LEGAL AND REGULATORY FRAMEWORKS FOR RESOURCE EXPLORATION AND EXTRACTION-GLOBAL EXPERIENCE Muna Ndulo Professor of Law, Cornell Law School Director, Cornell Institute for African Development

1. PRINCIPAL AIM OF MINING LEGISLATION -The main objective of a mineral rights regime is to encourage the orderly exploitation and development of a country’s mineral resources so as to maximize economic benefit to the country. There are typically different regimes for oil and gas, base minerals and oil. The core principles are the same in the different regimes Mining Rights are key component of the structures of power that condition relations among the actors involved-influencing the nature of the negotiating space, the outcomes of negotiations process, and participants capacity to put forward alternative policies. -Mining legislation covers such issues as ownership of minerals, the right to mine, conditions governing the issuance and operation of mining rights relationship between mining rights holders and surface rights holders 2

2.APPROACHES TO MINERAL RIGHTS (a)Leasing System(Regalien) and Mining Rights Permit Systems - One approach is the state holds the property to all minerals on behalf of the people. State ownership of mineral resources provides the state with exclusive power over the property within its boundaries, whether mined by the state, its citizens, or foreign companies. -The state enjoys this right notwithstanding other equal legal rights in the land and the property surrounding the mineral. The miner derives his or her right to extract minerals from a tenure granted by the state, and not by the land owner. The right is a bundle of rights and obligations, the composition of which varies greatly from country to country. The difference between the leasing system (Regalien) and the mining rights permit system is that in the leasing system the state leases the mine and the miner owns the mine. In the permit system, the miner does not own the ore body. He or she is given a permit which allows him or her to mine. 3

(b)Claim System -The second approach to mineral rights allows mineral ownership to correspond with the ownership of the land surface. Under this system, any individual possessing the land has the right to hold, extract, or dispose of the minerals. This system is commonly referred to as the claim system or “accession’ system. In its modern form, the claim system permits a prospector to obtain private mineral rights by discovering the minerals and registering his or her claim at a designated office. Two main features of this system are: (a)a right to take possession of minerals and acquire title by one’s claim, and (b)a right to proceed to develop and mine the minerals discovered. The claim system prevails in countries like the United States. 4

MINERAL OWNERSHIP UNDER THE MINING PERMIT SYSTEM - Under the mining permit system, mineral rights are vested in the State. The state ownership of minerals rights is inalienable. -Ownership of the land surface does not correspond with mineral rights ownership. Typically, In order to facilitate mineral development, a mining licensing system is established. -Three categories of mining rights are usually granted under the mining permit system. (a) prospecting license: (b) exploration license; (c) mining license. --In some countries (e.g. Zambia) the prospecting and exploration rights have been merged. There are now two rights: (a) Prospecting rights and (b) Mining rights. -The licenses are cumulative. i.e. the mining license includes the rights to prospect and explore for minerals. 5

4. FEATURE OF THE MINING PERMIT SYSTEM - Typically, a Mines and Mineral Act governs minerals development and extraction. -Owner of minerals different from surface owners; The State continues to be the owner of minerals rights. -Prospecting rights are granted for two years renewable for another two years. Exploration rights are granted for two years, renewable for another two years. -Typically a mining license application has to be accompanied by the following: (a) Proposed program of mining; (b) Environment protection plan; (c) and a mining development agreement. Mining rights are typical granted for years renewable for another years. 6

Mining legislation contains several obligations on mining rights holders. These include: (a) requirement of programs, stated work and production requirements; (b) payment of royalties; (c) obligations on employment of nationals; and, (d) obligations regarding the manner in which mining activity is conducted, and expenditure obligations. Many countries restrict small scale mining to nationals. 7

5.MINERAL DEVELOPMENT, POLICY SHIFT IN THE 1990s: STATE RETREACMENT Most African states had assumed a central role in mineral development after independence. For example several mining codes required domestic participation in firms granted mining licenses. -In the 1990s the World Bank discouraged this. According to the Bank, these countries lacked management and technical capabilities and the necessary risk capital to invest. -The World Bank in the 1990s pushed African countries to adapt new conditions of mining. 8

-The result is that the primary objective of most African countries in mining legislation is to attract private investment. Government policy is not to participate in exploration or other mining activities or any shareholding. Governments are encouraged to focus on a regulatory and promotional role. - In Zambia for example the privatization of many state owned companies and especially the copper mining industry, formally managed under the parastal umbrella of Zambia Consolidated Copper Mines Ltd, is a clear demonstration of this intent. -Government policies aim at encouraging foreign investment in exploration and new large scale developments, and private investment in medium and small-scale mining. -It is generally believed that after mineral potential and existing infrastructure, which are the main decision criteria, potential investors look for a stable legal and fiscal framework, including a mining code, contractual stability, a guaranteed fiscal regime, profit repatriation and access to foreign exchange. 9

-Mining codes are seen as a means to reduce investments risks in two ways: (a) permitting stable policies and reducing the uncertainty factor and (b) providing protection against foregoing mining rights. 6.IMPLICATIONS OF THE POLICY SHIFT -The principles of the new policy suggest that the development of minerals is not only desirable but to be prioritized over alternative uses of a particular territory. -In most countries the guaranteed right to exploit minerals constitutes a key structural issue that contributes to the preferential treatment enjoyed by the mining industry. -Tax revenues, employment, and foreign exchange receipts are the major benefits to be derived from mineral development. 10

- But because African countries are perceived to be high risk or medium risk investment locations, they have to be competitive in their taxes, royalty charges, capital allowance, and customs duties exemptions. This has led to extremely generous incentives and tax regimes. -The result is that in most African countries, where minerals are a significant part of the country’s exports, the contribution of this sector to GDP and state revenues has been very low. -One can also argue that as a result of the retreat of the state the mediation of socio- economic relations has left private enterprise to be increasingly subject to social claims. -The strong retrenchment of the state from the mining sector has been accompanied by parallel processes: the redefinition of the role of the state and a reduction of state sovereignty. -The resulting ambiguities and blurring of responsibilities have led to companies finding themselves having to deal with the demands and expectations of communities. They are also faced with the risk of potential conflict and consequently, the need to ensure the security of their own activities by employing their own security services. 11

Thank you. Questions?