© GIZ / Dirk Ostermeier
EXAMPLES OF CONNEX SUPPORT
The CONNEX Support Unit keeps the names of supported countries anonymous for confidentiality reasons unless the countries concerned have expressly consented to the publication of their stories as examples of good practice.
The CONNEX Support Unit advises governments before, during and after the negotiation of large-scale contracts. This applies to the main contract between the government and the investor, as well as ancillary agreements.
Whether a company has approached the host government regarding a project, or the government is initiating the process itself, CONNEX can provide support during the pre-negotiation stage. This is when the host government gathers as much information as possible about the project and identifies its negotiating position. For instance, the government wants to know the value of the resources by evaluating geological data and reviewing feasibility studies. It also wants to understand the economic importance of the project and understand the environmental impacts of the development of the project.
CONNEX experts can advise the government on the optimal structure of its negotiating team. An industry-specific expert can support the government in understanding global market trends in the sector, commodity pricing trends, and the current market conditions for the project under consideration—allowing the government to make key decisions about the investment. A social specialist and an environmental engineer can assist in reviewing the Environmental and Social Impact Assessment, in order to assess crucial information on potential adverse impacts of the project on the environment, human health, and social dimensions.
These expertise and others that help the government adequately prepare to negotiate the project at hand are available to requesting governments.
Spotlight: Preparing for Negotiating the Closure of the Largest Mine in Argentina’s History
The Bajo de Alumbrera mine in the Argentine Province of Catamarca is the largest mining venture in the history of the country. Throughout its lifetime, it was the single highest employer of labor in the province. Now that the extraction of gold, copper and molybdenum has stopped, the delicate task of closing the mine in a socially and environmentally responsible manner commences.
The Ministry of Mines of the Government of the Province of Catamarca, under Argentina’s federal system, is responsible for managing the closure of the mine. Argentina has however never dealt with a mine closure process of this magnitude and there is therefore no institutional knowledge to guide the Provincial Government in assessing the mine closure plan, or the sufficiency of the financial guarantee provided by the investor. They therefore reached out to the CONNEX Support Unit for assistance.
CONNEX commissioned a team of mining engineers, geophysicists and economists to support the Provincial Government. Working in close consultation with the state authorities, the experts visited the mine site to get a first-hand impression of the infrastructure and reviewed the investor’s mine closure plan. They also developed a financial model for the mine closure exercise and a list of all required activities for an environmentally responsible closure of the mine. These analyses and documents will form the basis of an upcoming negotiation between the Provincial Government and the international investor, which CONNEX experts will also be supporting. Click to read more about the project and its impacts.
- Guinea, Liberia and Tanzania: Review of financial models for resource projects, as preparation for possible negotiations
- Mali and Mozambique: Technical support focusing on the planning and conduct of contract negotiations, using previous negotiations as case studies
- Mali: Technical support on responsible mine closure
- Kyrgyzstan: Technical support on tendering procedures.
DIRECT NEGOTIATION SUPPORT
CONNEX support to host governments can continue into the negotiation phase (as is the case with the Argentina example above) or begin during negotiation rounds with the investor. Each negotiation context is unique, and CONNEX is flexible in tailoring support delivery — in close consultation with the requesting government.
CONNEX could provide a government with a team to support them in responding to proposals from the investor. A financial expert could provide invaluable insight on fiscal issues to allow the government make decisions regarding revenue streams. An environmental and social specialist can support the government in making sure that adverse effects are minimized, that environmental standards are binding, and that the project’s conformity to required standards becomes part of the contractual agreement. Lawyers join these experts to draft the contracts.
CONNEX is also able to support the government in compliance review and monitoring – to make sure that companies are following the terms agreed upon with the government in the contract. Such a review would examine whether the company is fulfilling its contractual financial and developmental (infrastructure) obligations and whether it has exploited deposits differently than agreed. The result of the review process could then inform a decision of the government to engage in further discussions with the company.
Spotlight: Supporting Liberia to Recoup Lost Revenue
In 2005, the contract for the first and largest mining project in Liberia was negotiated with an international investor. When the first shipment of ore left the country, in 2011, the Government of Liberia also negotiated an Advance Pricing Agreement (APA) with the investor. An APA is a separate contract between the mining investor and the government. It standardizes how the tax is calculated and determines the long-term revenue from the project, using a formula that is based, in part, on the quality of the ore mined.
However, in 2016, the investor proceeded to mining a new deposit with much higher ore quality. As the quality and value of ore is a key factor in the APA formula and resulting state revenues, the APA was no longer reflecting the true amount of tax the investor was supposed to be paying. In order to recoup the lost revenue, the Government needed to review the APA formula and renegotiate it with the investor. However, the Liberian Revenue Authority (LRA), the responsible agency, was only founded a few years ago and had never negotiated such an agreement before.
In early 2019, the Government of Liberia, through the LRA, requested CONNEX support to review the APA formula. Firstly, they sought to verify their interpretation of potential for renegotiation; secondly, they realized that they would require support in renegotiating the APA with the investor. A mining economic and financial expert commissioned by the CONNEX Support Unit worked closely with the LRA to review all the necessary documents. He confirmed their assessment and recommended to engage the investor in renegotiations. Click to read more about the project and its impacts.