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CONNEX: getting a better deal
CONNEX supports governments in their negotiations with the private sector. Its work is having an impact: contracts are better, tax revenue is higher and due regard is given to environmental regulations.
Investment by the private sector is a key factor in economic development – not just in industrialised nations, but in developing countries and emerging economies too. Activities by companies create added value and jobs and generate revenue for the state. Just conditions and fair contracts are vital, however, to ensure that governments do not get a raw deal and that they can get the best results for their citizens and the common good.
CONNEX: helping to ensure fair contracts in the mining, infrastructure and renewables sectors
Developing countries and emerging economies are not always able to negotiate with companies on an equal footing. They usually lack expertise and experience. This is particularly true in the extractive industry, in which large profits can be made and in many cases powerful multinational corporations are involved.
In 2014, the G7 nations established CONNEX to support these countries during negotiations on contracts and licences. CONNEX is a kind of advisory agency and has been managed by GIZ since 2017. On request, the initiative brings the geotechnical, financial, legal and strategic expertise of its experts to the negotiating table. CONNEX also provides advice on social and environmental aspects.
Advice ranging from financial models to human rights issues
CONNEX was initially conceived primarily for the extractive industry, but its advisory services now also cover contracts on infrastructure and renewables, including green hydrogen. Sometimes the value of raw materials needs to be analysed and assessed or the size of reserves estimated, while in other cases advice is required on whether a project is actually worth pursuing. CONNEX experts can also give advice on financial issues, offer legal expertise, provide information about international human rights and environmental standards and finally support countries during the actual negotiations.
Since it was founded, the CONNEX initiative has already achieved a great deal: it is providing or has already given advice on more than 36 projects. Twenty-three partner governments have benefited from the multidisciplinary services offered by the G7 initiative, thus achieving better deals for their countries, including Liberia, Colombia and Senegal.
The example of Liberia
Liberia has abundant reserves of natural resources; iron ore, for example, is mined on a large scale. An Advance Pricing Agreement has been in place since 2005. As mining was set to be expanded, the Liberian Government requested technical support from CONNEX, whereupon CONNEX experts examined whether the prices were still appropriate. It turned out that the amounts had already been too low in the first contract; moreover, the quality of the iron ore in the new mining deposit is considerably better and should therefore be subject to higher duties and taxes.
The legal, fiscal and strategic advice resulted in a successful outcome of the negotiations: the revenue for the Liberian state increased by 25 per cent – more than US$20 million over a period of two years.
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‘CONNEX has recently supported negotiations that have already led to additional revenues of millions of euros that Liberia can commit to financing development and the achievement of the Sustainable Development Goals.’
The example of Colombia
The government of the Department of Antioquia asked CONNEX to evaluate a copper-gold mine prior to entering into a licensing agreement. Specifically, it wanted CONNEX to examine the mining plans submitted by a company, including water management and the use of renewables. CONNEX provided geological, environmental and resource-oriented expertise. It transpired that water could be used more efficiently and that greater use could be made of renewables. This was an important finding, because mines like these require large amounts of both water and energy.
The support provided by CONNEX in the negotiations was a complete success: Antioquia entered into a 25-year agreement worth US$1.5 billion. It was particularly significant that sustainable management of water and energy was set out in the agreement, which is not always the case when raw materials are mined.
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‘It reminded us of what international cooperation should be like. It was not a soft project, with no definable results. It was like, here is a problem and let’s tackle it together.’
The example of Senegal
In Senegal, CONNEX supported negotiations on digging rights for gold mining. On account of a company takeover, two agreements were to be combined in a single renegotiated contract. CONNEX experts advised the Senegalese Government on negotiating appropriate conditions for the Ministry of Mines and Geology and they were always there to support the government during the actual negotiation sessions too.
One of the findings was that the firm had mined more gold than originally agreed and that the state’s share of production had dropped below a set level. Both these aspects were fed into the new negotiations and helped achieve a better deal.
Endeavourmining
‘We wanted to ensure that we achieved the best results with these two contracts, and so CONNEX was very helpful.’
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