Ministry of Natural Resources of Suriname Note on Minerals Institute Suriname February 2019 Contents 1. Introduction- Dutch ................................................................................................................. 2 1. Introduction ................................................................................................................................. 3 1.1. Mining sector context .......................................................................................................... 3 1.2. Why does Suriname need a Minerals Institute? ............................................................... 3 2. DIS Organization ........................................................................................................................ 4 2.1. Objectives of the proposed institutional reform................................................................... 4 2.2. Principles of governance ...................................................................................................... 5 2.3. Core functions ...................................................................................................................... 6 2.4. Internal Organization ........................................................................................................... 7 3. Governance .............................................................................................................................. 9 4. Financial impact evaluation ................................................................................................... 10 4.1. Revenues ............................................................................................................................ 10 4.2. Costs................................................................................................................................... 11 5. Work Plan for the creation of DIS ......................................................................................... 12 6. Immediate Tasks .................................................................................................................... 13 6.1. Geological Survey:............................................................................................................. 13 6.2. Mining Cadaster: ................................................................................................................ 13 6.3. Mining Inspectorate: .......................................................................................................... 13 6.4. Legal Activities: ................................................................................................................. 14 6.5. Planning Activities:............................................................................................................ 14 6.6. Administrative Activities: .................................................................................................. 14 7. Results/Indicators .................................................................................................................. 14 Annex 1 - Proposed Organigram .................................................................................................. 15 Annex 2 - Financial Assumptions:................................................................................................ 16 1 1. Introduction- Dutch De economie van Suriname is reeds geruime tijd afhankelijk van mineralen. Tot de 21e eeuw was deze afhankelijkheid vooral te danken aan de winning en productie van bauxiet en alumina. In de afgelopen twee decennia kunnen goud en aardolie gerekend worden tot de belangrijke grondstoffen, waarbij de winning van bauxiet is verminderd. De goudsector is een belangrijke bron van werkgelegenheid in Suriname - geschat op 40.000 deeltijd- en voltijdbanen. Verder verdient het land veel aan deze sector in de vorm van de oppervlakte rechten, alsook de royalty. Gezien het belang van de mineralensector in Suriname, zou een sterk juridisch en institutioneel kader te verwachten zijn, maar de eerste is onderontwikkeld, terwijl het laatste gedeelte onderbemand is op vele gebieden. Reeds in de periode van 1992-1993 is er een start gemaakt om de Geologisch Mijnbouwkundige Dienst (GMD) om te bouwen tot een modern Delfstoffen Instituut, dat op een meer adequate wijze de delfstoffen sector zou moeten te beheren. Heel wat pogingen tot opzet van dit Instituut zijn mislukt. Het eerste rapport, opgemaakt door Britisch Geological Survey (BGS) van 1998, blijkt nog steeds een van de kern rapporten te zijn geweest welke op verschillende manieren is aangepast en geupdate door De Maatschap van Geologen en Mijnbouwers, alsook Pakusie. In april 2017 heeft een, door het Ministerie van Natuurlijke Hulpbronnen, opgerichte werkgroep het "Memorandum van de Werkgroep tot oprichting van het Delfstoffen Instituut Suriname (DIS)" uitgebracht, dat alle beleids- en regelgevende taken op zich zou nemen die normaliter door minerale overheidsinstellingen in de openbare sector worden ondernomen. Het Memorandum bevat de structuur van de nieuwe instelling voor DIS, die zou worden opgezet als een parastatale instelling, alsook de reorganisatie van huidige staf en uitrusting van de drie instellingen die zouden samensmelten tot een DelfstoffenInstituut. Er zijn twee hoofdmotieven voor het maken van DIS. Ten eerste om ervoor te zorgen dat de mijnbouwondernemers de wetten en voorschriften van het land volgen, met name met betrekking tot milieu, gezondheid en veiligheid, sociale en fiscale kwesties. Momenteel zijn ze grotendeels zelfregulerend. Ten tweede zal de perceptie dat een beter gereguleerde sector - waaronder een moderne mijnwet - meer exploratie zal aantrekken en uiteindelijk zal leiden tot meer mijnbouwontwikkelingen, zoals het geval is geweest in een groot aantal landen over de hele wereld. De voorgestelde structuur van DIS bleek grotendeels voldoende te zijn, met een aantal tekortkomingen, vooral op juridisch en milieugebied. Reeds geruime tijd blijkt dat de Geologisch Mijnbouwkundige Dienst (GMD) van Suriname niet in staat is de processen die leiden tot ontwikkelen van het delfstoffenpotentieel van Suriname te bevorderen, alsook te stimuleren en/of te beheren. Dit komt door een gebrek aan gekwalificeerd kader, moderne uitrusting, gebrek aan infrastructuur en een geupdate mijnwet. 2 Het Ministerie van Natuurlijke Hulpbronnen tracht met ondersteuning van de Wereldbank opzet van een Delfstoffen Instituut Suriname te realiseren, welke zal zorgen voor het bevorderen van een duurzame ontwikkeling van het minerale hulpbronnenpotentieel van Suriname. 1. Introduction 1.1. Mining sector context Economic importance. Suriname’s economy has traditionally been dependent on extractive industries, which play a dominant role in driving growth, exports, employment and government revenues. Gold, oil, and bauxite resources have historically accounted directly for around 30% of GDP and as much as 90% of exports. About 10% of government revenues are directly linked to gold production in the form of corporate income taxes, royalties and dividends. More than 30 tons of gold are exported annually, accounting for about 60% of the country’s exports. The services sector accounts for more than 50% of the economy and is dominated by construction, retail, trade, and transport activities that are closely linked to income earned from extractives. The Government of Suriname redistributes extractive industries revenues through significant public sector employment, accounting directly for about 40% of total formal employment. Mineral potential. Suriname’s mineral and oil potential remains largely underexploited. Suriname is located on the Guiana Shield geological formation and has a very high potential for a range of minerals, including gold, diamonds, and other metallic minerals in addition to kaolin, rare earth elements and dimension stones. Large-scale gold-mining started in 2004, through IAMGOLD’s subsidiary Rosebel Gold Mines, currently expanding its capacity. In the fourth quarter of 2016, Surgold, a subsidiary of Newmont Mining, opened the Merian mine. In addition to these two largescale industrial mines, the small-scale gold sector makes a major contribution to gold production and exports. A gold refinery - the Kaloti Suriname Mint House (KSMH) – was commissioned in February 2015, with an annual theoretical processing capacity of 60 tons of gold. Governance. The government wants to promote a regulated and responsible expansion of the mining industry, including improved control over informal gold-mining. However, weak institutional capacity in the public sector and the absence of an adequate legal and regulatory framework have inhibited prospects for growth. Moreover, weak corporate governance in the small-scale mining activity and the lack of social and environmental standards have diminished the sustainability and positive social impacts of the sector. The current mining policy aims to create a minerals institute – through the merger of the Geological Mining Department (GMD), the Bauxite Institute of Suriname (BIS) and the Suriname Gold Sector Regulation Commission (OGS) - and to enact a new mining law. 1.2. Why does Suriname need a Minerals Institute? The existing agencies mandated to manage the mining sector are confronted with outdated geological data, lack of infrastructure and equipment, and capacity constraints in areas related to their mandate, such as mine inspection and environmental monitoring. As a result, they are currently uncapable to meet legal deadlines for licensing, develop regulations and procedures for their activities, enforce the regulatory framework for artisanal and small-scale mining. In sum, 3 they do not constitute a credible counterpart for large mining companies and are uncapable of providing sound technical opinion to the Minister on how to promote the sustainable development of Suriname's mineral resource potential. The weak capacity to recruit and retain good technical staff and the lack of resources for training have led to a high turnover of specialized people caused by private sector poaching and the inability to compete with industry in the recruitment of qualified staff. The strategic importance of the mining industry for the economy of Suriname and its substantially undeveloped mineral resource potential requires the creation of an efficient, financially and administratively autonomous entity to regulate it. The "Delfstoffen Instituut Suriname" (DIS) will be created by State Decree to bridge this gap. Its objectives are the promotion, coordination, regulation, monitoring and inspection of the mining industry aimed at an optimal contribution to Suriname’s sustainable development. Its creation is a response to the expected growth of sector activities in the country, the changing focus (from bauxite to gold and other minerals), the increasing complexity of financial, social and environmental challenges, and the increased demand for governance and accountability in managing the sector. Among others, DIS is expected to contribute to: • Efficient policy implementation; • Increased procedural efficiency, namely in the licensing function; • Improved monitoring and compliance; • Enhanced geodata management; • Developing and retaining human resources, stopping the brain drain from the public sector; • Increasing sector investments, tax revenues and job creation; • Improved capacity to negotiate with large mining companies; • Improved capacity to address challenges pertaining to artisanal and small-scale mining. 2. DIS Organization 2.1. Objectives of the proposed institutional reform This note proposes an initial model for the organizational structure of the new Minerals Institute and a roadmap leading to its creation. It is based on two complementary approaches: (i) previous reports, namely the British Geological Survey (BGS) 1998 document “A Preparatory Study for Establishing a Minerals Institute in Suriname�, the NV Pakusi International report "Concept for the founding of the Delfstoffen Instituut Suriname (DIS)" of 2013, and the Memo Werkgroep Instelling Delfstoffen Instituut Suriname of April 2017; and (ii) benchmarking Suriname´s mining administration against international good practices. The proposal is guided by the need to ensure that: • The governance model ensures the decision-making autonomy and stability of the agency; • The organizational structure is efficient and demand-responsive; • Internal functions complement each other, with no significative gaps or overlaps; • There is no conflict of interest between regulatory and commercially-oriented activities, i.e. there is a clear formal separation of policy making, regulation, and commercial interests between the key institutions; 4 • The volume of available internal resources (human, equipment, space, other) is adapted to the forecasted financial resources; • The quality or condition of internal resources (human, financial, equipment, space, other) are generally sufficient to meet demands and expectations; and • DIS has streamlined processes to help maximize beneficiary satisfaction. The proposed model must be complemented with additional recommendations addressing topics such as mandates, attributions and competencies; human resource requirements (missing posts and job descriptions); detailed training and human resources development program, as well as equipment and facilities requirements. 2.2. Principles of governance The governance of the mining sector involves the interaction of three main elements (see Table 1): 1. Policy: As stated in article 3 of the Mining Act 1986, Government formulates the mining policy, while the Minister for Natural Resources is responsible for its implementation. 2. Regulation and monitoring: The Minister for Natural Resources is responsible for the supervision of the mining activities and enforcement of the legal and regulatory framework and will delegate these functions to a new minerals institute called DIS. The new agency will result from the merger of three existing mining sector institutions: the Geological Mining Service (GMD), the Bauxite Institute of Suriname (BIS), the Gold Regulation Committee (OGS)1. These agencies will be discontinued after a transition period leading to the full operationality of DIS. 3. Operations: the parastatal N.V. Grassalco, and the national oil company Staatsolie’s equity participation in the Merian mine. Table 1: Roles and responsibilities of the key mining sector institutions Features MRN DIS Grassalco State-owned Autonomous legal Basic legal Government commercial entity institution functioning foundation Ministerial body. functioning under under public law. company law. Policy Commercial implementation and Regulation and oversight governmental functions Core duties planning regarding of mining activities in linked to the mining oil, gas, minerals, Suriname. sector in Suriname. energy and water. 1 To be determined. The OGS is a commission and its staff is hired on a contract basis (not a permanent appointment). Therefore, it might not be included in the DIS. 5 Minister is appointed Managing Director is by the President. The appointed by the Governance Minister is supported Has a Governing Board. Governing Board and has structure by several Minister has indirect control on management. and control subordinate control. MNR Minister has positions, e.g. a indirect control. Permanent Secretary. Funded via Financed with a Operates with an allocations from the percentage of royalties autonomous financial state budget which is and fees, services Financial balance sheet that allows annually reviewed rendered and penalties and management it to operate and re- through the state with budget as part of state & personnel invest. budget process. budget process. rules Staff employed under Staff employed under Staff rules are outside civil private sector labor civil service rules. service framework. laws. 2.3. Core functions DIS will have the following core functions: • Providing inputs to the formulation of government’s mining policy and sector plans and being the key institution in charge of its implementation; • Contributing to drafting legislation to regulate mining activities and enforcing compliance with that legislation; • Assisting the negotiation of mining agreements, namely through the preparation of a model mining investment agreement, and supervising the execution of those agreements; • Advising the Minister for Natural Resources regarding the granting of mining rights and managing their registry and the mining cadaster; • Cooperating with government departments in charge of land management and environmental protection to establish procedures for the sustainable development of minerals; • Supervising mining activities to enforce compliance with the obligations laid down in regulations and / or minerals agreements, ensuring that the exploitation of mineral deposits is done according to good technical, health, safety and environmental and social practices; • Collecting, collating and disseminating geological, geochemical and geophysical data, both internal and from other sources, to ensure the easy availability of an up-to-date geological information at the national level; • Assisting the Tax and Customs Authorities on royalties’ collection and export controls; • Setting-up of a minerals statistics database, gathering of information for the preparation of commodity price forecasts and analysis of market strategies; • Developing investment promotion programs and a communication and awareness strategy. DIS would not exert state ownership functions related to portfolio management of commercial mining operations to avoid conflicts of interest with its regulatory function. However, it could provide technical inputs and inform the debate regarding Government equity participation in new mining projects. 6 2.4. Internal Organization DIS will have a definition of functions and responsibilities consistent with international standards, which endorse a clear separation between the administrative responsibilities for granting mineral licenses, the control of mining activities, and the generation of geological data. DIS will be organized into three technical functions – Geological Survey, Cadaster and Inspectorate - with crosscutting and auxiliary activities that will provide the template for its organization chart. These functions and activities will be entrusted in 5 specific units with clearly defined mandates and responsibilities, headed by a Director. A. The Geological Survey The present capacity of GMD is far from the required standards of a national geological survey. The level of computerization is very low, most of the available information is not digitized and exists only on paper format, and geodata is not yet stored and organized within a computerized database or linked to a GIS. There is no available budget for field work, nor geochemical, geophysical or remote sensing data to be treated. Current activities are limited to the valuation of the application for exploration licenses and to update an inventory of the existing 75.000 thin sections. Within DIS, the Geological Survey Unit have its ability to generate and manage geological information enhance, through the integration of four main activities: • Geological Mapping and Database, including GIS and remote sensing capabilities; • Scientific research and assaying; • Sample storage; • Library / Museum & Information (website). B. The Mining Titling, Registry and Cadaster Database Currently, the responsibilities for licensing are shared among the GMD Secretariat, the Geology and Exploration Department, the Mining Inspection Department and the Database department. Within DIS, the Cadaster Unit will be established with exclusive responsibilities for licensing, facilitating the access to unified and updated cadastral maps and registries for all type of licenses and minerals2. The Cadaster Unit will integrate GMD’s registration office, the Database Department and the Licensing Department within a single unit. It will receive the title applications and verify that they meet the eligibility criteria and the granting conditions, as well as all applicable regulations and agreements, and submit a recommendation for approval by the Minister. The Unit will be responsible for two main activities: • Technical: Titling Registry and Database, including: providing information to other government agencies and to the public about free areas, granted titles, pending applications, and the status of mineral rights; evaluating the applications in conformity with cadastral procedures, including analysis of potential overlaps, and issuing license documents; 2 Government has already disclosed online information about mining titles in September 2017, which was a great sign of improved transparency. 7 managing and maintaining cadastral documents and maps, and the computerized cadaster system; • Legal, Administrative and Financial including: checking and accounting of payments (surface rental and administrative fees); evaluation of the documents included in applications; interpretation of the legal framework; and mediation of conflicts between holders and the administration in relation to mining titles. C. The Mining Inspectorate The human resources currently assigned to the Inspection Department are 8 people with intermediate level of education in the School of Mines. The inspectorate responsibilities for bauxite has been transferred to BIS and, due to the lack of resources and equipment, the Department is unable to control gold operations and is only monitoring the extraction of building materials. Within DIS, the Mining Inspectorate Unit will be responsible for the following activities: • Enforcement of technical, health, safety and environmental obligations of the mining concessionaires, established in the Mining Decree and in investment agreements, in coordination with NIMOS; • Monitoring of large-scale mines, including review of annual technical and economic reports, verification of compliance with workplans, analysis of costs incurred, and investments made, and execution of technical audits, supporting royalty collection in coordination with other relevant institutions; • Enforcement of artisanal and small-scale mining regulation and formalization; control of gold commercialization activities; • Schedule and carry out shipping inspections of mining exports and prepare reports in coordination with the Tax and the Customs Authorities. D. The Planning Unit The Planning Unit will implement crosscutting functions: • Legal Advisor, providing legal assistance to all DIS activities and legal instruments for the mining sector, including updates of the legal and regulatory framework, and support to contract negotiations based on a new model investment agreement; • Corporate Strategy, encompassing: (i) business planning; (ii) set-up of a minerals statistics database; (iii) gathering of information for the preparation of commodity price forecasts and analysis of market strategies; (iv) development of investment promotion program; (v) development of communication and stakeholder engagement strategy; (vi) monitoring, evaluation, and preparation of annual activity reports; and vii) coordination with other government agencies and administrations on land use planning. E. The Corporate Affairs Unit The Corporate Affairs Unit will regroup all auxiliary functions: 8 • Financial management and accounting; • Internal revenue collection; • Information Technology: all the four units (geology, cadaster, inspectorate and minerals statistics) will need specific databases, preferably independent although compatible between them and interlinked; • Human Resources and training; • Administrative and general affairs. 3. Governance DIS will be a financially and administratively independent entity, ruled by a Board of Directors (the “Governing Board�) and managed by an Executive Director (“the Managing Director�). More human resources with the adequate qualification are needed (especially geologists, mining engineers, lawyers and environmental, health and safety specialists), as well as the corresponding equipment. Governing Board. A Governing Board will be established as the highest administrative body of DIS, responsible for defining its policies and strategic vision and for monitoring and evaluating management performance without external interference. It will be composed of 6 members, including 3 Government representatives and 3 independent members. The Chair of the Governing Board is the Minister of MNR, with a casting vote in case of draw. The Minister of Finance will be a permanent member, with the third Government representative being, for example, the Head of the President’s Office. The Board will also include three independent members appointed by the Executive and ratified by the National Assembly. The nomination of these members should be transparent and merit-based, among persons with proven experience and expertise from the mining sector, business, finance and academia. The Auditor’s Office will supervise DIS’ activity. Managing Director. A Managing Director will be competitively appointed by the Governing Board and charged with the management, operation and execution of DIS’ objectives, subject to the strategies, policies and guidelines approved by the Board. Managing Board. The Managing Director will be assisted by 5 Directors appointed to lead each of DIS’ units (Geology, Cadaster, Inspectorate, Business Planning and Corporate Affairs). The 6 persons will compose DIS’ Managing Board. The Governing Board will appoint the 5 Directors based on proposals by the Managing Director. The success of the Managing Board will require: (i) obtaining clear powers to run the agency, under proper Board supervision; (ii) establishing institutional guarantees to avoid external and undue interference in decision-making; (iii) implementing explicit rules for the appointment of managers and staff (competitive and merit-based procedures); and (iv) establishing special regimes for DIS - in matters such as responsibilities and remuneration - more consistent with those applicable in the private sector. The pitfalls to avoid in establishing DIS’ governance structure include: (i) lack of management autonomy and dependence on the Federal Executive, namely the Ministry of Finance on issues 9 related to budget; (ii) excessive regulations and administrative processes that made decisions and operational efficiency difficult to implement; (iii) weak Board of Directors and lax internal controls; (iv) proliferation of unqualified managers and (v) potential for political interference. DIS’ accounts will be analyzed by an independent auditor. An Internal Controller will report directly to the Managing Director. The proposed Organigram is shown in Annex 1. Staffing. Open applications will be placed for the functions that cannot be filled internally. The new vacancies will mainly concern geologists, mining engineers, and lawyers. External specialized expertise can be hired in the start-up phase for supervision of the less experienced staff. The civil servants (GMD personnel) that cannot be placed immediately will remain in the Government / Ministry of Natural Resources. Special arrangements will be made for BIS and OGS employees who cannot be placed. Training program. During its initial phase, DIS will rely heavily on skills transfer. Priority will be given to on-the-job and specialized training of staff, in particular on mining engineering, geology, mineral contracts/economics, information systems and databases. The members of the Managing Board would also benefit from special institutional twinning arrangements with similar agencies in the region and in Europe. 4. Financial impact evaluation GMD has not a fixed and stable budget, the available resources being established depending on variable circumstances. Creating DIS as an autonomous agency, with the capacity to manage its own income, will provide a solution for the sustainability of the sector administration. The evaluation of the financial impact of the new structure, and the assessment of its financial viability, its economic suitability and the budget necessary for its implementation should be carried out considering the aspects bellow. The main financial assumptions are presented in Annex 2. 4.1. Revenues Two important aspects of the independent operation of the institute are the earmarking of a small percentage of royalties to cover its costs and ensuring the legal authority to retain internal funds generated by the collection of fees and the sale of services. Because these measures could see delays in their approval and implementation, it would be prudent to ensure the continuation of budget funding for a transitory period of 3-5 years. It should be noted however that delays in the allocation of non-budgetary funds to finance the creation and operation of DIS would pose a serious threat to its sustainability and the efficiency of its operations, as seen currently in the case of BIS. Therefore, they should be avoided at all costs. On the other hand, prudent financial management would call for the creation of a “stabilization fund� within DIS where revenues above a certain predetermined threshold would be saved in anticipation of budget swings caused by commodity price volatility. 10 Possible sources of non-budgetary funding and revenues are detailed below (see Annex 2 for detailed calculation): • A percentage of mining royalties collected by Government: Contribution from metallic minerals (currently only gold) royalties, calculated at 0.25% of exports. At an average price of gold of US$ 1,200/oz, the contribution is projected to reach an annual average of US$ 5,1 million. Flows from building materials were calculated assuming a contribution for DIS of 25% of royalty revenues, estimated at US$ 60,000 per year; • Surface rental fees have traditionally been allocated to GLIS. However, rental fees from exploration permits should be disbursed to DIS, since they do not correspond to an effective occupation of land. They have been projected at an average of US$ 50,000/year, with a similar amount for exploitation permits, and US$ 25,000/year for small-scale mining and construction materials permits; • Application and processing fees for the granting of new rights or the extension of existing ones. The estimated annual revenue is put at US$ 5,000; • Penalties. The estimated annual revenue is put at US$ 5,000; • Sale of services (geodata, geological work for ASM, laboratory services). The estimated annual revenue is expected to be quite low in the early years of operation and will not be enough to contribute to cover DIS’ costs. As seen from the numbers above (summarized in Annex2), the derivation of a small fraction of royalty revenues currently collected from gold production and exports appears to be the most relevant source of sustainable financing for DIS. All other present sources of revenue, although important, would not make a substantial contribution to cover DIS’ operating expenses, let alone fund the much-needed investments in capacity building and equipment. It should be noted however that, more mineral substances could be discovered and developed in the country, like base metals and diamonds. In addition, based on the experience in other countries, if the value of the rental fees is updated and new exploration investments are attracted, the projected figures could be easily surpassed. 4.2. Costs DIS projected total operating costs were estimated at about US$ 4 million per year, as follows: • Fixed costs - salaries covering current payroll and additional hiring required: The human resources assigned to DIS were estimated at 100 in total, including 7 of managerial grade, 20 Graduates, 20 Technicians, 12 Senior Administrative, and 41 Junior Administrative (secretariat, personnel, accounting, drivers, etc.). The projected payroll is of about US$ 2,2 million per year. An estimated overhead of 40% was added, covering social charges and other benefits, for a total annual average of US$ 3 million; • Variable costs - maintenance, consumables, travel –projected at 30% of fixed costs, using ratios observable in similar institutions, for a total annual average of US$ 1 million. The estimation of DIS’ set-up costs should include: • Acquisition, compilation and collation of geological data; 11 • Hardware and software requirements3: computing infrastructure and an efficient local network (LAN); website set-up; • New building and existing building repairs; • Laboratory.; The cost of the first two elements was estimated at US$ 10 million over the first 5 years of operation. The construction of a new building, existing building repairs and the renovation of the Laboratory have not been costed in this note. Annual investment costs – including maintenance, consumables, travel, training, etc. – were projected at 30% of the total operating costs, using ratios observable in similar institutions, for a total annual average of US$ 1.2 million, of which about US$ 200,000 would go for capacity building and training. 5. Work Plan for the creation of DIS The following steps were considered: • Approval of DIS Conceptual Proposal by MNR’s Minister; • High level workshop to present and discuss the Proposal with relevant stakeholders (government officials, private sector, academia, and civil society); • Approval of the Proposal to the Council of Ministers; • Appointment of Core Implementation Team - "Project Management Unit Delfstoffen Instituut Suriname (PMU-DIS)" - by Ministerial Order, responsible for advising the Minister on all relevant actions to be taken for the effective execution of the transition leading to the creation of DIS. The PMU will implement the activities with the assistance of local and international consultants and will produce of a final report for the Minister upon project completion. • Creation of a Consultative Body for the duration of the transition process with a representative from MRN, and two independent experts. The Consultative Body will supervise progress in implementation of the transition tasks. All changes in activities or budgets will be submited to the Consultative Body for approval. • Creation of the 4 pilot core teams (geology, cadaster, inspectorate and planning) and definition and implementation of their transition tasks. • Preparation and enactment of a Legal Decree creating DIS and adjustments in the regulatory procedures to accommodate the new institutional organization and improve efficiency. • Appointment of the Governing and Managing Boards. • Approval and implementation of job descriptions, salary structures and other provisions for DIS. • Approval of Workplan and Operational Budget for 2020. • Staff assignment, with the assistance of an organization expert. 3 Considering the small number of licenses and applications, the acquisition of sophisticated software for the Cadaster Unit is not recommended; the present infrastructure based on Arc GIS and Access, with small improvements, could be sufficient to manage the current level of activity. 12 • Preparation of training program. • Approval of a 5-year workplan, with tasks, estimated costs, performance objectives and monitoring indicators, aligned with World Bank project financing. 6. Immediate Tasks 6.1. Geological Survey: • Revise and update the geodetic network; • Plan an airborne geophysical campaign; • Restore the warehouse and reorganize all the samples, and create a database linked to the GIS; • Prepare a geo-data management computerized system, including the sample store information; • Draft and to approve a geo-data diffusion policy addressed to promote and to spread the available information in an efficient and transparent way. 6.2. Mining Cadaster: • Draft provisional licensing regulations, consistent with the current Mining Decree, without waiting for the approval of a new Act, to introduce: (i) different procedures for the application of each type of license in line with international good practices; (ii) objective and no discretionary criteria for the evaluation of new applications and all licensing procedures; (iii) standard conditions for granting licenses (for instance model investment agreement) to eliminate contract negotiations; (iii) basic principles of geometry, cartography and delimitation of the mineral rights to avoid overlapping conflicts and optimize land management; (iv) deadlines for the intermediate licensing steps (application, registry, verification, notification for granting or refusal, auctioning, etc.) and prescribe criteria for the annulation of applications; and (v) a system for escalating annual rental fees; • Develop documentation systems, standard procedures and forms for mining rights applications and granting, and for the calculation of surface rental fees, consistent with the new regulations; • Improve the information presently displayed in the website. 6.3. Mining Inspectorate: • Develop documentation systems, standard procedures and forms for the submission and analysis of monitoring reports, including work programs, costs incurred, investments made, mineral reserves, production, employment, reported accidents and fatalities (and other elements in conformity with the Mining Decree and Investment Agreement commitments); • Develop guidelines and implement a program of Health, Safety, Environment and Social (HSES) site inspections; • Training in HSES inspections; 13 • Develop documentation systems, standard procedures and forms for the calculation of mining royalties and export controls; • Training in royalties’ collection and export controls, including the sampling protocols presented by the exporter, in order to ensure the quality of the samples. 6.4. Legal Activities: • Draft the Legal Decree creating DIS; • Draft a Model Investment Agreement; • Prepare provisional regulations to the Mining Decree; • Prepare HSES regulations. 6.5. Planning Activities: • Prepare DIS Workplan and Operational Budget for 2020; • Set-up 5-year plan and budget projections for DIS; • Collect and disseminate minerals production and export statistics; • Prepare materials and documentation for investment promotion; • Prepare materials and documentation for communication and stakeholder engagement. 6.6. Administrative Activities: • Develop documentation systems, standard procedures and forms for the calculation of administrative fees, services and sales; • Set-up effective administrative systems for internal revenue collection; • Set-up budgetary controls and spending limits; • Set-up financial management systems to track revenues and expenditures; • Set-up effective human resources management systems; • Facilities management service (facilities, office services, central computer and IT service maintenance). 7. Results/Indicators The key performance indicators are defined as follows: • Reduction of the average time for the granting of mining permits from 2 years to 3 months; • Standard Mining Investment Agreement enacted 1 year after project launch; • Computerized geodatabase open to public consultation on the internet 2 years after project launch; • Doubling of applications and granted exploration permits 3 years after project launch; • DIF achieves financial breakeven point 3 years after project launch. 14 Annexes Annex 1 - Proposed Organigram 15 Annex 2 - Financial Assumptions: Revenues: Possible sources of non-budgetary funding include: (i) A small percentage of Royalties; (ii) Surface rental fees; (iii) Application and processing fees for the granting of new rights or the extension of existing ones; (iv) Penalties; and (v) Sale of services (geodata, geological work for ASM, laboratory services, etc.). A rough calculation of potential revenues arising from these sources is presented below. 1. Royalties: Gold royalties have been calculated at 0.25% of export revenues at an average gold price of US$ 1,200/oz. DIS expected revenues are projected to reach an annual average of US$ 5.1 million, as follows: a) Artisanal and small-scale mining: production has been projected at an average of 15 tons/year, generating an annual royalty income of about US$ 5.4 million, assuming a 1% export royalty. DIS would get one quarter of this revenue for inspection and verification services, equivalent to an average annual amount of about US$ 1.35 million: • Projected average annual production over the next 5 years: 15 Mt/year or 450,000 oz/year. • Projected average annual exports: US$ 540 million/year. • Expected annual royalty payments @ 1% of export revenue: US$ 5.4 million. • Potential DIS annual revenue at 0.25% of export revenue: US$ 1.35 million. b) Industrial mining (2020-2025): production has been projected at an average of 1.5 million ounces per year, generating an annual royalty income of about US$ 75 million, assuming a 5% royalty. Part of this amount (equivalent to 0.25% royalty rate) would be earmarked to DIS, for monitoring compliance and inspection services, equivalent to an average annual amount of about US$ 3.75 million: • Rosebel projected annual production over the next 5 years: 26 Mt/year or 750,000 oz/year. • Rosebel projected annual exports: US$ 900 million/year. • Merian projected annual production over the next 5 years: 500,000 oz/year. • Merian projected annual exports: US$ 600 million/year. • Expected annual royalty payments @ 5% of export revenue: US$ 75 million. • Potential DIS annual revenue at 0.25% of export revenue: US$ 3.75 million. Regarding building materials, potential royalty flows were calculated assuming an average annual production of 600,000 m3 and an average royalty of SDR 3/m3. The basis of the projection considers a revenue for DIS of 25% of royalty revenues, estimated at US$ 60,000 per year. 2. Rental fees: Surface rental fees are due on all types of permits: exploration, exploitation, small-scale mining and construction materials. However, these revenues have traditionally been allocated to GLIS. There is a case to request that the rentals due for exploration permits be disbursed to Dis, since they do not correspond to an effective occupation of land. Revenues from surface rental fees for exploration permits have been projected at an average of US$ 50,000/year, assuming a granted 16 area of 300,000 hectares and a fee of SDR 1.2/ha. A similar annual amount is projected for the average revenues from surface rental fees for exploitation permits. The equivaled amount for small-scale mining and construction materials permits was estimated at US$ 25,000/year. The basis for the projections is shown below. a) Exploration: • Number of active licenses: 70 in 20164, 25 in 20175, 100 in 20186. • Number of hectares covered: 654,674 ha in 2015; 40,238 ha in 2016; 305,718 ha in 2017. • Projected average amount of hectares covered each year: 300,000 ha. • Rental: SDR 1.20 per hectare. • Potential average annual revenue: SDR 360,000, or about US$ 50,000. Comparing the annual US Dollar per hectare rental fees presently applied to exploration licenses in the LAC Region, Suriname is placed among the lowest values (US$ 0.16/ha7), cheaper than countries as Chile (US$ 1.1/ha) or Peru (US$ 2-10/ha). There is a possibility of increasing them and make then escalate over the years, potentially doubling the annual revenue to US$ 100,000/year. b) Exploitation: • Number of active licenses: 47 in 2016, 6 in 2017, 63 in 2018. • Number of hectares covered: 146,068 ha in 2015; 221,360 ha in 2016; 24,896 ha in 2017. • Projected average amount of hectares covered by year: 150,000 ha. • Rental: SDR 2.40 per hectare. • Potential average annual revenue: SDR 360,000, or about US$ 50,000. c) Small-scale mining & building materials: • Number of small-scale mining active licenses: 49 in 2016, 15 in 2017, 15 in 2018. • Number of building materials active licenses: 251 in 2016, 210 in 2018. • Projected average number of licenses per year: 275 • Rental: SDR 675 per right granted. • Potential average annual revenue: US$ 25,000. 3. Application fees: Average of 70 new applications and 30 requests for renewal per year, with an average projected fee of US$ 50 per process. The estimated annual revenue is put at US$ 5,000. 4. Penalties: The estimated annual revenue is put at US$ 5,000. 4 In November 2016, the number of valid mining rights was 166 (49 small mining, 70 exploration and 47 exploitation for gold) and 251 for building materials. In view of the figures for 2015 and 2016, it can be said that an. Source: NDP 5 Source for 2017: GMD 6 As of June 2018, the number of active licenses is 388, as follows: (i) Exploration: 100 Active, 42 Pending (142 Total); (ii) Exploitation: 63 Active, 30 Pending (93 Total); (iii) Small Scale: 15 Active, 30 Pending (45 Total); and (iv) Building materials: 210 Granted, 175 Pending (385 Total). Source: Enrique Ortega back-to-office report (June 2018). 7 Equivalent to 1.2 SDR at rate of 1 US$=7.54 SDR. 17 5. Services (geodata, geological work for ASM, laboratory services). The estimated annual revenue is put at US$ 20,000. As seen from the numbers above (summarized in Table 2), the derivation of a small fraction of royalty revenues currently collected from gold production and exports appears to be the most relevant source of sustainable financing for DIS. All other present sources of revenue, although important, would not make a substantial contribution to cover DIS’ operating expenses, let alone fund the much-needed investments in capacity building and equipment. It should be noted however that, more mineral substances could be discovered and developed in the country, like base metals and diamonds, In addition, based on the experience in other countries, if the value of the rental fees is updated and new exploration investments are attracted, the projected figures could be easily surpassed. Table 2: Potential sources of revenue for DIS TOTAL REVENUES (US$) Royalties 5,100,000 Gold 60,000 Build materials 5,160,000 Total Royalties Other Revenues 50,000 Rentals exploration 75,000 Other Rentals 5,000 Application fees 5,000 Penalties 25,000 services 160,000 Total Other 5,320,000 Grand Total Because these measures could see delays in their approval and implementation, it would be prudent to ensure the continuation of budget funding for a transitory period of 3-5 years. It should be noted however that delays in the allocation of non-budgetary funds to finance the creation and operation of DIS would pose a serious threat to its sustainability and the efficiency of its operations, as seen currently in the case of BIS. Therefore, they should be avoided at all costs.. Costs: 1. Operating Costs: • Staffing – current human resources and additional hiring required: The human resources tentatively assigned to DIS will be about 100 in total, including 7 of managerial grade, 20 Graduates, 20 Technicians, 12 Senior Administrative, and 41 Junior Administrative (secretariat, personnel, accounting, drivers, etc.). The Managerial unit would have about 5 staff, the Geological Survey 20, the Cadaster 10, the Mining Inspectorate 30, the Planning Unit 10 and the Corporate Affairs Unit 35. 18 • Fixed costs - salaries covering current payroll and additional hiring required: Salaries we projected within a range going from US$ 500/month for unskilled staff to US$ 5,000/month for the managerial level. The projected payroll is of about US$ 2,2 million per year, to which an estimated overhead of 40% was added, covering social charges and other benefits, for a total annual average of US$ 3 million. • Variable costs – facilities maintenance, consumables, transport and travel – were projected at 30% of the fixed costs, using ratios observable in similar institutions, for a total annual average of US$ 1 million. • Total Operating costs were estimated at about US$ 4 million per year. 2. Investment and set-up costs (first 5 years): • Annual investment costs – including maintenance, consumables, travel, training, etc. – were projected at 30% of the total operating costs, using ratios observable in similar institutions, for a total annual average of US$ 1.2 million; • About US$ 200,000 of that total would go for capacity building and training; • Some initial set-up costs - including the geological program, acquisition of hardware and software, capacity building and training - would be covered by a World Bank project. They have been estimated at US$ 13 million for the first 5 years; • Additional set-up costs would include the new building and existing building repairs and the renovation of the Laboratory. They have not been budgeted in this note. 19