Renegotiation of Mining Contracts Part II
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.
In Malawi, the Executive has exclusive powers to issue licences for explorations and mining to companies without any consultation, prompting suspicions of corruption. Civil society organisations (CSOs) have suggested that there is need to regulate framework and reduce on the presidential powers to grant licences and sign agreements and grant concessions to company’s.
The widely cited case is the Kayelekera uranium mine where the Malawi Government has only 15 percent shareholding and is getting only three percent in royalties from Paladin Africa for mining uranium. Reports have shown that for the past three years, three percent has been cut to 1.5 percent while Paladin has exported $350 million worth of uranium and Malawi has only received $3.2million. The contractual architecture of most mining companies work in their favour, leaving the poor countries even poorer with a lot of environmental degradation to address.
It is against such a background that economics professor Joseph Stiglitz, of Columbia University, argues that natural resource-rich African countries have been a ‘curse’ because most of the times, they tend to have strong currencies which impede other exports, resource extraction entails little job creation as unemployment rises and thirdly because volatile resource cause economic growth to be unstable, aided by international banks that rush in when commodity prices are high and rush out in the downturns.
Developing countries with natural resources tend to look at the natural resources as a panacea for all their development problems. One critic actually argues that resource-rich countries often do not pursue sustainable growth strategies as they fail to reinvest their resource wealth into other productive sustainable developments.
So despite these resources, such countries have continued to live in deep poverty. Revenues from oil should spur economic growth and social development in developing countries. It is against this background that most development activists suggest the need to revisit the contractual arrangements between countries hosting natural resources and the mining companies. The most debatable research question is whether indeed products of renegotiations of these contracts would reverse the resource curse state.
Many mining concessions in developing countries have been negotiated during periods of conflict and/or during past periods of authoritarian rule. Many new regimes must face the challenges of respecting old shadowy agreements. A suspicion is that acceptance of the original terms may have been influenced by corruption hence the need for renegotiation.
The major research question is whether renegotiated contracts have the potential to reverse the resource curse scenario that has rocked the industry. There is lack of comprehensive research and literature that has demonstrated how renegotiations/terminations of contracts in other natural resource fields that may inform how to go about renegotiation/termination of a contract in the mining sector, let alone documented evidence of how renegotiations have contributed to the development of the countries.
