environmental Impact AssessmentEITI . . . . . . . . . . Extractive Industries ransparency InitiativeEMP . . . . . . . . . . Environmental Management PlanESC . . . . . . . . . . Economic Service CenterESIA . . . . . . . . . Environmental and Social Impact AssessmentGDA . . . . . . . . . Global Development AllianceGDP . . . . . . . . . Gross Domestic ProjectGRI . . . . . . . . . . Global Reporting InitiativeICMI . . . . . . . . . International Cyanide Management CodeICMM . . . . . . . . International Council on Mining and MineralsIFC . . . . . . . . . . International Finance CorporationIPIECA . . . . . . . International Petroleum Industry Environmental Conservation Association (IPIECA)IRS . . . . . . . . . . . Indoor Residential SprayingISO . . . . . . . . . . International Organization or StandardizationKPCS . . . . . . . . . Kimberley Process Certi cation SchemeMOU . . . . . . . . Memorandum o UnderstandingNGO . . . . . . . . . Nongovernmental OrganizationNOC . . . . . . . . . National Oil Company ODP/PSA . . . . . USAIDs Private Sector Alliance Division o the Ofce o Development PartnersPDAC . . . . . . . . Prospectors and Developers Association o CanadaPPA . . . . . . . . . . Public-Private AlliancePPP . . . . . . . . . . Public-Private PartnershipRFA . . . . . . . . . . Request or ApplicationsRFP . . . . . . . . . . Request or ProposalSME . . . . . . . . . . Small and Medium EnterpriseSEPAC . . . . . . . . Small Explorers and Producers Association o CanadaSUAL . . . . . . . . . Siberian-Urals Aluminum Company

TSP . . . . . . . . . . echnical Support Project or Social Investment and Capacity BuildingUN . . . . . . . . . . . United NationsUSAID . . . . . . . . United States Agency or International DevelopmentUSG . . . . . . . . . . United States Government

ACRONYMS AND ABBREVIATIONS


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ALLIANCE INDUSTRY GUIDE:

EXTRACTIVES SECTOR

* Te terms allianceand partnership are used interchangeably in this guide, but both terms refer to the type of collaborationthat can be designated as a GDA.

Welcome USAID Alliance Builders!

Public-private partnerships done right are a power ul tool ordevelopment, providing enduring solutions to some o our greatestchallenges. o help amiliarize you with the art o alliance building,the Ofce o Development Partners/ Private Sector Alliances (ODP/PSA) has created a series o practical guides that highlight proven

practices in partnerships, demonstrate lessons learned, and provideinsight on identi ying and designing strategic partnerships that willmeet your sector- ocused development objectives.*

Te purpose o this guide is to support you in building public-privatepartnerships involving the extractives sector (i.e. mining, oil, and gascompanies). Whether you are new to alliances or a seasoned expert,in the ollowing pages you will nd tips, resources, and in ormationthat remove some o the mystery behind alliance building in thissector. Additionally, we hope this guide will inspire you, with itsstimulating questions and partnership examples rom around the

world, to think creatively about designing alliances that will address key challenges whereveryou are working.

While this guide is meant to promote your partnership e orts with extractive companies, itrepresents only part o the alliance in ormation available. Tere are also additional resourcesand guidance readily available to you on the GDA website:

http://usaid.gov/GDAhttp://inside.usaid.gov/GDA/resources/tools/pdf


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Approximate Prices of Selected Commodities

in August of 2002 and 2009August 2002 August 2009

Commodity Prices Prices Change

Copper (US$/metric ton) 1483 6177 417%Gold (US$/oz) 312.3 950.9 304%Platinum (US$/oz) 565 1239 219%Crude Oil (US$/bbl) 26.77 71.62 268%

Sources: Index Mundi (www.indexmundi.com/commodities/),Kitco www.kitco.com/charts/

Extractive companies play animportant role in economicdevelopment, and it is likely that their importance will

only continue to grow. Over the years,the mining, oil, and gas industries havecontributed to many o the most signi cantissues a ecting the developing world,ranging rom corruption to large-scaleenvironmental damage and resultinghealth concerns, to the exacerbation o local and regional con icts, and even civil

war. Numerous recent trends only serveto strengthen the connections betweenextractive companies and developmentconcerns. Set within this context andhistory, this industry guide explains how theextractive industry works, and highlightsthe ways in which partnerships betweenUSAID and extractive companies may serveto urther the objectives o both.

In the last decade, commodity prices haverisen exponentially, sometimes more thantripling (see table below). Tis boom in

prices has led to an explosion o explorationand production throughout the developing world. A rica in particular is in the midsto a major oil boom that is likely to only increase in signi cance. Global demand orenergy is growing, and extractive companiesand economies are seeking new energy sources in all regions o the world. Tisincreased activity pushes to the ore rontthe many challenges that such investments

INTRODUCTION1bring. Historically, such booms haveincreased the potential or corruption andnegative environmental impacts. Poorly-managed investments can lead to increasedsocial cleavages and outright con ict inmany countries, in turn threatening theprogress and investments made by USAIDacross its development port olio.

As mining, oil, and gas pro ts have soared,living standards and overall economicgrowth in many resource-rich developing

countries have remained at or have evendeclined. Tis resource curse has combined with shareholder expectations, stakeholderactivism, and a general rise in expectations

rom local communities, to trans orm the way in which many industry players approachtheir relationships with local communitiesand the environment. As a result o this change, some companies CorporateSocial Responsibility (CSR) approacheshave evolved rom simple philanthropy to elaborate social investment initiativesthat aim to alleviate poverty, improve the

quality o li e, and achieve real developmenobjectives in stakeholder communities, whilesimultaneously urthering the companiesstrategic priorities.

While major multi-national companieshave embraced sustainable developmentgoals, many others, including juniorcompanies and national oil companies(NOCs), have been slower to embrace the

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shi t in strategy. Te expected increase inthe numbers and roles o these companies rom junior mining companies scouringremote and sensitive locations or thenext great discovery, to the oray o statecompanies rom China and elsewhereinto politically and environmentally

controversial locales challenges much o the progress made within the extractivessector in addressing sustainable developmentgoals, addressing sources o corruption,mitigating environmental impacts, andaddressing sources o social cleavage andcon ict. USAID and other donors canplay an important role in supportingindustry progress in sustainable activitiesand promoting industry standards so thatextraction activities deliver broad-based,

equitable and sustainable development inresource-rich developing countries.

Many USAID Missions have already embraced this role by building several dozenpublic private alliances with extractivecompanies throughout the world. Tis

industry guide draws on USAIDs extensiveexperience in partnering with extractivecompanies, as well as some emergingindustry trends, to highlight potentialavenues or partnership. Te guide isdesigned to assist alliance builders inunderstanding the motivations and intereststhat drive the industrys social investmentstrategies, and provides models and allianceexamples, tips, in ormation, and ideas that will assist in developing partnerships with

mining, oil or gas companies.

Te guide is divided into a number osections. Section 2 explores why companare interested in alliances. Section introduces a number o sector-based modeSection 4 provides context or these mod

with a chart o existing and ormer USAalliances with extractive companies. Secti5 outlines the extractive project li e cyand the resulting development implication while Sections 6 and 7 examine what USAIDand companies have to o er one another apartners. Sections 8 and 9 present lessolearned and uture trends. Finally, sectio10, 11, and 12 provide alliance builder with steps and methods or getting startand nding partners.


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Extractive companies may beinterested in collaborating with development agencies likeUSAID or several reasons. Te

industry is turning away rom past practicesand moving toward robust engagemento local communities. Alliances can helpextractive companies both realize bene tsand mitigate risk.

Te negative social and environmentalimpacts that the mining, oil, and gasindustries have had over the years in thedeveloping world are well-known. Not thatlong ago, extractive companies could reely operate with apparent little regard or theeconomic, social, or environmental e ectso their production. Some political leadersstu ed their personal bank accounts withextractive company unds, while extractiveprojects degraded the land or improperly disposed o toxic waste. I a companysproduction was threatened by social unrest,it could simply con ront community members with its own security orces or, worse, call in national military orces. Localcommunities around extractive sites wereo ten ignored.

Starting two decades ago, a tectonic shi tbegan to occur within the industry, withcompanies moving toward engagement o local communities. Tis shi t coincided with a wider global trend across many other

industry sectors, where growing pressurerom the media and consumers over issuessuch as use o sweatshop labor (real oralleged) and environmental damage orcedcompanies to reposition themselves as goodcorporate citizens. Troughout this period,communities where extractive companiesoperate became increasingly aware o theirright to a place at the table. Community groups built links to international advocacy groups and have generally increased theiractive role in questioning, investigating

WHY ARE EXTRACTIVECOMPANIES INTERESTEDIN ALLIANCES?

2 and sometimes opposing corporate actionsthat a ect their residents. As a result,communities worldwide are now includedas essential stakeholders in extractiveprojects, just as governments, shareholders,and employees are also seen as stakeholders.Tis dramatic change in the relationshipbetween business and social groups hase ectively meant that extractive companiesmust establish, nurture and preservecommunity approval o their actions inorder to maintain their social right tooperate.

o a large degree, companies have sought toachieve and maintain their social license tooperate through CSR strategies dedicatedto helping local communities via economicdevelopment, health, con ict mitigation,and other social development projects. Onaverage, companies are now spending 1to 1.5 percent o all pro ts (a ter tax) onsocial investments.1 Tis percentage cano ten be higher, particularly in countries orregions in which extractive companies aremandated by law or contract to invest insocial need unds. In such cases, companycontributions sometimes reach 5 percent o total revenue.

Many extractives companies try to sourcegoods, service and sta in the localcommunity. In act, internal company policies or contractual obligations can

require anywhere rom 40% to 90% localsourcing. On the one hand, this practicecreates a unique opportunity or companiesto achieve signi cant positive impacts onthe local economy through employmentand small business generation. On the otherhand, these policies o ten present companies with a range o thorny challenges, includingthe operational difculty o meeting thesesourcing targets in remote locations withindeveloping countries. Put simply, localcapacity to meet company demand or Y o s

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The imperative that rms gain and maintain their social license to operateis now gaining wide acceptance in the industry. Social obligation is no longer synonymous with legal obligation, because governments can only rarely bestow universal approval upon a resource development project. Sociallicense refers here to the demands and expectations placed upon rmsin the extractive industries at the host community level. Thus companiesmust gain and maintain acceptance by these stakeholders, or else exposethemselves to active opposition and thus social risk. These risks can range

from illegal activities such as hostage taking and industrial sabotage toinformation and rights-based campaigns that seek to undermine thelegitimacy of the operations from the local to the global.

World Bank, 2008

workers and supplies can o ten be lacking. As a result, many companies have designedCSR strategies to build long-term humancapital and economic viability in localbusinesses.

Other industry trends, in addition tocommunity pressure, have caused extractivecompanies to alter their behavior in local

communities. Chie among these changesare nancing requirements rom largelending institutions like the World Bank andits private sector branch, the InternationalFinance Corporation (IFC). Governments wishing to receive World Bank loans orextractive activities must collaborate withthe Bank to prepare stringent environmentaland social sa eguards that become parto the loan requirements. Any company that provides services that are unded by loan proceeds must also comply with thesa eguards. Te IFC, when making an

investment in an extractive company, hassimilar requirements. It is now commonpractice or extractive companies to producethe type o comprehensive Environmentand Social Impact Assessments required by the World Bank Group during early phaseso project development.

Publicly-traded companies are alsomotivated to develop sustainabledevelopment strategies because o growingshareholder pressure and activism. Socially Responsible Investing indices, which seek to maximize both nancial return andsocial good, currently control 11 percent o the $25.1 trillion in total assets tracked inthe United States (as o 2007). Extractivecompanies are aware o the growinginteresting in socially responsible investing.

While extractive companies have clearly responded to outside pressure in terms o their engagement with local communities,internal company culture also appears to bechanging. Participation in public-privatepartnerships with USAID or others can berooted in companies desire to improve andexpand their social license to operate. Many companies are increasingly concerned by the act that, more o ten than not, theirinvestments have not made signi cantimprovements in the communities wherethey source raw materials, even as pro tshave ballooned through soaring commodity prices, which in turn has led to morecommunity investments.2 Companiesranging rom massive multinationals like

AngloGold Ashanti and Chevron to smaller,country-based companies like YanacochaMining Company in Peru and HighlandGold in Russia have come to see USAIDsapproach and program activities as a valuable

resource that can help them to achieveimportant social objectives. As a result,companies are increasingly turning toUSAID, implementing partners, and otherdonors.

Finally, the most critical reason orextractive companies to make socially-

related investments in local communitieis probably risk mitigation. Companieneed to maintain good relations witcommunities, countries, and donors in ordeto ensure that their investments in a countr

are protected. Sustainable development anpoverty alleviation are there ore increasinviewed by extractive companies as core their overarching business interests. Wheproperly designed and implementedalliances can only contribute to the succeo these interventions.


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ALLIANCE MODELS: WHAT WORKS?

3 MODEL 1:GOVERNANCEFor extractive companies, governance issueshave emerged as vitally important to thesuccess o their social investment goals, bothat the local or sub-national level and, whenrelevant, the national level. A number o important recent studies and assessments

have concluded that good governance iscentral to success ul poverty alleviation andsustainable development interventions.3 O ten, extractive companies are mandatedby law or through individual contractualproduction sharing agreements (or miningagreements) to contribute a certainpercentage o revenue to local, regional,or national social investment unds. oo

requently, these unds have been poorly managed or maintained, leading to rustratedlocal stakeholders who see ew bene ts romhaving a large extractive company working in

their community.

Corruption has been a particular thorny result, and is o ten a mix o poor governanceand rising ows o extractives-based revenuein many developing countries. A 2008 USSenate Committee on Foreign Relationsreport stressed anti-corruption initiativesas a key way to combat the resourcecurse.4 Further, USAIDs Democracy andGovernance Ofce has recognized theimportance o the issue by unding a study devoted exclusively to outlining orms o corruption in the extractive industry as well as program interventions designed tocombat them.5

Many extractive companies are increasingly aware o the importance o governance totheir business operations, as illustrated by industry trends and in a number o key studies.6 Tey are particularly apprehensiveabout the role that company revenues can

play in eeding corruption. Additionally,many companies are growing unsettled with the lack o local bene ts generated bytheir activities, both real and perceived, inthe eyes o local and regional stakeholdercommunities.7 Some companies have cometo view the e ects o weak governance aspotential sources o social unrest that couldthreaten their investments and very presencein the country. 8

Fueled by these concerns, a growingnumber o extractive industries haveturned to USAID because o the Agencysconsiderable experience in governance andanti-corruption programming. Allianceshave ormed with extractives companies inthe ollowing governance-related areas.

Municipal FinancialManagement

In Peru, the Yanacocha MiningCompany has drawn on USAID andits implementing partners expertisethrough its longstanding USAIDProDecentralization Project. Troughtraining and technical expertise, thepublic-private alliance draws on thecompanys $3.5 million dollar socialinvestment und to strengthen theefciency and responsiveness o localand regional governments in the districtsadjacent to the mine.

BP has partnered with USAIDin Indonesia in the Birds HeadDevelopment Initiative tosupport capacity building o localadministrations, municipal councils, andcivil society in the Birds Head region o West Papua province, with the goal o e ectively translating increased revenue

rom energy projects into tangible socialbene ts.

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(IRS) regional program, and scale themup across Ghana. In two years, theprogram reduced malaria by 73% in thetargeted communities. Te partnership was also able to signi cantly reduceemployee absenteeism due to illness.Community school attendance increasedby 70%. In addition, by preventingthe disease the company has reduced

the quantity o expensive malaria drugsthat it purchases and distributes to its work orce and stakeholder communities.

ExxonMobil has partnered with USAIDthrough the Netmark Alliance in nu-merous Sub-Saharan countries, includingZambia, Nigeria, and Cameroon. TeNetmark Alliance ocuses on reducing thedevastating burden o malaria by increas-ing both the supply o and demand orinsecticide-treated bednets, which haveproven to be a success ul and a ordable

malaria prevention approach. Insteado working solely on distribution, thealliance also ocuses on encouraging be-havioral change, training sales orces andhealth workers, and developing e ectivepromotional campaigns, among other ac-tivities.10

HIV/AIDS Prevention

In Angola, the Private Sector Alliance Against HIV/AIDS brings togethernumerous companies, including

ExxonMobil, to rein orce e orts todeliver HIV/AIDS prevention andbehavior change messages to employees,their amilies and communities.

Te CBG (Alcoa) and HIV VoluntaryCounseling and Testing AllianceinGuinea has led to the establishment o several clinics dedicated to HIV testing

and prevention or mine workers, theiramilies, and town residents.

Primary Health Services

Many extractive companies haveaddressed the provision o basic healthservices in local communities. In clinicsbuilt by Chevron, the Employee andCommunity Health Clinics Alliance in Bangladesh provides essential healthservices such as amily planning, childhealth, and maternal health to over400,000 people who previously had noaccess to quality health services.

Similarly, the Partnership or ChildHealth Alliance with ExxonMobilin Kazakhstan provided training andequipment to health care workers in thecapital city. Te ocus o the alliance was to improve health workers ability to conduct e ective and integratedmanagement o childhood diseases.

MODEL 3:ECONOMIC GROWTH

Te role that the extractive industry has played in economic growth in thedeveloping world has long been debated.Much analysis has pointed to the power ulnegative economic e ects that large-scale oilor gas production and mining can have onlocal and national economies, o ten re erredto as a resource curse.11 At the same time,a number o important recent studies haveconcluded that this resource curse may notbe predetermined, and that countries thatput in place appropriate mechanisms andre orms can in act bene t broadly romnatural resource extraction.12

At the local level, extractives projects can havea variety o signi cant positive economicimpacts, ranging rom job generation toprocurement o goods and services. Many extractives projects have complex supply chains and large work orces, and wheneverpossible, most major extractive companieschoose to hire and purchase a portion o their goods and services locally. o build upthe local economy so that it can supply thecompanys requirements, and also or thecommunitys long-term bene t, companieshave developed a range o strategies tosupport economic growth. Tose strategiesinclude supporting the development o micro nance services, small and medium

enterprise development, and agribusinessstrengthening. USAID can be a valuablepartner in such alliances, and can shareits experience in a ull range o economicgrowth issues that can complementcorporate objectives.

Micro nance

In the wake o a devastating civil war in Angola, Chevron has unded a number o economic programs in partnership withUSAID, with the goal o building localcapacity to sustain economic growthand improving the standard o living.13 Among its many activities, USAID andChevron ormed the ChevronTexacoMicroenterprise Alliancethat launcheda sustainable micro nance bank calledNovoBanco. Tis pro table bank hasgone on to provide crucial loans toover ve thousand small and medium-sized enterprises, including smallholder

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Business Training & Workforce Development

Chevron and USAID also partnered on anumber o other initiatives including theBusiness Training Center Allianceinpartnership with the Catholic University o Angola that seeks to equip Angolans with the business skills required or

increased productivity and economicgrowth.

SME Development

As part o its Anosy Development Alliance in Madagascar, USAID worked with mining company Rio into andother partners, including regionaland local governments, to design acomprehensive regional developmentplan that ocused on economic growthas well as conservation o the regionsrich and threatened biodiversity. Tealliances goal was to support businessdevelopment among populations that were resettled as a result o miningoperations. Activities included a SMEdevelopment plan in collaboration with a local bank, as well support to amicro nance institution.

Regional EconomicDevelopment Fund

Similarly, the Extractive Industries Alliance in the Democratic Republico Congo (DRC) aimed to achievesustainable and equitable economicrecovery in the country through theestablishment o a regional development

und. Te und supported projectsdesigned to support economicrecovery and provide new economicopportunities.14

Regional EconomicDiversi cation

In Peru, a USAID partnership withtwo mining companies has the goalo providing non-mining-relatedopportunities in the local economy through the establishment o anEconomic Service Center (ESC) in theremote Huancavelica region. Buildingon USAIDs Poverty Reduction and Alleviation approach, the alliance with the Buenaventura and Antamina

Mining Companies generates incomeand employment opportunities throughthe provision o market in ormationand business services, the acilitation o commercial contacts between buyers andlocal producers, and the identi cationo companies willing to invest in localenterprises.

MODEL 4:

ENVIRONMENTTe environmental impacts o resourceextraction in the developing world havelong been a challenge or extractivecompanies. Civil society activists and recentmedia exposs have brought heightenedattention to large-scale environmentaldamage attributed to extractive companiesin Ecuador, Nigeria, and elsewhere.15

Broadly organized into three categories,impacts o natural resource extraction onthe environment include direct impact suchas mine construction, indirect impacts likenew settlements built to house workers,and cumulative impacts such as the useo new roads by armers and ranchers togain access to ormerly uninhabited andundeveloped areas. For USAID alliancebuilders, the ull range o potential andexisting environmental impacts should beat the heart o any due diligence researchconducted be ore entering into an alliance with an extractive company.16

Despite a dubious history, a number oextractive companies are increasingmore mind ul o their role in impactithe environment. Beginning with newenvironmental and social requirementied to loans and investments rom majmultilateral nancing institutions like th World Bank and the International FinanceCorporation, the industry has evolveto accept signi cant new environmentstandards that have led to improvementin environmental behavior. oday, ew any major companies put a shovel intthe ground without rst conductingan extensive Environmental Impac Assessment (EIA). Tese assessmare designed to identi y and plan signi cant environmental impacts that caoccur during each phase o the li e ooperation. Te EIA usually leads to anEnvironmental Management Plan, whictrans orms the recommendations o an Einto a comprehensive strategic plan to b

ollowed throughout the li e o the proje

USAID has recognized the importanco the extractive industry impacts on tenvironment as well as the potential rothat partnerships can play in mitigatinthose impacts. Tese issues are discussed ia recent study released by USAID Bureau A ricas Ofce o Sustainable DevelopmenTe report provides recommendations ona range o issues including due diligence17

Going orward, USAID could leveracompanies considerable technical expert


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developed in the EIA and EMP processesto build sustainable local capacity on anumber o key issues ranging rom waterquality mentoring to re orestation. o date,extractive companies have partnered withUSAID in a number o ways that providemodels or environmental partnerships.Tese alliances address both negativeenvironmental impacts (brown alliances)

and promoting conservation and positiveenvironmental stewardship (greenalliances).

Energy Ef ciency & Emissions

In Russia, USAID partnered withNK-BP and SUAL to promote energy

efciency and environmental governancein the Star Community Initiative.Built around strengthening long-termmunicipal capacity in 39 cities andtowns, this alliance success ully reducedcoal and natural gas emissions by 56thousand tons, saving 4.6 millionkilowatts o electricity annually.

Conservation

Te Anosy Development Alliance with Rio into in Madagascar promotednatural resource management andconservation in a country whose uniqueand notoriously delicate biodiversity isunder threat.

Forest Management

In Indonesia, BP has partnered withnumerous private, public, and civilsociety institutions in the SustainableForest Management Alliance, whichaddresses illegal logging through acomprehensive certi cation program.Te alliance demonstrates practical

solutions or di erentiating legal andillegal wood supplies in three Indonesianprovinces, strengthens market signalsto combat illegal logging, and reduces

nancing and investment in companiesengaged in destructive or illegal loggingin Indonesia.

MODEL 5: EDUCATION

Extractive companies o ten approacheducation issues through their directengagement o stakeholder communities.Particularly in remote locations, basiceducation is a concern that regularly emerges rom initial community assessments undertaken by companies. Atother times, companies use education andtraining initiatives to build managementand work orce opportunities over timein the local community. Te extractiveindustry currently aces a signi cant globalshortage o trained and skilled labor, whichhas sometimes led to the importing o workers rom other regions and countries

to project sites. Many companies seek to address this imbalance by designingtraining and education strategies with thegoal o reducing costs and sourcing morepositions locally and regionally. At thesame time, companies also seek to broadenemployment by creating opportunities with their local supplier networks. Whensuccess ul, this policy can address both the

companys business interest o reducingreliance on expatriate workers and thecommunitys desire or better employmentopportunities. In many resource-richdeveloping countries, USAID has thepotential to leverage industry work orceneeds into broader vocational training and work orce developing programs. o date,alliances have incorporated both basiceducation and work orce developmentinitiatives.

Basic Education

Partnerships o ten include basiceducation goals as a component o alarger poverty alleviation program, as with the Sanso Morila Mine AllianceinMali. Te risk o replacing state servicesmay be a concern or these activities,but given the geographic isolation o some extractive projects, there is o tena lack o human and other resources oreducation.

Vocational Training & Workforce Development

Many o the more comprehensive alliancesthat address education issues ocus onvocational and business training, ando ten target youth entering the work orce.Te ocus o such alliances may involvebuilding skills around core work orce needsin the industry, but they might also seek to ocus more broadly on preparing andtraining youth or more diverse economicopportunities.

In six Asian and Middle Easterncountries that were experiencing very high rates o youth unemployment including Egypt, Pakistan, and thePhilippines Newmont, Chevron,and BP joined orces with USAID andmany other public and private partnersin the Education and Employment Alliance. Te partners ocused onimproving the quality o education,

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enhancing employability, and buildingemployment opportunities or youthunder the age o twenty- our. Tealliance incorporated a large numbero projects and initiatives ranging romresearch on labor and employmenttrends to building opportunity throughemployment programs.

Other alliances have had similar goalson a smaller scale. In Angola, Chevronpartnered with USAID to establish aBusiness Training Centerto encourageand develop entrepreneurship and smallbusiness development.

Chevron also assisted youth in tsunami-a ected areas o Indonesia in vocationaltraining through a number o alliancesincluding the Vocational Training Alliance which led to the establishmento Aceh Polytechnic school. Te

goal o Aceh Polytechnic is to developpro essional skills in areas o real need

or the region. Chevron contributedconstruction costs, and USAIDdeveloped the curriculum and recruitedteachers and sta . Aceh Polytechnicprovides education in mechatronics,bookkeeping, industrial electronics, andin ormation technology.

MODEL 6:

CONFLICTMITIGATION

Te role that minerals have played inueling con ict has been well-documented

over the last decade.18 A 2004 study by USAIDs Ofce o Con ict Managementand Mitigation concluded that mineralextraction can lead to con ict in threeprimary ways: direct nancing, socialcleavages in amed or created thoughextraction, and revenue-based corruptionleading to social unrest.19 For projectsalready in production, con ict with orbetween community stakeholders can meandisruptions and delays, substantial loss o revenue, or even revocation o a license tooperate, as with Shell in the Ogoni areaso Nigeria.20 ypically, con ict betweencommunities and extractive companies havehad their roots in issues such as land claimsand access to resources, orced relocation,community compensation, decision-making and threatened livelihoods.21

Resource-driven con ict is a continual threatto the development achievements o many countries. Te terrible legacies o con ictsin Sierra Leone, Liberia, DemocraticRepublic o Congo, and Angola have shownthe challenge o economic developmentin insecure contexts. By working withpartners to address grievances and con ictdrivers be ore they can lead to con ict,USAID sa eguards development progress.o date, USAID has ormed alliances with a

number o extractive companies to addressdiverse issues through con ict mitigation

initiatives.

In Angola, Chevron and USAIDcombined e orts with the Con ictMitigation and Management inCabinda Province Alliance, whichactively sought to di use tensionsbetween government, local communities,and Chevron through capacity buildingand community engagement initiatives.Numerous communities in Cabindahad grown increasingly agitated aboutChevrons activities. Local opinion heldthe company responsible or serviceprovision and in rastructure developmentas well as environmental damage and losso sheries due to oil spills. Over time,tensions between the communities andthe company were vastly improved ascommunities began to take ownership o their own in rastructure concerns.

Another issue o potential social cleavageor many resource-rich mining regions

in the developing world is artisanand small-scale mining (ASM). Imany countries, small-scale mineo ten lay claim to mineral-rich areand contest the presence o larextractive companies. Tese claims mabe historical claims or may occur ona ter large-scale operations are und way. Working or low wages, thminers can ace abysmal health aenvironmental conditions that are o teunregulated and dangerous. In thCon ict Management and Artisan

Mining Alliance in the DemocraticRepublic o Congo, USAID, IFC, ana three mining companies aim to addrethis issue through the development olong-term and comprehensive plan artisanal mining in the Kolwezi regioTe program ocuses on reducing thnumber o small-scale miners by buildiattractive economic opportunitiedirectly linked to industrial mininconcerns in the region.

An additional promising arena con ict mitigation alliances has beearound the issue o con ict diamondFor many years, the illegal harvesting diamonds nanced a number o civil waand rebel movements in Sierra Leonthe Democratic Republic o Congand other A rican countries. As a reso international mobilization on thissue, governments, civil society and kdiamond companies ormed a publiprivate partnership called the Kimberle


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Process to certi y that diamonds boughtand sold on the world market werecon ict ree. In Sierra Leone, USAIDbrought together diamond producers,buyers, activists, government ofcials,and major industry players includingDeBeers and Rappaport to orm analliance with development objectivesbuilt on the Kimberley process overall

goals. Te resulting Peace Diamond Alliance monitors diamond royaltiesand ees, in orms miners o the valueo stones, addresses environmentaldegradation, and reduces exploitation o miners and especially children.

MODEL 7:AGRICULTURE & FOODSECURITY

Many extractive companies have ocused onagriculture as a key social investment. Fora good number o agriculture partnerships,a companys motivation or participationmay be rooted in the core business issueo securing a local supply chain, in thiscase ood or a work orce that could besubstantial in number. Reducing the need

or imported ood saves tremendous nancialresources or a company, particularly inremote locations. In other cases, extractivecompanies have worked to diversi y localeconomic opportunities beyond mining

or petroleum. Companies also haveinvested in agricultural development as acon ict mitigation intervention with thegoal o reducing tension with or betweencommunities or creating economicopportunities in post-con ict societies.

In Angola, Chevron and USAID havelaunched a number o joint projects thathave aimed to stimulate the countrysagricultural sector and improve oodsecurity. In the wake o the civil war,the ChevronTexaco Seed Recovery Alliance sought to assist the badly damaged agricultural sector through

nancing, training, seed multiplication,crop diversi cation, and other initiatives.Several years later, the Chevron-USAIDpartnership expanded its e orts throughthe Agricultural Development andFinance Program, which sought tocatalyze agricultural value chains romprocessing through marketing.

Similarly, theConoco-Phillips Alliance with USAID in imor-Leste (East

imor) ocused on promoting oodproduction and moving the agriculturalsector rom subsistence arming to aviable commercial market. In its e ortsto localize supply, the company itsel wasvery interested in serving as one o theinitial markets or locally produced ruitsin particular.

In Colombia, USAID has partnered with Ecopetrol S.A. in theMIDAS program to promote the developmento agribusiness in high-value crops suchas A rican Palm, cacao and rubber,lessening the potential or con ict basedaround to illicit crop production. Tepartnership generated over 21,000 ull-time jobs.

MODEL 8: SOCIALNEEDS FUNDS

In addition to the more traditionalpartnership models, USAID has recently become involved in helping extractivecompanies or resource-rich countriesmanage social needs unds. Tese undsare ormed rom the revenue, royalties,and taxes that are imposed on extractiveoperations and companies by law or by contractual agreement, sometimes re erredto as a production sharing agreement ormining agreement. In too many cases,these unds have been poorly managed orle t unspent. In the worst cases, they have

become major sources o sub-national andnational-level corruption. At times the

unds have become a cause o rustratioor stakeholder communities who have not

seen tangible bene ts coming rom theseunds. Even with the best intentions, local

and national government agencies andextractive companies have o ten ailed todesign e ective, sustainable development

strategies around these unds. As a result,extractive companies and governmentinstitutions have approached USAID tohelp design and implement strategies tomanage these unds.

While not a public-private alliance, theTechnical Support Project (TSP) forSocial Investment and Capacity Building stems rom an agreement between USAIDand the national government o EquatorialGuinea to design, establish, and implementa und or social development. Te genesis

o this partnership is based in the lack osocial bene ts that have come rom thediscovery o rich oil and gas deposits othe Equatorial Guinean coast in the 1990s.Since that time, Equatorial Guinea hasdisplayed clear symptoms o the resourcecurse with corruption growing and livingstandards, already among the lowestin the UNDPs Human DevelopmentIndex, continuing to all. In 2006, theEquatorial Guinean government signedan MOU to trans er management o thesocial development und to USAID and itsimplementing partner. USAID is currently in the process o implementing the rststage o the und.

In addition to serving as a model orpartnership with national governmentsthat seek support in designing socialdevelopment unds, the SP could alsobe a seen as a possible alliance model

or companies or tripartite partnershipsincluding major extractive companies. Temajor exploration and project developmentnow underway with several new A ricanoil nds may lead to new national socialneeds und partnerships. On a lesser scale,USAID could partner with individualcompanies currently managing contractualsocial needs unds. Individual allianceshave already ormed out o the desire othese companies to guide or assist localgovernments in their ability to managethese unds, as with the Yanacocha MiningCompany ProDecentralization AllianceinPeru.

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UNDERSTANDINGTHE EXTRACTIVESINDUSTRY

4 Extractive companies have aunique business model, whichdetermines the industrys impactson and engagements with corestakeholders. Nevertheless, the industry itsel is not monolithic. Signi cantdi erences exist between types o companies and their core business practicesand ocuses. For example, petroleumand mining companies share similaritiesbut also are undamentally di erent insigni cant ways. While both industry sectors are essential or and at the heart o many developing economies, the largest oiland gas companies dwar the largest miningcompanies in terms o market value. In2008 ExxonMobils market capitalizationo $413.49 billion was more than thecombined value o mining companiesBHP Billiton ($105.3 billion), Rio into($78.86 billion), Vale ($77.38 billion),China Shenhua ($77.49 billion), and Anglo American ($60.08 billion). Anotherimportant di erence between petroleumand mining companies lies in the ootprinto production. While mines are on landand localized, oil and gas production can beat sea and spread out over a large area. Inaddition, oil and gas ootprints only start atthe point o extraction and can travel many hundreds or even thousands o miles alongpipeline corridors.22

With both petroleum and mining

companies, large companies, or majors,behave di erently and are o ten moreadvanced in their approaches to socialinvesting than smaller companies, known asjuniors. National oil companies (NOCs)are altogether unique and o ten are not underthe same kind o pressure to achieve a sociallicense to operate or to develop socially orenvironmentally responsible practices. Atthe same time, the potential or negativesocial, political, and environmental e ects

o resource extraction with NOCs may bhigher than with multinational companies which may make engagement with NOCan imperative or USAID in some countrieNOCs themselves are divided into twbroad categories, with each exhibiting di erent kind o partnership potentiaNOCs with strategic and operationaautonomy operate as corporate entities ano ten balance commercially driven intere with government objectives as they develinvestment strategies. Examples o ttype o NOC include Petrobras in Brazand Statoil in Norway. Conversely, otheNOCs unction as government agencies thsupport ofcial objectives not necessarilcommercial in nature. Such NOCs, whicinclude Saudi Aramco o Saudi Araband Pemex in Mexico, seek a wide varieo objectives that could include expandlocal employment, targeted domestic o

oreign policy objectives, long-term reveninvestment, and supplying inexpensivdomestic energy.23

Te table on the ollowing page outlinesome o the more important institutionadi erences and de nitions.

For all types o extractive companiesunique core element o basic businepractice is the project cycle itsel . In and gas as well as mining, the business lcycle is divided into our broad but distin

phases: exploration, project developmenoperation, and closure. Te number oyears involved in each o these phases wvary depending on the size and naturo an extractive project, but the nature the project cycle means that extractivcompanies tend to think and plan over lonperiods o time, sometimes many decadTis has signi cant implications whenconsidering a collaboration with USAID animplementing partners. For the purpose C u

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Extractive Company Types and Examples

Industry Type

Supermajors

Majors

Juniors

National Oil Companies(NOCs)

De nition

The term supermajor refers to the six largest, non state-owned energy companies. As a group, the supermajorscontrol about 5% of global oil and gas reserves withlargest supermajor, ExxonMobil, ranked 14th.

Major companies are de ned as having adjusted annualrevenue of more than US$500 million, and are consideredto have the nancial strength to develop a large projecton their own.

Junior companies rely on equity nancing and focusprimarily on exploration. Juniors may also produce, butthey generally do not achieve revenue over US$50 million

A national oil company (NOC) is an oil company fully orin the majority owned by a national government. In 2007,NOCs accounted for 52% of global oil production andcontrolled 88% of proven oil reserves according to theUnited States Energy Information Administration.

Company Examples

ExxonMobil Royal Dutch Shell BP Chevron Corporation ConocoPhillips Total S.A.

Newmont Anglogold Barrick Gold Lukoil

Geocom Resources Journey Resources Madison Minerals Oromin Explorations

PEMEX (Mexico) Aramco (Saudi Arabia) Petrobas (Brazil) Gazprom Nigerian National

Petroleum Company PetroChina

Sources: SSG Advisors

o this guide, it is important to understandthe distinct phases o the extractive businesscycle as well as the key activities and players

involved with each phase. By becomingamiliar with the di erent activities and

issues associated with each phase, USAIDalliance builders can begin to draw directparallels between the business interestso extractive companies and the socialinvestments and development objectivesthat parallel them. A comprehensiveunderstanding o the project cycle can leadto very di erent types o alliances acrossmany di erent development sectors. Eacho the our phases is described in detail atright.

ExplorationBroadly speaking, the exploration phase canbe described as involving those activitiesinvolved in the search or and the discovery,de nition, and economic and technicalevaluation o mineral deposits.24 Temajority o exploration projects do not resultin economically viable nds. Some analystshave pointed out that ewer than one in ten

thousand mineral showings leads to actualmining.25 Given this low rate o realization,some experienced extractive companies

work with stakeholder communitiesrom the earliest phase o engagement

around in ormation transparency to keepexpectations realistic regarding assistanceand bene ts resulting rom miningactivities. Many other companies do notengage communities until later, but may

eld teams o geologists and engineers toexploration sites or long periods o time. A good number o smaller or junior miningcompanies ocus exclusively on exploration with the goal o being purchased by largercompanies a ter a signi cant nd.

As a number o studies have pointed out,companies are also increasingly aware o the act that transparency, corruption, andgovernance are all key issues as early as theexploration phase.26 Resource-rich countriesusually maintain licensing boards orinstitutions that grant companies the righto exploration. As a recent USAID study has pointed out, these licensing boards canbe nodes o corruption when composed

o political insiders or elites that are notheld to a strict standard o accountability or transparency. In terms o alliances,

there is great potential or companies andUSAID to work with government partnersto build transparency and anti-corruptionapproaches into the licensing phase.27

Project DevelopmentOnce exploration has led to a signi cant

nd, an extractive company enters a longstage o preparation, sometimes lasting up toten years. Activities during this phase revolvearound planning or the li etime operationo the mine or eld, leading up to and in-cluding construction. Planning or projectscan sometimes lead to signi cant relocationo existing communities, which can disruptlivelihoods, threaten the very abric o locacultures, and lead to outright con ict. Cru-cially, it is during the project developmentphase that many companies set their budgets

or all social spending or the duration o operations. Companies there ore prepare care-

ully and thoroughly or expected engagement with communities, local governments,and other stakeholders.


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Local governance/Transparency Anti-corruption

Company social investment budgets set andfully planned

SME Development/Agribusiness/Value Chain Workforce Training Governance/Transparency Anti-corruption Con ict mitigation

Social investment projects begin in earnest Social Funds launched Regional economic planning SME Development/Agribusiness/Value Chain Micro nance Environment

Workforce training/Vocational training/Education

Environment SME Development/Agribusiness/Value Chain

Project Life Cycle Phase

Exploration

Operation

ProjectDevelopment

Closure

Key Development Implications

For alliance building, Project Developmentshould be seen as the most important point

or engagement. USAID has real potentialto leverage its development expertise as com-panies plan their long-term social investmentstrategies. Companies are o ten at their most

exible, both nancially and programmati-cally, at this stage. Given the act that budgetsare set during Project Development, alliance

builders may nd it difcult to impossible toleverage resources during later project phasesi they have not developed an active relation-ship during this phase.

Even more than exploration, the ProjectDevelopment phase can uel stakeholdercommunity expectations o project bene ts,particularly around issues o direct employ-ment. Construction and physical develop-ment o a project site may sometimes involvea work orce two to three times the size need-ed or operation. Tis o ten leads to a period

o large-scale layo s as construction windsdown be ore actual operations are underway. When construction workers are drawn romneighboring communities, cleavages may result i layo s are not properly planned. Atthe same time, investments in equipmentand in rastructure through the procuremento services in materials can lead to bribery,kickbacks, and overt or covert collusion.28

Depending on the size o the project, thereare signi cant opportunities or alliances tobe built during this phase around long-termsustainable development planning, work orceand SME development, transparency andanti-corruption, and con ict mitigation. Teimplications o company budget planning

or alliances during this phase cannot beoveremphasized. USAID sta should ocuson engaging companies during the projectdevelopment phase, since it holds the mostpotential or securing nancial contributionsto an alliance.

Operations

Te operations phase o an oil and gas ormine project can last rom a period o lessthan ten years to over a century. Te short-term and long-term economic impactso extractive operations on surroundingstakeholder communities have been well-documented and long debated.29 Companiesare increasingly concerned with involvingsurrounding communities and regionsin project operations, as best exempli edby the trend towards negotiating a sociallicense to operate.30 Major companies o ten

address community involvement throughpolicies that encourage local sourcing as wellas short- and long-term local employment.Depending on the size o operations, localsourcing can lead to the substantial growth

o small businesses oriented to supplyicompany needs with a range o producand services ( ood products, clothinmachine parts or servicing, etc.).


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Direct social investments and sustainabledevelopment projects o ten begin inearnest during this phase. In many countries, companies have contractualagreements or are obligated by laws thatmandate social investments. In many casesthese obligations stipulate that a certainpercentage o operational revenues beinvested locally. Te amount can range

rom one to ve percent o overall revenue, which can translate to a considerable owo capital dedicated to local needs. A number o important alliances have ormedaround the need or local companies andgovernments to increase their capacity tomanage these ows o money, with thegoal o reducing mismanagement andcorruption and increasing real social bene tsand transparency ( or more in ormation,see Section IIIA on Governance). Other

alliances during this phase could ocuson any number o USAID developmentobjectives, including regional economicdevelopment planning, SME developmentand micro nance, work orce developmentand training, or agriculture.

ClosureTe nal stage o the extractive project

cycle is closure. In many ways, this canbe both the most turbulent and riskiestphase or an extractive company i it hasnot planned properly. Direct community impacts o closure include the loss o employment and the loss o a market orsmall businesses ocused on supplying thecompany. Companies must also plan orcontinuity o community-oriented servicesit has been providing or subsidizing, suchas health, education, or municipal services.

Environmental impacts are at their mostcritical stage during closure, as companiesput into e ect reclamation plans designedto address the environmental impactso mining operations. O ten, majorcompanies will have long planned or theimpacts o closure, particularly as parto their Environment and Social Impact Assessments (ESIAs), typically conducted

during exploration or at the launch o project development. Given these broadimpacts, closure presents numerous allianceopportunities across the developmentspectrum. In act, many USAID alliances with extractive companies have addressedlegacy and sustainability issues ranging romenvironmental reclamation to promotingdiversi cation o regional economies.

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WHAT EXTRACTIVESCOMPANIES CAN OFFERUSAID

5 Extractive companies can add valueto alliances in numerous ways. Alliance builders should considerthe ollowing resources thatextractive companies can provide: Access to & the Ability to Work in

Remote Locations. In many cases,extractive companies are the primary

ormal economic activity in a particularregion. USAID Missions can expandthe scale and geographic reach o theirprograms by partnering with extractivecompanies in remote regions.

Ready Market for Products andServices. Extractive projects haveconsiderable supply chain needs, ranging

rom simple goods like ood items andclothing to more complex machineitems and parts. Depending on itssize and scale, a particular operationmay have supply chain needs rivalinga small army. Extractive companiescan o er stable markets or SME andagriculture development projects thatcould last much longer than a typicalUSAID project cycle. Many companieshave corporate policies dictating thatoperations buy local wheneverpossible.

Workforce Development and Jobs.Similarly, extractive projects can o er

signi cant employment opportunitiesrequiring a range o skill levels,depending on the project phase. Inaddition, companies have signi cantneed or contractors ranging rom siteservice providers to major in rastructure

builders. As with procuring supplmany companies now have policies hire locally whenever possible.

Funding. Private sector extractivcompanies o ten have signi ca

nancial resources to o er. Te decadelong boom in commodity pricestogether with the growing realizatiothat sustainability is core to the viabilio an operation, has only increased tpotential or social investment rocompanies.

Development Expertise & Sta TimMany major extractive companiehave signi cant and experienced socinvestment sta both on site and aheadquarters. In some cases, companihave developed uniquely successinterventions that USAID and others candraw rom, as with AngloGold Ashantindoor spraying methodology to combamalaria in Ghana. In other cases, a with Chevron in Angola, extractivcompanies can o er USAID locknowledge, experience and networks relationships with local governments anNGOs.

Another Avenue for SustainabilityLocal Partners. Given the longer-termpresence o many extractive companin resource-rich developing countrie

these companies o er USAID and thelocal implementing partners anothepossible option or helping local partnediversi y and nd unding outside international donor world.

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WHAT USAID OFFERSEXTRACTIVES COMPANIES

6 Extractive companies areincreasingly aware o the richexperience and expertise thatUSAID and its implementingpartners can provide. Alliance buildersshould consider the ollowing expertiseand contributions that USAID and itsimplementing partners can provide:

Development Sector Expertise. Terange and depth o expertise thatUSAID o ers cannot be undervalued.Many company partners in USAIDsextractive alliances have exhibited aneagerness to access USAIDs programskills and knowledge in governance,health, economic growth, agriculturesector development, education, con ictmitigation, and other developmentsectors, at the community, regionaland national level. Some companies particularly junior companies havelittle real knowledge o development,

having traditionally approachedcommunity investment as a orm o charity or philanthropy.

Long-term Country Presence. USAIDMissions o er extractive companiessigni cant institutional history andstrong local relationships in the country.

Possibility of Improved Relations andNew Communications Channels withcommunity and regional stakeholders.

Access to Government O cialsand Agencies. USAID has access toimportant ofces in local, regional, andnational government institutions. Formany companies, this is an extremely valuable resource that should not beundervalued. Tese contacts may be ableto help an extractive company address itsnon-alliance business interests.

Partnering Experience & Access toPractitioner Networks. Many companieshave little experience in partnering withNGOs and communities. USAID can

acilitate introductions to networks o local partner organizations, thereby encouraging unding diversi cation andsustainability or those groups.

Training in Development Issues.Given that many companies have limitedexperience in development, USAIDcan play a signi cant role in buildingindustry skills and knowledge throughtraining and other capacity-buildinge orts. Tis approach could be a legacy strategy or some USAID Missions thathope to leverage the expected long-termpresence o companies in particularregions or locales.

Development Legitimacy. Even whenserious about sustainable development,

companies truly bene t rom havingUSAIDs logo on the same banner as theirown. Tese bene ts range rom increasedtrust with stakeholder communities toincreased shareholder con dence orpublicly-traded companies.

Funding. In many cases, USAID hassigni cant unding to contribute to analliance depending on the scale o theissue and need.

Procurement Expertise. Some extractive

companies have improved the way they issue competitive bidding documentsthrough their alliances with USAID, indi-rectly improving corporate transparency and improving access to opportunities orstakeholders.

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LESSONS LEARNED

7 For alliance builders who areconsidering or planning alliances with extractive companies, anumber o key lessons can bedrawn rom existing and past alliances withextractive sector companies.

Governance May Matter Most.Mucho the research and analysis on extractiveindustry e orts to alleviate poverty andraise living standards has pointed to thecentrality o good governance in countries with abundant natural resource wealth.For alliance builders, this could have anumber o implications, including thepotential or embedding alliances withextractive companies into governanceand anti-corruption programming.

USAID and Extractive CompaniesHave Very Di erent Project Cycles. Extractive companies have long planningcycles (see Section 5 on the Extractive

Project Cycle and the implications orpartnering) and their long-term socialinvestment strategies o ten do notmatch USAIDs shorter project cycles. Alliance builders should be awareo this discrepancy rom the earliestdiscussions about partnership. In somecases, alliances with extractive companiescould be developed as a way to transcendUSAID project cycle limitations andcreate programmatic legacy. Becauseo their long-term presence, extractivecompanies could continue to support

key activities that might otherwise behampered by an end to USAID unding.

Finding the Companys AllianceChampion is Key. For an alliance to work, extractive companies must haveone or more alliance champions, meaningindividual employees who help advanceopportunities into actual projectsthrough hard work and perseverance. At a minimum, champions need to have

the authority or access to authority tmake important decisions within thcompany. For USAD alliance builderidenti ying champions at headquarteand especially in the eld is invaluable

Relationships between AlliancChampions are Central. Behind mossuccess ul partnerships with extractcompanies, there is o ten at least odynamic relationship between corporaalliance champions and those withiUSAID. Sometimes the most importandecisions are made more in ormabetween these partnership representativ who have built personal relationshioutside the con erence room.

Sometimes Partners Bene t froEducation about USAID ApproacheUSAIDs culture and practice caquite oreign to extractive compani just as activities in the mining,

and gas sector are un amiliar to modevelopment practitioners. USAIDalliance builders can play an importanrole in educating companies about th Agencys many success ul interventiand methodologies, and how they relato company interests and goals.

USAID Sta Should Also Learn Athe Extractive Industry.Te rst step

or any alliance is or alliance buildto understand their potential partnersResearch into project operational detai

and company standards, policies, anapproaches is essential. In particulaalliance brokers should understand whea company is in the project businecycle, as this has pro ound developmeimplications (See Section 5).

Due Diligence is Essential.E ectivand thorough due diligence is essentibe ore entering into a relationship wian extractive company. In addition t

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knowing the history o the company in the country and at the projectsite(s), alliance builders should beaware o the potential consequenceso partnership beyond the USAIDMission. alking to Embassy sta ,including the Ambassadors ofce, may be particularly important, dependingon the size o companys operations and/or potential collaboration. Further,proper preparation through e ective duediligence will be critical or a Mission toshield its partnership i it comes under

urther external scrutiny at a later date.

When Conducting Due Diligence, it isImportant to ink Globally. Alliancebuilders should understand that many larger extractive companies have a globalpresence and there ore have a complex seto experiences with local communities,

social investments, and environmentalpractices in di erent projects andlocations. Many major companies areorganizationally decentralized and may have di erent cultures and behavior indi erent countries. While Chevronhas had great success in building itssustainable development port olio in Angola, it is also currently involvedin litigation concerning indigenouspopulations and the social andenvironmental impact o a project inEcuador.31 USAID should review the

ull global picture o a potential partnersactivities when considering an alliance.

Regional Disparities Must be Takeninto Account. Extractive company socialinvestments are usually oriented locally towards stakeholder communities. Inmany contexts, investment within a

de ned region could exacerbate tensions with communities and regions that lay outside the area o ocus. At a minimum,Missions should be conscious o thepotential or social cleavage as a result oalliance initiatives in selected stakeholdercommunities.

Joint Strategic Planning Can Help.Some alliances have bene ted rom joint strategic planning between anextractive company and USAID. Tis isparticularly true or those larger alliances

that have evolved over time, or thosethat incorporate multiple initiativesor projects. In Angola, or example,USAID and Chevron have organized anumber o joint sta retreats in order toplan e ective strategies.

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EMERGING TRENDS &FUTURE DIRECTIONS

8 For those starting to think aboutpartnerships with extractivecompanies, the ollowing listo emerging trends and utureindustry directions should be kept in mind when researching possible collaboration:

e Social and Environmental Chal-lenges Around Extractive Projects WillContinue. Te social, environmental,

and economic challenges outlined in thealliance models and throughout this guide will not be solved anytime soon. Gover-nance in particular is emerging as an areao particular concern or the extractive in-dustry and one which holds promise oralliance building.

Governance and TransparencyInitiatives are Growing in Importance. While recent analysis indicates thepossibility o avoiding the resourcecurse, it also points unquestionably tothe act that improved governance isessential to de eating the curse.32 Tecontinued expansion o EI I highlightsthe centrality o the issue, as well as itsgrowing weight with governments andcorporations. Unless both political andcorporate governance and transparency are improved, a lack o real improvementin human development may continue to

rustrate companies and their partners.

e Industry Shift from Charity toStrategic Development Will Continue. While many o the larger majors inboth mining and oil/gas have come tounderstand the importance o sustainabledevelopment and social investmentas a signi cant orm o long-term risk mitigation, others have yet to make thatleap. Recent articles have pointed to thegrowing number o Chinese extractiveprojects exhibiting troubling behavioras they invest more pointedly in A rica,including in controversial locales such as

Sudan where other companies will noinvest.33 Alliances can help maintain thmomentum in industry practice towardincreasingly responsible environmentand social behavior.

Social Investment as Risk Mitigatio As investments and interest in extractivproduction in the developing worlcontinue to grow, companies will b

aced with more risk. Pressure to produmay well lead to increasing exploratioin areas prone to corruption, con icor other orms o social instabilCompanies will thus need to continue toexplore e ective ways o mitigating thrisks to their investments, and USAIDcan help guide this interest into e ectivdevelopment interventions.

Macro vs. Micro Level Initiativraditionally, mining companies hav

been primarily interested in assistintheir local or regional stakeholdcommunities. USAID alliance builder

or their part, have been more interestin partnering i an initiative could bscaled up to a larger geographic areLarger-scale alliances can be achievthrough innovative approacheas with USAIDs dissemination o AngloGold Ashantis anti-maspraying techniques elsewhere Ghana, or through more traditionaapproaches such as joint regionalltargeted unding. In addition, as mosupermajor extractive companies takenormous stakes in new nds, thesame companies may begin to see whocountries as stakeholders in the same wtheyve come to view communities.

Social Needs Funds Hold GrPotential. Many countries require thacompanies dedicate a certain percentago their revenue to social investmen At the same time, countries themselv C u

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sometimes look or assistance indesigning sustainable developmentstrategies to be supported by revenue

rom extractive projects. Particularly in A rica, USAID has a real opportunity,through partnerships, to help translatemineral wealth into raised standards o living and avoidance o the resource

curse.

Alliances can be A ected by EconomicChallenges. Te recent economic crisishas highlighted the ragility acing theextractive sector, particularly with acollapsed credit market. Extractiveprojects large and small are by theirnature capital intensive. Withoutaccess to credit, projects can be shutdown in a matter o weeks, as occurredthroughout the world last all. Whilethe legitimacy o social investment islikely to grow, alliances can be and havebeen threatened by turbulent economictimes. Te Ghana Responsible Mining Alliance with Newmont and Gold eldscollapsed at least in part as a result o Newmonts unwillingness to commitcash due to the economic troubles. Aside

rom the credit market, other economicindicators to pay attention to include thecurrent market prices o minerals (whichare o ten heavily in ated), the overall

health o the global economy, and thecontinued consolidation o players.

e Industry is Increasing its Collabo-ration with Social and EnvironmentalStandards Organizations. Te extractiveindustry is increasingly adopting and be-coming accountable to rigorous social and

environmental standards. Tese includeinitiatives like the Cyanide Code, theVoluntary Principles on Human Rights,the Global Reporting Initiative social andenvironmental monitoring standards, theExtractive Industries ransparency Initia-tive (EI I), the Kimberley Process, andothers (see table on following page). As with the Peace Diamond Alliance in Si-erra Leone, USAID should seek to buildalliances that encourage or launch romstandardization.

Investors want to Measure Returns onSocial Investments. Extractive com-panies must respond to requests romBoards o Directors, senior managementand shareholders to show the real valuethat social spending and sustainabledevelopment programming providesto companies. Development expen-ditures are not viewed as charity but asactual economic investments, and assuch should be quanti ed through mea-

surement o nancial or other types oreturn. Te IFC is currently working with Rio into on developing a tool that would help measure these investments,ranging rom the reduced costs thatcome rom local sourcing to the valueo reducing risk that can lead to con ictand production interruptions.

Climate Change and Energy E ciencyare Already on the Agenda for ManMining companies and oil and gas inter-ests will become increasingly involved incarbon markets in the coming years. Yet within the extractives sector, there aredi erences regarding perceptions o thisissue as well as strategic responses. Somemining companies have concluded thatclimate change and potential regulationare relatively less o a concern to themthan to their peers in other industries.Indeed, some companies have already begun to account or the cost o carbonin determining budgets and the possibil-ity o carbon o sets or uture marketrading.58 Some companies such as BPhave partnered in alliances around en-ergy efciency projects.

Africa is the Next Oil Frontier.As therecent oil discoveries in Uganda and o the coast o Ghana attest, A rica is in

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the midst o an oil boom that shows nosign o abating. According to a recentCatholic Relie Services report, A ricanoil production is predicted to double by the beginning o the next decade and will provide over 25 percent o the Unit-ed States overall oil imports.59 USAIDmay have a special role to play in newly oil-rich countries, in partnering with

oil companies and host governments toensure that the resource curse is notrepeated elsewhere. Countries like Na-mibia and Botswana have had relativesuccess in combating the resource curseand are worth urther study.

Partnership Potential with NationalOil Companies (NOCs) is Growing.Te role o NOCs in the extractives sec-tor is only increasing. A recent BakerInstitute Policy Report pointed out thatnational or state-owned oil companies

controlled over 77 percent o all globaloil reserves.60 NOCs are divided intotwo broad categories corporate enti-ties and government agencies. Com-mercially oriented NOCs o ten balancepro t goals with government objectivesas they develop investment strategies.Given their business model, USAIDcould approach and consider partner-ship with these NOCs in much the same way it would investor-owned oil com-panies. Conversely, government agency NOCs o ten have broad goals that couldinclude expanded local employment, tar-geted domestic or oreign policy objec-tives, long-term revenue investment, andsupplying inexpensive domestic energy.For these NOCs, understanding overallobjectives o er potential or partnershipthat could range widely across develop-ment objectives, rom work orce devel-opment to anti-corruption initiatives.61 For either type o NOC, USAIDcan identi y thecompanies anddetermine oppor-tunities throughthe relevant hostcountry ministry that awards licens-es or explorationand production(e.g Ministry o Energy). Oncecompanies areidenti ed, USAID

will need to establish a method o ap-proaching companies based on the po-litical and development contexts o any particular country. In many countries,USAID can use its leverage with hostgovernments to arrange these critical ini-tial meetings. Another potential meth-od would be to organize a multi-party workshop to explore areas o common

interest. Partnership Potential with Chinese

Extractive Companies is Growing. As already mentioned, Chinese state-owned companies are entering A ricanextractives markets at a urious pace inresponse to a strong appetite or naturalresources at home. While Chinese com-panies have o ten made signi cant com-mitments to host countries includingin rastructure development, many havelagged in actively engaging stakeholder

communities towards sustainable devel-opment solutions along the lines o themore progressive multinational extrac-tive companies.62 USAID could have aspecial role to play in convincing Chi-nese extractive companies o the busi-ness case or CSR and social investmentpractices. As with National Oil Compa-nies, USAID can identi y the ChineseExtractive Companies and determineopportunities through the relevant hostcountry ministry that awards licenses orexploration and production (e.g Minis-try o Energy). USAID will need to re-solve how it approaches these companiesdepending on the political and develop-ment contexts in any particular country.In those countries in which USAID haspositive relations with host country gov-ernments, it may be able to initiate dis-cussions through the relevant ministry that awards licenses. In other countries,

USAID approach Chinese companiedirectly or organize multi-party roundtables or workshops to open discussion

Junior Companies May Make GoPartners for USAID.Major companiehave an adjusted annual revenue o mothan US$500 million, with the nanciacapability to develop major extractiv

projects on their own. Most o the m jor extractive companies understand thvalue o sustainable development ahave built corporate strategies that re ethese concerns as a core business intere Junior companies rely on equity naning as their principal means o undin Juniors are primarily pure exploraticompanies, but may also produce minmally, with average revenues o US$million. Many o these companies halittle experience with or understandino engaging stakeholder communiti

or achieving development objectives63

Teir chie goal is o ten to make a majnd and be purchased by a larger comp

ny. Trough alliances, USAID can play role in helping to shi t the industry metality. As a rst step, USAID can ideti y junior companies in both mininand oil and gas through globally orienteassociations that represent the intereso these companies. Missions can cotact associations such as the Prospectoand Developers Association o Cana(PDAC) or junior mining companieand the Small Explorers and Produce Association o Canada (SEPAC) or nior oil and gas companies to determin which international junior companihas a role in exploration in productioin any particular country.

e Worlds New Oil and Gas WCome from the Developing World.Te

Baker report asserthat over 90 perceno all new hydrocabon nds in the nextwo decades will blocated in the developing world. Givethe importance thaoil resources will hav

or these countrieUSAIDs potentiarole in uture allances will remaistrong.64

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Industry Frameworks/Standards & USAID Objectives

Sources: SSG Advisors

Relevant USAID Development Objectives

Economic Growth (SME Development, value chain) Local Government/civil society Environment Health Education (workforce development)

Environment Health Civil society Con ict Prevention (resettlement)

Environment

Environment

Environment

Local Government Anti-corruption Environment

Environment Civil Society Economic Growth (SME development, value chain) Education (workforce development)

Governance

Anti-corruption

Anti-corruption

Con ict Prevention

Governance Con ict Prevention Economic Growth

Con ict Prevention (with focus on artisanal and small-scale mining) Civil society/community

Local government/civil society Environment

Labor standards

Environment Health Civil society/community

Civil society/community Environment Con ict Prevention (with focus on indigenous peoples)

Environment Health Civil society/community

Environment Health Civil society/community Anti-corruption

Governance Con ict Prevention Economic Growth

Industry Sustainability Standard/Framework

ICMM Sustainability Framework 34

The Equator Principles35

ISO 14001 36

Cyanide Code 37

Carbon Disclosure Project 38

IFC Guidelines 39

Global Reporting Initiative (GRI) 40

Extractives Industry Transparency Initiative (EITI) 41

World Economic Forums Partnering AgainstCorruption Initiative (PACI) 42

Transparency Internationals Business Principles

for Countering Bribery 43

Voluntary Principles on Human Rights & Security 44

Kimberley Process Certi cation Scheme 45

Alliance for Responsible Mining46

PDAC E3+ 47

SA8000 48

Initiative for Responsible Mining Assurance 49

Mining Association of Canada Towards Sustainable Mining 50

Framework for Responsible Mining 51

Investor-Driven Frameworks: FTSE4Good 52

Dow Jones Sustainability Index 53

Jantzi Social Index 54

Diamonds, Jewelry & Precious Metals: Kimberley Process Certi cation Scheme 55 Madison Dialogue 56 Responsible Jewelery Council 57


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FINDING AGOOD PARTNER

9 O nce youve considered possiblemodels and sectors, youcan begin to think aboutidenti ying and approachingspeci c companies. Tere are a numbero good ways to start your identi cationprocess:

Conduct a Desk Study or GDAExtractive Assessment if Needed.A good deal o key in ormation can becollected through well-directed desk research based in Missions. Tis industry guide includes a list o comprehensiveresources, including websites, thatcan help kick start the gathering o in ormation. I a more rigorous analysisis required, the ODP/PSA ofce in Washington has recently developed aGDA Assessment Framework. Tistool is designed to help Missions assessthe landscape or alliances by businesssector, development objective, or across

a Missions ull strategy. Using this tool,Missions could conduct an extractivessector assessment with the goal o looking or ertile areas o collaboration.

Talk to Embassy Commercial orEconomic O cers. Another goodplace to start exploring the potential orpartnership is with Embassy Commercialand Economic Ofcers. Tese ofcialsare very o ten attuned to broad sectortrends and individual company issues,and can provide immediate grounding

and a broader network o contacts in theprivate and public sectors.

Contact International Extractive Associations & Initiatives.International extractive associationscould also be help ul in providingcontacts and starting points or reachingout to extractive companies. O ten,many o these associations are relatively advanced in their understanding o

sustainable development and are strivinto move the industry orward. TeProspectors and Developers Associatio Canada (PDAC), the InternationaCouncil on Mining & Mineral(ICMM), and the InternationalPetroleum Industry EnvironmentaConservation Association (IPIECAhave recently conducted separate studion the value and power o partnershiin the extractives sector (see bibliograp

or re erences). Among multilateinitiatives, both the Extractive Industrie

ransparency Initiative (EI I) andKimberley Process could prove to bvaluable resources.

Research Other USAID Alliances wExtractive Companies and Contathe Missions Involved. Starting withthis guide and the numerous otheUSAID studies, research past allianc with extractive companies.65 Identi

what made them success ul i possiDid the alliances address core busineinterests or the extractive company? possible, interview alliance builders both the Mission and the private sectopartner. Finally, visit the GDA databasand contact the ODP/PSA team omore in ormation about alliances interest.

Convene General or Issue-FocusMeetings and Workshops. One way to generate private sector inter

in partnering is to convene an opemeeting. Alliance builders can wo with local chambers o commerce similar organizations to organize aevent, or you can o er to speak at aevent that has already been schedule You may choose to organize an industryspeci c workshop ocused on specissues o need already identi ed in assessment. Tis particular methodproved productive or USAID in Sou

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A rica in reaching out to the extractiveindustry (among other sectors).

Generally, meetings provide constructiveinitial opportunities to hear the privatesectors perspective on key developmentissues and to identi y common interests.

A ter completing your general research, itmay be time to approach speci c extractivecompanies. Te ollowing list o questionspresents

usaid partnering manual with extractive industries

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