Jodi Liss: Breaking the “Resource Curse” by Getting Contracts Right

By Jodi Liss

Many countries in the developing world look to energy and mining to bring in foreign investment. The contracts that these countries sign with extraction companies often offer lop-sided terms when it comes to money, transparency, information, or in certain cases, environmental protection to the host country—all of which heighten the problems of the resource curse.

The International Senior Law Project (ISLP) is a non-profit organization which volunteers world-class legal counsel globally on economic development, human rights, and access to justice. The group works with governments who need their services but are too poor to pay, and partners with large established non-governmental organizations (NGOs) to bring their skills to developing world civil society groups. They also offer commercial law skills training. They have worked on projects to deal with extraction related problems in several poor countries, including in Mongolia and Liberia.

ISLP’s roster includes about 600 lawyers from the United States, Canada, and other countries. Jean Berman, the executive director, says, “We’ve been very lucky in finding the perfect lawyers for the situation.”

Joseph Bell is the Secretary of the Board for ISLP.  He is also a senior law partner at Hogan and Hartson, and chair of the Advisory Board at Revenue Watch Institute, an NGO which works to counter the resource curse. His background is in commercial and regulatory practice, focusing on energy and mining. Recently, he led the ISLP team(s) that renegotiated several important contracts between the government of Liberia and interested multinational corporations, resulting in a great improvement of terms for the government.

The following is an interview with him on negotiating with extraction companies for the world’s poorest countries.

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Jodi Liss (JL): What problems do developing countries face when negotiating contracts with these huge multinational corporations?

Joseph Bell (JB): There’s the problem of asymmetry—in knowledge, information, capacity—between the government and the company. Some countries recognize this and hire outside counsel, which sometimes can help.

JL: Do these countries have the existing legal frameworks to guide these contracts?

JB: The contracts really set the policy. There are very substantial intra-government discussions, between different parts of the government, to decide the terms of the contract.

JL: What about countries that have pre-existing contracts with terms that are unfavorable to the government? Can they be re-negotiated?

JB: If you actually look at contracts, they can be renegotiated. Both country and contractor need each other. If it gets tougher or out-of-whack, it will be a problem for one or the other. Pre-existing contracts will have some impact, but good ones will allow for flexibility. It’s a legal relationship inside a business relationship. At worst, it can end up in arbitration if it all breaks down and one wants out. Contracts are re-negotiated all the time.

JL: What about environmental protections in these contracts?

JB: Thirty years ago, what people thought were acceptable terms involved practices no longer acceptable. But some contracts just go on. Most oil contracts now have environmental protections boilerplate. [In] some situations, people are very eager to make the money back [from the original investment]. You have to balance interests. And sometimes governments can use supposed “environmental” issues to hold up a contract for their own [political] purposes. Investment can work; it doesn’t always, but it can. For example, oil has worked very well for Malaysia.

JL:  So what leads the government to make mistakes?

JB: Inexperience, lack of access to people with deep knowledge of the field—legal, financial, knowledge of the industry. There’s anxiety in losing investment, jobs, short-term income.

JL: Corruption?

JB: The more discretion you give a government, the more opportunity you give it for opportunity for corruption. But you want them involved. You want contracts that will actually work for governments without becoming corruption-inducing.

JL: Is there a difference between the problems that crop up in oil and gas contracts and mining contracts?

JB: On oil and gas, problems happen usually in the bidding process. Mining is much more complicated. It’s much more invasive; you have much more interaction with the local people.

JL: In the United States, landowners usually own the underground mineral rights. But in most of the rest of the world, the government owns the mineral rights. So theoretically, they can dig wherever they want. How can they balance the human rights of the people with development?

JB: The issues are understood—it’s been coming up for 100-150 years, surface versus mineral. The United States has well-established laws. Post-conflict situations especially are trying to re-think these things through. Who is owed what? Who pays for clean up? Some companies sell off mines at the end of productivity to someone else, so the government gets stuck with the clean up.

JL: How tricky is the process?

JB: You can design a system perfectly, but sometimes it just doesn’t work in reality. That’s always a risk.

JL: How do you at ISLP decide on which projects to work on?

JB: You need the right partner. [The work is] traditionally funded by aid agencies; the complexity is actually where we know that the resources we can bring to bear will be well used. Liberia was perfect; President Sirleaf was great. Not everyplace is like that. We have had to step back from some. We won’t work with governments with poor human rights records.

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Jodi Liss is a former consultant for the United Nations, the United Nations Development Programme, and UNICEF. She has worked on the “Lessons From Rwanda” outreach project and the Post-Conflict Economic Recovery report. Her article, “Making Monetary Mischief: Using Currency as a Weapon,” appeared in the winter 2007/8 issue of World Policy Journal.

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