By Jean-François Mercadier, Partner at Heenan Paris AARPI
In the mining resources rich countries which economic development derives to a large extent from the exploitation of their mineral resources the new democratically elected authorities are often confronted by the issue of determining whether the rights granted to the mining companies have been so granted in the best possible interest of the country and its population.
Programs of the candidates to the presidential elections frequently include an ambitious process aimed at adding value to the natural resources of the country with the objective of increasing the revenues which may be derived by the State from such resources taking good care of the interest of the populations living in the vicinity of the mines and in particular the environment.
Various Governments during the recent years have thus put together a policy, often with the support of the International Financial Institutions, consisting of four critical parts:
- The audit of the mining registry in order to prepare an inventory of the mining titles granted by the state and to determine the reforms which the registry may need;
- The reform of the mining code and its implementing regulation which main objective is the increase of the mining rent of the state and the enhancement of the social and environmental parts of the projects;
- A review process of the mining titles and conventions granted and signed by their predecessors with the objective to correct the imbalances that may result for the state from such titles and conventions and to verify their compliance with the mining code provisions to which they are subject;
- The organization of training sessions to the benefit of the representatives of the public administrations involved in the mining sector in order to build and reinforce their technical, legal and financial capacities, in particular with regard to the negotiation of mining partnerships.
The implementation of such policy, in particular during a period where the prices of mining resources are falling resulted in the states being confronted by the very delicate research of the balance point between on the one hand, the valorisation of their natural resources in the best possible interest of their population and on the other hand, the offer of an incentive framework to the investors without which they will not invest in the country and even withdraw therefore ruining any hope of development of the mining projects.
Among the four parts of the policy to help the state drawing more value and revenues from the mining projects the review process of the mining titles and conventions has a particular importance given the significance of the economic challenges at stake and the concerns such process causes to mining companies.
Which are the success factors?
The review processes which have been conducted to date allow the drawing of some lessons for the governments and the investors:
- The requirement to institutionalise the process and to set up a team of experts to assist the state;
- The requirement of a preparatory audit to which the mining companies will be associated and with which they will fully cooperate;
- The difficult questioning of the validity of the mining titles and conventions except in case of demonstrated fraud or corruption;
- The interest of the renegotiation in the absence of non-reversible breach by the mining company of its obligations which would result in the termination of the convention and the withdrawal of the mining title.
The adoption by the state of a new policy which objective is to balance its participation in the wealth derived from the exploitation of its natural resources is a necessary but not sufficient step in view of ensuring a significant contribution of the mining sector to the economic growth of the country.
Without two additional steps the success may not be reached:
- The putting together of the procedures ensuring the good use of the revenues drawn by the state to the benefit of the development and its economy;
- The putting together of an industrial policy allowing the local transformation of the ore in order to favour the development of a true processing industry.