1、Handbook on Extractive Sector Investment NegotiationsGuidance for Government Officials inDeveloping CountriesHoward Mann and Ciata BishopHandbook on Extractive Sector Investment NegotiationsGuidance for Government Officials inDeveloping Countries Authors:Howard Mann and Ciata Bishop Commonwealth Sec

2、retariat 2024Commonwealth SecretariatMarlborough HousePall MallLondon SW1Y 5HXUnited Kingdomwww.thecommonwealth.orgAll rights reserved.This publication may be reproduced,stored in a retrieval system,or transmitted in any form or by any means,electronic or mechanical,including photocopying,recording

3、or otherwise provided it is used only for educational purposes and is not for resale,and provided full acknowledgement is given to the Commonwealth Secretariat as the original publisher.Views and opinions expressed in this publication are the responsibility of the author and should in no way be attr

4、ibuted to the institutions to which they are affiliated or to the Commonwealth Secretariat.Wherever possible,the Commonwealth Secretariat uses paper sourced from responsible forests or from sources that minimise a destructive impact on the environment.Published by the Commonwealth Secretariat.A cata

5、logue record for this publication is available from the British Library.ISBN(paperback):978-0-85092-030-7 ISBN(e-book):978-0-85092-031-4ContentsAcronyms and Abbreviations ivChapter 1:Introduction 1Chapter 2:Pre-negotiations 19Chapter 3:The Negotiations 73Chapter 4:Post-negotiations 97References 106A

6、nnex A:Sample Documents and Reports 109Acronyms and AbbreviationsAG Attorney-GeneralCPI Corruption Perception IndexEIA environmental impact assessmentEITI Extractive Industries Transparency InitiativeEMP environmental management planESIA environmental and social impact assessmentFDI foreign direct i

7、nvestmentGHG greenhouse gasIGF Intergovernmental Forum on MiningILO International Labour OrganizationMMDA Model Mine Development Agreement(of the IBA)MNE multinational enterpriseOECD Organisation for Economic Co-operation and DevelopmentPPP publicprivate partnershipSDGs Sustainable Development Goals

8、UNCTAD UN Conference on Trade and DevelopmentivChapter 1 IntroductionChapter 1IntroductionAs developing countries strive to fully utilise and develop their natural resources,their capacity to not only attract viable projects,but also to negotiate long-term investment agreements that contribute to su

9、stainable development in their countries and local communities,is crucial.The difficulties and complexities of doing so continue to mount.At the time of writing,for example,the global dynamics for trade,investments and fiscal incentives are in flux in two distinct processes,both of which impact deve

10、loping countries.First,is the adoption,in September 2023,of the Multilateral Convention to Facilitate the Implementation of the Pillar Two Subject to Tax Rule(OECD/G20,2023),negotiated under the auspices of the Organisation for Economic Co-operation and Development/Group of Twenty(OECD/G20)Inclusive

11、 Framework on Base Erosion and Profit Shifting,to protect the right of developing countries to ensure multinational enterprises pay a minimum level of tax on a broad range of cross-border intra-group payments.Second,is that climate change negotiations continue to play out globally,with old and new e

12、nergy projects very much on the line,especially with the increasing global interest in critical minerals needed for the transition to clean and sustainable energy.The ongoing demand boom in critical minerals is stimulating new explorations and discoveries,presenting development opportunities for cou

13、ntries,but also enormous risks for developing countries that remain weak and vulnerable when negotiating contracts with foreign investors.These are but two examples of the changing dynamics that developing countries must carefully understand and note for their impacts on foreign direct investments a

14、nd the overall negotiation process.This Handbook on Extractive Sector Investment Negotiations(the handbook),which is aimed at developing country officials,is intended as a guide for teams involved in negotiations with foreign investors to ensure that processes are designed and followed to achieve po

15、sitive,sustainable outcomes that produce win-win results.This handbook attempts to bring a holistic approach to such negotiations,which includes a 3multidisciplinary approach through the involvement of all relevant stakeholders.It sets out a structured process from the evaluation of the project,esta

16、blishing negotiating goals,the negotiations themselves,and the handoff activities that are required post-negotiation.As each component is reviewed,the handbook provides a simple checklist that can assist in keeping the process on track.The goal is to empower government officials with the requisite t

17、ools,processes and commitment to professionalism necessary to bring a relative balance of power in the negotiations,through enhanced knowledge and expertise about the project,the resources at issue,and the negotiating process itself.Where appropriate,the handbook signals the need for outside experti

18、se to support government efforts,but not to take them over.This handbook also brings to bear the experiences of the authors and others whom they have worked with in diverse negotiating contexts to consolidate many lessons learned during such negotiations.They hope the handbook can assist others to b

19、uild on past positive outcomes and to minimise,if not altogether avoid,errors and mistakes.1.1 Why this handbook?This handbook is designed to assist government officials in developing countries and their designated professionals understand the processes and procedures of negotiating long-term extrac

20、tive industry contracts with multinational companies to enhance a projects contribution to sustainable development in the developing host country.While the negotiating teams or individuals involved in a negotiation may differ,the process should remain the same or quite similar;and while differences

21、will exist in the precedents and processes leading up to the final negotiations,the roles and desired outcomes should also be similar.The handbook prepares the negotiating team to establish standards,processes and procedures that are consistent,and which enable officials to achieve the governments d

22、esired outcomes.At the same time,the handbook should be applied in a flexible manner,adapting to the unique circumstances of each jurisdiction and each proposed project that is the subject of a negotiation.It is not a rigid instrument,but one that has functionality at its core.Handbook on Extractive

23、 Sector Investment Negotiations4The handbook reflects the reality that negotiations occur daily among two or more parties who intend to reach mutually beneficial outcomes.Negotiations can take place almost anywhere or at any time,but governmentinvestor negotiations are more likely to occur in formal

24、 settings where the negotiating parties aim to agree on a myriad of issues to achieve mutual benefits.In this handbook,the focus is on the negotiating process between governments and their counterparts,primarily multinational investors,seeking long-term contracts in the extractive industry.1.2 Forei

25、gn investments and sustainable developmentFor many years,developing countries operated on the expectation,indeed assumption,that all foreign investment was good for the receiving country.This equation was simple but was eventually and inevitably recognised by most development agencies as overly simp

26、listic and not necessarily true.The UN Conference on Trade and Development(UNCTAD),in its critically important 2015 Investment Policy Framework for Sustainable Development,noted that a new generation of domestic investment policies was emerging in developing countries specifically to avoid reliance

27、on such assumptions in the future.“As a result of the developments described above,a new generation of investment policies is emerging,pursuing a broader and more intricate development policy agenda within a framework that seeks to maintain a generally favourable investment climate.This new generati

28、on of investment policies has been in the making for some time,and is reflected in the dichotomy in policy directions over the last few years with simultaneous moves to further liberalise investment regimes and promote foreign investment,on the one hand,and to regulate investment in the pursuit of p

29、ublic policy objectives on the other.It reflects the recognition that liberalisation,if it is to generate sustainable development outcomes,has to be accompanied if not preceded by the establishment of proper regulatory and institutional frameworks.”Source:UNCTAD(2015)11 See the introductory section

30、of UNCTAD(2015)generally on this need.Introduction5This handbook focuses on one aspect of the necessary institutional frameworks:good negotiating practices and processes.2 These do not come about by accident,but by deliberate design and practice.The cost of bad practices and processes,or even no pro

31、cesses,however,can burden the negotiating government for decades to come.In a broad sense,the scale and scope of negotiations from a sustainable development perspective is set out in the UN Sustainable Development Goals(SDGs),with a strong focus on Goals 110.3 In Africa,this is supported by the Afri

32、can Union Agenda 2030;in Latin America and the Caribbean,by the Economic Commission on Latin America and the Caribbean 2030 Agenda for Sustainable Development;while the Economic and Social Commission for Asia and the Pacific(ESCAP)supports the AsiaPacific region.It should be noted that while these p

33、lans are overarching,most individual countries have their own plans based on their own development goals and priorities.For example,in Botswana,under its Vision 2036,the government has adopted an ambitious plan to achieve high-income status by 2036.In seeking to achieve the SDGs,foreign direct inves

34、tment(FDI)can play an important role.This is because governments are often negotiating with investors who are themselves striving to maximise supply chain values and company profits,making it essential to bridge gaps between these two notional goals.Developing countries,through contracts and agreeme

35、nts,have in large part focused on achieving SDGs 1 through 10(see also Sauvant&Mann,2017),and have embedded aspects of community,technology and skills transfer,local economic linkages through value-added processing and local procurement,gender and youth employment and diversity,and more aspects of d

36、omestic laws governing trade and investments.The integration of climate change concerns is now an omnipresent factor for many large-scale investments as well.What is known today is that none of these goals will be achieved simply by attracting FDI;however,they can be progressed by a focused effort a

37、nd a strong negotiating team.2 This handbook can be seen as a complement to another recent Commonwealth publication Environmental,Social and Economic Development Provisions in Investment Contracts:A Resource for Government Lawyers in the Commonwealth(Aizawa&Mann,2021).3 See UNDESA(no date);see also

38、Addendum 1 of this handbook.Handbook on Extractive Sector Investment Negotiations6From an institutional perspective,achieving a coherent set of sustainability goals requires an integrated approach by government,one that sets aside traditional governmental silos that limit co-operation within governm

39、ents.This becomes a focal point of a good institutional design for government negotiations and is a theme that runs through this handbook.1.3 Overcoming asymmetries of skill and knowledgeA significant goal of structured negotiating processes is to help overcome what are traditionally known to be asy

40、mmetries of knowledge and negotiating skills between multinational enterprises(MNEs)and developing countries.This handbook attempts to address this issue by providing guidance to governments on the establishment of negotiating processes that ensure they obtain maximum benefits from the development o

41、f their natural resources.As developing countries demand more in return from the licensing of their natural resources to foreign investors,including land,fossil fuels and minerals,they must be fully prepared,knowledgeable and competent to negotiate with their Box 1.1:OECD Guiding Principles on the N

42、egotiation of Durable Extractive ContractsThe present handbook focuses on the process of negotiations,while other instruments have focused on the substance of negotiations.In 2020,for example,the OECD adopted its Guiding Principles on the Negotiation of Durable Extractive Contracts.These highlight k

43、ey substantive issues including that the negotiations/contracts?should be:1.aligned with host government long-term vision and strategy;2.anchored in a transparent quality long-term relationship;3.balance the legitimate interests of the host state,community and investor;4.seek to maximise value,inclu

44、ding economic,social and environmental value;5.are negotiated upon the ongoing sharing of key financial and technical data;6.operate in a sound and fair investment and business climate;7.are consistent with applicable laws that reflect acceptable international standards;and8.are underpinned by a fis

45、cal system that provides for a fair sharing of economic rent between the investor and the host government.Source:OECD(2020).Introduction7counterparts.It is no secret that large knowledge gaps exist between government negotiators and international investors from large multinational corporations.Hence

46、,it is crucial that members of negotiating teams be knowledgeable on current trends in mining,natural resource management,fiscal regimes and incentives,and on all aspects of long-term contracts.This does not mean that each negotiating team member must be an expert on each issue,but rather that the c

47、ollective team,working together,must have access to the requisite knowledge and experience to negotiate effectively.Moreover,while knowledge gaps may exist,the lack of intergovernmental co-ordination and/or competing interests can sometimes lead to the overlooking or underutilisation of team members

48、 who have the requisite knowledge and experience to actively contribute meaningfully to the team.By carefully evaluating its domestic expertise a crucial step in the creation of a team that understands its strengths but also recognises limitations,and how to overcome those limitations through access

49、 to external expertise governments can be better prepared to negotiate with MNEs.The handbook further intends to improve the overall capacity of the team by helping to close the knowledge gap.It does so by providing processes to identify what knowledge is needed for a negotiation,what is actually av

50、ailable within the government,and what needs to be either further developed or sourced externally.In addition,the handbook provides guidance on the general capacity of the negotiators,an overview of the importance of domestic laws and regulations in the negotiated agreements,as well as the importanc

51、e of international law and its place within contracts.The potential outcomes of negotiated contracts should align with the governments long-term goals and development strategies.Hence,the governments negotiating team needs to be intergovernmental and,preferably,this needs to be statutorily enshrined

52、.There is also the need to avoid conflicts of interest,prevent corruption,and to protect the legality of the contract and its terms.Handbook on Extractive Sector Investment Negotiations81.4 Types of contracts coveredContracts covered in this handbook relate mainly to investorstate contracts in the e

53、xtractives sector(that is,in oil,gas and mining),which include but are not limited to permit-based contracts,long-term land leases,and negotiated concession agreements,including greenfield and brownfield contracts.4 While the content of this handbook focuses primarily on the extractives sector,the o

54、verall knowledge levels,skill sets,intergovernmental team approach and process can be applied to other sectors,including agriculture and infrastructure development.It is important that the processes and procedures for negotiations be similar if not uniform,to bring consistency and order to negotiati

55、ons.In addition,as governments shift from broad contract negotiations to regulatory permit-based processes for concessions,infrastructure and other large investment projects to avoid unnecessary complexities in negotiations and implementing contracts,mini negotiations may still be required to implem

56、ent parts of the regulatory processes.Here,there is a notable shift from creating project-specific legal regimes at one end of the spectrum,to using narrowly constructed negotiations to implement specific legal requirements in the regulatory process.This can include,for example,specific environmenta

57、l obligations flowing from an environmental impact assessment process,to establishing specific local hiring obligations,or the inclusion of local purchasing requirements.Each of these types of issue requires specificity that reflects the particular context of the local community,the local environmen

58、t,the projects technology platforms and so on.So even where there is a well-developed permitting process,some negotiation is likely to be needed to complete that process.The handbook will cover negotiations of unsolicited contracts,as well as renegotiations of existing contracts or permits that are

59、already in force.While certain variations on theme will be required,the guidance set out in this handbook is relevant to all these contexts as well.4 Greenfield contracts relate to projects that involve constructing new facilities on undeveloped land or site,while brownfield contracts relate to proj

60、ects that involve redeveloping or repurposing an existing facility,land or site.Introduction91.5 The single biggest negotiating error:the contract is an end pointThe focus on negotiating investment contracts to maximise the sustainable development benefits in the host country highlights the long-ter

61、m nature of FDI in developing countries.This in turn highlights one of the major structural difficulties in some countries for negotiating these contracts:the short-term objectives of some government officials versus the long-term objectives of promoting sustainable development.In particular,there i

62、s a large incentive for some government officials to see the conclusion of a contract negotiation as the end point.For example,a minister or other official may receive great credit for negotiating a contract and securing an investment but will not be in the same ministerial position when the investm

63、ent starts and negative impacts arise due to gaps or errors in the contract or because of a lack of specific obligations on investors to secure sustainable economic benefits.There is a time lag between concluding a contract and seeing its balance of positive and negative impacts.This time lag create

64、s pressures to see concluding a negotiation as the goal,as opposed to the long-term perspective of seeing the optimal benefits for all parties as the goal.Optimal benefits does not always mean maximum possible benefits.Rather,it reflects the reality that some resources may not be harvestable for env

65、ironmental or social reasons,and that maximising resource use is not always the best approach.The guidance in this handbook takes a long-term approach.It clearly understands that the conclusion of a contract is the starting point of a long-term relationship,which is intended to last decades in most

66、cases.The guidance here focuses on this long-term relationship and what is needed to make it succeed,not just what is needed to finalise a deal.Several of the steps set out limit the ability of individual officials to focus only on concluding a contract as a goal,in order to maintain the focus on th

67、e longer-term success of the project for the host countrys development benefit.Handbook on Extractive Sector Investment Negotiations101.6 Negotiations,contracts and the rule of law5 All long-term contracts initiated and executed by governments should have one goal to maximise benefits to citizens.Wi

68、th that in mind,contracts are,or at least should be,negotiated under the host governments domestic laws,with careful references,in some cases,to international law and/or international standards.This should be the standard starting point for any contract negotiation.This may seem obvious today,but it

69、 has not always been the case.Even up to 2018,the World Bank model clauses for publicprivate infrastructure projects advocated the use of the national law of the foreign investor or a neutral law such as that of the United Kingdom or France as the governing law of the contract.These colonialist prac

70、tices are,however,now firmly rejected by host governments,as they should be.Yet,this is just the starting point.There is a further critical question of whether to include expansive references to international law or principles of international law as part of the governing law of a contract.We recomm

71、end against doing so and leaving it clear that the law of the host state is the governing law of the contract.In some instances,such as where the domestic law is considered by the government as antiquated or incomplete,specific references to pertinent international standards might be used to fill a

72、specific gap or need.Those references should be well circumscribed,taking into account the local context to ensure proper adaptation during implementation.In addition,there is a critical question of what law or rules prevail in the event of legal conflicts:the obligations and rights set out in the c

73、ontract or the applicable law of the host state?Again,up until recently,many contracts had clauses stating that in the event of such a conflict,the rights and obligations in the contract prevailed over applicable domestic law.In our view,this is not appropriate.Rather,in the event of such a conflict

74、,the generally applicable domestic law should prevail over the contract.In this regard,it is the obligation of both negotiating parties not just that of the government to ensure that what they negotiate is consistent with the applicable domestic laws and does not create any conflicts that would prev

75、ent the contract being implemented.5 This section is a condensed version of Chapter 3 of Aizawa and Mann(2021).Readers who wish more detail are invited to consider this chapter.Introduction11These domestic laws set the basis for the provisions within the contracts,administrative regulations pertaini

76、ng to the specific industry,fiscal policies and any other relevant actions.Domestic laws also set out the provisions for recourse and dispute resolution when needed.Therefore,the primary focus of this handbook in terms of laws governing contracts will support the rule of law under the specific host

77、countrys domestic law.Indeed,many contracts have what are known as severability clauses to ensure that if one provision in a contract is found to be illegal under the applicable law,it can be severed from the contract while the remainder of the contract remains in effect.In the domestic laws of many

78、 jurisdictions,severability is even a rule of interpretation applied by the courts when interpreting contracts and other instruments and this handbook fully supports it.One aspect of the domestic law worth noting here is the provisions that enable government negotiators to negotiate contracts with t

79、he investor in the first place.These provisions should set out the scope of the governments authority to negotiate,what,if any,deviations or exceptions to domestic law may be negotiated,what incentives may be offered,the duration of a contract,the scope for stability provisions,if any,and so on.In o

80、ther words,negotiators should have a clear understanding of the scope of negotiations they are allowed to embark on,and should not be given carte blanche to negotiate beyond such limitations.The enabling clauses for this purpose should be clear,binding and enforceable by judicial declarations that c

81、ould strike down clauses outside the legislated parameters.This not only limits the ability of government officials to act outside the law,but it also reduces the incentives of investors to seek provisions that are outside those legal parameters.1.7 Professionalism,ethics and corruption in the negot

82、iation process Finally,given the importance of promoting transparent and consistent interactions with investors,there is certainly a need for professionalism and consistent rules,processes and procedures that level the playing field for government negotiators and investors.The level of professionali

83、sm,the avoidance of corrupt or unethical behaviour,the preparation on the part of the negotiators,and the preferred approach to Handbook on Extractive Sector Investment Negotiations12negotiations,will enable governments to achieve the goals intended with mutual benefits for all development,extractio

84、n,and fiscal goals for the government with profits for the investor.Long-term investment contracts often involve hundreds of millions,if not billions,of dollars,and there is often an incentive for the people involved to engage in inappropriate activities.There is a growing expectation globally of th

85、e need to curb corruption through a more transparent and consistent way of doing business,especially as developing countries seek to attract foreign direct investment.Transparency reporting provides an insight into how companies and governments interact on a global basis and many developing countrie

86、s have found themselves under scrutiny for inappropriate business practices.Therefore,open and transparent reporting enables the public to hold the government to account.It also allows governments to know who(individual)or what(legal entity)stands to benefit from the exploitation of its natural reso

87、urces under the beneficial ownership principle,which requires the disclosure of the beneficial owners of a company.The most notable Corruption Perception Index(CPI)is published annually by Transparency International,where 180 countries are ranked from 0 to 100 with 100 being perceived as very clean.

88、In the CPIs,which have been consistently published since 1995,numerous developing states have found themselves below the midline.Many developing host countries have for some time been working to improve their legislation to more effectively combat corruption.The developed home states of many MNEs ha

89、ve also been enacting anti-corruption laws that apply to the extraterritorial conduct of their MNEs,especially to criminalise the bribing of foreign government officials to secure business overseas.While these legislative responses have helped to improve the image of many countries,the reality is th

90、at corruption is still prevalent in investorstate relations in many developing countries,which continue to fall below the midline in CPIs.In many instances,corruption is hard to prove as it is difficult to gather sufficient information to convict the culprits.Furthermore,in many cultures families ar

91、e so heavily intertwined,violations are most often handled in a family or cultural way.Hence,to curb some of these activities,government ministries are now focusing on ways in which to Introduction13Box 1.2:Ethical behaviours and suspicious activitiesAs the evaluation of a project is being conducted

92、(see the steps set out below),suspicious acts to note include,but are not limited to,the following scenarios:A.Government official holding a licenceFor example,John Jones,an Assistant Minister at the Ministry of Mines in charge of administrative permits,has been employed for the last three years.Six

93、 years ago,he obtained an administrative permit for an exploration license along a well-known gold vein.As a part-time venture,he spent his weekends exploring and gathering data on the site.As a part of his normal duties,two years ago he issued an administrative permit to XXX company for the explora

94、tion of a gold vein.The company has been exploring and gathering data on the reserve and is coming towards the end of the permit,at which point it hopes it will be granted a Class A Mining License.It realises that John Jones holds a permit in the general vicinity of its own exploration area.The comp

95、any is also fully aware of Johns position at the ministry,which could be helpful to it when it applies for the mining license.The company approaches John and purchases the license for an undisclosed amount in a private transaction and incorporates the section under the request for a Class A Mining L

96、icense.While John owned the licence prior to joining the ministry,what should he have done upon joining the Ministry of Mines?Is transaction with the mining company a corrupt act or a simple business transaction?What are the issues associated with this activity?B.Confidentiality:Discussing the detai

97、ls of the technical assessment with an investor or someone else who is not a member of the technical assessment teamFor example,a senior government official invited a member of the project technical assessment team out to a Sunday afternoon brunch at a secluded resort.During the brunch meeting,the s

98、enior official begins to discuss the process of the technical assessment and what the findings are so far.An interested investor just happens to be having brunch at the same location and the senior government official introduces the investor as a friend of many years.He continues to ask about the te

99、chnical assessment process in the presence of the investor.At the end of the meal,the senior official offers an amount to reimburse the technician for his petrol and time.What,if any,are the implications?C.BriberyAn exceptionally good friend of the lead of the technical committee calls him and invit

100、es him to meet downtown for a drink.He then gives his friend an envelope containing money in the name of another friend whose project he is working on.The technical lead later finds out by chance that many such envelopes have been passed out.Assuming that the current project is the most prominent am

101、ong those being considered for a licence,what,if any,are the issues and challenges?Handbook on Extractive Sector Investment Negotiations14develop and support ethical behaviours with a view to improve openness and transparency.Ethical training focuses on using the values and moral actions expected of

102、 leaders to promote behavioural change,with an emphasis on global standards of transparency and their application to government officials especially as they relate to dealings with foreign economic actors.Corruption is one of the most difficult activities to track or report,not only because it has m

103、any forms but also because in its simplest form,it is a transaction between consenting parties,even though it is illegal.Notwithstanding the development of new laws,there will still be those who attempt to influence decisions on behalf of interested parties in negotiations with governments.Corruptio

104、n exists in all countries,but it seems to occur frequently or rather its deleterious effects are most perceptible in countries where poverty,low wages and donations seem to be a part of the culture.Can ethical behaviour be legislated for?Across the developing world,domestic laws are being enacted to

105、 help stymie the corruption associated with the acquisition of contracts.Cultural norms of gifting exist in many countries globally;however,the amount and intent are significant.Studies show that under the guise of facilitation payments,such cultures have often been exploited by MNEs(Girard,2021).In

106、 2016,a joint initiative of the African Development Bank and the OECD published Anti-Bribery Policy and Compliance Guidance for African Companies,a tool for companies operating or seeking to operate in Africa(AfDB&OECD,2016).It noted that many countries still operate on a cash basis and paying bribe

107、s is still perceived as the“only way to survive”in some African countries,whether as a company or individual.Therefore,there remains a question of the expectations of at least some multinationals,despite them being fully aware of laws against corruption,as to whether they still see gifts as a part o

108、f the process?How can a culture of bribery,corruption and unethical behaviour be eliminated,or at least minimised?As teams evaluate project proposals,they must be aware of circumstances where there are loopholes allowing dubious,corrupt and unethical behaviours.Most of all,there must be solutions fo

109、r dealing with these situations from both sides.Introduction15As negotiating teams are assembled,it is crucial that the government team should not only be selected from diverse departments and ministries but also from diverse backgrounds,socio-economic groups,and even financial and social capacities

110、.Therefore,it is important to remind the team of the overall guiding principles of good governance and professionalism that are intended to represent the government.1.8 A commitment to successA different issue of professionalism also arises in government negotiating contexts:that is,the commitment t

111、o success.In many developing countries,there are what can best be described as self-defeating approaches to negotiations.Three classic examples of this are reflected in the following statements.1.We are outmatched and lack the necessary capacity so it does not matter what we do,we cannot win anyway.

112、2.We are beggars for investment,so we just have to accept what they say and that is it.3.We can just finish the negotiations with whatever they want,and then make changes in the contract unilaterally later because we are the government.All these types of approaches foreshadow a negotiating team that

113、 is more prepared to fail than succeed.It is making excuses for failing before even beginning the process.This handbook offers remedies to such self-defeating approaches by setting negotiating standards and processes that enable government officials to succeed in achieving strong,sustainable investm

114、ent contracts that reflect the national interest.It does so not by ignoring the root causes of such approaches,but by identifying them and addressing them so that success is within reach.1.9 Three phases of this handbookA negotiation process is a little like building a house.The first part of the pr

115、ocess is often the longest and most arduous:building a foundation,framing the walls,installing the floorboards and roof,framing out the windows and doors,and so on.This is similar to the pre-negotiations process,in which Handbook on Extractive Sector Investment Negotiations16the foundation and frami

116、ng for the negotiations must be set before the actual negotiations can begin.Like building a house,it also always takes more time to do this work than anticipated,as it is detailed work that must be done right.To do this,one needs an array of different skills and knowledge,a co-ordinated process to

117、gather and collate all relevant information,and the proper assessments and analysis to make sure the job has been done well.Then the rest of the house will sit square,can be finished properly and will stay solid for decades to come.When it comes to putting up the plasterboard on the walls,putting in

118、 the windows,and selecting the right cupboards,floors and countertops,and paint,this is like the negotiation process:it is the shiny nice things we see,but they would not work if the first stage of building the foundation and structure was not done right.The hard work has to come first.After the neg

119、otiations,like a home,comes the maintenance phase.A beautiful house still needs regular maintenance,starting soon after it is built,and extending throughout its life.So,too,a contract needs regular maintenance after it is concluded to ensure its goals are fully achieved over the long term.It is to t

120、hese phases that we now turn.Figure 1.1:The three phases of this handbookIntroduction17Handbook on Extractive Sector Investment Negotiations18Chapter 2 Pre-negotiationsChapter 2Pre-negotiationsThe pre-negotiations phase is when questions in relation to the project are asked and,hopefully,answered.Th

121、e screening of investors occurs,consultations are held where necessary,and a systematic process and sense of structure and order should emerge for the decision to negotiate and the negotiations themselves.Negotiations of long-term contracts should be viewed largely as apolitical,because they fall wi

122、thin the ambit of achieving the countrys national economic and sustainable development goals.In this sense,the contract and associated FDI is not a goal in itself,but a means towards achieving broader development goals.The contract should reflect,as noted above,a long-term vision that goes beyond sh

123、ort-term political considerations.The negotiating team and process should reflect this apolitical approach as much as possible,ensuring,for example,that a wide range of expertise is available to the government throughout the process.In the process of attracting investments and FDIs into the host cou

124、ntry,the objective of the negotiating team is to know what is wanted,and to get the maximum benefits that can be derived from the leveraging of its natural resources or other investment opportunities.To be broadly based and systematic,every negotiation preparation process should be intergovernmental

125、 and multi-disciplinary,and with input from the requisite community leaders where relevant.The team is charged with the responsibility of negotiating on behalf of the host government using the necessary tools,internal and external expertise,and international standards that promote good governance,su

126、stainable development and modern environmental practices,while ensuring basic human rights,gender and youth equality,community development,social Box 2.1:EITI PrinciplesThe use of the Extractive Industries Transparency Initiatives(EITIs)guiding principles on fiscal issues and contract transparency(2

127、023)can help strengthen a countrys negotiating position.See Addendum 2 for more details on these principles.Pre-negotiations21and economic development.This must all take place within the ambit of domestic law.2.1 Defining the scope of negotiations:the role of domestic law in the start-up,pre-negotia

128、tion phaseThe first issue that officials should address is the scope and nature of the law(s)applicable to a negotiation with an investor in the sector involved.The range of applicable laws and regulations may set out who must be at the negotiating table,the scope of potential negotiations on differ

129、ent issues,especially fiscal,labour and environmental issues,and will set the baseline for ensuring the contract is consistent with the full scope of applicable laws.In short,applicable laws will help determine what is negotiable,and who will be involved in the negotiating process.There are several

130、types of laws that may have relevance to a contract negotiation in the natural resources sector,as follows.A general foreign investment law may contain provisions mandating certain steps in a negotiating and investment-making process.It could also set out incentives and stabilisation rights and obli

131、gations,and may indicate who must be involved in the negotiations.The national tax law may have requirements that are relevant for determining fiscal obligations that are negotiable and the role of the finance minister in any negotiation involving the fiscal regime.It could also set specific rules o

132、n taxes for the sector,including limits on incentives or other fiscal matters.A mining,oil or gas and land-use law may have specific requirements,including regarding royalties and other charges.An infrastructure or public procurement law(sometimes a publicprivate partnership(PPP)law)may set out requ

133、irements in that sector that might still apply for any infrastructure elements of a natural resource project.Handbook on Extractive Sector Investment Negotiations22 Environmental laws can have a large impact on the design of an investment,while also containing requirements for specific agreements.Th

134、ere may be environmental laws that are more specific,such as water-use and-quality laws.Many states are moving to have biodiversity and climate change laws in place,along with special protections for indigenous lands.Labour laws may impact the design and implementation of employment demands by the g

135、overnment.Immigration laws will apply to when foreign workers are to be admitted to the host country.There may be other laws that are also relevant.The legal review needs to be holistic to ensure that the investment does not run counter to any extant law in the country.Therefore,in addition to poten

136、tially defining at least some of the negotiating personnel,the applicable law may also be relevant to defining what may and may not be negotiated.These legal provisions must also be respected.For example,a mining law may allow negotiations with a potential investor to cover fiscal incentives if the

137、investment in the mine is of a certain minimum size,but not if it is below that size.Or environmental impact assessment laws may require certain processes to be followed by all potential investors when the precise scope and technology for a project is fully known,and thus prevent the government from

138、 guaranteeing a transition by an investor from the exploration phase to the exploitation phase.This is an issue we return to specifically below.It is critical for the negotiating team to know what the scope of a negotiation can legally be,and the potential limits of any project,as early as possible

139、in the process.This is Box 2.2:Papua New GuineaIn Papua New Guinea,the Resource Contracts Fiscal Stabilisation Act 2000,enables the government to negotiate certain types of stabilisation clauses,but also sets limits on negotiating them and prohibitions on negotiating certain incentives.It is a short

140、 Act of five sections,but is legally critical for negotiators to know,understand and apply.Pre-negotiations23so the team can assess the project proposal,the options for the government in response,and the limits of any negotiation it can undertake.In addition to knowing the full scope of the applicab

141、le laws and regulations,it is also important for the team to know if any international or bilateral treaties and conventions apply.These can range from international environmental agreements on using mercury in treating certain ores to tax treaties with complex tax implications for mining tax regime

142、s.6 International investment agreements may also be relevant to certain relationships between an investor and host state negotiating a contract,including for dispute settlement purposes.Government officials should,therefore,be equally aware of what treaties may potentially apply to their relationshi

143、p with the investor before beginning any negotiations.2.2 Indigenous PeoplesThere are Indigenous Peoples in many parts of the Commonwealth.For example,in the Oceania region,Indigenous Peoples include but are not limited to the Polynesians,the Aboriginal Australians and the Papuans.In Canada,there ar

144、e the First Nations,the Inuit and the Metis as the main indigenous groups in the country.In the Caribbean,the Tainos,the Caribs and the Arawaks are among recognised Indigenous Peoples.There are also numerous indigenous peoples in Asian regions.Canada,Australia and New Zealand have extensive laws and

145、 obligations in relation to natural resource projects taking place on or adjacent to indigenous lands and territories in terms of their impact on Indigenous Peoples.In Africa,most African peoples are indigenous in the sense that they originate from the continent.However,in practice,an identity as an

146、Indigenous Peopleper the modern definition is more restrictive,and certainly not every African ethnic group claims identification under these terms.This has often made it more difficult for those groups and communities who do claim this recognition to have it applied by governments.Those who,6 The I

147、ntergovernmental Forum on Mining(IGF)has just released a draft practice note on the role of tax treaties in mining that will be finalised in the next months.This can be tracked at:https:/www.igfmining.org/financial-benefits/global-mining-tax-initiative/international-tax-treaties/Handbook on Extracti

148、ve Sector Investment Negotiations24Checklist 2.1:Establishing the laws that apply to the proposalYESNOAre there specific domestic laws that apply to the question of which ministries must be involved in the negotiation?At a minimum,verify the following laws and which ministry they may identify.Minist

149、ry identified Foreign investment law All fiscal laws National procurement law Environmental and social impact assessment and monitoring laws Water laws Constitutional land ownership laws Land tenure/rights/laws Sectoral law(mining,petroleum,etc.)Immigration laws Labour laws Subnational levels of gov

150、ernment Any laws identifying community or Indigenous Peoples rolesAre there any laws that set limits to what government officials may negotiate(for example,constitutional prohibitions of foreign ownership)?At a minimum verify:Nature of limits on negotiations Foreign investment law All fiscal laws Na

151、tional procurement law Environmental impact assessment and monitoring laws Water laws Land tenure/rights/lawsThat is,is there a legal mandated timeframe during which an investor may use the land?In some instances,land tenure prohibits granting of 50-year rights.Social and human rights impact assessm

152、ent laws Sectoral law(mining,petroleum,etc.)Immigration laws Labour laws Subnational levels of government Any laws identifying community or Indigenous Peoples roles and rightsPre-negotiations25by a variety of historical and environmental circumstances,have been placed outside of dominant state syste

153、ms,and whose traditional practices and land claims often come into conflict with the objectives and policies implemented by governments,companies and surrounding dominant societies,are often the groups seen to claim this internationally protected status in all countries(Anaya,2004).The use of the te

154、rm Indigenous Peoples brings with it recognised international law rights set out in International Labour Organization(ILO)and UN instruments,the most important being the UN Declaration on the Rights of Indigenous Peoples(UNPFII,no date).7 States and investors must comply with these rights,highlighte

155、d by the principle of free,prior and informed consent(FPIC),in relation to natural resource projects.We will not enter here into a discussion of the definition of Indigenous Peoples or their rights and remedies.It is an extensive subject.For present purposes,it is sufficient to clearly highlight thi

156、s as an issue that governments and investors must,in relevant circumstances,address.The term Indigenous People should not be used interchangeably with community.Communities are a group 7 The UN Declaration on the Rights of Indigenous Peoples has a specific list of tribes and peoples that are designa

157、ted as indigenous.YESNOWhat laws and regulations will apply to the proposed project in terms of regulating the establishment and operation of the project?Limits on negotiations:Foreign investment law All fiscal laws Tax revenue laws National procurement law Environmental impact assessment and monito

158、ring laws Water laws Land tenure/rights/laws Social and human rights impact assessment laws Sectoral law(mining,petroleum,etc.)Immigration laws Labour laws Subnational levels of government Any laws identifying community or Indigenous Peoples rolesHandbook on Extractive Sector Investment Negotiations

159、26of persons living together in a specific location,such as a town,clan,village or city.Indigenous Peoples,also referred to as first people,aboriginal people or native people,are culturally distinct ethnic groups who are native to a particular place.Peoples are usually described as being indigenous

160、when they maintain aspects of an early culture that is associated with a given region.In Commonwealth countries,care must be taken to protect Indigenous Persons and their tribal lands,to ensure that they are fully engaged in the process and that the agreement,while promoting development,also ensures

161、 that their cultural heritage is preserved.The protection of Indigenous Peoples in countries where they are recognised should be operationalised in the negotiations through the incorporation of principles and terms that facilitate the preservation of their interests.2.3 Building a negotiating teamBe

162、fore building a negotiation team,one needs to understand the purpose of the team.Each negotiation must reflect the development agenda of the government and must be inclusive.This means inclusive with respect to factors such as gender and reflecting all aspects of development including employment,inf

163、rastructure development,education,health and sanitation,to name a few.In addition,the negotiating team must bring to the table the best expertise available within the government to succeed at the task at hand.When positions on the negotiating team are being considered,it is important to focus on the

164、 expertise needed and not simply on the title or ministry an official comes with.This is especially so when,as will generally Checklist 2.2:Indigenous PeoplesAre there Indigenous Peoples in the area of the project?If so,who represents them for interactions with the government or economic actors?Has

165、an assessment been carried out of the impacts of the proposed project on Indigenous Peoples,their lands and waters,and their cultural heritage?Have they been consulted in this process?Have they been given the opportunity to review and comment on any reports?What government agency is designated to le

166、ad interactions with Indigenous Peoples?Have they been notified and engaged?Pre-negotiations27be the case,a minister personally will not be participating but delegating the ministry role.In short,the negotiating team must reflect the breadth of issues likely to be involved in the negotiation,and the

167、 skills and expertise needed to address these issues.The importance of a cohesive and inclusive intergovernmental team that will evaluate and ultimately negotiate an agreement that is fully in keeping with the governments social,economic and development goals cannot be overstated.The advantages of s

168、uch a team are obvious the country will benefit from its extractive resource development,the government will benefit from increased fiscal revenues that can be used to support sustainable development,and the people will benefit from the prosperity of their country.On the other hand,a disunified or n

169、on-inclusive team risks undermining the potential economic,social and financial benefits to the country.If one minister feels that fiscal benefits to the country are too low,he/she can undermine and undercut the inflows of FDI into the country.If another minister feels the protections on the country

170、s watersheds and mangroves are too restrictive,she/he can undermine the environmental protection efforts of the country if that minister is not represented.If any minister does not understand community rights or the rights of the Indigenous Peoples,he or she can undermine the long-term stability of

171、the project as communities and Indigenous Peoples might continuously disrupt and stall works.Therefore,it is important that every member of the team understands and respects the laws,regulations and national objectives,while working together in a cohesive manner and as a single unit in the negotiati

172、on of sustainable,long-term,extractive contracts.Therefore,for extractive industries,and more generically for all sectors,a government should build a negotiating team that will interact directly with the investor on behalf of the government.That team should include:a.the Ministry of Justice(preferab

173、ly the Attorney-Generals(AGs)office)as the highest legal authority in the land,along with competent legal drafters;b.the Ministry of Finance as the authority on financial matters;Handbook on Extractive Sector Investment Negotiations28c.the National Revenue Authority as the authority on managing the

174、fiscal regime and collecting taxes;d.the minister responsible for investments,as the legal authority on investment incentives and possible investment contracts;e.the Ministry of Mines if the project involves mining;f.the Ministry of Petroleum if the project involves petroleum;g.the Ministry of Land

175、as the authority on the land mass is being discussed;h.the Ministry of State as the representative of the highest office(President);i.the minister of internal or development affairs,as the representative of communities,Indigenous Persons,etc.if the project impacts Indigenous People or communities;j.

176、the Ministry of Environment(and the Ministry of Water when separate);and/ork.Any other ministry or department as necessary.There may be additional ministers that,by law,must be included in any negotiations.There may also be additional support from a technical committee that the negotiating team can

177、draw upon,but where all the members of the technical committee may not be on the negotiating team(see Section 2.2.1).This list assumes that there are separate ministers for each department,which is not always the case.For example,in many jurisdictions,the Tax and Revenue Authority is embedded within

178、 the Ministry of Finance,while the Ministry of Lands may be responsible for the environment.Hence the team should reflect government ministries directly involved with the project.It is the role of this team to adequately reflect an intergovernmental position and negotiate an investor/state agreement

179、 in the best interests of the host country.Therefore,the final composition of the team will be determined by the specifics of any given investment process.The most apolitical way to phrase the question is simply,what is the composition of the team that will be best placed to deliver the results need

180、ed by the government and country as a whole?Pre-negotiations29It should also be noted that the negotiating team need not be static.As more information is processed,it may be necessary to add more representative ministries.It may also be that some expected expertise is not needed so some officials ca

181、n be dropped from the process.For example,if the environmental impact assessment and management plan are statute-based and outside the negotiation,a participant from the environmental department may have a liaison role or could play more of an assurance role in the negotiating team,as opposed to tak

182、ing a more active position.Team leadership is a further issue.Domestic law may identify who the lead negotiator is or should be designated by.When such legislation exists,the lead negotiator will be so identified.In some states,there are established investment or procurement laws detailing the proce

183、sses to be followed based on project Box 2.3:Sample legislation mandating the establishment of a negotiation team for concession agreements(long term agreements)Composition of the Inter-Ministerial Concessions Committee The Inter-Ministerial Concessions Committee for a particular Concession shall co

184、nsist of nine(9)persons constituted on an ad hoc basis as required in accordance with subsection(3)of this Section.Any reference to the Inter-Ministerial Concessions Committee with respect to a specific Concession means the Inter-Ministerial Concessions Committee as constituted for that Concession.W

185、ithin fourteen(14)days after notice of approval of the evaluation report by the Inter-Ministerial Concessions Committee pursuant to clause(a)or(b)of subsection(1)of this Section,the President shall appoint a Negotiation Team upon a recommendation of the IMCC for the conduct of the negotiations with

186、the highest ranked bidder.Each Negotiation Team shall consist of the Head of the Concession Entity,the chairperson of the National Investment Commission,the Minister of Justice,the Minister of Finance,and three Persons designated by the President,two of whom shall be Cabinet members.The chairperson

187、of a Negotiation Team shall be a Cabinet member designated by the President.Each Negotiation Team will report to and will be responsible to the President.(6)Each Negotiation Team shall organise a technical committee to support its work.The team shall include qualified Government employees and releva

188、nt qualified legal and technical advisers(who may include paid or pro bono international advisers)retained in accordance with Section 78 of this Act.Source:Excerpted from Public Procurement Act,as amended 2010,Liberia11 Amendment and Restatement of the Public Procurement and Concessions Act,2005(201

189、0),Republic of Liberia.Handbook on Extractive Sector Investment Negotiations30type,size and other variables.If the natural resources project fits within such legislation,the lead negotiator will be clear.If domestic law does not contain such provisions,then it will be up to the lead minister the pri

190、me minister or the president depending on the political structures in any given country,to appoint the lead negotiator.While it is unusual,it is possible that a person who is not a sitting government official may be appointed as the lead negotiator.When this is the case,it is important for the perso

191、n to have a constructive reputation that crosses political divisions and partisan politics,to avoid a sense of the position and the process being politicised or being used for partisan political purposes.The lead negotiator should have no vested interest in the mining project or vis vis any other pr

192、oject that may be related to it.The lead negotiator should be someone who is widely respected for her or his skill Checklist 2.3:Who is on the negotiating team?Have all the laws been reviewed to ensure all legal requirements are met?If so,who is designated by law to be on the team?Is the lead negoti

193、ator designated by law?Ministries designated:Is the sectoral minister on the team?That is,the minister of mines or petroleum?Name:Are there significant social and environmental issues likely to need relevant ministries on the team?If so,which?Names:Is there a need for Indigenous Peoples participatio

194、n or local community participation?If so,who?If not,who will be charged with representing these interests?Names:Are all the skills needed in the negotiation reflected in the team members?If not,what other skills are needed?Examples include the following.Legal:drafting,international law,domestic law

195、Economic:investment law,national development agenda Economic:project modelling,fiscal issues Technical:geological and extraction technologies Environmental:national environment laws,management Others(specify):Name:(Experience)_ Y/N_ Y/N_ Y/N_ Y/N_ Y/NAre the additional skills needed available inside

196、 government?If so,who has these skills?If not,where can they be obtained?Names:Does the team have access to requisite tools?Is there an economic model to support the evaluation of proposals and developing counter positions?Y/NWho will be responsible for ongoing reviews of negotiating team needs and

197、ensuring these are met on an ongoing basis?Name:Pre-negotiations31and leadership capacity,which can lead to widespread support for the project when the negotiation is completed.The lead should also be aware of the overall development goals of the government and how the project may support them.2.3.1

198、 Technical committeeIn many cases,the government should consider establishing a technical committee to support the negotiating team.This technical committee should consist of at least one member each of the ministries on the negotiating team,with a strong focus on the technical expertise needed to r

199、eview and understand proposals,build negotiating positions,and create clear and cohesive national negotiating goals.In addition,and where relevant,at least one member representing the communities of the affected areas and a representative of a civil society organisation(CSO)with expertise that is re

200、levant to the type of investment concerned may be included.This is relevant especially in the instance were community lands and social interests are likely to be affected.This will provide transparency and build stakeholder confidence in the process.Additionally,the inclusion of at least one communi

201、ty representative will allow a smoother process and avoid the likelihood of the community rebelling against the government and/or the investor on the basis of them either not being aware of the project or outright rejecting it.It may also be important to have Indigenous Peoples participation in the

202、negotiating or technical committee,as already noted above.This will depend on the nature of their interest in the project,where relevant.It is the objective of the all-inclusive government negotiating team to bring a total level of expertise and knowledge to the team.In some instances,this can be do

203、ne through the combined skills of the negotiating team and the technical committee.While appointments on the negotiating team will reflect a mix of skills,and may have some political overtones at times,the technical committee should be based purely on knowledge and skills.The technical committee may

204、 also be slightly different from the negotiating team.For example,while the team may be considering a mining proposal,there may be port or railway Handbook on Extractive Sector Investment Negotiations32components to the project that also need to be addressed,making a member of the team with thorough

205、 knowledge of domestic ports,rail and related matters important.But it may not be necessary to have these skills on the actual negotiating team.Since the committee is(or at least should be)apolitical and comprises members with technical expertise(such as surveyors,engineers and technology experts),a

206、s well as lawyers and financial,economic,environmental and investment experts who specialise in the relevant sector,each respective member should be well versed in his or her area of expertise,as well as bringing expertise in each area of domestic law and regulations.For example,financial and econom

207、ic experts will bring financial and fiscal modelling tools that are useful for the evaluation of the cashflow,what the government will receive,and other factors over the life of the project.They should also understand applicable fiscal laws and regimes.Note,economic and financial models differ for d

208、ifferent types of extractive projects for example,with production share agreements where government participation is involved or with mining projects where government freehold interests are proposed.In addition to individual proficiencies,collective efficiencies and skillsets relating to negotiation

209、,a thorough understanding of international mining or oil and gas trends,international environmental trends and so on are necessary.Knowing about and understanding these trends is important,but knowing how to relate the trends to the national context and the specific attributes of the project is even

210、 more important.The technical committee can be broader than the negotiating team,but should at least include all ministries on the negotiating team.The checklist on the negotiating team(Checklist 2.3)can help inform the formation of the technical committee.2.3.2 Assessing the need for external suppo

211、rtIn addition to identifying government officials for the team,we have already signalled the need for the government to undertake an assessment of gaps in government resources and expertise,and what domestic or external resources may be needed to fill these gaps.In many instances,it has been observe

212、d that governments seek such external support from international Pre-negotiations33organisations,development non-governmental organisations(NGOs)and other agencies very late in the day,often just before a negotiation is being convened.There is no shortage of organisations willing to provide such sup

213、port(see Addendum 3).Indeed,this is the sexy part of the process and finding support for the negotiation process is relatively easy as a result.However,there is a high risk that getting external support just at the negotiation stage is too late in the day.Rather,it is highly recommended that an anal

214、ysis of what support is needed be done as early as possible in relation to any possible proposal,so that expertise can be brought in early enough to support defining all the issues,analysing all the financial,environmental and geological data,understanding the potential for maximising economic linka

215、ges and so on.In short,the earlier this is done,the better.It is also worth noting that many development agencies will also provide this support early in the process when asked.Otherwise,governments can purchase this support through professional financial,consulting,legal and other sources.It is cri

216、tical to understand here that governments of all levels of national development seek outside support in complex negotiations.Doing so is not a mark against the government,but rather an indication of its seriousness in seeking to achieve the best deal possible from a long-term perspective.It is equal

217、ly important to understand that seeking such expertise is part of the governments own investment in the success of the project.Whether support is provided on a pro bono basis or a fee-for-service basis,the investment by the government can return the costs many times over.In the fiscal sphere,for exa

218、mple,financial modelling skills can identify optimal tax and royalty benefits for the government.A modeller can also help avoid giving unnecessary tax incentives that may result in companies not paying hundreds of millions of dollars in taxes or royalties when the project could have gone ahead witho

219、ut giving such incentives.Literally,a government investment of US$0.51 million in necessary expertise can lead to hundreds of millions in extra financial returns and lowered environmental liabilities for the government over the life of a project.Of course,we are aware that resources to invest in a n

220、egotiation are not always available.Here,again,if a government acts swiftly enough with the resources it has available inside government,it can almost Handbook on Extractive Sector Investment Negotiations34always find the institutions that are able to provide the external support it needs early in t

221、he process.A key area of concern is often assistance with the review of complicated financial models and financing plans that accompany,or should accompany,a complete proposal.Local accounting and transactional firms might have the expertise and can be used as resources for a smaller fee than leadin

222、g international firms.International expertise in more complex contexts may be needed.Building in-house expertise is also possible.Legal expertise and senior negotiating skills may also be needed in some cases.These skills are often more accessible than economic and finance expertise,which can be qui

223、te specific to a certain mineral or metals or to certain sources of oil and gas.The need for external expertise is often especially acute for developing countries that have either just started entering into long-term agreements including PPPs,joint ventures,production sharing agreements or concessio

224、n agreements in the resource sectors or are renegotiating older long-term agreements.There are also instances where governments may only expect to negotiate one or two such contracts,such that the time and costs of building internal expertise would outstrip the costs of buying in the needed expertis

225、e.Again,governments should see resources used in this context as a long-term investment that will,if made early and effectively,lead to a return that can be 100 or more times the actual investment over the term of the project.Box 2.4:The OECDs Guidance to Assemble and Manage Multidisciplinary Teams

226、for Extractive Contract NegotiationsIn 2017,the OECD developed a contract template and other tools to engage external support in complex extractive contract negotiations.This guidance provides more detail than it is possible to include here on this issue,as well as a useful template for securing qua

227、lity external advisers.The scope of assistance reviewed by the OECD includes geological,engineering and industry(sometimes mineral-specific)knowledge,and financial,environmental and legal expertise.A key factor identified in the OECDs guidance is the need for external experts to work with government

228、 officials to help build longer-term expertise within government.This is a critical part of the relationship with any external advisers and is well set out in the template.Source:OECD(2017)Pre-negotiations35Where a government decides external support can be helpful,it is useful to ensure,as noted in

229、 the OECD Guidance,that part of the mandate from the support providers should be the training of government officials to negotiate contracts.Whether the task is financial modelling,environmental management,closure planning and financing(critical in natural resource investments),legal drafting or mor

230、e generalised negotiating expertise,all of the skills and knowledge being sought outside government can be used to develop skills and knowledge inside government.This is with a view to not only building capacity Checklist 2.4:Assessing the need for external supportAre all the skills needed for this

231、negotiation available to government?What are the criteria for assessing and identifying the requisite skillsneeded?What is the scope of the negotiation likely to be?What factors will help determine the governments position?How much fiscal negotiation will be involved?How much will domestic law be re

232、lied upon?For the skills needed,do we have senior people available?Or junior people?Do we need to train people in-house before the process starts?For the skills we need and do not have,where can they be found?In other sectors in government?In academia or the private sector?External sources:internati

233、onal development agencies?External sources:paid consultants?External sources:civil society organisations with relevant expertise?Have we considered potential conflicts of interest regarding the external organisations?Are the costs of such services within reach or must pro bono services be found?If t

234、he latter,what options or sources are available for these specific services?What methodology and training will ensure adequate transfer of knowledge and capacity building to mid-career and younger staff for the next negotiation?What is the process for identifying appropriate mentees/trainees across

235、government?Will the service providers agree to include training and skills development for the negotiating team or specific individuals?Does the engagement arrangement provide for training and skills/knowledge transfer?Will this training include ongoing briefings and post-negotiating sessionbriefing

236、s?Will it include on-the-job shadowing and training?Handbook on Extractive Sector Investment Negotiations36in a specific negotiation,but also to transferring and improving skillsets government-wide in other similar contexts.Agreements with such service providers should expressly include training and

237、 debriefing sessions to transmit as much information as possible to government officials,to be built on in future negotiation processes.Outside of any specific negotiation,governments should also consider continuous training and upgrading of skills as changes caused by improved technology,methodolog

238、ies and global frameworks in the extractives industry occur.An approach that considers ongoing training needs can improve the skillsets of negotiators for all the negotiations a country may undertake.With the growth of various in-person,online and hybrid training webinars over the past decade,legal

239、and financial skillsets can be more easily realised.For such a strategy to work,however,governments must also provide opportunities for officials to remain engaged in negotiations for more extended periods of time than they would usually spend in any given position.2.4 Reviewing the proposal by the

240、technical committeeOne of the first substantive roles of the technical committee is to review the proposal of the potential investor.(For clarity,in this context we use the term proposal to mean the generic proposal described in the information documents provided by the potential investor,as opposed

241、 to a draft proposed contract,though a draft contract might be one of the documents the investor provides.)This includes a factual review of the investor proposal,including analysis of its contents for basic information including financial viability,fiscal benefits to government,benefits to communit

242、ies,social challenges triggered by the potential project,and the overall net benefits or negative impacts of the proposed project.In short,technical committee must provide a comprehensive technical analysis of the companys proposal from the government perspective.And in so doing,the review of the pr

243、oposal must meet three key thresholds.1.Was this proposal presented in accordance with the governments procurement laws;that is,did it follow a Pre-negotiations37public bidding process or was the proposal submitted unsolicited?2.Does this proposal meet the guidelines,if any,as set by the investment

244、and other relevant laws for long-term contracts?3.Is the proposal in conformity with the relevant laws and,if not,what if any are the areas of potential conflicting objectives for example,the environment and local content.As discussed below,an in-depth review of the proposal then would follow these

245、initial baseline reviews.The technical committee must also undertake a proper review of the investor itself.Who is the investor?What is its history elsewhere?What are its tax and fiscal practices?What are its environmental and social records?And so on.Also critical is the need to know who the benefi

246、cial owner of the investment would be,not just a possible paper company that is a shield for the actual owner.It is also incumbent on the government to ensure that the source of funds is legal and legitimate,and that the investment is not being used as a vehicle to launder money.There must be a clea

247、r understanding and agreement among the technical committee(and then with the negotiating team)with respect to the viability of the proposal.As noted,this needs to be ascertained as early as possible in the process to avoid wasting valuable time,as well as to provide the opportunity to the investor

248、to either alter or withdraw the proposal.The goal at this stage is not final approval or legal acceptance of the project.Rather,it is to understand whether there is a sound basis to begin the detailed analysis,legal and negotiating work necessary to reach the stages of final approval and acceptance.

249、This section of the handbook,with its issue-specific subsections,reflects the reality that this stage of work is,undoubtedly,the most difficult and longest aspect of the negotiation process.It cannot be over-emphasised that contract signing and implementation depends on the successful negotiation of

250、 the agreement with mutual benefits to the parties involved.Careful and clear analysis and understanding of the core issues is paramount to the long-term success of any agreement.Preparations are at the core of all aspects of the negotiations and centre around the evaluation of the proposals and the

251、 recommendations for the contract.Handbook on Extractive Sector Investment Negotiations38Best practices and standards may change periodically.But at the core of all successfully negotiated long-term contracts are fundamental and in-depth knowledge and understanding of the needs,wants and expectation

252、s of the parties involved.In an effort to attract foreign direct investment and development partners,governments may well yield to political requests for the development of natural resources in specific areas of the country.However,there may be times when it is in the best interests of the country n

253、ot to develop a resource;for example,when the exploitation of a tropical forest area is requested,where there is an abundance of endangered flora or fauna;or where the environmental impact would outweigh the benefits of the project.Otherwise,the economics may not be viable;for example,in the case of

254、 iron ore when the iron content is so low relative to the market price that exploitation does not make economic sense.Or one may find an investor who at face value appears to have all the right answers,but with just a little due diligence is found to be quite unsuitable and deficient is several key

255、areas such as management,financial control and/or performance.In reviewing the viability of a proposal,the technical committee should endeavour to strike a reasonable balance between the economic,social and environmental dimensions of the proposed project,taking into account the local context in whi

256、ch the project will be carried out.Therefore,as emphasised above,the successful execution of the contract depends on the preparation and full understanding Box 2.5:Technical committee must determine the overall viability of the projectThe initial review by the technical committee should determine if

257、 the project is financially,environmentally,technically and socially viable.All these issues are highly relevant today.If,for example,a major natural resource project cannot secure a social licence to operate from the local communities or Indigenous Peoples it affects,the project is unlikely to ever

258、 succeed.A notable example is the South Korean company Daewoos failure to get a social licence to begin and operate a project in Madagascar,which ultimately brought down the entire government(Andrianirina Ratsialonana et al,2021).We have also seen multiple international arbitrations concerning proje

259、cts that were never socially and/or environmentally viable,but the governments involved did not say so early enough in the process and thus did not terminate the investment making process at the earliest opportunity(Beharry&Kuritzky,2015).Delays like this allow a potential investor to build up legal

260、ised expectations of being able to proceed.In some cases,investors have won more than US$1 billion in damages as a result of the final determination that the project cannot go forward.Pre-negotiations39of the project,the people involved,and their objectives and expectations.Having reviewed the propo

261、sal,recommendations should be made to the negotiating team for review,bearing in mind the following questions.Is the proposal in the best interests of the country?Can appropriate government goals be set out in relation to the proposal to maximise its economic and social development benefits,while mi

262、nimising its potential negative impacts?If the project is generally seen to be promising,the next steps will involve establishing the governments goals in relation to the project.This is the final section of this part on pre-negotiations.2.4.1 Reviewing the proposal in detailOnce the negotiating tea

263、m and technical committees are established,an initial meeting should be held to begin the review of the proposal.This will incorporate the initial work already discussed,determining what laws apply and the impact of those laws.The first step in the review will be to set a timeline for completing rev

264、iewing all the proposed project documents.This is necessary to avoid any long delays or extenuating circumstances that may affect the project unduly.The timeline should reflect the complexity of the project and any legal obligations that may need to be completed before moving on to a detailed assess

265、ment of specific issues.For example,what are the environmental assessment obligations,when must they be completed,and by whom?The key issues at this stage include the following.Creating an overview of the project proposal.Determining,as an initial matter,if the project is viable and attractive and,i

266、f so,why.Determining if there any obvious barriers to the project.Deciding if the financial analysis of the project is valid.For example,is there a robust model with it?Do the assumptions seem fair?What,if any,are the issues?Handbook on Extractive Sector Investment Negotiations40Checklist 2.5:Propos

267、al overviewTechnicalBrief notesWhat is the natural resource?Gold,iron ore,silver,coal,green energy mineral and metals,etc.Are there secondary minerals also?Oil,natural gas,shale gas?What is the proposed technology for the project?Is the technology new or well-known and widely used?Is the technology

268、financially viable?Does it fit with the environment?Does it minimise risks?Does it maximise production?Is it a brownfield project or an ongoing operation being taken over?If yes,do the requisite data exist to understand the history of the site and prior project/investment?What is the reason for the

269、turnover to a new owner/investor?What is the current status of the operation of the project active or inactive?Did the previous company have financial difficulties?If so,why?What,if any,are the outstanding obligations to the government?To financial institutions?To other creditors?What are community

270、relations like around the project?Do they present major hurdles?What are the outstanding environmental obligations or conditions?Has the project been profitable in the past?Is the project in transition from exploration to exploitation?If so,has the line ministry collated the data to have a sense of

271、the life of the mine,quality of resource,etc.?Are the exploration data available to the government and verifiable?Has an environmental and social impact assessment(ESIA)for exploitation been carried out and approved?What are the local communitys views on exploitation?In a greenfield operation,the te

272、am must rely on qualitative and quantitative information from the mining department and the project proponent/investor.What is the economic value of that resource or project?Is the area in question part of an area designated for resource exploitation in any national development plan?What other econo

273、mic activity currently takes place in the area?Does Infrastructure exist?If not,outline the requirements,if any.Financial(See also feasibility study checklist,below)What is the economic value of that resource or project?What is the estimated government share of this value?Is the investor seeking any

274、 tax or other incentives?Pre-negotiations41 Carrying out a fiscal analysis.That is,asking if the fiscal assumptions in the financial model are realistic?Do the parameters match the governments current fiscal regime?Determining what the total fiscal benefits to government are under various project pr

275、ofitability scenarios?Deciding if,compared to the proposed investment and size of the project,the project proposes a reasonable sharing of the benefits.Asking,are there obvious environmental risks?Asking,are there any obvious social issues?Determining if there is sufficient infrastructure available?

276、Are the fiscal and financial elements consistent with the applicable law(including percentage of debt)?Does the proponent have a sound financial record?Environmental What is the environmental condition of the site?What are the environmental concerns around the proposal,if any?Of the government?Of th

277、e community?Of Indigenous Peoples?Has the proponent produced a preliminary or complete environmental impact assessment(EIA)and environmental management plan(EMP)?If so,have they been approved by government authorities?Have climate change resilience and adaptation,and water access,been fully addresse

278、d in their planning?Social What are community relations like around the project?Do they present a major hurdle?What are the related potential economic and social development values/impacts of the project?Have local employment and local business participation in the project been considered?Has downst

279、ream business promotion been considered or is the project only for export?Has gender equity been considered?Have youth issues been considered?Have other human rights issues been considered?Handbook on Extractive Sector Investment Negotiations42The precise issues and level of detail will vary project

280、 to project based on the nature of the project,the location,technology,proximity to communities and environmental features,the amount of the investment,and so on.So no single checklist prepared in advance can account for all the issues and possible screening questions.Nonetheless,Checklist 2.5 shoul

281、d help avoid major gaps.We begin with an overview and then look at how to drill down on some key issues.As the analysis increases in seriousness and if negotiations do in fact begin,further and more detailed work will be required on many of these same issues.Feasibility studies,business plans and fi

282、nancing proposalsObviously,the economics of a project are critical.Is it financially viable?What are the major financial risks?Who will underwrite those risks?And so on.The project proponent should have already collected a significant amount of information on these issues.That information needs to b

283、e shared with the government.A note of caution here:for many years,it was widely known among large foreign investors that the financial documents they provided to a government were part of the sell.Prospective investors would inflate good numbers and bury bad ones,producing the most optimistic possi

284、ble picture of the potential investment,and the level of government financial benefits in taxes or royalties.Governments simply accepted the numbers as presented.But the investors often had a second set of numbers behind these proposals that were purely internal and told the truth about their expect

285、ations.With this practice well known today,it is important for governments to do two things in relation to the financial proposals and supporting information they get from the investor.One is to verify as much as they can independently.The second is to make sure their domestic law deems it a legal o

286、ffence to fraudulently provide incorrect numbers to the government in the making of an investment.This notion is now well accepted in international investment law that investments cannot be made legally through fraud.It is perfectly legitimate for governments to ensure the same result in their domes

287、tic law.88 As one clear example,the CanadaEU Comprehensive Economic and Trade Agreement(CETA)makes this clear.Pre-negotiations43Economic feasibility studies are a key factor in the initial proposal analysis.It is here that the economic viability of the project is established and the economic value f

288、or each partner is formed.These studies may or may not include the social and environmental challenges that could undermine the viability of the project,but for present purposes we separate out this issue here.Feasibility studies are the fundamental basis for business plans that include the financin

289、g and funding aspects of the project.The financing plan is essential.Governments must know who is paying for the project in terms of capital and equity,who is financing debt,and what is the proportion of each.Many countries,for example,require minimum percentages of equity investment for qualified f

290、oreign investments and have limits on debt financing for tax purposes.These are critical questions relating to the financial security of the investor,the project and the fiscal regime.Knowing the identity of the equity owner and financing agency is equally critical for operational and negotiating re

291、asons,as well as for preventing corruption and money laundering.The fiscal plan addresses the amount of revenues the government can expect from a project.This is critical information for the government.In many cases,the countrys applicable tax,investment,mining,petroleum or other laws will set out t

292、he fiscal regime.However,there are still many instances where governments agree to negotiate different rules for individual investors.When the government does allow negotiations on the fiscal regime,it must do so very carefully.It must ensure that it is not giving away tax incentives for no good pur

293、pose to attract an investment that would be made anyway,for example(IGF,2020)and is not offering to stabilise all applicable laws,fiscal and non-fiscal.9 These are complex issues in many cases and there is a need for governments to act prudently and to be limited by legislation in the fiscal terms t

294、hey can negotiate,if entering into such negotiations.Environmental impact assessment and managementIt is critical for an initial assessment to contain some evaluation of the environmental issues associated with the proposed project.Is the project area in or near a national park,for 9 OECD(2017:Princ

295、iples VII and VIII);Aizawa and Mann(2021:Section 5.5).Handbook on Extractive Sector Investment Negotiations44Checklist 2.6:Feasibility studyWhat are the proposed phases of the project?Is the project beginning at the first phase(greenfield)or taking over at some other stage?In particular in the natur

296、al resource sector,has the investor had,or is it a current holder of,an exploration license or permit?If so,has that phase been fully reported on?Have the reports substantiated the feasibility of the project?Are the reports independently verifiable?Are renewals for an exploration period being propos

297、ed or sought?If so,why?What is the term proposed for the project?Are there any renewals being proposed?Is the project in line with applicable law?Are the financial projections based on independently verified assumptions as to costs and value of the production?Financial analysis of the project:does t

298、he financial plan appear to be in line with the proposed project?Are the costs based on industry standard costings?Are there projections to illustrative the impact of various levels of costs on project profitability and government revenue?Are the projected sales prices based on independent sources?A

299、re the sales prices tied to market values or pre-sold buyers?Are the prices based on arms length pricing values?Are any sales tied to the repayment of loans in kind,which can impact government revenues?Are there projections to illustrative the impact of various levels of costs on project profitabili

300、ty and government revenue?Financing plan:review of feasibility study or business plan as presented by the investor.What is the debtequity ratio for financing the project?Is it in line with comparable projects/industry standards?What impact/risk does the debtequity ratio represent?Who is proposed as

301、the financing company or companies?Is the financing arms length or within the MNE corporate structure?Are there any fiscal incentives being asked for by the investor in the financing proposal?How will any state participation be funded?Pre-negotiations45example?If so,does this mean the project is sim

302、ply not viable?Many countries prohibit mining and oil and gas projects in national parks or next to them,be it marine parks or land-based parks.Is the project area near a large population or waterways that are critical to local communities?Is biodiversity at risk?Is the proposed project likely to co

303、ntribute to greenhouse gas(GHG)emissions?Will it be resilient to climate change events?Fiscal assumptions:What are the assumptions made on the fiscal regime?Are there specific tax rates being proposed?Is the fiscal regime in the proposal in accordance with applicable law?If not,where does it differ?

304、What is/are the applicable royalty rates?Do they differ from the applicable law?If so,why?What are the applicable tax rates versus the rates proposed?Are tax holidays or other incentives being sought?If so,what is the amount of these incentives in practice?What revenue will the government forego?Are

305、 these incentives needed?Are there any fiscal stabilisation elements being proposed?If so,what is the nature of the stabilisation?Does it cover fiscal issues only or non-fiscal issues also?How broad and how long are the stabilisation elements?Are these needed?Are they reciprocal in nature?What reven

306、ue will the government forego?Does the applicable law(investment,tax,mining,etc.)allow incentives to be given?If not,is the proponent requesting them?If not,is the government still offering any?Government revenues:What is the overall level of government revenue from the project?What is the timing of

307、 government revenues?When are material revenues expected?For example,year 5 versus year 15?Are there years when government revenue will be zero or minimal?Under what conditions could this arise?What is the projected total government revenue from the project?How does this change under different proje

308、ct profitability levels?Is it a reasonable share?Is it achievable?Are additional elements,such as government shares or production sharing,being offered?If so,what are the terms?Are they comparable to other projects of similar nature?How will these be monetised?Will the government have sufficient vot

309、es on a board to monetise its shareholdings?If not,what guarantees of dividends are offered?Handbook on Extractive Sector Investment Negotiations46How will eventual project closure be managed?These are all critical questions that require some explanation,even at the earliest stages of project develo

310、pment.An environmental impact assessment(EIA)is usually mandatory for large projects.This will then be accompanied by an environmental management plan(EMP).In both cases,it is very important for government officials to ensure the independence and integrity of these processes is maintained in the ear

311、ly review and negotiation process.A growing number of international arbitrations are arising from this very issue.Planning the transition from exploration to exploitation is also a key issue for investors,governments and communities alike,as discussed separately below.Investors may seek absolute gua

312、rantees for this transition.However,governments cannot approve an EIA until the precise results are known from the exploration phase;the scale,location and technology for a potential project also needs to be known before EIA approval.Checklist 2.7:Environmental checklist,project overviewDoes an EIA

313、report exist?If so,has it been independently verified or approved by government in accordance with applicable law?If not in existence or not approved,what is the plan for doing this?Is there an existing environmental management plan?If so,has it been approved by government in accordance with the law

314、?If not in existence or not approved,what is the plan for doing this?How is the technology being applied in the EIA?How is waste being managed?For example,tailings from mining?Is the project design climate resilient?Has the proponent set out a climate change management plan for emissions?Are the con

315、struction and engineering climate resilient in cases of extreme weather events?Are there nearby waterways that must be protected?Are there national parks or nature reserve areas that need protection or will limit the project?How are downstream communities being protected?Has the environment ministry

316、 undertaken a thorough review of the project?If not,when will it do so?How will applicable law(on the environment)interact with the investors proposed processes?Has the investor been consistent with the law in its proposal or does it seek changes in the law for this project?Pre-negotiations47A relat

317、ed question is whether all the legal requisites,including environmental and social impact assessment(EISA)reports and assessments,have been met?Alternatively,depending on the timing,there may be specific undertakings on how the legal requisites will be fulfilled,while ensuring that the government ma

318、intains all its legal rights of approval.This is an indication of the ability of the investor to keep reports and requisites current in accordance with local and domestic ordinances and laws,and of the investors intention to comply with the law or to seek certain workarounds.It should be noted here

319、that the EISA report is one of the most significant reports that can be carried out,because it covers all the aspects of the environmental and social impact of the project.Whether it is comprehensive or just a boiler plate report will highlight he commitment of the investor to both social and enviro

320、nmental issues.Multinational Checklist 2.8:Social and economic development checklistHas the project proponent engaged in consultations with local communities?If yes,what were the results?In not,why not?What is the plan for initial consultations?What communities are impacted by the project,negatively

321、 and/or positively?What is the scope of private land,communal land and public land impacted?Are communities of Indigenous Peoples impacted in any way?Is the project on or will it impact Indigenous Peoples lands?Are there historic or cultural areas potentially impacted?Are plans for economic benefits

322、 being designed to include Indigenous Peoples?What plans are there for consultations with Indigenous Peoples?What are the negative impacts?What is the community reaction to them?Are they manageable and remediable?What are the positive impacts foreseen?Are they realistic?How does the project proponen

323、t propose to address gender issues?What potential economic linkages are proposed?What are the employment dimensions?Will other local employment be displaced?What are the local purchasing dimensions?Are there downstream economic benefits?What are the potential impacts on other local economic activity

324、,like agriculture and artisanal and small-scale mining(ASM)?Handbook on Extractive Sector Investment Negotiations48companies with established programmes will commission very detailed reports.Social and community development impact planLocal communities can stop projects in their tracks.Factoring in

325、the needs and goals of local communities is,therefore,a critical part of the early assessment process.This can be difficult when communities are not homogenous,but the need to engage remains despite potential divisions.Community issues range from preventing social and environmental harm,to leveragin

326、g the proposed project to maximise its social and economic development benefits.In some instances,the risk of harm may simply outweigh any potential benefits.In other cases,careful balancing may be needed and special conditions applied to the project.The initial overview should flag the potential fo

327、r critical issues,and whether there are ways to address them in the negotiations and in the necessary consultations with local communities.InfrastructureA key challenge for any natural resource project,and many other large-scale projects,is evaluating the infrastructure needs.This includes energy,tr

328、ansportation,water and sewage,and waste management needs,along with communications and other requirements.It is critical to understand the infrastructure needs of the project and what impacts these might have,as well as what opportunities new infrastructure might lead to.For example,if the project w

329、ill support green energy sources or develop high-speed internet access,can these be shared with the local community?Checklist 2.9:Infrastructure checklistDoes the project require new infrastructure?If not,will existing infrastructure be able to manage all the project needs?If so,who will provide it,

330、the government or the proponent?How will it be financed?Will others have access to this infrastructure?What are the environmental and social risks associated with the new infrastructure?Will it be climate resilient?Will it be GHG emitting?How will it impact local economic activity?Pre-negotiations49

331、2.5 The special case of exploration proposalsExploration proposals create a unique set of issues.Most critical among these is managing the transition from exploration to exploitation.This transition has become the central issue in multiple international arbitrations,primarily when governments have h

332、ad to stop projects proceeding after the exploration phase because the exploitation would create environmental and/or social consequences or risks that are unacceptable.At the same time,many investors seeking exploration rights may demand an automatic transition to exploitation in the event the expl

333、oration process is successful.The key issue here is to establish clear conditions in the relevant statute for the transition to exploitation.This then means both the government and the investor can have legitimate expectations that the project will transition to exploitation where those conditions are met.In some instances,such as offshore oil exploration,it is possible for governments to pre-clea