Negotiations


10. Key Considerations for Policy Makers

Contract negotiations include a great number of matters; and hence require considerable expertise from a range of disciplines, including law, geology, engineering and economics/financial skills. Governments will need to address their capacity shortages where relevant and obtain external support from experts who understand government’s needs and broader development goals.

Legacy issues are also likely to be addressed. Often governments negotiate in the context of prior contract negotiations with foreign investors, and this may have a good or bad impact on their footing at the start. Further, at the start of negotiations, many governments may wish to undertake due diligence studies on the technical and financial capabilities of international companies, and identify the true beneficial owners of companies. It is advisable to make contracts available to the public, subject to commercial confidentiality (and that too is limited in time), and ideally awarded on competitive basis.

Prior to the awarding of contacts, governments may wish to consult with civil society on fundamental issues such as health and safety, human resource development, technology transfer, skills development, corporate social responsibility, community resettlement and environment protection. Equally, a common pitfall is the failure to cost potential tax exemptions (for example as took place in Tanzania in the 90's with the negotiation of an 15% additional capital allowance) and address treaty shopping.

In terms of approval processes, a preferred practice is for parliament to ratify all mega-projects in the extractive sector as these may have a material impact on the socio-economic development of a country. Although with a relatively low level of participation by women in parliaments (as of 2017, only about 23 percent of MPs worldwide were women), care should be taken not to institutionalise a gender bias in taking this course of action. To avoid an abuse of a market monopoly, the number of licenses a company could be awarded would need to be limited, as well as the term of the license (not as long as the resources lifecycle). It is also important to have flexible mechanisms in place in the contract to capture major changes in environmental, geological, social/cultural, economic, infrastructural and political conditions.

While much emphasis is placed on actual contract negotiation process, the success and sustainability of an investment also depends on the right policies and legal and regulatory framework being in place to govern the investment, to ensure it aligns with a country’s national development strategies, and the careful monitoring of the implementation of the investment project.