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Donors to Assist Developing Countries Negotiate Extractives Contracts

WASHINGTON, Jun 9 2014 (IPS) - Major donor countries will unveil next week a new initiative aimed at strengthening the ability of developing countries’ governments to negotiate complex contracts, particularly around the extractives sector.

The undertaking comes in response to increasing frustration expressed by officials in developing countries over their inability to match the negotiating power of multinational corporations, resulting in what they see as unequal deals. The project, known as Strengthening Assistance for Complex Contract Negotiations (CONNEX), was announced last week at the Brussels summit of the Group of Seven (G7) rich countries.

CONNEX will “provide developing country partners with extended and concrete expertise for negotiating complex commercial contracts, focusing initially on the extractives sector,” the summit communiqué, released Jun. 5, states. The initiative will coordinate a recent increase in donor action on the issue, including “as a first step a central resource hub that brings together information and guidance”.

“For many developing countries, major investments, such as in natural resources or infrastructure, are the most important means of generating funds to drive economic growth and sustainable development." -- Lisa Sachs, director of the Columbia Center on Sustainable Investment (CCSI)
A fact sheet released by the White House notes that the initiative is a response to “direct requests” last year from the African Union and developing countries, particularly with regard to difficulties in negotiating with “multinational companies in the extractives sector”. The White House says CONNEX’s eventual goal will be to develop “rapid response teams to provide contract negotiation assistance to developing countries as soon as it is needed”.

Most formal details around CONNEX are still to be worked out, however, a process that will begin Jun. 17 in New York. The project is being jointly carried out by the Columbia Center on Sustainable Investment (CCSI), at Columbia University, which has done previous work on negotiation assistance and which will host the initiative’s digital infrastructure.

“For many developing countries, major investments, such as in natural resources or infrastructure, are the most important means of generating funds to drive economic growth and sustainable development,” Lisa Sachs, CCSI’s director, told IPS.

“Yet despite the importance of these deals, many governments do not have in place strong regulatory frameworks or the resources necessary to negotiate good deals, meaning that they are losing the critical opportunity to maximise the benefits from these investments.”

Transparency quid pro quo

Investment deals around resource extraction can last for decades, and thus poorly negotiated agreements can have long-term ramifications for a country’s ability to fund its public sector. Any such gaps inevitably impact particularly on the poorest and most marginalised communities.

Bad deals “not only prevent a country from enjoying the full long term benefits of its resources,” according to a draft ‘negotiating roadmap’ prepared in February by CCSI, but they also “help to entrench poverty, corruption and even conflicts, particularly when governance systems are inadequate.”

Indeed, governance issues play a central role in concerns over the allocation of natural resources revenues. According to research released last year by the Revenue Watch Institute (now known as the Natural Resource Governance Institute), trillions of dollars a year are being produced through the extractive industries but just a tiny percentage of this money is impacting on the lives of poor communities in developing countries.

More than 80 percent of the countries the group looked at had failed to put in place satisfactory standards for openness in these sectors – and half hadn’t even taken basic steps in this regard. Revenue Watch analysts said the findings constitute a “striking governance deficit”.

Nonetheless, countries with both strong and weak governance records are now increasingly looking for assistance in negotiating extractives contacts with multinational companies, development experts say.

“The governments making these requests run the gamut from well-governed to less so, because the motivation is the same: to generate as much money out of these natural resource deals,” Ian Gary, a senior policy advisor on the extractives industry for Oxfam America, a humanitarian and advocacy group, told IPS.

“Governments recognise that when they go into these negotiations they’re up against large companies that bring in dozens of lawyers who have huge advantages in doing these deals. So either way this is an attempt to level the playing field in these negotiations – though some governments may want to extract more value to funnel into national development, while others may have more self-centred motivations.”

Both multilateral and bilateral donors, including the World Bank and German government, have stepped up technical assistance in this area in recent years, and CONNEX will now play a critical role in coordinating these efforts. But Gary emphasises that related concerns around transparency and governance issues now need to become integrated into assistance packages as a matter of course.

“There needs to be a quid pro quo between donors providing this technical assistance and governments receiving it, to make sure that subsequent contracts are made public and that citizens are able to monitor that information,” he says. “Unfortunately, I’m not sure how much of an appetite we’ll see from donors next week to deal with these sensitive issues.”

U.S. officials were unable to comment for this story by deadline.

Long-term investment

Beyond the ambit of the new G7 initiative on contract negotiation, an incipient moderating factor in this dynamic may be coming from another source entirely: multinational corporations themselves.

The Columbia Center on Sustainable Investment has emphasised that the bad economics of a poorly negotiated deal can cut both ways. These can lead to, for instance, increased public protest, reduced security for corporate concessions, or revised legal conditions such as to the tax code.

On the other hand, if developing country governments can provide stronger negotiating teams, this thinking goes, the results could be stronger contracts and greater legitimacy for extractives deals.

“Some companies are now coming to the realisation that it’s not in their long-term best interest to extract extremely bad deals from governments,” Oxfam’s Gary says.

“Eventually the terms of those deals will come out and that can lead to instability. An oil company may operate in a particular country for 30 years, after all, so it’s ultimately in their interest to make sure there are no surprises down the road.”

While CONNEX is slated to focus initially on the extractives industry, multiple additional areas involving major government contracting could benefit from related support – around land, large-scale infrastructure or the sale of state assets such as telecommunications.

Representatives from the G7 countries will meet to discuss CONNEX over two days next week, with initial reports on the initiative due at next year’s G7 summit.

(END)

 
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