In 2000, just before Sir Mekere Morauta signed the CMCA Agreement into a Bill, effecting the Ok Tedi Mine continuation until 2013, the World Bank sent him the following letter. It is a stern warning that mine closure must be considered starting now, in 2000, and that their Risk Assessment confirms what is intuitively known----the environmental, social and medical risks of the mine will only get worse, not better, in the near future. The only way to mitigate this risk would be to close the mine as soon as possible. (Emphasis added to text below).
As we begin to be bombarded with press about the benefits of OTML's remaining open, andhow seven of the nine CMCA cvommunities eagerly signed for a continuation this year, let us recollect some of these Risks as they were identified a decade ago.
Let us also consider who has written these CMCA agreements. The landowners? No, OTML. Have they involved impact communities in the terms of the agreements?
Further, what can we expect in the next decade of Ok Tedi? Are we not talking about a continuation of the BHP indemnity against prosecution for their environmental damage to the Fly? As we remain caught in the world's worst Faustian Contract---the GoPNG cmplicit now in this terrible mess---can we really know what the long-term medical, social and material effects will be of this environmental damage? Can we really expect villagers to sign off on that without a clear understanding of the risks?
Indeed---do any of us really know the risks? What are the risks behind Ross Garnaut's move to Highlands Pacific, where he will now decide upon the ecological future of the Sepik River? Will HP and the OMTL Board now collude to cover Frieda's tailings under the BP indemnity and make the Frieda project look GREEN by dumping its waste down the Fly?????
The World Bank 1818 H Street N.W. (202) 477-1234
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Washington, D.C. 20433 Cable Address: INTBAFRAD
INTERNATIONAL DEVELOPMENT ASSOCIATION U.S.A. Cable Address: INDEVAS
January 20, 2000
Hon. Sir Mekere Morauta, Kt, MP
Government of Papua New Guinea
P.O. Box 639
Papua New Guinea
Dear Mr. Prime Minister:
Ok Tedi- Risk Assessment of Mine Waste Management Project
When we met last August you requested the Bank’s assistance in interpreting Ok Tedi Mining Limited’s (OTML) voluminous report on the Risk Assessment and Associated Documents of the Mine Waste Management Project (hereafter referred to as the ‘Risk Assessment’). The study, commissioned by OTML, represents the outcome of extensive studies in engineering, environmental and risk components carried out over the last two years on the operation of the Ok Tedi mine near Tabubil, Western Province. The report findings have been disseminated by OTML and BHP, the majority shareholder in OTML. Report findings have attracted substantial public interest, setting the stage for an important debate on the future of the mine and the people that depend on it or that are adversely affected by the impact of its ongoing operation.
In our desk review we have sought to: i) bring to your attention areas which, in the Bank’s opinion, needed further study or clarification in order for the Government to take a more informed decision on an appropriate course of action, and; ii) advise on good practice (at corporate governance and government levels) in preparing for, and managing mine closure, including the mitigation of environmental and social impacts and associated risks. We received the reports in late October and a small Bank team undertook the desk review shortly thereafter. The Bank has had no direct or indirect involvement with the Ok Tedi mining operation and, therefore, undertook its review from a limited knowledge base. The analysis of the report has therefore necessitated more time than initially anticipated.
OTML commissioned the Risk Assessment to assess options available to address the environmental problems created by operation of the mine. The Risk Assessment examines specific environmental mitigation proposals within the context of a comprehensive risk assessment framework. These studies are intended to assist OTML management and shareholders with the decision-making process regarding a possible course of action to mitigate the impacts of mine waste disposal. The objective of the Risk Assessment was to assess the relative risk of different waste management and mine operation options to minimize the overall risk to OTML shareholders. The risk was quantified through determination of the total cost that is most likely to be incurred by the company for each of the scenarios, based on widely accepted techniques of identification, characterization and quantification of risks. The total cost also includes the opportunity cost of foregone sales revenue and related profits under the scenarios where earlier that planned mine closure is being considered.
The Risk Assessment therefore reviews a limited set of technical options from a shareholder’s risk exposure perspective with the purpose of defining a mine operation setting that minimizes overall risk to shareholders. While the Bank recognizes the importance of this report to the Government of PNG as a shareholder in OTML, the Bank’s assistance is being provided to assist the Government in dealing with the broader issues of social and environmental stewardship and responsibility which rest with the Government in relation to the people of Western Province, and not as a shareholder of OTML.
For all waste management options considered in the Risk Assessment, it was assumed that a comprehensive mine closure strategy would be implemented in order to “adequately address the engineering, environmental and social aspects associated with cessation of operations” and that a 10-year after-care period would follow mine closure. But the report does not provide any information on the mine closure plan or broader mine closure strategy. We understand that OTML is preparing such a plan and that it will be submitting it to Government in the near future.
Given that a mine closure plan is not yet available, we are not able to assess the appropriateness of social and environmental mitigation measures under consideration and whether international best practice is being followed. The Risk Assessment highlights the social problems that would occur if mine closure took place next year but it does not examine how long is needed to: a) undertake the necessary preparations so that mine closure could take place in a socially acceptable manner, and; b) build-up strong local government institutional capabilities to support the mine closure strategy. In this regard, we understand that removing the dredge could release funds that could be used for other types of environmental improvements (e.g. in the mill) or for social improvements and compensation. More information is needed in this regard. Indeed, the report indicates OTML is expected to be very profitable from 2000-2010 but does not address whether the proposed level of social spending is appropriate or not. This is clearly the beginning of a transition period for the Government and Western Province, and both must acknowledge the importance of beginning to prepare for this transition and the need to establish the necessary partnerships to make this as smooth a process as possible.
These discharges far exceed the sediment transport capacity of the river system downstream At the outset one should also note that the Risk Assessment confirm the widely acknowledged view that the environmental impacts of mine operation are significant, and have been far greater than initially anticipated. The report also confirms the understanding that the impacts are likely to worsen, and will continue for some time even after the mine has closed and that the existing and potential future environmental impacts of the mining operation are directly related to the discharge of tailings and waste rock from the mine. The Risk Assessment also acknowledges that “none of the options for mitigating environmental impacts, or otherwise operating Ok Tedi, provides a clear best alternative forward”. It is therefore in this context of inconclusiveness that, in the view of the mine operators, the following comments are provided for your consideration.
The Bank’s technical team that reviewed the report is unequivocal in its overall opinion: the risk assessment and underlying technical reports are first rate and state-of-the-art in terms of environmental science and risk assessment methodologies. Independent peer reviewers and auditors commissioned by OTML to review the work concur in affirming that the quality of scientific and technical expertise underlying the reports is of high order. Our technical opinion is provided in the attached Technical Note, which also includes a number of questions/issues that should be raised with OTML for further clarification.
The Risk Assessment confirms what one would expect on a purely intuitive basis. First, the lowest cost to OTML is to continue operating until 2010 under the no-dredge option. The highest cost option is to close the mine early and forego 10 years of operating profit. From an environmental standpoint, the best option is to close the mine immediately. But from a social standpoint this would result in a potentially disastrous situation because there is no preparedness for mine closure. In addition, little or no attention in the Risk Assessment was given to the impact of the various options of mine closure to the economy of the country and province. Since a Mine Closure Plan has yet to be tabled, it is impossible to determine if it is environmentally and socially sound, which means that it is also impossible at this stage to judge its final cost. To reiterate, the overall risk assessment is incomplete in its integration of social and environmental costs and not comprehensive enough for the government to decide on next steps. Most importantly, the risk assessment does not adequately address the trade-offs between environmental and social costs according to the timing of mine closure.
From a purely environmental perspective, the Risk Assessment suggests that the Ok Tedi Mine needs to be moving towards closure as soon as possible. Preparations for closure should be initiated without delay given the traditionally long lead time associated with social impact mitigation measures. In fact, without a draft Mine Closure Plan supported by a comprehensive and participatory Mine Closure Strategy (which would be the Government’s and Western Province’s responsibility) addressing environmental and social issues, immediate closure would appear to carry with it the worst social impact.
The Government must take decisive action in regards to the set of issues for which it is best positioned to deal with, including:
- Consider OTML’s draft Mine Closure Plan including, inter alia: area of impact; stakeholder identification, participation and perceptions; regulatory and contractual requirements; environmental aspects; social aspects; compensation; end point criteria and post mine closure and conflict resolution. Attention should be given to the final landform of the mine site, and how the plan ameliorates impacts already in evidence at the mine site, in the Ok Tedi and Fly Rivers and their floodplains. The Mine Closure Plan should take into account costs of physically closing the mine, the environmental and social costs and impacts associated with mine closure and should be based on prevailing best practice in the mining industry not simply historical practices. Based on the time needed to accomplish mine closure and effectively mitigate the potential impact on the economy and people of PNG, the mine closure plan should present a timetable for ramping down commercial exploitation of the ore body and ramping up expenditures for mine closure;
- In parallel, OTML, the Government, Western Province, affected communities and other stakeholders should initiate, through a participatory mechanism, the preparation of a Mine Closure Strategy that would also address, from the Government’s standpoint, how the mine closure fits into the broader picture for Western Province and its communities and for the economy as a whole. This will therefore require a robust social and institutional assessment of major stakeholders in the transition to a different economy when OTML ceases operation;
- The Government should undertake an independent review of the proposed draft Mine Closure Plan, including involvement of the affected communities, NGOs and other stakeholders in its assessment;
- The Government will need to undertake an independent assessment of financial costs of ameliorating and compensating the impacts of mine closure. It will also need to determine how funds received from OTML can be managed to generate a sustainable income stream over the long term (since observed, predicted and unexpected environmental and social impacts are likely to be long-term). It is clear that significant investments in the local communities will be required to mitigate the socio-economic impacts of mine closure, regardless of its timing.
In closing, we welcome and encourage the continued open and frank assessment of the environmental impacts that the operation of the mine has had on the Ok Tedi and Fly Rivers. This is no doubt an important and significant step in OTML’s acknowledgement of the long-standing view that environmental impacts of its operations have been significant and that the social dimension of these impacts is of great concern to local, national and international organizations.
Finally, we feel it is critical that stakeholders in this decision-making process are brought into the picture as soon as possible and that their concerns are fully taken on board.
Country Director, Papua New Guinea
East Asia and Pacific Region
bcc: Messrs./Mmes. Talati, Weise (EASPR); Rahill, Tronchet, Osei (EACNI); Fossberg, Stephens, (EAPVPX).