Namibia: Let's Talk Renegotiation of Mining Contracts


LARGE mining operations in Africa have generated fat profits for foreign companies and countries, with little local benefit - and we are not just talking about the obvious profit losses.

As we have witnessed, profits leave the continent, and we are seeing more social justice advocates coming up and speaking out against the loss of profits from Africa to the West.

The rise in export earnings in many mineral economies in Africa were producing questionable welfare gains and developmental outcomes; and governments are now trying to harness more mining revenues for developmental purposes. It is now inevitable that we renegotiate our mining contracts.

In this article, we explore what Namibia's best strategy is when we begin the renegotiation talks.

Namibia has been reforming its investment and mining laws and policies over the past few years (and one can safely surmise that these reforms have been made with the aim of attracting foreign direct investment (FDI) to rehabilitate our mining sector, for example the Namibia Investment Promotion Act of 2016; the Mining licences, rights and permits application guidelines and assessment procedures document of 2018; and the Ministry of Mines and Energy's strategic plan for the period 2017/18 to 2021/22.

While this new legal regime makes it easy for local communities and other stakeholders to participate in the mining sector, if we do not align our contracts with these new laws, we may be enacting laws for ceremonial purposes.

However, while these new laws and policies are making Namibia (moderately) more attractive to foreign investors, mining contracts last for relatively long periods of time (between 20 and 30 years as outlined in the Africa Mining Vision). Because of this, it is important that once a mining contract terminates, locals have the necessary skills and knowledge to continue or start new mining operations.

This will keep profits within the country, and through the trickle-down effect benefit communities and the nation at large. The goal, during renegotiation, is not just to ensure higher national revenues, but also to address long-standing concerns about environmental pollution and compensation for people displaced by mining operations (Catholic Commission for Justice and Peace, 2014).

International economic law and foreign investors frown upon efforts by governments to renegotiate mining contracts, and the reality is that the renegotiation of these contracts can be a long and sometimes hostile exercise. But the reality is that it may become necessary for governments to revise their mining contracts, as customs and laws change.

Policies such as South Africa's Black Economic Empowerment and Namibia's New Equitable Economic Empowerment Framework are at the heart of many Africans, and may very well cater (on paper) for our wants.

However, we have witnessed South Africa's failures (The Foresti case is a prime example on what not to do) with their Black Economic Empowerment, and in the same vein, Namibia must tread lightly. As reported by the minister of finance in The Namibian last October, the country has already bled investment worth over N$8 billion during 2016. Therefore, we must approach negotiation talks with surgical precision.

Namibia can learn a lot from the Tanzanian example to formulate its best strategy when beginning with renegotiation talks. In 2017, Tanzania passed a new mining law, The Wealth and Resources Contracts (Review and ReNegotiation of Unconscionable Terms) Act.

Firstly, Tanzania's new mining law (the renegotiation law) empowers the state to review and renegotiate mining contracts if they contain 'unconscionable' clauses. It rules out contract clauses as 'unconscionable' (i.e. unreasonably excessive) if those terms restrict the right of the state to control and regulate FDIs.

Based on such a rule, Namibia can harness more mining revenue for development purposes. Namibia could also deploy this sort of rule to add value, as value-addition tends to create jobs. If Namibia implements value-addition, the necessary transfer of skills will take place.

Secondly, the renegotiation law forbids contract clauses that deprive the people of economic benefits derived from initiatives to make mining activities benefit local people. If Namibia aligns its mining contracts with a similar rule, we could enable local communities and other stakeholders to participate more in mining activities.

When crafting these 'aligned' contracts in response to the challenges posed by outdated mining contracts, we must consider more efficient revenue mechanisms for sharing, at local levels, portions of centrally collected rents.

With the same objective, at ground level, our laws and policies must encourage local trisector partnerships (government, the private sector and local communities) to improve cooperation and relations. This will effectively address the social and (non-) developmental outcomes of mining at local level.

Thirdly, the renegotiation law also rejects contract terms that undermine the state in protecting the environment. Mineral development, especially extraction, should be sustainable in environmental, economic and social terms. We can only do this if we, in our contract negotiations and drafting, take into consideration market and economic workings, technological advancements, corporate social responsibility, and factors relating to health, safety and the environment.

In our accountability assessments of mining companies during the review process of our mining contracts, we must employ a triple bottom-line assessment, namely financial success, contribution to social and economic development, and environmental rehabilitation efforts.

Lastly, the renegotiation law further deems 'unconscionable' any act that injures people's welfare. Likewise, renegotiated contracts in Namibia must also have mechanisms in place that measure how mining operations affect the communities, and assess, where negative effects are recorded, what the mine does to remedy the harm attributed to its operations.

This could lead to improvements in affected communities' socio-economic standards, as well as the environment which they inhabit.

Munyanduki - a University of Namibia law graduate who published a study on uranium mining in Namibia in 2017, hit the nail on the head when she noted that "investments should be financially profitable, technically appropriate, environmentally sound and socially responsible."

Botswana's patience in renegotiating its diamond polishing/cutting contracts is a success story worth mentioning, so is that of the Congo. Prompted by civil society activism, the government has managed to renegotiate approximately 20 mining contracts. These success stories give hope, while the failures show us that better ways of achieving a goal do exist.

Interestingly, the Tanzanian renegotiation law also dismisses as 'unconscionable' rules which prevent the state to regularly review mining contracts. It does make sense for the state to renegotiate contract terms that prevent the state from - precisely - renegotiating contracts.

* Leezola Zongwe and Ndamononghenda Hiveluah are both candidate legal practitioners. They write in their own capacities. Their views and opinions do not reflect that of their employers. They can be reached at @LeezolaZongwe and @Ndamononghenda1 respectively.

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