Durable extractive contracts seek to optimise full value from resource development for all stakeholders, including economic, social and environmental outcomes.
To the extent not covered by applicable international and/or national law, durable extractive contracts provide for the identification and management of potential adverse environmental, health, safety and social impacts of the extractive project and establish clear roles and responsibilities for the host government and the investor for the prevention, mitigation and remediation of those impacts, in consultation with affected communities.
20. From a sustainable development perspective, the notion of full value (the “size of the pie”) is understood as encompassing a wide range of important elements that can positively or negatively affect the economic viability of the investment. These include: (1) the optimisation of the economic value from resource development, taking into account any adverse environmental or social impacts; (2) creation of opportunities for positive socio-economic outcomes, by leveraging, so far as economically practicable, in favour of the host country, and its communities the project’s demand for and expenditures on goods, services and infrastructure requirements (roads, ports, railways, power plants, pipelines, telecommunications, water, warehouses, and logistics terminals) that are necessary for the viability of the project, as well as local purchasing and employment, and the shared use of infrastructure (whilst recognising the vital contribution to economic viability that is made by the global sourcing of many inputs for the quality, timeliness, reliability and cost such sourcing achieves); and (3) the potential for value added processing of resources, where economically feasible, recognising that this may require a separate contract.
21. Affirmative efforts are necessary to establish these linkages and optimise infrastructure design through appropriate planning. However, at the same time governments need to realise what the trade-offs are, as incremental costs may result in reduced revenues for the host government, unless these costs are taken up by the host government, development banks or donors. It is recognised that it may not always be possible to fully maximise financial, economic, social and environmental benefits in the same timeframe, but all benefits should be incorporated into the objectives of the project over its life-cycle. At each stage of a project, a host government may have to make trade-offs in order to meet prioritised policy objectives and attract investment. That said, the incremental costs for governments may be small compared to the significant benefits and goodwill that may accrue from the project – though for some extractive projects the cost and net present value impact of such incremental costs can make the difference between being able to achieve investment viability or not.
22. Alongside positive contributions, actual and potential direct adverse impacts need to be identified, prevented and, if they cannot be totally prevented, mitigated across the full life-cycle of the project (including decommissioning, abandonment or rehabilitation of the site). It is understood that some negative impacts may make proposed projects non-viable. Social and environmental impacts of extractive projects may be related to: land use and rights; water use; displacement and resettlement of local communities and the specific rights of indigenous peoples; management and implementation of security; health and safety risks that can arise from extractive projects; use of labour force; environmental degradation, including disaster management; and closure/decommissioning. Host governments, through their permitting and regulatory capacity, have the responsibility to ensure that potential environmental and social impacts are identified as early as feasible and appropriately addressed and monitored through the life-cycle of the project. Investors share in this responsibility, particularly where host governments’ law may be insufficient. In all cases, investors should comply with relevant internationally recognised standards. National laws and regulations should prescribe that social and environmental impact assessments are carried out either by experts engaged by the government or the investor and that they are conducted in a specific and transparent manner. These assessments must be completed before conducting activities with a potential adverse impact. The risks and impacts identification should take account of the outcome of early engagement with affected communities as appropriate, based on disclosure of relevant environmental and social information and community participatory involvement in the formulation of environmental management plans and social impact management plans, with due regard to the prioritisation of all those who may be impacted, particularly indigenous peoples, women, and children. Sufficient time and resources need to be allocated for an effective process of community engagement, which should be designed and implemented in accordance with good practice principles of stakeholder engagement, as described under paragraph 10 under Guiding Principle II. Beyond compliance with relevant domestic and international law requirements, regulations and standards, host governments and investors can agree to incorporate into the extractive contract requirements consistent with internationally recognised standards and good practice to facilitate the prevention, mitigation and remedy of adverse impacts throughout the project’s life-cycle. Requirements that are appropriate to the local context can help to: 1) fill any gaps in domestic laws, policies or capacity to monitor compliance; 2) create common expectations and benchmarks on aspects that are not adequately covered by national and/or internationally recognised standards; 3) clarify the roles and responsibilities of the parties to the contract. To the extent not covered by national laws, the extractive contract should delineate responsibility for: (a) periodically assessing actual and potential adverse impact; (b) devising and carrying out a prevention and mitigation plan for potential negative impact; and (c) ensuring appropriate and transparent financial arrangements are in place to ensure that sufficient funds are available for the execution of prevention, mitigation plans and remediation responses (e.g. use of escrow accounts, special funds for decommissioning, bank or company guarantees).
23. In particular, to the extent not covered by domestic laws, contractual provisions for the parties to agree on a set of social and environmental baseline studies (prepared by the government, the investor or a third party) approved by the government before operations begin against which implementation and compliance can later be measured may be beneficial, and can inform the development of requirements for continual improvement and remediation for any harm caused by the extractive project operations.