Contract transparency refers to the public disclosure of the contracts signed between mining companies and their host governments.
It helps to address the issue of contract asymmetry which occurs in some developing countries when there is unequal power between the company negotiating a contract and the government. Asymmetry may occur when a company knows the geology and/or profitability of the proposed mine better than the government or because the company negotiators are more experienced than those acting on behalf of the government.
Transparent contracts mean that the citizens of a country where a mining operation is based can find out what the mining company has committed to do, what taxes they are obliged to pay and when they are obliged to pay them. It allows the citizens of that country to hold both the company and their government to account for the decisions that have been made on their behalf. Whereas revenue transparency allows citizens to see what a company has paid, contract transparency allows citizens to see what should have been paid. It is regarded as an important aspect of good governance in the sector.
How Do Companies Benefit From Contract Transparency?
Contract transparency helps to build trust between companies and governments and also companies and citizens, as it shows that the company has nothing to hide and that it is willing to be held to account for the commitments that it has made.
The substantial upfront mining investment costs and the fact that a mine is not a transportable asset can place mining companies at a significant disadvantage whenever a government attempts to renegotiate a contract. Contract renegotiations often occur when a new government comes into power, reviews the decisions made by the previous administration, and attempts to overturn them on the basis that they were ‘inappropriate’ or ‘unfair’. While an open and transparent contract can be renegotiated, the risk is reduced as scrutiny of the contract would be public from the moment it was signed.
Strengthening Operational Capacity
Contract transparency and revenue transparency reduce opportunities for corruption and help citizens to lobby for mining revenues to be invested responsibly.
ICMM members have committed to disclosing all mineral development contracts granted, entered into or amended from 1 January 2021 that they have signed with host governments. Members are also encouraged to disclose contracts signed prior to January 2021.
Another way that ICMM supports contract transparency is via the Extractive Industries Transparency Initiative (EITI), a global standard that promotes open and accountable management of natural resources. The EITI requires the disclosure of contracts signed, amended or addended to after 1 January 2021 in all of its 55 implementing countries.