- Mining Contracts
States often enter into investment contracts with individual investors in the extractive sector, aiming to fill in gaps in the regulatory regime and offer special treatment to investors. The scope of issues covered by these investment contracts can be extensive. They usually set out the rights and obligations of investors regarding fiscal, economic, environmental, social issues. Since extractive projects that could last for decades and involve numerous complexities, investment contracts are critical in providing a regulatory regime that is stable and tailored to the needs of the specific projects. Therefore, investment contracts have largely determined the legal regime of the extractive industry in many countries, especially in the oil and mining industry.
Investment contracts alone do not establish the entirety of the regulatory regime. The regulation of the mining industry is achieved by multiple legal sources, including the constitutional law, the substantive laws on mining and taxation, and the mining contracts. The situation could be more complicated when there is a conflict between contracts and legislations. While some of the contracts provide for the superiority of contract terms, others do not and could potentially lead to controversies.
Mining contracts also come in different types, including: (1) permit granting agreement, (2) lease agreement, (3) concession agreement, (4) joint venture agreement, etc. The parties involved in these agreements are different. It could be signed between the investor and the government, or the investor and SOEs, or among all three parties. They deal with different issues. For instance, while there are more than 100 contracts on copper and cobalt disclosed by the DRC, only a small portion of them contain substantive terms on fiscal regimes because most of them are joint venture agreements. The value of contracts can also be compromised when further amendments and annexes are not available, which is often the case, or when some contracts that form part of the deal are not available.
Typically, a concession agreement includes the following clauses:
- General issues: parties, language, the term of the contract.
- Project information: resource, location, name of the block, the granting of licenses, working phases, minimum exploration work and minimum expenditure, data collection, and reporting.
- Environment and social issues: environment protection and restoration; local employment, training and development project, local procurement.
- Fiscal issues: royalties, corporate income tax, bonuses, surface fees, other taxes and payments, state participation, production sharing, windfall profits, audit mechanisms, import/export duties, and foreign exchange.
- Operation: land, infrastructure, and the building of facilities; health, safety, and security; work plan on exploration, discovery, evaluation, development, and production.
- Legal issues: confidentiality, governing law, dispute resolution, stabilization, termination, and withdrawal.
- Contract Transparency
Despite the crucial role played by the investment contracts, the majority of them remain invisible to the public. In 2019, out of 27 sub-Saharan African countries, 15 of them did not disclose any extractive contracts, while only 6 of them disclosed a substantial part of their extractive contracts. Recently, a movement for contract transparency is supported by institutions such as the Extractive Industries Transparency Initiative and Publish What You Pay.
The Extractive Industries Transparency Initiative (EITI) has been producing and advocating for a global standard on the management of extractive industries, the EITI Standard. This Standard sets out a series of transparency requirements along the value chain of the extractive industry, from extraction to the collection of revenue, and to benefit the public. Currently, 52 implementing countries are being assessed on their performance regarding transparency and accountability under the procedure of Validation.
Contract transparency is one of the most important pillars of the EITI Standard. The 2013 Standard encouraged countries to disclose their contracts and required a clear policy on contract disclosure. However, no disclosure is also acceptable as a policy, as long as the policy itself is transparent and clear. Under the 2019 Standard, the latest EITI standard, however, it is mandatory to disclose contracts signed after 1 January 2021. Besides requirements for governments, EITI also issued Guidance Notes for the multi-stakeholder group (MSG) on how to oversee the government’s disclosure policy and practices.
Various studies have been carried out focusing on the progress made under the EITI framework for contract transparency.
A study by EITI itself in 2018 showed that, based on the information provided by 23 implementing countries in their reports, the EITI has significantly influenced the contract transparency debate in implementing countries. In the meantime, half of the implementing countries have not fully confirmed their policy. Seven countries provide for full contract transparency in policy, but only two did so in practice. The study also analyzed the impact of EITI on contract transparency, its benefits, as well as challenges. With specific examples from countries, the study pointed out the achievements made under the validation process of EITI, together with its limitations.
Natural Resource Governance Institute (NRGI) in 2017 reviewed the contract disclosure of 51 implementing countries under EITI and concluded that disclosure of contracts is a norm among EITI countries, with over half of EITI countries having already disclosed at least some contracts. On the other hand, 20 countries have neither disclosed any contract nor have any law or policy in place requiring contract disclosure. The report also discussed other issues regarding contract transparency, including (1) contract disclosure coverage, (2) quality of disclosure (with or without redactions, annexes, amendments, etc.), (3) contract accessibility (channels for publication and file formats), (4) contract disclosure policy, and (5) EITI reporting.
The most up-to-date information can be found in NRGI Contract Disclosure Practice and Policy Open Database (updated on 30 April 2019) and the EITI Progress Report 2019 (published in June 2019). The former database provides information on contract disclosure in around 100 countries, regarding the portion of disclosure, mode of access, legal provision, and their participation under EITI. The 2019 EITI Report pointed out that 31 countries have published some contracts, and 16 of them have disclosed all or most of them. This annual report also introduced progress made regarding the disclosure of, among others, ownership, state participation, the outcome of the validation, corporate engagement.
- Contract Disclosure by Companies
Oxfam assessed the policy and practice of contract disclosure by companies in 2018. This study provided an overview of the global norm of contract disclosure, and after reviewing 40 leading oil, gas, and mining companies, it found that while almost half of the companies supported contract disclosure, only two companies in the oil industry disclosed contracts in their website.
In the mining industry, the only company that has disclosed its contracts so far is Rio Tinto, a publicly-traded mining company headquartered in London and Melbourne, whose largest shareholder is now a Chinese SOE Chinalco (Aluminum Corporation of China Limited). The table of contracts on its website provides nearly 30 legal instruments on its mining projects in Australia, Guinea, Madagascar, and Mongolia. Of the projects in Africa, for example, the QIT Madagascar Minerals (QMM) project in Madagascar produces ilmenite and zircon, accounting for approximately 10 percent of the world market,  and has generated a lot of controversies and protests from the local community; the Simandou project in Guinea is one of the world’s largest iron ore mines.
Contributor: Ted Gang Zhang, 28 December 2019
Master in International Law (The Graduate Institute, Geneva)
 EITI, EITI launches 2019 EITI Standard, https://eiti.org/news/eiti-launches-2019-eiti-standard.
 EITI, EITI Guidance Note 7 on Contract Transparency, https://eiti.org/sites/default/files/documents/guidance-note-7-contract-transparency.pdf.
 EITI, EITI Brief: Contract transparency in EITI countries, https://eiti.org/document/eiti-brief-contract-transparency-in-eiti-countries.
 NRGI, Past the Tipping Point? Contract Disclosure within EITI, https://resourcegovernance.org/analysis-tools/publications/past-tipping-point.
 NRGI, NRGI Contract Disclosure Practice and Policy Open Database (2017). https://docs.google.com/spreadsheets/d/1FXEeD43jw6VYHV8yS-8KJ5-rR5l0XtKxVQZBWzrohY/edit#gid=0, last visited 21 June 2019.
 EITI, EITI Progress Report 2019, https://eiti.org/document/eiti-progress-report-2019
 Oxfam, Contract Disclosure Survey 2018, https://www.oxfam.org/en/research/contract-disclosure-survey-2018.
 Rio Tinto, Contract disclosure, https://www.riotinto.com/ourcommitment/contract-disclosure-27483.aspx.
 Rio Tinto, About QIT Madagascar Minerals, https://www.riotinto.com/energyandminerals/about-qit-madagascar-minerals-15376.aspx.
 The Telegraph, Rio Tinto threatens to exit Madagascar after CEO is trapped by protesters, https://www.telegraph.co.uk/finance/newsbysector/industry/mining/9797182/Rio-Tinto-threatens-to-exit-Madagascar-after-CEO-is-trapped-by-protesters.html.
 Rio Tinto, Simandou, http://www.riotinto.com/energyandminerals/simandou-4695.aspx