When it comes to negotiating complex mining contracts, governments can often feel that the playing field is tilted in one direction, favoring the private sector.
This is a major challenge for Africa. In the 2013 “Africa Progress Report,” Kofi Annan, the former UN Secretary-General, says poorly negotiated contracts are partly responsible for countries not benefiting from their mineral wealth. The study compared the selling price for five mining assets in the Democratic Republic of Congo with an independent assessment of their value, and found the difference to be over $1 billion.
Global leaders at the G7 Summit also recognized the issue last June by launching an initiative to provide developing country partners with capacity building opportunities for negotiating complex commercial contracts, focusing initially on the extractives sector.
Negotiating mining contracts is an extremely complex endeavor that requires a clear set of objectives articulated by leadership; a variety of technical skills in law, engineering, economics, finance, and other areas; a high level of coordination across relevant government entities and the ability to pursue a consistent course over time.
To reach an agreement that is stable over time, the investor-state relationship must be perceived to be fair by the foreign investor and the host government, as well as local communities, broader civil society and the business community. A key to achieving the perception of fair negotiations is incorporating transparency into the process from the outset. When negotiations leave one party at a disadvantage, stakeholders notice and this can lead to long-term grievances and possibly even instability that can negatively impact the country and investors.
“Mining contracts that are negotiated in a fair and transparent fashion are more sustainable in the long-term for all the stakeholders involved and they better reflect the country’s best interests,” said Paulo de Sa, Practice Manager of the Energy and Extractives Global Practice of the World Bank Group.
To build global capacity on the negotiation of mineral development agreements, the World Bank Group hosted two international training workshops that brought together government representatives from 18 countries. In May 2014 the first workshop was held in Arusha, Tanzania with 35 representatives from Anglophone Africa including from Sierra Leone, Tanzania, Ethiopia, Zimbabwe, Mozambique, Liberia, Uganda, Malawi and Rwanda. The second training workshop for Francophone Africa was held in Ougadougou, Burkina Faso in October 2014 and included 35 representatives from countries spanning Senegal, Congo, Burkina Faso, Guinea, Mali, Niger, Togo, Madagascar and Mauritania.