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African Legal Support FacilityNegotiations of natural resource contracts : Role of ALSF2013

African Legal

Support Facility

Stephen KarangiziDirector, ALSF

+Outline of Presentation

Who is the ALSF, what does the ALSF do?

How does the ALSF work?

Key Issues in ExtractiveIndustry Contracts

+Who is the ALSF?

The African Legal Support Facility (ALSF) is an international institution that is dedicated to providing legal advice and capacity building to African countries on vulture fund litigation, complex commercial negotiations and related sovereign transactions.

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IntroductionWhy was the ALSF established?

+What the ALSF doesWho we are and who we help

Providing Legal Assistance All regional member countries of the African Development Bank or

African countries who are members of the ALSF Assistance is primarily initiated by governments

Commercial Creditor (Vulture Fund) Litigation Focus is on international litigation initiated by commercial creditors

against African Governments Particular emphasis on post-HIPC completion point countries

Complex Commercial Transactions Debt Agreements Natural Resource Contracts Concession Agreements Infrastructure PPPs

Capacity Building (Specialized Sessions/All external support includes)

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+How does the ALSF do its work?The ALSF receives request from governments, identifies legal experts who can assist, and provides grants or financing to directly pay for the lawyers to help the Government.

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+What are the key issues in the extractive industries?Many African countries face challenges during the negotiations of their contracts. Poorly negotiated contracts lead to inefficient management of extractive industries resources and prevent countries from enjoying full benefits of its resources.

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+Extractive industries

Lack of technical expertise

Lack of relevant fiscal and legal tools

Pressure from external donors and companies to conclude negotiations

Weak governance and Institutions - Intergovernmental cooperation

Contracts – usually favour or perceived to favour investor

Contracts – believed to contain inequitable clauses

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Challenges faced by many African countries during negotiations

+Extractive industries

Prevent countries from enjoying full benefits of its resources

Entrenched poverty and conflicts

Loss of public revenue

Natural resource degradation and depletion

Loss of access to resources for local communities

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Impacts of poorly negotiated contracts

+Extractive industries

More efficient contract negotiations

More efficient fiscal measures

Governance issues –Transparency on the part of both Investor Company and Accountability of State to stakeholders

Sequencing: Issue Exploration Contracts; Auction extraction rights; Complete national policy and legislation

Clauses that will lead to sustainable development (local content; capacity enhancement; social and environment issues)

Engage external expertise – where skills do not exist (as long as you ensure there are no conflict of interests) – cost is worth it in the long run

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Key issues on negotiations of extractive resources contracts – Objective of support to the negotiations

+Phases for preparation and negotiation of contracts Setting the investment environment

Government strategies and policies; regulatory frameworks; sector wide analyses

Pre-negotiation phase Review project feasibility, environment and social impact assessment,

prepare tender documents, model contracts and the financial structure. Acquire knowledge about the resource and have a clear Policy; bring together all relevant experts; develop guidelines with different scenarios for negotiations

Negotiation phase Assemble a multi-disciplinary team, prepare the negotiation

strategy, draft and review contractual provisions

Contract implementation phase Monitoring to ensure contract compliance - follow up on

implementation of Agreements; requires strong institutions

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Preparation for Negotiations

Early preparation before negotiations begin are crucial

Obtain adequate data on the resource and projected value to be extracted (assess contribution to overall economy)

Involve other stakeholders – increased transparency enhances negotiations capacity and legitimacy

Long Term Implications (Clarity on fiscal implications - Tax incentives that may be difficult to remove)

Existing Bilateral Investment Treaties – are they sufficiently balanced (also take account of local investor interests)

+ 13Improving Contract NegotiationsEnvironment

Is National Policy in Place?

Is adequate legislation in place?

Are there adequate institutions?

Rent Recovery – how transparent can it be? See Ghana reports – quantity and price posted on public web site

Capacity Building – local skills

Infrastructure – how will it contribute to other development efforts?

Donor Coordination – Avoiding conflicting advice

+Other Issues

How to deal with Confidentiality Clauses

Protecting the Investment - “Stabilization” or “Equilibrium” or other Clauses (covering interests of both parties)

Dispute resolution (what forum?)

Role of the National Company

Institutional Arrangements

Renegotiate or not?

Upstream and Downstream contracts

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Thank You

African Legal Support FacilityFor more information: alsf@afdb.org