ISLP’s Katerina Drisi (Program Director, Sustainable Development), Joseph Bell (ISLP Emeritus), and Boris Dolgonos (Jones Day, ISLP Board Co-chair) were involved in the multi-stakeholder consultation process to develop the OECD Guiding Principles for Durable Extractive Contracts that will provide host governments and investors with a common reference to form durable, equitable and mutually beneficial relationships relating to natural resource-based development.
Investments in the extractive industries are more often than not, long-term. This means they can last for 20 – 50 years or longer. Various circumstances can change from the time of the original investment, driven by fluctuations in resource cycles and a changing political climate. As the balance of risks and benefits changes, parties to the contract may request modifications to the original terms and conditions. Due to the scale and nature of investments in the extractive industries, the contractual agreements in place can be plagued by demands of renegotiation. This can lead to ongoing arbitration and litigation with the potential to breakdown the relationship between host country and investor.1
There has been an increasing frequency in the demand for the renegotiation of extractive contracts which creates uncertainty for potential investment and sustainable economic growth. Having identified this pattern, participants to the OECD dialogue discussed the contractual mechanisms that can be utilized to better manage such changes.The objective of various discussions was to create a guiding framework that parties involved in contract negotiation can use to build mutual trust and structure extractive contracts for the long term.
A product of the OECD Development Centre’s Policy Dialogue on Natural Resource-based Development, the Guiding Principles for Durable Extractive Contracts (Guiding Principles) consist of 8 principles and supportive commentary provided by participating subject matter experts (government, industry, civil society, and international organizations). These guidelines assist host governments and investors in the contract negotiation process to (i) structure their relationship to promote long-term sustainable development while attracting investment; (ii) foster an alignment of expectations towards agreed objectives (iii) provide mechanisms that can efficiently respond to significant changes in circumstances; (iv) build trust and mutual confidence and reduce risk for both parties; (v) ensure equitable share for all parties to the contract and enhance the value of resource development through equitable, sustainable and mutually beneficial contracts and operations.
About the OECD
The Organisation for Economic Co-operation and Development (OECD) is an international organisation that works to shape policies that foster prosperity, equality, opportunity and well-being for all. OECD works with governments, policy makers and citizens to establish international norms and finding evidence-based solutions to a range of social, economic and environmental challenges. It provides a unique forum and knowledge hub for data and analysis, exchange of experiences, best-practice sharing, and advice on public policies and global standard-setting.
- Periodic Review in Natural Resource Contracts
http://ccsi.columbia.edu/files/2016/07/Periodic-Review-in-Natural-Resource-Contracts.pdf