1. 10th EAST AFRICA PROCUREMENT FORUM 1 – 3 November - Kampala, Uganda -
PROMOTING OPEN CONTRACTING IN THE EXTRACTIVES SECTOR IN EAST AFRICA
EDGAR ODARI

2. The disproportionate nature of mining
“The business of mining is perhaps the most disadvantageous lottery in the world, or the one in which the gain of those who draw the prizes bears the least proportion to the loss of those who draw the blanks”.
Adam Smith, The Wealth of Nations (1776)

3. Open Contracting in Extractives
The concept of Open Contracting in the oil, gas and mining sector gained prominence in the wake of the ‘boom and bust’ commodity cycle ( ).
Commodity prices increased in price significantly with metals and minerals increasing by 260% between the years 2000 and 2007 alone.
Between 2002 and 2006 average net profits of biggest mining firms increased by more than 1,400%, going up by 64% between 2005 and 2006 alone. (PWC,2007)
However, this windfall did not translate to direct benefits to the countries and citizens where the minerals came from.
One of the key challenges was the secrecy surrounding these agreements that made citizens unable to reasonably determine the impacts these projects had on their livelihoods, the local environment, health or that government negotiated a fair deal.
The opening up of the contracting process is seen as being important to among other things:
(a) create a level playing field for investors;
(b) to ensure that information is not lost between different government
bodies;
(c) to demystify the process for citizens; and
(d) to ensure relevant consultations are held and safeguards are met.

5. Why Transparency is Important in the Extractive Industry
Improving trust and managing expectations - Awareness of the terms within contracts helps lay the foundations of trust between society, government and companies, and helps avoid misperceptions around agreements
Management of local tensions - Failure to release contracts has led to national and local tensions providing risks to the investments of oil companies
Corruption: Lack of transparency facilitates corruption and investments that do not pursue what is in the public’s best interest
Attracting Investment: Transparency in contracting process would send a signal that attracts quality investors
Increased Tax Revenue: Transparency in tax systems adds pressure for fairer fiscal terms

6. Governance in the Extracive Sector
Mineral • Contract governance
Fiscal governance
Governance • Institutional governance
EIAs
Environmental • Environmental liabilities and
Governance Remedies
Environmental Funds/Bonds
Social • Compensation & Resettlement issues
Governance • Free Prior & Informed
Consent (FPIC)

7. Agreements/Contracts
Contract Governance
Geological Information; Open and Competitive Bidding Process
Mineral Right Allocation
Ownership of Mineral
Rights
Beneficial Ownership Information, Technical Competence, Financial Capacity
Mineral
Agreements/Contracts
Mandatory Disclosure of primary contracts, appendices, permits, and marketing contracts
Anti-corruption in
Contracts
Conflict of Interest of public officials in
contracting

8. Need for Contract transparency requirements
Publish their contracts in an accessible, digestible manner, including summaries of the key contract terms. 1.
Adopt open contracting principles throughout whole process of concession award and management of contracts 2.
Fully implement contract transparency laws 4.
Analyze and use information to negotiate better, more balanced deals, backed up by robust modelling 5.

9. Requirement: Open contracting principles
This must be expressed across the entire contract value chain. Open contracting in the extractive industry requires that:
The process for contracting/licensing of oil or mining blocks must be open and competitive,
Justification for award of contracts must be published
Contract disclosure must be mandatory, and
The products of Contracts (oil production data, sales price, revenues, costs) must not be held confidential.
Information on beneficial ownership must be disclosed to prevent conflict of interest situations
The National Oil Company must be regulated and have financial transparency
Citizens must be allowed to make public comments on contracts (citizens participation)

10. Fiscal Governance Payment Disclosure Tax Avoidance
Mandatory disclosure of company payments to host governments – royalties, taxes, surface rentals, participation interest
Tax Avoidance
Debt loading, profit alienation
Illegal Financial Outflows
Mis-invoicing, Transfer pricing, Mandatory Disclosure of primary contracts, appendices, permits, and marketing contracts; criminality,

11. Global initiatives that support payment disclosure
G8 Unequivocally Endorses Global Mandatory Disclosure Laws for
oil, gas and mining – May, 2011.
EU Approves New Laws for extractive Transparency – June 2013
I171 EU-listed co’s 419 large, non-listed co’s and 26 forestry co’s
Two years to turn EU law into national law – some countries have already done this.
Canada passed Transparency Measures Act
Full backing of 2 largest Canadian mining industry associations - the Mining Association of Canada (“MAC”) and the Prospectors and Developers Association of Canada (“PDAC”) - Jan

12. Global initiatives on mandatory payment disclosure
EITI requires disclosure of payments
Approved by oil, gas, mining companies as well as some participating governments
US Dodd Frank Reforms Act (Trump Effect Neutralised Benefits)
Swiss Parliament and Federal Council Agree on Mandatory
Disclosures
Major market for oil and mineral trading companies

13. The AMV - Transparency along the Mineral Value Chain
Permitting
Exploration
Extraction
Decision
Getting
good mining
agreements
Ensuring
revenue
declaration
Managing
Financial
resources
Investing for
sustainable
development
Decision to permit exploration should be based on clear laws and regulations, community consultation
Decision to permit exploitation of mineral deposit should be based on clear laws and regulations
Contract discussions & all contract terms and fiscal terms should be publicly accessible – access to information
Information on revenues should be in the public domain to facilitate enforcement and reduce tax avoidance
Disclosure of operations and financial data of savings, stabilization and/or investment funds
The disposal of revenues should be fully transparent
Acquisition of
Mineral Rights
Exploration
Activities
Mine
Development
Mine
Operation
Commodities
Marketing
Managing
Environment
Mine
Closure 13

14. Follow up Mechanisms and Dialogue in Open Contracting
There is need for collective effort towards promoting open contracting in the extractive sector
This can be done through the regional mechanisms such as the African Mining Vision which AU countries have committed to
The African Mineral Governance Framework (AMGF) developed under the AMV could be a way to promote open contracting in the extractive sector.
This can be further supported by the other existing mechanisms such as EITI but AMGF should be the anchoring mechanism as it goes beyond management of revenues