Precept 5

Precept 5

The government should pursue opportunities for local benefits, and account for, mitigate and offset the environmental and social costs of resource extraction projects.

Resource projects can incur significant environmental and social costs that are often borne disproportionately by those in the vicinity of the extraction. However, extractive projects also have the potential to generate benefits for local communities through employment and the demand for goods and services, at least while operations continue.

Resource management requires minimizing the costs for affected communities, while enhancing the benefits. Where these costs cannot be eliminated, the government should arrange adequate compensation for those affected. As a general rule, the aim of compensation should be to improve the livelihoods of those most adversely affected by extraction.

Involve the local community in decision making and assessment

Local communities, local governments and the wider public should be involved in project processes prior to project development. Efforts taken to inform and involve the public in decisions about the overall vision for a nation’s resources must be presented objectively by independent researchers. Involving members of the public helps them to understand how they will be affected, plan for the pending changes, and contribute local knowledge to the design of mitigation and enhancement strategies. Not doing so risks antagonism and possible conflict.

See Precept 1 on making the decision to extract part of the national strategy.

However, it is important to recognize that there may be differences between the interests of the local population and the country as a whole. Where a decision is made to realize greater benefits for the rest of the country to the detriment of local groups, government should ensure these groups are remediated.

Establish and define ownership rights

The government, in agreement with citizens at both the local and national levels, should clearly establish ownership rights to sub-soil wealth, and assign the rights to subsequent revenues. While sub-soil wealth is usually, but not always, owned by the state on behalf of all the citizens of a country, local communities may own, or at least rely upon, land, water and other natural assets affected by extraction. This includes communities that are not necessarily local to the project site but that rely on affected natural settings such as rivers and coastlines. The government should appropriately remediate impacted areas in a swift, credible and transparent manner compatible with accepted human rights standards.

See Precept 7 on revenue allocation.

Government failure to provide reasonable compensation as well as equitable participation in national benefits can give rise to citizens’ frustration, disruption of extractive projects, or even conflict. It can also increase budgetary costs in the form of later welfare support for vulnerable people within affected communities. However, the government should not award a greater proportion of state revenues (beyond that required to compensate for adverse impacts) to resource-rich regions than to other regions, unless there are specific national legacy commitments such as those to indigenous peoples or historically neglected areas.

Measure and mitigate the negative effects of extraction

See Precept 1 on public participation in decision making, and Precept 3 on allocating rights.

The government should identify potential negative effects before granting specific extraction rights, so as to ascertain whether the country will get a good deal from extraction. In some cases it may be appropriate to defer operations until governance or technology improves, or until the impact can be better assessed.

If the government does grant rights, it should plan to mitigate the adverse consequences of extraction. In particular, the government should require companies to present, and obtain approval for, contingency plans in cases of emergency. These contingencies should include the availability of equipment and expertise to manage accidents, such as oil spills. This should be accompanied by the means to monitor a project throughout its life cycle to ensure that all parties follow the plan and to identify future, unexpected impacts of the project. As it is impossible to predict all the potential costs, requiring developers to have systems in place to monitor and manage environmental and social impacts on an ongoing basis is just as important as the assessments conducted in project planning.

The government is responsible for setting and enforcing environmental standards (preferably in compliance with international standards such as the Equator Principles), while the extractive company is usually in the best position to mitigate environmental damage. Companies may have only weak incentives to consider the environmental consequences of operations, unless the government makes it a condition of awarding the concession, with penalties attached. The government should ensure that either it or the company sets aside funds for remediation, as the company may leave or sell to another party when projects become unprofitable, which may be long before the official project period ends. Independent contractors, acquired on a competitive basis, can be hired to undertake environmental operations such as reclamation.

The security arrangements around projects can give rise to human rights concerns when private or state security forces use excessive force. Operations should include strong safeguards and legal recourse mechanisms in cases of human rights violations.

Artisanal mining has a poor reputation for health and safety, and for the impact it has on the local environment. However, the informal industry also generates income for those living in poverty. The government should seek to formalize and regulate the industry, to mitigate the negatives of artisanal mining while preserving or improving the poverty-alleviating benefits. To achieve this, the government may consider cooperatives and other community-based solutions, while also encouraging the overall diversification of the economy in order create larger opportunities for poverty reduction.

Finally, the government should separately and explicitly identify and factor into the decision-making process the social impact of extraction on vulnerable or marginalized groups of resource extraction since these groups are often omitted from broader community impact consideration.

Take opportunities to develop local benefits from extraction

See Precept 10 on developing businesses and the workforce across the whole economy to supply the extractive industry.

Extractive projects can present substantial economic and social opportunities for nearby communities. Authorities should take these into account alongside the costs when deciding whether to allow exploration and when approving companies’ development plans.

Mining projects in particular present potential training and direct employment opportunities for local workers. Even in cases in which the local labor force lacks the skills to effectively participate directly, there is likely to be demand from extractive industry workers for local goods and services, particularly in catering, hotels and other service industries. The government should consider how to support local efforts and encourage extractive companies to use such services.

Extraction projects may also require substantial infrastructure which can provide significant benefits in regions where the infrastructure is built. To enhance these benefits, the government, in discussion with companies, should consider making infrastructure open to multiple users. It is important, however, to make this decision before the design stage, and with the participation of the private sector.

See Precept 9 on infrastructure development.

Communicate with members of local government and strengthen their capacity

See Precept 1 on assigning roles to government institutions including local government.
See Precepts 7 and 8 on impact of resource revenues on local government.

Local governments often play an important role in managing the impacts of the extractive industries. Weak local government can be a bottleneck to service provision and the mitigation of damaged from extractive projects. If communities are poorly served by their governments this may create tensions which threaten resource projects.

Enhancing the capacity of local government is a useful way for companies (as well as donors and civil society) to promote engagement with local communities, understand the vision communities have for their future, and deliver projects that are mindful of this vision. In cases where capacity is particularly poor, provision of services by companies may be warranted in the short-to-medium term.

Further Precept Details