Cost benefit analysis of the mining sector of Mongolia

Aug 22, 2012

Strengthening Environmental Governance in Mongolia” project Phase II, implemented by UNDP Mongolia and the Ministry of Environment and Green Development, hosted a workshop to present the results of a study to develop a methodology for assessing the costs and benefits of mining in Mongolia on 22 August 2012. The workshop was attended by more than 60 participants from government organizations, research institutions and the private sector. 

The cost benefit analysis of mining sector in Mongolia study was intended to develop a methodology and a model in order to measure environmental, social and economic impacts of the mining sector in Mongolia. 

In a context where strong global demand is fuelling a boom in resource development, the cost benefit analysis model will help to assess the real risks associated with new mining projects. And in a context where mining development raises concerns and fears within the community, some of which may be justified, the CBA model provides a balanced assessment of the positive and negative effects of mining projects to measure the net benefits accruing to Mongolia. 

The model would allow for the comparison of the costs and benefits of mining and, thus, to provide evidence to support strategic policy and regulatory changes aimed at optimizing the benefits and minimising the costs of the mining boom in Mongolia. The model can be used to estimate future costs and benefits, monitor the past and current impacts of a mine, evaluate options and policy scenarios, identify particular issues and negotiate with mine operators on their conditions of operation. 

The cost benefit analysis model was applied to two pilot mining projects in Mongolia. Interviews, field visits and data testing for these two mines helped develop and fine tune the methodology. Using real case studies were essential to ensure that the CBA "makes sense", that the list of costs and benefits and the different monetization approaches used in the model do indeed provide an adequate picture of reality. To make the model more user-friendly for Government agencies, a number of simplifying assumptions have been adopted and some externalities left out. While this limits the exact accuracy of the findings of the model, it ultimately ensures the usability of the CBA tool in a policy decision context. It was noted during the workshop that a lack of some data, difficulties in monetizing social and environmental costs and attributing some social impacts to mines were considerable constraints for the study. These areas of difficulty are faced by researchers and policy makers around the world and should be the focus of future research. 

Following an introduction of the results of the study in the morning, a training session was held in the afternoon to provide practical guidance to users of the CBA tool. It provided a detailed description of the different spreadsheets of the CBA tool, clear directions to monetize and fill in the different variables of the model and indications as to where the required information can be sourced. The suggestions were made to test the model for more mining companies for further fine tuning. 

The CBA is an evidence-based assessment that will inform government decision-makers at a crucial time to ensure that the flow of mining investment in Mongolia leads to the best possible outcome for the country. The results of the study will help inform policy makers, civil society, mining companies and donors about the true economic costs of changes in welfare (including for example cultural loss) and degradation of ecosystem services from mining development in Mongolia and demonstrate the value of maintaining ecosystem services and including their consideration in mining development decision making. 

Contact information“Strengthening Environmental Governance in Mongolia” project Phase II

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