Renegotiation of mining contracts (Part 1)

Introduction

Africa enjoys an abundant endowment of natural resources in form of precious minerals, metals and a variety of both flora and fauna. Mining is one large booming industry in Africa. For example, BBC reported that only 5 of Africa’s 54 countries are not producing or looking for oil . There are so many other explorations and mining happening across Africa.

Due to limited capacity in technology and human resource explorations, actual mining of these natural resources are managed by multinational companies but with minimal shareholding from government. Most commentators including World Bank have recommended a review or renegotiation of these contracts of most if the developing countries could adequately benefit from these companies. The research question would be to find out whether renegotiations of these contracts can reverse the trend of where natural resources from Africa have not benefitted the continent. Several cases have demonstrated that most of the contracts favor the multinationals and international banks and not the countries where natural resources are mined.

A Snap Shot of Africa and Mining Contracts

Although evidence of corruption in the extractive industries is anecdotal, the mining sector is generally considered to be one of the business sectors vulnerable to corruption. Control of minerals in weak governance settings is often associated with violence, insecurity and human rights violations. The high commercial value of natural resources makes them a coveted target for acts of corruption, misappropriation or plundering. They are usually characterised by complicated regulations and high levels of government control. They require special permits for exploitation as well as export, and must be accounted for to determine taxes and royalties – all activities that provide numerous opportunities for manipulation and corrupt practices . These countries also perform poorly on governance and corruption by Corruption Perception Index. Given the vast investment costs and potential profit involved in most mining deals, concession contracts provide opportunities for corruption at the various stages of the allocation and implementation process. Companies have a vested interest to maximize their profit margins, ensure a return on capital, minimise the payments they make to the host governments and mitigate the high risks involved in huge mining investments. On their side, national governments frequently fail to get full value for their resources, due to lack of knowledge and capacity, access to technical expertise or corrupt individuals operating in their own interests within weak public and institutional environment.

In March 2007, the World Bank urged the Zambian Government to re-negotiate the mining development agreements for the country to benefit more from its mineral resources. The World Bank asked the Zambian Government to re-examine mining agreements for the country to accrue more revenue and for the mining firms to demonstrate social responsibility . It had been noted that Zambian mineral royalties fee, which was at 0.6 percent compared to the average 3 percent in other countries was very low for a country to benefit from its natural resources. The contractual arrangements not only deprived government of the value of the natural resources but also citizens are left suffering from mining pollution emissions and land degradation. Most of the mining contracts in Africa do not bind the international mining companies towards responsible mining operations and management practices that plough back enough revenues to the country. In some cases like in Malawi there are weak oversight mechanism by government to enforce social corporate responsibility and environmental protection.

In Congo in 2007, a coalition of NGOs launched an appeal to the Congolese Government, the World Bank and other international partners to “renegotiate, revoke or cancel” disadvantageous mining contracts made during the war and under the transitional government, in order to ensure that the Congolese people derive a “fair share” from the exploitation of the country’s natural resources . The NGOs protested that government approved contracts with international extractive companies which collectively signed away over 70% of the governments most valuable copper and cobalt reserves to the international companies.