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IBA Model Mining Development Agreement Project

IBA Model Mining Development Agreement Project: Consultations set to steer Mining Law Committee’s vision and effort in achieving its goal

In April 2009, after initial discussions with the World Bank, the IBA Mining Law Committee resolved to initiate a major project to develop a model mining development agreement (MMDA) based on international best practice principles to serve as a negotiation template for investor-state agreements in the mining sector in developing countries. The need for such a project arose from disagreements between mining companies and developing countries as to what constituted a best practice mining development agreement. The Democratic Republic of Congo's controversial contract review is a key example of this.1 At the same time, the committee engaged the resources of the Sustainable Development Strategies Group and the International Institute for Sustainable Development as an important focus of the project is sustainable development for mining projects through effective community participation.

The need for the MMDA project

The MMDA project recognises the fundamental role that foreign investment in the mining sector plays in the growth of many developing economies and, in turn, the improvement of living standards in mining or near mining communities. Host governments have developed strong views on the role that mining companies should play in the sustainable development of mining communities to address the growing resistance of such communities to mining operations that are shown to be of little benefit to them. In addition, anti-corruption legislation has become more pervasive under both the law of many developing countries,2 as well as international law.3 This has led to a call by international organisations, non-governmental and civil society organisations for increased transparency in international resource extraction agreements.4

Today it is essential for mining companies to obtain the support and goodwill of mining and near mining communities for mining projects which have an impact on such communities. Generally, this is done by companies initiating projects which improve the lives of such communities and which enable communities to benefit directly from mining operations.5 At the same time, mining companies require certainty in terms of the legal regime governing their mining operations and stable investment conditions under which to operate in order to ensure the long-term security of their investments.

As a result, it has become imperative that foreign investment in the mining sector fosters sustainable development while protecting the interests of the host governments, mining communities and investors in an equitable way. Many developing countries, however, do not have developed mining codes which deal with these issues.

The objective of the MMDA project

The MMDA project is primarily aimed at producing a draft model mining development agreement based on international best practice principles in the mining industry. These include, inter alia, efficient macro-economic management; an effective legal and regulatory framework; security of tenure; objective criteria for the grant of exploration and mining licences; limited administrative discretion; a defined role for government; efficient mining sector institutions and administrative capacity; physical and infrastructure services, competitive fiscal and taxation conditions and effective investment protection.

The MMDA is intended to be used as the basis of negotiations to improve investment agreements entered into by mining companies and host governments in jurisdictions where ‘mature’ mining codes are not in place, where a mining code requires supplementation by private contract, or as a template for agreements with state-owned mining entities. The MMDA will endeavor to address the matters that a potential investor, mining company, government or civil society representative may expect in a basic mine development agreement, such as security of tenure, regulatory certainty, and clarification of the rights and obligations of government and investors.

Format

The MMDA will take the form of a publicly accessible web-based product, providing multiple alternative clauses for key contractual points together with commentary explaining the uses of the alternative clauses, so as to be adaptable and relevant to a broad range of scenarios that mining companies and host governments face with the negotiation of each new mining agreement. Consequently, it is not intended to be a fixed policy document or to prescribe any particular point of view.

Consultations – the development process to date

Last year the committee established a working group, comprising of some of its core members, together with a principal of the SDSG and a senior international law advisor to the IISD, to manage the drafting process of the MMDA.

The members of the working group are: Peter Leon (Webber Wentzel, Johannesburg), Robert Bassett (Holland & Hart, Denver), Elizabeth Bastida (CEPMLP, Dundee), Michael Bourassa (Fasken Martineau, Toronto), Barry Irwin (Allen & Overy, Sydney) and Rahmat Soemadipradja (Soemadipradja & Taher, Jakarta), together with Luke Danielson of the SDSG, and Howard Mann on behalf of the IISD.

The working group then compiled a confidential database of agreements from which to draw during the drafting process, and has subsequently deconstructed these agreements to identify provisions that represent viable best practice alternatives for each specific subject. Revision of the draft provisions of the MMDA will take place as legitimate concerns and ideas are raised through the consultation process. The working group has already drafted various clauses relating to tenure, parties' obligations, tax and royalties, community relations and sustainable development, in addition to standard contractual terms.

In order to develop the MMDA, broaden the base of participation as well as ensure the legitimacy, transparency and openness of the MMDA project, the working group, together with representatives of key stakeholders, inter alia, governments, industry, civil society groups, and universities, is now undertaking a detailed consultation process.

Two international consultations have taken place in 2010: the first with government and civil society representatives at the World Mines Ministries Forum in Toronto on 6 March 2010, and the second, a civil society forum, which was held in Toronto on 24 and 25 April 2010, immediately before the IBA Section on Energy, Environment, Natural Resources and Infrastructural Law (SEERIL) biennial meeting, involving civil society representatives and other industry experts. At the second Toronto meeting, delegates were asked to contribute to the design of the MMDA by commenting on the 'deconstructed' draft clauses. The consultation led to robust debate among the delegates. This was extremely valuable to the MMDA project as it assisted in clarifying the approach to specific substantive issues as well as formatting issues, in particular regarding the flexibility of the MMDA to ensure its relevance under a number of scenarios. The consultation further served to clarify the vision and purpose of the project.

Information about additional consultations is provided below:

  • a joint workshop with the Soros Foundation Kazakhstan, on contract transparency and model mining development agreements in the extractive sector of Kazakhstan with non-governmental organisations in Astana, Kazakhstan, was very recently held on 24 and 25 August 2010. The focus of the workshop was on transparency, good governance and sustainable development in the mining sector; and
  • a stakeholder review meeting of the United Nation's Economic Commission for Africa's (UNECA) international study group framework report, organised by the African Union (AU), is set to take place in Addis Ababa, Ethiopia, on 20–22 October 2010. The framework report has been developed in line with the African mining vision 2009 policy document. The policy document was adopted by the AU heads of state at the February 2009 African mining partnership meeting held in Cape Town, South Africa, as the basis for the development of the African mining sector. It promotes the view that development agreements are key to forming a development and equity oriented natural resource sector in Africa.

The committee has also established links with other governmental and non-governmental organisations who are involved in similar initiatives in order to draw on their experience and resources. These include the International Council on Mining and Minerals, the Prospectors and Developers Association of Canada, the World Economic Forum, the United Nations Special Representative to the Secretary General on Business and Human Rights, the Centre for Energy, Petroleum and Mineral Law and Policy, Revenue Watch, the Extractive Industries Transparency Initiative, the World Business Council on Sustainable Development, Oxfam and the World Bank Community Development Agreement Project and Extractive Industry Sourcebook project.

The MMDA project website, www.mmdaproject.org, is in the final stage of completion. The purpose of the website will be to make the draft clauses and relevant resources accessible by and accept comments from the public, thus, promoting and broadening the consultation process. The website is currently not accessible to the public as the committee does not have the resources to read, assess, process and respond to a large volume of comments. The committee, further, wishes to keep the debate within the parameters of the issues that the MMDA project addresses. For these reasons, access to the website is controlled by means of a password, which is shared by, inter alia, members of the committee, invitees to the two international consultations, sponsors and collaborators. This, however, is antithetical to the committee's intention in developing the website and thus the committee has proposed the funding of several Fellows to monitor the website on a full time basis during the months of August and September 2010. This will enable the committee to make the website publicly accessible in due course.

The committee's aim in all of this is to present version 1.0 of the MMDA at the IBA's Annual General Conference in Vancouver. The MMDA project is to remain a 'living process' beyond its initial presentation in October 2010, with new best practices included as they are developed.

Funding

The organisations which have provided the financial sponsorship for the MMDA project to date are the IBA, the International Council on Mining and Minerals, the World Bank’s Extractive Industries Technical Advisory Facility through the University of Dundee and the Prospectors and Developers Association of Canada.


Notes

  1. On 14 April 2007, 61 DRC mining development agreements, the majority of which had been signed during the DRC’s 1998 to 2003 civil war, were set aside for review by an inter-ministerial commission. The purpose of the review, according to the DRC Government, was to determine the extent to which the agreements were economically feasible and their adherence to international practices and the DRC’s mining legislation. In the event that any of the agreements failed to meet these criteria, the government required the mining company to modify, renegotiate or even cancel the agreement, depending on the extent of the non-compliance. The commission referred to an alleged standard international practice of a 51 per cent parastatal controlled share of all mineral reserves within the borders of the country. (‘DRC mining contract review near completion’, Mining Weekly, 17 September 2008). The legitimacy of the review process was undermined by a lack of transparency as well as the lack of independence of the commission, which was composed entirely of government representatives. This has resulted in disputes between some of the mining companies involved and the DRC Government. For example, after the DRC Government closed First Quantum Minerals Ltd's (‘First Quantum’) Kingamyambo Musonoi Tailings project at Kolwezi in September 2009 and the Supreme Court of the DRC annulled its rights to its Frontier and Lonshi copper mines, First Quantum initiated international arbitration proceedings against the DRC Government. The DRC Government has subsequently awarded the title to the Frontier and Lonshi copper mines to the state-owned mining initiative Societe de Developement Industriel et Minier du Congo. (‘DRC mine judgment sends First Quantum shares reeling’, Mining Review.com, 26 May 2010).
  2. For example, in South Africa, corruption is a criminal offence under section 3 of the Prevention and Combating of Corrupt Activities Act, 2004. Section 5 of the Act creates a specific offence of corrupt activities in relation to foreign public officials. Similarly, under the United Kingdom's Bribery Act 2010, (which received Royal Assent on 8 April 2010), bribery, including bribery of a foreign public official (section 6), as well as acceptance of or agreement to receive a bribe, are criminal offences.
  3. The Organisation for Economic Co-operation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business entered into force on 15 February 1999. It establishes legally binding standards to criminalise bribery of foreign public officials in international business transactions and provides for other related measures to ensure the efficacy of these standards. The 31 OECD member countries and seven non-member countries: Argentina, Brazil, Bulgaria, Estonia, Israel, Slovenia and South Africa, have adopted this Convention. The United Nations Convention against Corruption (A/RES/58/4) was adopted by the General Assembly by resolution 58/4 on 31 October 2003 and it entered into force on 14 December 2005.
  4. Organisations which have championed the call for increased transparency in resource extraction agreements include, inter alia, Revenue Watch Institute, the Development and Peace Foundation, Transparency International and the Extractive Industries Transparency Initiative, which is endorsed by the Group of Eight in Heiligendamm and the United Nations Conference on Trade and Development (UNCTAD). The International Monetary Fund published a Guide on Resource Revenue Transparency, which was first issued first in June 2005 and revised in April 2007.
  5. In ‘Mineral Law: New Directions?’ in International and Comparative Mineral law & Policy: Trends and Prospects, E Bastida, T Wälde and J Warden – Fernández (eds), Kluwer Law International, 2004, at 409-425, Elizabeth Bastida investigates the evolution of mining law and policy as it seeks to deal ‘with the environmental, social and economic aspects of development; it demands the sustainable use of natural resources, the participation of all those affected by development in decision-making and is aimed at equitably meeting the needs of present and future generations’ (at page 410). Bastida further refers to the Mining, Minerals and Sustainable Development (‘MMSD’) project, the working paper series of which was published in 2002, and the 2003 draft of the EIR Conceptual Framework as examples of research that illustrate that ‘mining can have a key role to play in creating wealth that will act as a catalyst for development and generate lasting benefits for local communities and the broader population while safeguarding the natural environment’ (at page 410). 
     
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