with the holder of a mining right, with a view to granting the government a free carried interest and state participation and financing of mining operations. The level of carried interest is subject to negotiation and the agreement itself is subject to review by the parties every five years. This is carried out on the basis of a standard model provided in a set of the Mining (Mineral Rights) Regulations 2010. The agreement may contain provisions that guarantee the fiscal stability of the long-term mining project. Mining development agreements may be useful in the case of large-scale projects, where the mining company may have to set up appropriate infrastructure that might attend not only to the needs of the mining project itself but also those of the local community or of other economic sectors (collateral use of the infrastructure by third parties with nondiscriminatory tariffs and creation of development corridors). On a broader view, mining development agreements may ensure more flexibility to deal with specific projects. If the adoption of mining development agreements is intended, it is recommended that in drafting them they take into account the model text prepared by the International Bar Association (IBA 2011), the Model Mining Development Agreement (MMDA) (see box 4.7). Mining agreements can be controversial where the law is characterized by elements that are no longer regarded as good practice. An example is the Malawi Mines and Minerals Act of 1981, which authorized the responsible minister on behalf of the government to enter into mining agreements. Extensive discretionary power was vested in the minister, such as the power to waive or vary many of the provisions of the act as he or she saw fit or to have the
final say in matters in dispute without further appeal. The minister was not required to act on or seek advice and did not have to set forth grounds on which decisions should be made. It was therefore possible for almost all important matters to be regulated, including elements of the fiscal regime to be addressed in a mining agreement, through a special regime created for a particular project. This approach would now be unusual, because modern mining laws tend to limit the scope of discretionary powers and—where discretion is required—make their exercise subject to clear criteria and frequently to advice from a statutory body such as a mining advisory council. Discretion is typically time bound and decisions are open to review by an aggrieved party through independent review procedures. The era of ad hoc mining agreements negotiated between individual mining companies and a (capacity-challenged) state has been replaced by one in which generally applicable provisions of laws are the dominant rule-setting mechanism. In many cases, mining laws are still complemented by different kinds of mining contracts, but these tend to be standardized and nonnegotiable. They can, for example, provide the investor with stabilization of the fiscal and legal regime. The adoption of a mining development agreement may not be required. The mining law could well stipulate that local benefit, procurement, infrastructure, and other concerns of the government be attached to the mining license itself. In South Africa, the mining licenses set out detailed requirements that would make a separate development agreement of doubtful relevance. However, South Africa is
Box 4.7 Model Mining and Development Agreement In an interesting experiment, a group of mining lawyers analyzed about 60 mining agreements and produced a model mining development agreement, or MMDA. This project identified clauses that were clearly written and that reflected a reasonable measure of balance between the interests of the host state and the interests of investors. The aim of the project was to identify clauses that constitute a form of international best practice in regard to mining agreements. The MMDA project sought to provide solutions for states with gaps in their mining codes; clauses from the MMDA could be included in supplementary private agreements on an ad hoc basis. The result is a
88
OIL, GAS, AND MINING
collection of clauses that are representative of the kind of matters that would typically need to be addressed in an agreement for a mining project. The MMDA aims to provide a guide for drafters covering such matters as fiscal terms, tenure, rights and obligations, and community and sustainable development. The MMDA envisages a series of options that will assist the parties in a negotiation to identify the options that are best for them. The final text and explanatory materials are available at https://www.mmdaproject.org/wp-content/uploads / 2 0 1 0 / 0 4 / I B A - S U M M A R Y - M O D E L - M I N E -DEVELOPMENT-AGREEMENT.pdf.
