Notes and References
- This paper represents solely the opinions of the editor and not necessarily those of the United Nations. It is based, inter alia, on draft papers available at the Conference on “Role of State Enterprises in the Solid Minerals Industry in Developing Countries” organized from October 5—October 10, 1987 in Budapest between the UN Department of Technical Cooperation for Development and the Government of Hungary.
- Bolivia being an exception, where a leading role in international tin mining was built up largely by national entrepreneurs (Patino, Aramayo, Hochschild).
- Radetzki , Marian . 1985 . State Mining Enterprises , Washington, D.C. : Resources for the Future . and by Magnus Ericson in this volume. See the evidence presented by
- See a survey by Nathalia Yaich, Ecole des Mines de St Etienne, for NRED/DTCD, July 1987, unpublished. We do not deal here with the role of petroleum, where the role of state petroleum companies in the international petroleum industry and in their home countries is as large, if not larger, than in the non-fuel mineral sector.
- See the paper by Hugh Roberts in this volume.
- Algeria in practice spearheaded this thinking with its purchase of industrialization by turnkey and “produit-en-main” contracts. The oil producing countries themselves invested a large amount of petroleum surplus in mining; Iran, for example, used the service contract method to develop the Sar Chesmeh copper mine. In Saudi Arabia, billions of dollars were spent on mineral exploration carried out by foreign contractors (eg, RTZ, British Steel, BRGM, PREUSSAG, Selection Trust and Canadian companies).
- 1981 . For the concept and its analysis see Hartmut Elsenhans, Abhängiger Kapitalismus oder bürokratische Entwicklungsgesellschaft
- One tends to cite such companies as CVRD (Brazil), CODELCO (Chile), MMC (Malaysia) and OCP (Morocco) in this context.
- Ghose notes in this volume the unusually low rate of return of state mining companies in India. This low return would probably become negative, if account is taken of the fact that the Indian economy subsidizes its state mining sector by high import duties on metals (approximately 30%).
- Chile, Peru and Bolivia have over the years obtained most government income (apart from petroleum income in Peru) from CODELCO, COMIBOL and CENTROMIN.
- For example, in Guinea, the state-owned OBK pays considerable import duties and tax-like marketing commissions to a statal entity, while the privately owned CBG has been able to obtain an exemption.
- The concept of mineral rent, ie, the potential for a surplus over and above a normal return based on the specific characteristics of the orebody (high grade and quality, advantageous location, favourable metal prices) is essential in order to tackle the inefficiency question and to understand that profitability per se is not a sufficient indicator of efficiency. A company making an average profit using a high-class deposit is still likely to be highly inefficient, while a company just surviving on a marginal deposit may be highly efficient. In the case of state enterprises controlling low-cost petroleum reserves, it is easier to recognize that in today's non-fuel mineral markets profits based on mineral rent are not identical with profits based on business performance. In fact, in today's depressed metal markets, profit is a much better yardstick for performance than in times of booming metal prices, since monopoly profits based on mineral rent may have been reduced significantly.
- Change of management, intervention by banks, loss of value of shares and hence threats of unfriendly mergers and acquisitions are the consequence of losses to a privately owned company exposed to capital market discipline.
- Indeed, the higher the mineral rent (eg, most spectacularly with state petroleum companies), the greater the “fat” build up inside the enterprise in the form of overemployment, including “storage” of employees, perquisites, luxury training, social, entertainment and other welfare expenditures, luxury construction, and other forms of “goldplating” and overinvestment. This became evident in the relative ease of recent cost-cutting without basic changes in operations or technology, eg, the 30% cost-cutting achieved by PT Timah in 1985–86 by concentrating on overemployment and such benefits. See R. Wiryosudarmo's paper in this volume.
- This fact is recognized in the literature. We have examined a number of analyses mostly carried out by the World Bank or consulting firms funded by the Bank on state mining enterprises (Mauritania, Ghana, Zambia, Zaire); these case studies reflect overemployment which sometimes appears to mean the employment of twice or several times the number of employees required for the operations. For example, in 1984–85 SNIM, the Mauritanian iron ore producer, had several times as many employees per tonne of iron ore produced as comparable producers in Liberia. A recent study of the Austrian Voest-Alpine iron/steel state company illustrates the observation as well. The 1987 “Plan de Racionalizacion y Optimizacion” of CENTROMIN, Peru provides data on massive overemployment. The same is indicated by the Bolivian government's current policy to encourage a major part of COMIBOL employees to give up their job. Early retirement incentives have also been an element of restructuring policies in Indonesia for PT Timah.
- In such state mining enterprises, there seems to be no limit to the imagination when it comes to providing non-cash benefits, from food and services entitlements at below market prices (COMIBOL), to housing, schools, hospitals, and many forms of social, welfare and entertainment expenditures. In the absence of mineral rent, loss-sharing by the government without tight control over costs produces similar effects, such as, eg, in the mining industries for coal (West Germany) and iron (Austria, Voest-Alpine).
- “Plan de Rationalizacion y Optimizacion” . op. cit. ,
- CENTROMIN, Peru, for example invested only about 0.15% of its sales in metallurgical and other mining research, with the resultthat its ore reserves are being depleted, its metallurgical processes obsolete and high cost.
- See Barrientos, op. cit.
- There are exceptions, notably of state enterprises considered as successful, such as MMC investment in Australia, CODELCO investment in downstream joint ventures in Europe.
- Roberts . op. cit. , Radetzki, op. cit.
- Wiryosudarmo . (on attempts to reduce such autarchy within PT Timah) . op. cit , B. Rocca, “Mining Company Staff Functions”, Mining Magazine, October 1986; Phillip Crowson's paper in this volume.
- Ali Ayub , M. and Hegstad , Sven . 1986 . “Public Industrial Enterprises: Determinants of Performance” Washington World Bank technical paper See Radetzki, op. cit.;
- In the capital markets low profits result in lowered share prices, and hence increased risk for management being dismissed as a result of an unfriendly take-over, and ultimately by bankruptcy.
- See on this also the review paper by I. Dobozi in this volume.
- There is a large literature on performance evaluation of state enterprises. However, recipes for using shadow, opportunity, fictitious export prices, etc. seem to be primarily academic concepts which have apparently never worked to any reasonable extent.
- David Gulley in this volume defines restructuring as “reconfiguration and repricing of inputs such as labor and capital in response to deflationary pressures”; this definition may apply to basic changes due to a deflation-related crisis.
- Most activities designated as “restructuring” in developing countries in recent times seem to have been the result of World Bank conditionality attached to lending to state mining enterprises (eg, the rehabilitation of GECAMINES, SNIM or COMIBOL), though the possibility of developing a loan project under the attractive title of restructuring may also have been a factor encouraging World Bank personnel to promote such loans.
- A case in point is the Bolivian COMIBOL, a popular object for enterprise reform and restructuring studies for several decades, funded by the Japanese government, the World Bank and other international development agencies, involving, inter alia, the international accounting firm of Price, Waterhouse. Since COMIBOL's trouble are/were deeply rooted in its environment and its external relationships, it is not surprising that in spite of the many studies and restructuring advisers employed, COMIBOL is about to disappear from the world tin market as a significant player.
- For example, operating costs for refined copper in the US in new leaching projects in general remain below 45 cts per pound which makes production competitive with the high-grade copper mines in Chile.
- Roberts . op. cit. , For example, Phelps Dodge, the US copper producer expects its production costs for copper to decrease from 80 cts per pound to below 50 cts.
- Eg, Rio Tinto-Zinc and Consolidated Gold-fields.
- Eg, Phelps Dodge Newmont and Texasgulf in the US perhaps also AMAX.
- Eg, St. Joe Gold BHP gold, etc.
- Gulley . op. cit. ,
- In particular the local stock exchanges in Vancouver, Toronto, Montreal, but also in the Western US and Northern Australia.
- It is also interesting to note that companies that have focused on metals trading, eg, Metallgesellschaft, have survived rather well in comparison with traditional mining companies.
- Outside advisers are hampered in an effort to objectively analyse and improve the organization if they are fully dependent on and allied with specific groups, eg, top management, the planning department or others. Their first role is to understand the enterprise in its internal and external relationships, its resources, competition and strengths. To understand the internal relationships, an analysis of objectives, rules and practices, but even more the ability to elicit required information from the enterprise's employees is necessary. Much of such information will only be given with specific interests (eg, in increasing benefits or power, or of struggling with bureaucratic competitors) in mind. The responsibility of a management consultant is hence to elicit such information on the real workings, to provoke an opening up of employees to provide creative and practical solutions, while understanding the bias usually involved in such information. It is suggested that in most organizations knowledge about what is wrong and what should be done, is basically available; the main task is to elicit such information, it will rarely be given in formal and public gatherings.
- Often international accounting firms, well known management consulting firms and even investment banks. It is not easy to find the requisite combination of mining and management consulting expertise, coupled with understanding of operating conditions in developing countries. In fact, in our view, external reorganization advice given to state mining enterprises may have more often failed than worked.
- In the US, for example, a large part of an executive's remuneration consists of company stock, options on company stock and similar financial instruments directly tied to a company's success.
- To avoid cases, such as in a bauxite project, where the number of expatriates employed is 2.5 times higher than in a comparable project in the same country.
- Wiryosudarmo . op. cit. , on the creation of alternative employment to reduce overemployment in Indonesian tin mining.
- Eg, MINPECO in Peru with silver; Voest-Alpine in Austria with petroleum, similarly the government of Malaysia with tin.
- See Christopher Stobart's paper in this volume discussing hedging as a 3–5 years insurance, option trading. Similar techniques allow the minimization of risks from currency fluctuations, eg, the considerable losses assumed by CVRD in developing the Carajas project on the basis of contracts denominated in non-US currencies.
- Witness the spin-off of mining properties by the oil companies (eg, the spin-off of Cyprus Mines by AMOCO), the sale of gold mining assets by mining companies to their shareholders and the general public.
- We do not wish to quote specific examples, but to the observer of the European steel industry or the international tin industry illustrative cases come easily to mind.
- Eg, after the quasi-bankruptcy of the Indonesian state petroleum enterprise PERTAMINA.
- Such as, inter alia, CVRD of Brazil, SOQUEM in Canada and a number of state companies in France.
- Hemming , R and Mansoor , A . 1987 . “Privatization and Public Enterprises” IMF Working Paper, 87/9 of
- In particular the method of mining rights reserved for state enterprises, of mineral reserves excluding non-state activities, the prescription of specific concession and contract types favouring state enterprises and the toleration of large holding of mining titles by state enterprises without commensurate effort at exploration and development.
- This method has been examined and recommended in the 1985 Development Report of the World Bank.
- The process of searching for top personnel in US universities could be a model, with extensive use of public search, evaluation and selection committees.
- Hemming and Manssor . op. cit. ,
- See R Raby's paper in this volume.