Negotiation of Contracts

 

Claude Kabemba's picture

Director of the Southern Africa Resource Watch (SARW)

January 13th, 2014

 

In many SADC countries, revenues from extractive companies are not equally distributed. Many times concession agreements are biased in favour of extractive companies due to the weak negotiating capabilities of the host governments of the countries in which they operate. Mining contracts are sometimes negotiated for the benefit of individuals. Contract transparency is essential for the responsible management of natural resources and the potential for growth and economic development that those resources offer. The process for allocating contracts by the government amongst competing mining companies needs to be carefully designed and rigorously followed.

Recommended Principles and Guidelines on the Negotiation of Contracts       

i.            Contract negotiation must be led by a legitimate institution of the state.

ii.            The principle of complete public transparency must operate prior to the awarding of contracts and the contracts themselves must be made public.

iii.            Government must develop the human capacity to negotiate contracts effectively. Where capacity is lacking, governments should source technical and financial support from relevant institutions, such as the African Development Bank.

iv.            Government must create conditions for competitive tendering (auction) in the allocation of contracts.

v.            Contract negotiation must be all inclusive and cover areas such as environmental mitigation and protection measures, land use and rights, displacement and resettlement of local communities and their rights, mining closure, corporate social responsibility, disaster management and water use.

vi.            Governments must be in possession of correct geological data on the quantity and quality of its resources before entering into negotiations.

vii.            Negotiations can only start after due diligence studies have been conducted to ascertain whether the company has the technical and financial capability to actually mine.

viii.            Equally, the true beneficiary owners of each company must be known to prevent conflicts of interest.

ix.            Mining contracts and rights cannot be resold. If they are not exercised by the original company, they must revert to government and the awarding and negotiation process must begin again.

x.            Citizens have the right to know how their Government is negotiating and selling their resources.

xi.            Government must consult civil society and labour unions with expertise on key areas such health and safety, human resource development, technology transfer, skills development, corporate social responsibility, community resettlement and environment protection during the negotiation of contracts.

xii.            Appropriate and effective oversight by Parliament is paramount. Parliament must ratify all major extractive contracts to safeguard against unsound deals and ensure that the nation’s interests are protected.

xiii.            The number of licenses awarded to a company and the size of the concession must be limited so as to avoid monopolistic tendencies by multinational companies.

xiv.            Contracts must have flexible mechanisms for resolving disputes and adjusting for changed circumstances, including adjustment of the tax regime.

xv.            Government must develop the capacity of local communities to bid during the tender process for extractive rights.

xvi.            Government must develop specific contracts for specific resources based on the specific environmental, geological, social/cultural, economic, infrastructural and political conditions relating to each resource.

xvii.            Each contract must include a clause on termination with clear circumstances under which the agreement can be terminated, for example, repeated environmental violations, lack of capacity to develop the site, etc.

xviii.            Stabilisation provisions must be avoided as these are extremely disadvantageous for the government because it freezes the legal and regulatory situation of the country for an extended period of time and requires government to pay compensation if changes affect an investor.




  Where practical, auctions are generally the preferred mode, both on grounds of transparency and securing maximum value.

Governments must be held accountable for all contracts they enter into. The need for scrutiny is even more pressing when the contracts concern non-renewable resources.

In most countries around the world, sub-soil resources such as minerals, oil, and gas are the property of the nation, not of the individual property owner of the surface rights.

For instance, the Mozambican government argues that if citizens want to know about the contracts signed between the government and companies, they should consult the model contract. But is the model contract used for all kinds of resources?

Well designed regulations or contractual terms must specifically identify the nature of these impacts, how to avoid or mitigate them, and how to compensate those affected.

 

About the author(s)

Claude Kabemba is the Director of the Southern Africa Resource Watch (SARW). In 2006, the Open Society Initiative for Southern Africa (OSISA) asked him to spearhead the formation of SARW. He holds a PhD in International Relations (Political economy) at the University of the Witwatersrand (Thesis: Democratisation and the Political Economy of a Dysfunctional State: The Case of the Democratic Republic of Congo). Before joining SARW, he worked at the Human Sciences Research Council and the Electoral institute of Southern Africa as a Chief Research Manager and Research Manager respectively. He has also worked at the Development Bank of Southern Africa and the Centre for Policy Studies as Policy Analyst. Dr. Kabemba’s main areas of research interest include: Political economy of Sub Saharan Africa with focus on Southern and Central Africa looking specifically on issues of democratization and governance, natural resources governance, election politics, citizen participation, conflicts, media, political parties, civil society and social policies. He has consulted for international organizations such Oxfam, UNHCR, The Norwegian People’s Aid, Electoral Commissions and the African Union. He has undertaken various evaluations related to the work of Electoral Commissions and civil society groups interventions in the electoral process in many African countries. He is regularly approached by both local and international media for comments on political and social issues on the continent. His publication record spans from books (as editor), book chapters, journal articles, monographs, research reports, and newspaper articles.

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