World Bank launches new fund to aid African countries negotiate best oil deals

In Paris, France, October 5, 2012, the World Bank launched a new Trust Fund that will help countries in Africa to negotiate for the best-possible contracts for their oil, gas and other minerals with international companies.

A concept note on the new World Bank fund showed that translating natural resources wealth into broad-based development can be difficult in Africa adding that “contracts to develop natural resources are often highly complex, and African governments may be less well-informed about technical details and geological endowments than the oil, gas, or mining companies which come to negotiations with highly-paid lawyers and technical staff.”

The World Bank notes that the potential benefits of new extractives contracts in African countries are likely to be missed in such negotiations when governments have insufficient capacity to manage the negotiations process.

The Trust Fund was launched at the recently held 40th Anniversary Meeting of the Zone Franc Monetary Union in Paris which was attended by over 20 African Finance Ministers.

The French government has indicated it strongly supports the new fund and encouraged other governments and donors to back the World Bank-led initiative.

“We stand fully behind the World Bank in its efforts to help African countries secure the best-possible mineral contracts with international companies in order to promote the long-term development of their countries and the wider continent. We urge other governments and donors to also support this new World Bank initiative,” said French Finance Minister, Pierre Moscovici.

Welcoming the French government’s strong support, the World Bank’s Vice President for Africa, Makhtar Diop, said the new fund would work closely with the African Development Bank and other partners for maximum impact, and would welcome donor support to expand its reach.

“It is clear that Africa sits on top of extraordinary wealth and that these natural resources could be transformational for the continent,” said Diop.

“Being able to negotiate the best-possible deals is essential for African countries to convert more of their natural resources wealth into inclusive and sustainable growth,” added Diop.

The proposed new fund, according to the World Bank would cover several key priorities.

1. Legal advice to negotiate better deals from private investors—This could include direct legal advice during negotiations, advice on the methods of negotiation (competitive bidding, bilateral negotiations, and so on), advice on different transactions fees.   Advice would be available from reputable legal firms.

2. Help to reduce environmental risks—Environmental risks occur at two stages: during extraction and when operations close. Technical assistance is typically needed to assess environmental impacts, as well as to develop workable solutions and remedies that are effective.

3. Technical assistance to address social risks—This could include advice on new benefit sharing arrangements drawing on other Bank and global experience , as well as technical assistance to assess social impacts, health, and livelihood effects, as well as local service delivery.

Which African countries will qualify?

The Trust Fund would be demand-driven but in the initial pilot phase complete preference would be given to countries which meet the following criteria:

1. Countries with significant discoveries of oil, gas, or mineral reserves, and that are in the process of negotiating contracts. The initial pilot will concentrate its resources and its efforts on the most difficult development challenges and countries with the weakest capacity.

2. There is a demand from the country, and willingness to receive advisory services for well- identified sound projects. Making the Trust-Fund demand-driven ensures that Trust Fund resources are used where they are most likely to be converted into results on the ground.

3. There should be social and environmental challenges of significance. To make the best use of its limited resources, the Trust Fund should focus on providing technical assistance on social and environmental aspects for projects where there are challenges of significance.

According to the World Bank, Africa is holding 15% of the world’s oil reserves, 40% of its gold, and about 80% of the platinum group of metals.

By Ekow Quandzie