MINING & SOCIAL ISSUES with Ignatius Kamwanje
The Role of Development Agreement in Mining
‘A Malawian perspective’.
When a giant or a junior mineral exploration company engages an interest in an area commonly referred to as a tenement, it becomes the holder of the tenement. A series of technical aspects or activities in the long run lead to undertaking of a Bankable Feasibility Study (BFS) which is in relation to a typical mineral that is anticipated to be mined within the tenement upon meeting certain terms and conditions with the government.
Therefore, the government must ensure that it safeguards the interest of the people that will be affected while also ensuring that the operation benefits the company because a mining company is prone to risks and uncertainties and therefore it aims at securing significant returns from an investment.
Sound mining governance will adequately contribute to the socio-economic welfare of the people of a country let alone the people surrounding the mining area and perceived to act in a manner that is consistent with the community needs and also environmental protection through provision of successful mitigation measures.
One must also be mindful that in Malawi, pursuant to the Mines and Minerals Act of 1983, the Minister of Mines on behalf of the government is given powers to enter into agreement with the holder of the tenement. This ensures that the government of Malawi and the holder of the tenement, in this case a mining company, negotiate an equity stake as an agreement. This shall be of benefit to the company, the government, the community and the project itself. In this case, the company as a proponent of the project ensures that it persuades/or seeks comfort from the ruling elite (government) and the government must show full commitment and responsibility of supporting the terms and conditions as set forth therein for sustainability of the project.
It is therefore an expectation that certain matters and issues must be agreed upon and should be set out in the agreement as binding and also should reflect the national interest and stability of the project as an investment.
In development and operational matters, the mining company submits an approved programme of operations in accordance with Best Practices in Mining, Ore Processing/Extractive metallurgy and Environmental Practices. This is in accordance with the Mines Act. In Malawi, as a case study, it is done to expand the investment commitment following the schedule of programmes set out by the company except in the event of a Force Majeure where the project might be suspended or curtailed. Of course the government has an obligation as set out in the agreement that it will act in a timely manner and in good faith when such a situation arises.
The development agreement also contains agreements on waiver of duty free status, import and export. For example, in Malawi. under this, the company may be entitled to import and export materials, consumables for use in mining, ore processing, equipment and other services. Also under this agreement, the mining company is obliged to keep the mine product under adequate custody in terms of security on its premises, being transported and at the point of exit. The government may agree in facilitating the implementation procedure for the processes.
Under Local Business Development, a mining company is asked to develop a comprehensive programme encompassing development of Malawian businesses that will have the opportunity of supplying goods and services to the company. This programme forms part of the Bankable Feasibility Study (BFS).
There are also other essential services that form part of the development agreement that are crucial to the development of the area. These can be electricity, water, schools, clinics/ hospitals, land and other infrastructure developments.
In the event of other unforeseeable conditions, the company is also required to disclose to the government how and why such a situation has arisen and list the necessary measures that will be taken into consideration. It is under these circumstances that a mining company engages itself in insurance of the operationalization and commercialization in accordance with the laws of the land. This mainly covers areas of OSHE (Occupational Safety, Health and Environment), Best Practices in Mining, Ore Extraction/ Processing and Environment.
In the event of suspension and curtailment of production, a mining company has the right to curtail or suspend production as stipulated in the Mines Act. This suspension can either be effected by the mining company or the government’s action. For example, the Kayelekera Uranium Mine suspended its operation due to poor spot price of uranium. Suffice to say, this was the companys’ action due to economic disequilibrium and not the government. However, the government may also take such an action based on the same note or operational conditions that may have an adverse effect on either.
There are also surface and other infrastructural rights that the public and the government can use within the tenement owned by the mining company provided that access will not jeopardize the security of the company and also interfere with the welfare/operation of the company.
The mining company is also obliged to submit records and reports, possibly annual reports submitted quarterly of operations to the government through the ministry concerned. This report outlines the mining and processing operations carried out within the tenement. These reports contain valuable information such as;
- quantity of mined ore (ore tonnage) and averaged grades
- the quantity of Mine product and the proceeds of the sales,
- quantities of Waste mined,
- operational costs,
- any geological and metallurgical investigations that may be obtained from time to time.
- It also includes ongoing exploration/prospecting
- activities taking place elsewhere within the tenement.
There are also other necessary undertakings contained in the development agreement. These may apply to foreign exchange, environmental issues, employment, occupational safety, health issues and corporate social responsibility (CSR).
For the general stability, taxation, royalties and consent, one of the components is sound fiscal regime. The company is entitled to enjoy its fiscal regime without limitations with support from the government in a timely manner. This is provided for in the Taxation Act. Besides, without limitation the government shall cause the Malawi Revenue Authority (MRA) to provide a duty exemption in writing to be issued by the Malawi Investment and Trade Centre.
The disturbance and resettlement issues in the development agreement is also crucial. The company may request to the government to permanently remove any person occupying any unauthorized structure within the mining area and the company is not required to provide any indemnity to the government with respect to removal of a structure or person. In the event that there is disturbance of land by the mining company and that the occupier of a structure needs relocation, then the mining company shall meet the costs of resettlement and any other compensation as provided for in the Land Act and these costs must be in line with the government policy.
However, in my view, Malawi lacks behind in formulation and enactment of Compensation and Resettlement Act. Nothing much is gathered to implement it. In my opinion and understanding on issues to do with addressing involuntary resettlement, a mining company must commission an organization to prepare a Resettlement Action Plan (RAP) to facilitate involuntary resettlement of the Project Affected Persons (PAPs). Always a good practice is to include formal land acquisition in project specifications (World Bank, 2004). A mining company should treat the resettlement aspect as an integral component of the development process and devote the same level of effort and resources to resettlement preparation and implementation as to the rest of the project. This is because implementing resettlement as a development program not only helps the people who are adversely affected but also promotes easier, less-troubled implementation of development projects. The Resettlement Action Plans must therefore be developed with reference to a specific country and also International Standards. Through a participatory consultative process, the mine and the Project Affected Persons (PAPs) must agree on land compensation procedures. The RAP process may include negotiations between the mining company and Community Representatives leading to an agreement on the size of land to be relocated.
According to the RAP, the communities sometimes agree with the mining company to construct some facilities and infrastructure as part of the entitlements for the PAPs: You may wish to know that this RAP process does not in any way supersedes as what is agreed in the Development agreement. This is totally a different entity aimed at assisting the displaced people due to land being occupied by the miner. In line with the World Bank Operational Policy 4.12 which describes the Bank’s policy and procedures on involuntary resettlement, a mining company should comply with this since it claims to operate under international standards. According to this Policy, all displaced persons should be compensated for their losses with full replacement cost prior to the actual move, assisted with the move and supported during the transition period in the resettlement site. This is done to improve their former living standards, income earning capacity and production levels. Land, housing, infrastructure and other compensation should also be provided to affected populations that might only have customary rights to the land or other resources lost as a result of the project.
In conclusion, there are also general provisions that form part of development agreement. These can be summarized as:
- extension to time
- termination disputes
- amicable settlement of disputes (negotiations and mediations)
- expert determination
- performance to continue
- applicable law
- Force Majeure
- indemnity by the company
- liaison committee
- severability further acts
- representation and warranties
This piece was initially published in Malawi’s Mining & Trade Review Issue Number 59 (March 2018).