The lack of engagement with local communities is at the root of many conflicts arising in the extractives industry.
When foreign investors come to a host country in order to establish their company in this sector, they usually negotiate directly with governments and only rarely with local communities, according to Luis Ore, a Peruvian mediator, negotiation trainer and expert in cross-cultural stakeholder engagement, who singled out mining as particularly problematic.
Mining, he told Devex, “is like a chair with three legs, where the other three are not engaging properly with the leg that is a problem.”
“Companies get permits and licenses from governments. They may have some contact with the communities but it’s very superficial, the information they share with them is not understandable, as they don’t share it in the language of the communities,” Ore said. “In fact [companies] go to the communities already with the permit [so] communities are out of the loop; they don’t know what’s going on.”
With the extractives industry, in many cases local communities "aren’t sufficiently involved" in the development and planning of this type of project,” noted Ian Gary, senior policy manager at Oxfam America, which has been pushing for companies, governments and donors to follow Free Prior and Informed Consent rules to make sure that communities have the right to say yes or no to these types of contracts.
Nevertheless, he told Devex that there was recognition of the importance of engaging communities is increasing, as well as using consensus as "a tool for the long-term success and viability of those projects.”
Gary cited the example of the International Finance Corp., the World Bank’s private sector lending arm which provides loans to oil, gas and mining companies but now requires these firms to abide by FPIC rules for projects that affect indigenous people.
“A number of mining companies have already made FPIC part of their corporate policy. There’s growing recognition of this issue, but certainly still a long way to go,” he said.
To address this very issue, G-7 leaders gathered last month in Brussels and announced a new initiative called CONNEX, which offers developing country partners extended and concrete technical expertise for negotiating complex commercial contracts, focusing initially on extractives.
CONNEX, Gary explained, “is designed to better coordinate donors’ assistance to governments that are negotiating contracts with oil, gas and mining companies” and address the “imbalance between the capacity of many resource-rich countries to negotiate these contracts and the capacity of large oil, gas and mining companies” in order to “level the playing field” as those nations are at a disadvantage when it comes to information and expertise.
But will this initiative be enough to solve the problem? Ore thinks it can be, so long as it is approached in the right way, but he questioned whether it will simply assist governments to better negotiate contracts with companies, or also encourage foreign investors to engage better with local communities.
Gary noted that it remains to be seen how CONNEX will be structured and implemented to achieve its aims: “The real question is whether the types of assistance they provide will actually have an impact on getting better deals for host governments, as well as making sure that those deals are disclosed. Oxfam and other NGOs will have to watch the initiative as it develops and make sure it is incorporating principles of open government and open contacts.”
During their June summit, G-7 leaders also confirmed their commitment to working toward common global standards on increasing transparency in the extractives sector, notably by ensuring the full disclosure of company payments to governments, and also discussed illicit financial flows in the sector.
Gary welcomed that pledge and said that it is “very important” for donors to be able to use this technical assistance to insist on some measures regarding transparency. “That means that those secret deals negotiated in a back room have to be made transparent and subject to public scrutiny,” he said.
Many governments, he added, would support this strategy if only it could generate more revenues. “It’s a question of how these revenues are used, whether they are siphoned off into private bank accounts, or get lost to corruption. One important step to avoid that is to make sure these contracts are made public,” Gary said.
The Extractive Industries Transparency Initiative demands that all payments for natural resources such as oil, gas, metals and minerals between companies and governments are made public in developing countries. Currently, Canada and the United States are the only countries to have accepted these rules, but both fail to meet all transparency criteria. Meanwhile, no EU member state has signed up so far.
“EITI foresees the company to disclose information regarding payments they do to the government but there’s no piece that I can see addressing the issue of what money the companies are paying to other stakeholders and to the local communities,” Ore stressed. “Sometimes what companies do is contact the leaders of the communities and offer money to him and his family, so that he keeps the community under control. That’s an issue I think that's not addressed and if it is addressed, it is not that clear.”
The Peruvian expert believes improving transparency is doable, but claimed this was not the problem per se: “If the problem was that the local community’s only concern is that the company is paying money or bribes under the table to the government, it would be good to just increase transparency to disclose the information and make it accessible.”
The question, according to Ore, is whether companies are paying somebody else other than the government, for instance local community leaders — and if EITI includes all payments, he said “that makes sense.”
G-7 initiatives and their impact
Ore still wonders what impact these two G-7 initiatives will have in developing countries, but feels more optimistic about one than the other.
“In my opinion, it is more likely that CONNEX will have an impact, if approached with the right mindset,” he said. “Some companies simply exclude the local community and some others adopt the 'I want to be a good neighbor' approach, because they're going to be there for a long time.”
For other firms, Ore noted, “it's more a case of 'I will just give you whatever you ask of me, just to keep you quiet', or companies can see themselves as strategic partners to help the communities develop” — and that’s why at the end of the day it’s the approach of the companies that makes the difference, as “laws can be good, but people are the ones who implement them and manage relations.”
Further steps on CONNEX will be discussed at the next meeting in Berlin later this year.
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