Columnists

Guard national interest in mining deals

mining

Workers at a goldmine in Migori county. FILE PHOTO | NMG

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Summary

  • A review of the controversies around the mineral, oil and gas sector reveals that most of the contracts are lopsided in favour of the companies.
  • It is important that this be dealt with.
  • A starting point is to strengthen the negotiating capacity of lawyers in the region.

There has been a lull in public discussions over extractives within the East African region, unlike three years ago.

However, this past week, two news items demonstrated that the sector is still in focus. First the presidents of Uganda and Tanzania signed an agreement for the construction of an oil pipeline that would be co-owned by the two states. The second was a report on resumption of action by Tullow Oil after a few months of suspension.

The message that one gets from the two reports is the continued need to pay attention the developments in the sector. The sector is complex and raises fundamental issues. The relationship between the government and the investors is principally governed by a contract.

A review of the controversies around the mineral, oil and gas sector reveals that most of the contracts are lopsided in favour of the companies. It is important that this be dealt with. A starting point is to strengthen the negotiating capacity of lawyers in the region. This past week I was privileged to be part of a training for lawyers in both private and public sectors organised by the University of Nairobi and Makerere University and supported by the African Development Bank.

The training offered an opportunity for candid interrogation of the state of extractive industry contracts. My mind went back to the case of Cortec Mining whose contract regarding discovery and exploitation of rare earth deposits in Kenya was cancelled by the government. The decision of the international arbitration in that case dealt with whether there was corruption in the procurement of the contract. This brings to up the question whether such agreements are made in the interests of the country or not.

Typically, while the contract is between the government and the investor, communities where the mining activity takes place are a critical stakeholder. They have a constitutional right to be part and parcel of the process.

They are guaranteed by the Constitution that any development that takes place in their locality should benefit them. When this fails, frustrations and disputes arise. How to balance their interests and those of the investor and the government should be the driving force behind any negotiation for an extractive contract.

In the negotiations it is important that the region clarifies and ensures that its interests are captured. The country's interest is fundamentally to ensure that the extractive resource benefits its economy and its people.

This requires that it be used in manner that is economically satisfactory, socially responsible and environmentally safe. This is the commitment that the country has given itself and its people by adopting the principle of sustainable development. Unfortunately, a lot of the processes over-focus on the financial aspects of the project. Project appraisals are driven by project bankability and revenue outlooks with very little attention paid to sustainability considerations. These are subsequently focused on only after the financing decision is approved and the contract even signed.

It is important that the negotiations identify critical public law concerns and address them robustly as a foundation for developing the terms of the contract. Royalties is an essential part of the discussions. Land rights, labour, human rights, gender concerns, health and environmental issues should also be dealt with. In doing so it is important that the country avoids generic and woolly provisions. It should also not fall for the trick of transferring responsibilities of the company to the country. The quality of those who go to negotiate is, therefore, important.

Kenya's Constitution requires parliamentary approval for certain natural resource contracts. It should be made mandatory that all extractive contracts be presented to Parliament, debated and approved before they can become binding. This way the interests of the country will be captured and included into the contracts. As I prepared for the discussions about extractive contacts with lawyers from Kenya and Uganda, I struggled to access a specific mining contract. It can only be that the non-disclosure benefits somebody.