Sixth Meeting of the PD-NR, 22-23 June 2016
Under the co-chairmanship of Liberia, Norway, Kazakhstan, Chile, Germany and Guinea, twenty government delegations from Africa, Asia, Europe, and Latin America, as well as representatives from nine partner organisations and international institutions, and twenty-four major firms, industry associations, civil society organisations, academia, law firms and think tanks convened at the OECD on 22-23 June 2016 for the Sixth Plenary Meeting of the Policy Dialogue on Natural Resource Development. Partner organisations in attendance included African Development Bank’s Legal Support Facility, the African Mineral Development Centre, the Commonwealth Secretariat, the European Commission, the International Institute for Sustainable Development, the Islamic Development Bank Group, the New Partnership for Africa’s Development (NEPAD), the UN Conference on Trade and Development (UNCTAD), and the World Bank. High-level participants joined the G7 CONNEX Negotiation Support Forum on 23 June, namely H.E. Mr Abdoulaye Magassouba, Minister of Mines and Geology, Republic of Guinea; Mr Günter Nooke Personal Representative of the German Chancellor for Africa, Federal Ministry for Economic Cooperation and Development (BMZ); and H.E. Mr Kazuo Kodama, Ambassador and Permanent Representative of Japan to the OECD. The Chair of the Governing Board of the OECD Development Centre, H.E. Ambassador Pierre Duquesne, welcomed participants on both days of the Plenary Meeting.
Work Stream 1 – Shared Value Creation and Local Development
Participants welcomed the publication of the Framework on Collaborative Strategies for In-Country Shared Value Creation as a useful tool to align stakeholders’ interests; bring the right questions to the table; advance new models for shared value creation, with clear roles and responsibilities assigned to government and industry; and define the shared purposes of extractive contracts. The Framework was also regarded as complementary to the implementation of Country Mining Visions in Africa. Participants emphasised the need to direct collective efforts into action at country level and to use the Framework as a blueprint for the development of strategies on shared value creation, with the objective of bringing existing initiatives and guidelines into alignment across government and industry. Two concrete means were agreed to achieve this – the creation of an online Compendium of Practices and the ongoing work on conducting Country Reviews to support the development of strategies for resource-based value creation in the implementation of the 2030 Sustainable Development Agenda. The on-line Compendium of Practices will support the Framework’s uptake and utility by using examples to show what has and has not worked in different situations, taking advantage of existing work done by other organisations, and allowing broad participation and access.
Work Stream 2 – Revenue Spending and Natural Resource Funds
Participating countries discussed the implications of unreliable natural resource revenues on government spending. They recognised the utility of stabilisation funds as a tool to help smooth revenues through boom and bust cycles by maintaining consistency in the level of spending over time. With respect to spending options, participants underlined the persistent struggle in managing the trade-off between saving and spending; and turning these revenues into productive development gains. Moving forward, participants agreed on the Roadmap 2016-2018 to improve understanding of the advantages and disadvantages of various mechanisms to mobilise domestic revenue and effective spending, including special purpose investment vehicles; subnational revenue spending; direct and conditional cash transfers; and ear-marking practices. Participants welcomed the quality and scope of the first thematic dialogue on subnational revenue sharing, based on NRGI/UNDP analysis and the OECD Territorial Review of Peru.
Work Stream 3 – Getting Better Deals
Within the framework of the G7 Presidency of Japan and under the joint auspices of the G7 CONNEX Initiative and the OECD Policy Dialogue, participants discussed the drivers for (re)negotiating long-term extractive contracts, including political pressure for change and the often contradictory demands that governments face. Participants identified two main challenges in managing resource contracts: 1) striking a balance between contractual flexibility to respond to changing circumstances and the need for predictability and stability which is necessary for long-term investments in the extractive sector; 2) the tensions between national development objectives and the global structuring of extractive operations where windfall profits in one operation offset losses in another. While recognising the merit of addressing short-term challenges posed by the commodity price downturn to avoid a new race to the bottom, participants stressed the importance of constructing contracts for the long-term with due consideration of more than just financial benefits. It was agreed that this approach holds the potential to inform better solutions designed to withstand the test of time and the obsolescing bargain. As part of the next steps, it was agreed to develop drafting options for stabilisation, renegotiation and period review clauses to inform better contracts. Building on the shared commitment of both governments and industry “to get not only the deal right, but also the right deal”, participants further endorsed the proposal to develop a matrix reflecting a common baseline with agreed key criteria, thresholds and benchmarks for building a dynamic equilibrium in extractive contracts. This tool will be developed in 2016-2018 to support, not only the negotiation of contracts, but also their ongoing monitoring and administration. This approach will further help manage expectations in the best and worst of times, reduce asymmetries of information and ensure predictability. Beyond the participation of extractive industry operators, participants recommended the active involvement of lenders and rating agencies in this exercise as they ultimately set the conditions for the viability of many large extractive projects.
Session 1A – Tour de Table on the use of the Framework
In-Country Shared Value Creation, The Case of Ghana by Ms Isabelle Ramdoo, Consultant, African Minerals Development Centre (AMDC)
Session 1B – Building an on-line Compendium of Practices
Building an on-line compendium of practices by Dr Lahra Liberti, Head of Unit, and Mr Guy Halpern, Natural Resources for Development Unit, OECD Development Centre
Enterprise around Mining by Mr Johannes Danz, Research Associate, German Federal Institute for Geosciences and Resources
Session 1C – Going national
Opportunities for Value Creation in Kazakhstan’s Copper Value Chain by Dr Lahra Liberti, Head of Unit, and Mr Guy Halpern, Natural Resources for Development Unit, OECD Development Centre
Session 2B – Thematic Focus on sub-national revenue sharing mechanisms
Natural Resource Revenue Sharing by Ms. Varsha Venugopal, Subnational Capacity Building Officer, Natural Resource Governance Institute (NRGI)
Session 3 – Drivers in natural resource contract (re-)negotiations and the swinging pendulum of bargaining power
Presentation by Mr Joseph Bell, Chair of the International Senior Lawyers Project Board (ISLP)
AMDC and Contract Negotiations by Dr Kojo Busia, Acting Coordinator, African Minerals Development Centre (AMDC), UN Economic Commission for Africa
Session 4: The impact of the commodity bust on natural resource contracts and governments’ response options
Introduction by Hon. Sam G. Russ, Deputy Minister of Operations, Ministry of Mines, Lands and Energy, Republic of Liberia
How can demands for renegotiation be handled without affecting domestic resource mobilization? by Mr Paulo de Sa, Practice Manager, Energy & Extractives, The World Bank Group
Session 5 – Legal techniques for ensuring dynamic stability and adaptation to changes of circumstances
Feedback from the NEPAD regional dialogues on contract negotiation and fiscal policies in the extractives by Ms. Estherine Lisinge Fotabong, Director, Programme Implementation and Coordination, NEPAD
Session 6: Using contracts as an optimal risk sharing process: towards Pareto optimality
Creating a successful and durable mining agreement by Mr Ken Haddow, Kenneth Haddow Associates LTD