African Legal Support Facility Negotiations of natural resource contracts : Role of ALSF 2013

1. African Legal Support Facility African Legal Support FacilityNegotiations of natural resource contracts : Role of ALSF2013 Stephen Karangizi Director, ALSF

2. Outline of Presentation Who is the ALSF, what does the ALSF do? How does the ALSF work? Key Issues in ExtractiveIndustry Contracts

3. 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.

4. Introduction Why was the ALSF established?

5. What the ALSF does Who 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)

6. 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.

7. 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.

8. Extractive industries Challenges faced by many African countries during negotiations • 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

9. Extractive industries Impacts of poorly negotiated contracts • 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

10. Extractive industries Key issues on negotiations of extractive resources contracts – Objective of support to the negotiations • 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

11. Phases for preparation and negotiation of contracts • Setting the investment environment • Government strategies and policies; regulatory frameworks; sector wide analyses • Pre-negotiation phase • Reviewprojectfeasibility, 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

12. 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)

13. Improving 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

14. 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

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