Durable extractive contracts are anchored in a transparent, constructive long-term commercial relationship and operational partnership between host governments, investors and communities, to fulfil agreed and understood objectives based on shared and realistic expectations that are managed throughout the life-cycle of the project.
6. The negotiation and signature of extractive contracts are just the starting point of a long-term relationship between the host governments and investors, requiring mutual engagement, transparency and accountability, and clear articulation of respective roles and responsibilities to achieve common objectives. Governments, investors and communities may enter their relationships with assumed understandings and expectations of each other which are not necessarily well informed or aligned, while trust, mutual respect, and complete understanding of expectations are of utmost importance. While investors are concerned with the long-term operability of the contract, profit and return on investment to compensate for risks taken and contributions made, host governments are concerned with the need to achieve broader national development objectives and secure a fair share of the benefits derived from the development of their resources. It is the responsibility of the host government to ensure that community interests are protected. Communities expect that their interests are considered and that benefits are shared at the local level through the participation in potential socio-economic development opportunities (jobs, access to infrastructure, business opportunities, and community development). It is the host government’s role to integrate as appropriate local socio-economic development objectives with the wider agenda for regional and national development plans and policies.
7. Unrealistic or too high or expansive expectations concerning the fiscal, social and economic development benefits of a project for local communities and the host government need to be managed and alignment sought. Understanding and managing expectations is particularly important in the exploration phase of a project because (a) it is during and sometimes even before the initial phase and the negotiations of the contract that many expectations can, rightly or wrongly, become established, and (b) exploration activities may not result in commercial discoveries and production. Host governments and investors have a shared responsibility to clearly communicate along with economic and commercial issues, the potential benefits that can realistically be achieved, their contingency, and their sustainability, or not, throughout the project’s life-cycle and the consequent potential impacts on affected communities.
8. Disappointment, frustration and even anger may arise because expectations are not met or even discussed. To prevent this, host governments and investors have a role to play in (a) themselves setting realistic expectations, by identifying context-specific issues that are likely to arise at different stages of the project life-cycle; and (b) creating the enabling conditions, including through the host government establishing an appropriate legal and regulatory environment, to provide for open and effective communication, consultation and participatory processes with stakeholders that help manage widely held expectations, achieve understanding and pave the way for mutually beneficial outcomes (see Principle VI).
9. Community engagement is crucial to ensuring the contract’s long-term durability. Effective engagement and constructive consultations can help to foster the trust of local communities and indigenous peoples, which is a vital foundation for achieving realistic expectations and understanding. They can help to identify any misalignment; promote mutual understanding of different positions, interests, and needs; clarify and manage expectations; prevent conflicts and litigation, overcome distrust and strengthen collaboration. In particular, before and during the negotiation, communication with the community and information sharing between governments and investors regarding community concerns (e.g. site location involving the resettlement of local communities, especially if indigenous peoples are affected, or involving environmental impacts or health and safety concerns) and interests emerging from initial engagement efforts (through exploration, feasibility or due diligence studies) are crucial to inform the design of effective community engagement plans through the life-cycle of the contract.
10. Attaining and retaining a social licence to operate throughout the project life-cycle entails for investors to agree with host governments and affected communities on an engagement and consultation process tailored to the characteristics and interests of affected communities. For example, where indigenous peoples or local communities are affected, applicable international and/or national law may require under specific circumstances working towards and obtaining free, prior and informed consent (FPIC) as soon as possible during project planning, before activities for which consent should be sought are commenced or are authorised, and the time required for a meaningful informed consultation and participation process needs to be factored into the negotiations and the contract terms. Such engagement plans, developed in accordance with applicable national and/or international standards, can help understand priorities on many of the critical social and economic development issues, clarify what can be realistically achieved, including the identification of realistic opportunities for maximising benefits and mitigating risks, and ensure a coherent result that the community can support.
11. Consistent with applicable international and/or national law, the contract should provide a mechanism to ensure meaningful involvement in the process of affected communities so that their views and concerns can be taken into account, and adequately integrated into planning and decision making, especially for projects that may significantly impact them. Lack of broad community support can threaten the economic viability of the project and heighten corporate and industry reputational risk.