NEGOTIATION OF CONTRACTS John P. Williams, Duncan & Allen World Mines Ministries Forum Toronto, March 1, 2008

2 NEGOTIATION OF CONTRACTS 1)FUNDAMENTAL CONSIDERATIONS 2)KEY ELEMENTS Negotiation of Contracts by John P. Williams

FUNDAMENTAL CONSIDERATIONS CONTEXT OBJECTIVES AUTHORITY Negotiation of Contracts by John P. Williams 3

FUNDAMENTALS - CONTEXT CONTRACT WITH GOVERNMENT –NEW CONTRACT NEGOTIATION –CONTRACT RENEGOTIATION CONTRACT WITH STATE-OWNED ENTERPRISE –NEW CONTRACT NEGOTIATION –CONTRACT RENEGOTIATION Negotiation of Contracts by John P. Williams 4

FUNDAMENTALS - OBJECTIVES INCREASE REVENUES SHARE OR INCREASE CONTROL SUSTAINABLE DEVELOPMENT GOOD GOVERNANCE Negotiation of Contracts by John P. Williams 5

FUNDAMENTALS - AUTHORITY CONSTITUTION EXECUTIVE VS. LEGISLATIVE DELEGATED AUTHORITY AUTHORIZATION PROCEDURES Negotiation of Contracts by John P. Williams 6

KEY ELEMENTS TERM AND TERMINATION RIGHTS OBLIGATIONS COMMUNICATION REVIEW AND ADJUSTMENT DISPUTE RESOLUTION Negotiation of Contracts by John P. Williams 7

ELEMENTS - TERM AND TERMINATION TERM –Term of License –Term of Project –Term of Financing TERMINATION –Clear end date –Government/SOE Rights –Developer Rights TERMINATION OBLIGATIONS Negotiation of Contracts by John P. Williams 8

9 ELEMENTS – RIGHTS & OBLIGATIONS I DEVELOPER RIGHTS Mineral rights –Nature of rights –Scope –Expansion Surface use/Access/ Transportation HOST OBLIGATIONS Recognition –Enforceability: nationally and locally –Compensation –Conditions Local acceptance ; Infrastructure planning Negotiation of Contracts by John P. Williams

10 ELEMENTS – RIGHTS & OBLIGATIONS II DEVELOPER RIGHTS Marketing –Market pricing –Export freedom FOREX usage –Offshore accounts –Payments abroad –Accounting currency Stability HOST OBLIGATIONS Enforce –Follow markets –Facilitate exports Accept and Enforce –Monitor, facilitate and count –Adapt if compensated Guarantee Negotiation of Contracts by John P. Williams

11 ELEMENTS – RIGHTS & OBLIGATIONS III DEVELOPER OBLIGATIONS Social /Environmental Protection –Consultation –Assessment –Management –M&E –Mine closure –Surety HOST RIGHTS Sustainable Development –Participation –Review –Accountability –Adjustments –Audits –Self-help Negotiation of Contracts by John P. Williams

12 ELEMENTS – RIGHTS & OBLIGATIONS IV DEVELOPER OBLIGATIONS Health, Safety and Security Fiscal Payments –Annual Fees –Property taxes –Customs duties –Payroll taxes HOST RIGHTS Standards, Inspections and Service Integration Fiscal Benefits –Cover costs –Local, regional and national revenues Negotiation of Contracts by John P. Williams

13 ELEMENTS – RIGHTS & OBLIGATIONS V DEVELOPER OBLIGATIONS Fiscal Payments –Royalties –Income taxes Revenues Deductions Depreciation (accel.) Losses Exemptions Profit Sharing HOST RIGHTS Fiscal Benefits –Sliding scale Distribution –Set rules Competitive Minimum tax Say no to tax holidays Preferred Dividends Negotiation of Contracts by John P. Williams

COMMUNICATION INSTITUTIONALIZE ONOING LOCAL CONSULTATION AND PLANNING –Coordinate development plans –Develop local revenue budgets –Review environmental management –Anticipate and address future issues PUBLISH RESULTS –Company benefits –National benefits –Local benefits Negotiation of Contracts by John P. Williams 14

REVIEW & ADJUSTMENT PERIODIC CONTRACT REVIEW –Market developments –Technology changes –Infrastructure need changes –Environmental and sustainability results CONTRACT ADJUSTMENT –Temporary adjustments –Permanent adjustments Negotiation of Contracts by John P. Williams 15

DISPUTE RESOLUTION INFORMAL MECHANISM FOR MINOR DISPUTES MEDIATION: OPTIONAL OR MANDATORY ARBITRATION –Rules –Location –Language –Enforceability Negotiation of Contracts by John P. Williams 16

CONCLUDING OBSERVATIONS STABILITY FOR THE INVESTOR DEPENDS ON POLITICAL STABILITY FOR THE HOST STABILITY FOR BOTH INVESTOR AND HOST REQUIRES EQUILIBRIUM IN: –THE SHARING OF PROJECT BENEFITS –THE PARTICIPATION OF THE HOST POPULATION IN THOSE BENEFITS, AND –BELIEF IN THE SUSTAINABILITY OF THE DEVELOPMENT Negotiation of Contracts by John P. Williams 17