Closure planning should not be a project at the end of the life of an operation but part of the site’s broader business case and day to day operational management and planning.
The following is an extract taken from our 'Licence to Legacy in the Extractives Sector' research report. Click here for more information on the report.
Ultimately, it should always be kept in mind that the success of closure will not be measured by the successful implementation of the final closure plan, but by the legacy left behind” (Botha et al., 2014: 13).
As iterated above, social legacy planning is fundamentally about gaining an understanding of a company’s contribution to multilateral efforts towards sustainable evelopment within a particular community and region. As highlighted earlier in this report, this includes the early investment in building transparent and ongoing relationships with impacted communities, the management of both adverse and positive impacts and strategic sustainable social investment.
3.1. The business case for social legacy planning and sustainable development
“The business case for this began with a recognition at the highest levels of the mining Industry that the sector is facing very serious problems and needs to make a substantial cultural shift if it is to prosper in future. At the heart of the matter is the ability of the industry to gain permission for access to land containing new reserves” (ICMM, 2006).
3.1.1. Reducing financial liabilities
One of the most valuable benefits of social legacy planning is that it limits the range of conflict that can occur between communities and companies, particularly over issues such as pollution, access to resources, community health and safety and resettlement (Davis and Franks, 2011). The Shift Project report titled “The costs of conflict with local communities in the extractive industry” seeks to quantify some of the costs associated with company-community conflicts. According to the report,“The most frequent costs identified by interviewees were the costs arising from lost productivity due to delay. The greatest costs were seen as the opportunity costs arising from the inability to pursue future projects and or opportunities for expansion or for sale, as a result of companycommunity conflict. The costs cited by interviewees as the most often overlooked were those resulting from the additional staff time needed when conflicts arise” (ibid). Data in the report, derived from stakeholder interviews, shows that major mining companies (with capital expenditure of USD 3-5 billion) could lose around USD $20 million per week in delayed production. According to the report, losses can also be significant during the exploration phase, estimating that up to USD 10,000 could be lost every day from wages and underuse of machinery (ibid).
Inherent to social legacy planning is early integrated planning for closure and post-closure social legacies. By planning for closure and social legacy early in the game, companies are able to gain a more accurate understanding of the true cost of closure. “In the past, failure by some mine operators to make adequate financial provision for environmental closure costs has resulted in the abandonment of sites with unsafe and unacceptable environmental conditions. In such cases the environmental responsibility and financial liability for closure often defaults to government agencies. This has prompted governments in most mining jurisdictions to require closure plans and financial assurance as part of project approval” (ICMM, 2006).
As mentioned in the case study on Anglo American’s Mining Closure Toolkit, early closure planning has the potential to significantly reduce the “end of mine life” financial liability of larger mining operations by up to 30% (see Case Study 2).
3.1.2. Seeking a social licence to operate from local communities
A social licence to operate (SLO) from local communities is a functional element of social legacy planning and the driver behind a company’s contribution towards the sustainable development agenda. The business case for seeking a strong SLO from local communities is becoming increasingly apparent, not only to reduce community-company conflict as detailed above, but also as a way to secure future access to resources and land.
According to the ICMM, “Companies can distinguish themselves in the eyes of stakeholders by showing that they can make a particularly valuable contribution to sustainable development in the long term. A portfolio of safe, stable and prospering closed sites constitutes a very convincing case for ‘granting a ‘social licence to operate’ in new areas. Investing in ‘getting integrated closure planning’ right, in order to build this kind of portfolio, allows companies to not just protect access to land, but also in theory gain preferential access to land” (ICMM, 2006).
3.1.2.1. Infrastructure development
One of the most significant ways in which a company can contribute to the broader development objectives of a local community or region is through infrastructure that both meets the needs of the project and generates opportunity for the community and local region.
This is illustrated by Randgold Resources, AngloGold Ashanti and Sokimo’s Kibali project joint venture in the Orientale Province of the DRC. Mark Bristow of Randgold Resources hopes that “Kibali and a neighboring agribusiness project sponsored for the mine can do for the Orientale province what copper and cobalt have done for the southern province of Katanga” (Reuters, 2014). Also according to Reuters, the lack of infrastructure presents the main challenge to investors in the Orientale Province. To counterbalance this shortfall, “Kibali had to build a 180 km road to Uganda to transport 500,000 tons of materials and equipment to construct the mine. The road has attracted traders from Congo and Uganda, helping the local economy to flourish” (ibid).
3.1.2.2. Strategic social investment
Social legacy planning is about building the capacity of and working with local communities and local government to economically diversify away from dependency on project activity and move toward industry and social structures that better reflect the opportunities and assets of local people. Strategic social investment is a critical way companies can start to build the capacity of both local government and local communities to create this level of sustainability, while simultaneously supporting the company’s progress in securing a social licence to operate.
Social investment programs are often defined as the “contributions companies make to the communities and broader societies where they operate, with the objective of benefiting external stakeholders” (IPIECA, 2008), such as creating social foundations or building social infrastructure like schools and hospitals. These programs have been traditionally seen as ad hoc activities undertaken by companies to short-cut the securing of a social licence to operate with local communities.
In 2008, IPIECA undertook a study to assess the then-current characteristics of social investment projects, coming up with the following headlines:
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Social investment objectives are vaguely defined, and success is therefore hard to measure.
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The business case is not always clear.
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Social investment programs are used as a first response to mitigate project risk.
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Some social investment approaches are reactive and ad hoc, while others are more proactive and strategic.
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The design of social investment programs is mostly driven by budget rather than need.
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The level of community participation to determine social investment categories varies.
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Most companies find it challenging to measure success (ibid).
In the past, critics have viewed social investment programs as unsustainable and not strategically aligned with governmental priorities or with opportunities to leverage community assets or objectives. Furthermore, critics maintain that these programs fail to complement the broader development objectives of a particular country.
However, research and feedback from the industry strongly demonstrate that these models are starting to change, and that companies in the extractives sector are increasingly moving towards more strategic engagement with governments, based on community and national development objectives.
These new models are characterized by several factors. Governments are increasingly including requirements in their production-sharing contracts whereby companies must commit a certain portion of profits to social investment (Keenan et al., 2013), yet voluntary spending on social investment projects often happens over and above the proportions set. Social investment projects are increasingly being conducted by companies in partnership with a range of other entities, including local and national governments, International organizations and NGOs, to ensure the sustainability of investment past the closure of the project. It has also been recognized that communities need to play a greater and more participatory role in designing social investment projects to ensure that the objectives of the whole community are being addressed (see Case Study 4).
For social investment programs to contribute to social legacy creation, it is vital that they are developed through partnership, and that accountabilities are embedded to ensure projects continue to deliver benefits after project activities cease.
3.1.2.3. Local content development
Contracts between extractive companies and domestic government usually include local content requirements. This refers to the “added value brought to a host nation through workforce development and investments in supplier development” (IPIECA, 2011) and may be a statutory or regulatory requirement placed on a mining company by the host government.
With regard to employment, these contractual requirements could include the development of transparent local employment policies, training and skills development within local communities, accelerated career growth within the company, and the building of educational and training institutions to address deficiencies in the local education system.
As noted above, local content requirements may contain obligations around supplier development. For example, companies are often required to help local firms participate in the supply chain (ibid). This involves the development of procurement policies and modifications to the way extractive companies undertake both direct and indirect rocurement to better benefit local firms (ibid). Economic growth in the local area has the opportunity to positivelyimpact local community stakeholders by increasing household income and generating future employment opportunities. The impact of extractive companies around employment and supplier development often exceeds mandatory requirements.
Building capacity at the local level through both local content and supplier development, as key elements of social legacy planning, are core ways in which companies can more sustainably secure their social licence to operate, as well as support future licence bidding efforts. Developing diversified skills at the local level can also reduce operational costs for companies by increasing successful local procurement.
For example, due to a skills shortage, the Queensland Curtis LNG project in Australia experienced difficulties in meeting its operational needs. As a result, the Australian Pipelines and Gas Association conducted a survey of the training needs of the pipeline industry in Australia and used this knowledge to tailor an appropriate Pipeline Engineering Training Program (The Australian Pipeliner, 2012) (see Case Study on Bechtel and the Queensland Curtis LNG project for more analysis).
To create shared prosperity with community entrepreneurs, more focus needs to be placed on understanding the role that access to finance plays in supplier development and on how to create strategies around the promotion of good business between local SMEs. As with the creation of sustainable social investment programs, learning how to identify and partners and stakeholders to increase the sustainable advantage of local content is critical.
3.1.2.4. Adverse impact identification and mitigation
Social legacy planning necessitates more than just point-in-time social impact analyses, such as those carried out as part of EIA requirements at the permitting phase. Rather, negative impacts must be continually and systematically identified and managed, recognizing that impacts on communities change with each project phase and that the context and communities surrounding large-scale projects are also in constant flux. Ongoing social and/or human rights impact assessments help companies secure their social licence to operate because they form the backbone of community engagement, forge dynamic relationships and allow for the transparent flow of information between the community and the company around how the project affects daily life. As such, the company can adapt and responds to the changing needs.
3.1.2.5. Ongoing stakeholder engagement
Ongoing and equitable stakeholder engagement is a critical element of social legacy planning. According to the Australian Government’s Mine Closure Handbook, this type of engagement will help a company secure its social licence to operate in the following ways:
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It improves the understanding of adverse impacts on affected communities, particularly in terms of the environmental, social and economic impacts of closure.
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It informs the development of strategies and programs to address closure impacts, ideally as part of a community development approach from early in the mine’s life.
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It increases support from employees, government, landholders, local community and other stakeholders for closure decisions.
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It increases community receptiveness to future mining proposals (Australian Government, 2006).
3.1.3. Reducing the risks associated with community development
Unlike undertakings in many other industries, extractive projects have a finite and, in some cases, almost predictable life span. Furthermore, the community socio-economic benefits associated with extractive projects are often directly linked to project phases, which can, in many cases, prompt boom-and-bust cycles of economic growth and depression in the local communities.
For example, local employment and procurement often peaks during the construction phase and significantly and rapidly declines as a project moves into production. According to the Anglo American Mining Closure Toolkit: “Dependency occurs at a number of levels, namely macro-economic reliance on foreign exchange and tax receipts, socio-economic dependence on infrastructure and services, and local and regional economic dependence on income and employment multipliers and fringe benefits. In contrast to other industries, mining projects have finite life spans, which cannot sustain this dependency” (Anglo American plc, 2013).
3.1.4. Managing community expectations
Early social legacy planning combined with the right level of engagement with community stakeholders can better ensure that community expectations are managed throughout the life cycle of a project, particularly at the exploration phase. According to Rudolph Botha, such engagement will ensure “that ownership of the closure vision and final land use plan will more likely transfer from the mining company to the people who will remain in the areas post closure” (Botha et al., 2014: 6).
3.1.5. Better managing unexpected closure
An emphasis on early and integrated social legacy planning, rather than closure planning undertaken towards the end of the life cycle of a project, also helps manage the risk of unexpected project closure.
According to the Australian Government’s Mine Closure Completion Handbook, unexpected closures could happen for a variety of reasons:
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Economic, such as low commodity prices or high costs, which may lead a company into voluntary administration or receivership.
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Geological, such as unanticipated decreases in grade or size of the ore body.
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Technical, such as adverse geotechnical conditions or mechanism/equipment failure.
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Regulatory, due to safety or environmental breaches.
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Policy changes, which occur from time to time, particularly when governments change.
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Social or community pressures, particularly from non- government organizations.
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Closure of downstream industry or markets.
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Flooding or inrush (Australian Government, 2006.
As a result, ensuring that social legacy planning, as an integral element of early closure planning, is started as soon as possible in the life cycle of the mine helps to manage the social risks associated with unanticipated closure.