Evolving Standards on Stabilization: New norms, practical insights, and emerging risks

On behalf of the IGF secretariat and IGF directors, Isabel Ramdu, it's my pleasure to welcome you to today's webinar on evolving standards on stabilizations, new norms, practical insight and emerging risk.

As many of you know, the use of stabilization clauses in mining investment contracts and legislation has been a topic of debate and a complex one, particularly regarding the impact on investor confidence and a country's ability to adapt to changing social, environmental, and economic conditions. Many IGF member countries in Africa, Latin America and the Caribbean, as well as in Asia, continue to grapple with finding the right balance in designing or negotiating these clauses, especially within the increasingly competitive investment landscape we are in.

As a secretariat, we are often asked practical questions by member countries, such as: What is an acceptable duration for a stabilization clause in my context? Is a freezing clause appropriate, or is economic equilibrium more suitable in my context? How do I design my fiscal and custom stabilization? And the list goes on.

This is why IGF members revisited this important issue during the 2023 revision of the IGF Mining Policy Framework, as we call it, the MPF. The updated MPF guidance highlights the need to strike a balance between adopting legal frameworks when necessary and avoiding frequent changes that could create or be perceived as legal unpredictability for investors. It also emphasizes that mining regimes, whether laws or agreements, should be transparent and clear while remaining flexible enough to support innovation, protect emerging issues, and address emerging challenges such as climate change, environmental protections, human rights, and social and economic equity.

The MPF is also clear: stabilization clauses should not be automatic. Where they are considered necessary, their use must be based on clear commercial need and limited in time and scope, and subject to periodic reviews. Such clauses should specifically exclude environmental and international tax measures, as well as human rights obligations and gender equality. At a minimum, the MPF recommends following the OECD Guiding Principles for Durable Extractive Contracts as the first step for its member countries.

This is why today we are really pleased that two of our distinguished experts, Alexander Redhead and Howard Man, have taken this difficult and important task on, impacting the OECD Guiding Principles seven and eight through this practical tool that will be presented today. I'm sure that our members will be following with great attention, and we are also grateful for the continued collaboration and support between the ISD and the OECD. We extend our sincere thanks to our invited experts today for agreeing to share their experience and expertise. So, I wish you all a fruitful and engaging discussion. I would like now to hand over to Ali to start. Thank you.

Thank you very much, Clemons, for those fantastic welcoming remarks. And let me also extend my welcome to all of you who are joining us for this very important webinar today. We're delighted to have you with us. It's nice to see many familiar faces on the call. So, thank you for being with us.

My name is Alexander Redhead, and I direct our work on tax and sovereign debt at the International Institute for Sustainable Development, which hosts the IGF Secretariat. Just a matter of housekeeping for those of you that haven't seen in the chat, we do have interpretation. So, please feel free to go down to the bottom of your screen and click on the interpretation button where you can choose your preferred language in English, French, or Spanish.

So, the format for today is, following on from Clemons, I will share a few brief remarks from my side. Then I'm going to pass over to our colleague Howard Man, who I'll introduce shortly, who's going to take us through this new IGF guidance for governments on stabilization in the extractive industries. And along with Howie, we have several fantastic speakers who will share their insights later on. And then we will have an opportunity to hear from all of you. So, we have enabled the Q&A function and the chat function. So, please, as we go through, feel free to put questions or comments in the chat or in the Q&A function directly, and we'll do our best to get to those later in the program.

So, if I can go to the next slide, thank you, David. Joining me today, as I mentioned, most importantly, the author, the lead author of this IGF guidance for governments, Howard, or Howie Man. Howie is currently working as an international arbitrator. Prior to that, he was with IISD and IGF for many years, and he is the architect of the IGF's work on mining taxation, in particular, which is the relevant workstream or program to which this guidance for governments relates. And before that, Howie has played an instrumental role in many developing countries supporting capacity building efforts around mining contract negotiations, in particular. And he was also a key contributor to the development of the OECD Guiding Principles on Durable Extractive Contracts, which is the starting point for the IGF guidance for governments, which now seeks to take those principles from the OECD and put them into practice. So, it's wonderful to have you here, Howie. I'm glad that we got this done. This product has been several years in the making, and it's a very important one for IGF members and for other resource-rich developing countries.

We're also joined by Solongu. Solongu is from Mongolia. She is the first deputy chief of the Cabinet Secretariat, and she's been instrumental in supporting the renegotiation of several mining investment agreements in Mongolia. So, it's wonderful to have you with us, Solongu. Fabian Cot, who was formerly advisor to the head of state in Cameroon, particularly as it relates to contract negotiations, and is currently professor of public law and political science at the University of Yaoundé in Cameroon. Dave Murray, head of tax policy and sustainability at Anglo-American. Thank you for being with us and for your contributions to this work throughout. And finally, Nicola Woodruff, who is senior legal analyst with the Natural Resource Governance Institute, and Nicola has also been a key contributor to this guidance document. And I should say, finally, finally, Lara Liberty, who is also the architect, but in this instance, of the OECD Guiding Principles that we're here to discuss and deconstruct today and then build them back up again via practice. So, Lara is the head of the Natural Resources at and Development Unit at the OECD Development Centre, and we are very grateful to her joining and in particular for starting us down this path with the OECD Guiding Principles and now the IGF guidance for government. So, thank you all for being with us, and you'll get to hear from each of these people shortly.

So, if I can move to the next slide. Thanks. And the following one, just to set the scene. I think Clemons has already said several things in terms of why this topic is so important to IGF member countries and, as I said, resource-rich developing countries more generally. Stabilization is a thorny issue. It is a controversial issue, and one where I think both governments and industry are seeking guidance on new and perhaps more progressive approaches to stabilization than that which we've seen in the past.

But firstly, what are we talking about for those of you who are not intimately involved with negotiating stabilization clauses? Stabilization clauses are essentially a provision, typically in a contract, but they may also be found in domestic law, that seek to lock in or limit changes to the law applicable to a mining investment for a set period of time. So, this could relate to fiscal issues, so freezing of tax laws that were in place at the time when a contract was negotiated, but it could also relate to non-fiscal issues, so environmental legislation, labor laws, and so on. So, essentially, stabilization seeks to stabilize the regime that applies when the investment is made.

They, these clauses can take different forms. So, in some cases, we have freezing clauses that freeze the regime in place. So, any future changes that government might make are not applicable to that investment that is subject to those stabilization provisions. But they may also take the form of economic equilibrium clauses, which Clemons referred to as well, which is more a way of balancing things. So, if changes are made to the law that apply to an investment that was made prior, then if those changes have a negative impact on the investment, then compensation could be provided by government, a kind of rebalancing. So, there are different forms of stabilization clauses.

Why are they used? For several reasons. There are perspectives from investors, from industry, also from governments. On the one hand, investors, I think, are concerned about risk. So, often when making an investment in the extractive sector in a developing country, there may be concerns about political risk, about changes to the regime over time, and so stabilization provisions are intended to try and limit that risk. Enhancing bankability. So, there are big upfront costs involved in this sector, and there may be concerns that a project won't be bankable unless the company can demonstrate to shareholders and financiers that the rules of the road or the regime that applies is not going to change, because we're talking about long-term investments, 20, 30 years.

In some cases, there may also be rent-seeking and opportunism. So, we have seen instances of stabilization clauses lasting for 30, 50 years, being renewed, and so on. And these are instances that we would argue go well beyond the purpose, if there is indeed a purpose, of stabilization provisions from a government side. It can be around attracting foreign direct investment. So, often there is demand from industry for stabilization provisions for the reasons that I mentioned, and I think countries, governments may be concerned that if they don't offer stabilization, then they may deter investment. And often there is information asymmetry that plays into that. Countries may not be aware of alternatives to stabilization. It may be difficult to discern when stabilization is really necessary versus when it starts to bleed into that kind of opportunism space that I mentioned. So, there are different reasons for why stabilization is used, depending on who you talk to, and some of those reasons are perhaps more valid than others.

If we can turn to the next slide, why does it matter? So, stabilization clauses essentially aim to stabilize the regime that applies at the time when the investment was made. There are different reasons for that. Why is it important? Why has IGF dedicated a guidance note for governments to this topic? This became a big issue in the mid-2000s. I think it was Amnesty first that highlighted some of the impacts of stabilization clauses, particularly on human rights obligations. There were concerns that stabilization was essentially resulting in countries contracting out of their human rights obligations, and this then grew. This controversy and concern has grown over time, and I think it still persists.

There was an important study done by the IFC in 2009 that looked at the regions or the types of countries where stabilization was most common. And what they found was that it is disproportionately an issue for developing countries, and in particular African countries or sub-Saharan African countries. So, you can see on the slide, this is taken from the IFC report, that they found that of the contracts that they looked at, in terms of those with full freezing clauses, so the most onerous types of stabilization provisions, 36% of those arose in sub-Saharan African countries. So, this is really an issue for developing countries, and that's a concern because these are often countries that are most in need of legal advances. So, tying their hands via stabilization provisions can prevent some of those changes from taking place. So, this has been a big topic for countries, a big source of concern. We've seen several legal disputes in recent years relating to taxation that in part stem from stabilization provisions perhaps having been too generous or locked in fiscal terms that were ultimately financially and politically unsustainable for countries. So, it's a big topic. It's one that has not been resolved and is worth dedicating time to.

If I can go to my final slide, it's against this background of controversy that the OECD Guiding Principles emerged. And what we've seen is historical approaches that range from kind of more onerous freezing clauses that lock in fiscal terms, non-fiscal terms, to economic equilibrium, which developed a bit later, which was more around a rebalancing effort, as I described. And of course, there were countries that, particularly developed countries, that don't offer stabilization at all. Then we had the OECD Guiding Principles emerge and provide a new normative framework. And what this new normative framework says, and Howie will describe this in more detail, and Lara may speak to this as well, is that it says that essentially freezing of fiscal and non-fiscal, well, freezing of non-fiscal is out. You know, we shouldn't be stabilizing non-fiscal issues. When it comes to fiscal issues, there's still space for freezing, but it should be more limited. And then there's also this new idea around revenue certainty, which is, in return for providing some predictability with respect to fiscal terms for investors, equally, governments should be able to expect reliable revenues, and if not, that they should be at liberty to act. So, we have a new standard which came out now several years ago from the OECD, and at the IGF, what we've tried to do, Howie and myself, with support from other people, is to really break that down and provide guidance for governments on how to take those principles and to put them into practice. So, with that, I will pass to Howie, who will take us through the principles and how we have applied them in the IGF note.

Thanks, Howie. Thank you, Ali, and thanks everyone for being here. It's nice to see some old friends on the list of participants. And I hope we'll have a fruitful discussion. Slide, please.

The IGF guidance, "Evolving Standards on Stabilization," tries to do three things. The first is we track the evolution of the international development of stabilization principles or norms from John Ruggie's process in 2008 to 2011, through the OECD work and the International Bar Association's Model Mine Development Agreement, to the most recent effort by the OECD that led to the Guiding Principles on Durable Extractive Contracts. So, there's a tracking of how the process developed. Second, we break down the two key principles, seven and eight, in the OECD Guiding Principles on non-fiscal and fiscal stabilization. And for the sake of time, that's where we'll start today with a summary of those two key principles. And third, we try to provide some model language to implement these principles in domestic law and contracts. And that's chapter six of the guidance document. And for those of you who have read it or haven't had a chance to read it yet, but will, you'll see that it's broken down into provisions for the domestic law that enable certain approaches to stabilization, and then provisions for contracts, permits, or licenses that might be used to actually implement them in specific detail.

Slide, please. The foundational principle, I think, is important to just spend a minute on here. The key starting point, and it's one that solidifies a direction that has been emerging for a while but hasn't been stated this clearly in an international document, is that the investment contract between an investor and a host state should be consistent with and comply with the domestic law of the host state and applicable international laws specifically to that host state. The contract should not take precedence over domestic law. And I'll add a caveat: unless the domestic law itemizes specific provisions where the contract does so, in which case it becomes a function of the domestic law, not a principle that the contract overrides. So, there, the other part of that is that it's the domestic law of the host state that should always be the applicable law. No more of this practice of designating the domestic law of England or France or a previous colonial power or whatever as the applicable law in the host state. No, no. It's the law of the host state that is the governing law and the law that is applicable and governs the contract.

Second, and closely related, and this comes from the OECD Guidelines for Multinational Enterprises going back as far as 2011, investors should not be seeking alterations to the domestic law that are not permitted in that domestic law. So, closely related to that is the idea that the domestic law should be clear and transparent on what exemptions or alterations the government is allowed to negotiate. So, we have a real critical element of transparency that makes the scope of stabilization that might be available if the government wishes to make it available to the investor. And the idea is that you have transparency for the impacted communities, you have transparency for the investor, you have transparency for the government, and everybody is working on a fairly level playing field that way.

Slide, please. If we break it down now into the more traditional columns of non-fiscal stabilization and fiscal stabilization, we'll start with OECD Principle 7, the Guiding Principle 7, which deals with non-fiscal stabilization. And the result on that front was really very clear, remarkably clear, and really, I think, solidifies the trend that we saw begin to emerge with John Ruggie's work, his legal team's work that flowed through the International Bar Association's Model Mine Development Agreement, and then later reiterations of the OECD's guidance for multinational enterprises. And essentially, we've now come to the point where there should be, where the basic principle is that there should be no stabilization of non-fiscal laws and regulations. The government should not agree to provisions that limit the application of new laws or regulations that are brought into force from time to time. Any laws, regulations relating to non-fiscal matters, any new laws should apply to all of the economic actors in the country, including those foreign investors in the mining sector.

Slide, please. In, I would say, balance, I don't want to say exchange because I think the principle stands for itself, but I would say as part of that, as a balance for that, what was agreed within the OECD process on the Guiding Principles was that the costs incurred by an investor to implement the new laws should be treated as operational costs, not capital costs. And this was, in fact, during the process, the specific suggestion of lawyers from the industry side that were participating. I don't want to name specific names and companies and so on. I don't think that's relevant. But it was the suggestion of industry, and that suggestion was agreed by everybody. What it means is that the costs of compliance are essentially deductible for tax purposes in the year that they're incurred. Capital costs might have a depreciation of three years or five years or seven years, depending on different countries. But the operational costs are deductible in the year that they're incurred. So, this effectively speeds up the cost deductibility for industry, puts it together with the year that the costs were incurred, but it doesn't alter the total tax revenue for governments. It alters the timing of that revenue, but not the total revenue. And everybody in the room felt that that really became a fair balance on this issue.

Next slide, please. The third issue, and the last one that I'll raise specifically on non-fiscal stabilization, is the idea of a safe harbor. And in a way that applies to both sides. There's a government responsibility here. These are principles; they don't set, they don't directly set legal obligations. So, I'll use the word responsibility to make sure that they adopt, that they do not adopt measures that are arbitrary or discriminatory against foreign investors, or that are expropriatory of the foreign investor. That was a third element. But for governments to know that they can act in an area that will not be challenged by foreign investors, there's the idea that bona fide laws that are consistent with relevant internationally recognized standards and best practices are by definition not arbitrary or discriminatory. So, if you apply in your domestic law a reflection of those international standards or international laws and best practices, you know, you will be safe. The important change that comes in this OECD principle, though, is that it's without prejudice to other measures that are not reflected in international standards. So, whereas in the Ruggie principles on business and human rights, the safe harbor clause was specifically limited to implementing international standards or international laws, this is not limited in that way. If you are limiting international standards or principles or laws, you have a defined safe harbor, safe space, but you are not limited only to be allowed to use those measures. And the specific reason for that is because, in fact, those international law standards and best practices are very small in number, and limiting it to that really reduces that type of safe harbor to an almost inapplicable extent. So, this says if you're using those standards, you're safe. You don't have to worry. But it's not only those standards that can be safe. Other standards can also be legitimate, bona fide, and non-arbitrary and non-discriminatory.

Next slide, please. Okay. So, we move to fiscal stabilization here in OECD Principle, Guiding Principle 8. And the key element here is the very clear rejection of the presumption that foreign investors in the natural resource sector, in particular, because that's what we're talking about here in durable extractive contracts, that they require fiscal stabilization in all cases or that governments should provide it in all cases. What the principles come to is a recognition that in some cases, there may be a commercial need for fiscal stabilization. But those cases should be defined and based on criteria that are applied. Criteria that are applied. And they should be tailored specifically to meet those commercial needs. So, it's no longer wide-open stabilization. Every fiscal measure is stabilized. If you can, if the investor can demonstrate a commercial need for stabilization, and the government agrees to negotiate the stabilization and are allowed to do so under their domestic law, then the stabilization provision should be tailored specifically to those commercial needs.

Next slide, please. Fiscal stabilization should be based on the proof of commercial need. And in our IGF provision drafting, provision four, there should be, we make clear that there should be a process of providing information. The investor should provide information, their modeling, their financial estimates, the estimates of profitability of the mine, of the proposed mine, and so on. The government should review and assess the costs and benefits of providing the fiscal stabilization that might meet those needs, and the decision should be made and published and be transparent. And that's that process that we then set out for trying to implement these principles. And again, it's needs-based, not presumption-based.

Next slide. Um, with that, we read into Guiding Principle 8 a general obligation on the investor to be truthful in the information it provides. There are many, many anecdotes at the international level and in these international processes that make it very clear: a lot of investors have developed two sets of books, one for the boardroom, one to give to the company, and those two sets of books and forecasts are not always the same. So, there's an obligation of truthfulness that we bring into the domestic law implementation, and a requirement for the government to be truthful in the information and projections it provides, and an obligation on the government to maintain the confidentiality of that information.

Next. Um, and then we go into, in the implementation process, the types of identifying the types of taxes that could be stabilized: royalties, profit taxes, withholding, capital gains, and so on. And the duration. And a key element is defining the duration of that. That could be tied to the external financing period, could be tied to cost recovery, it could be a fixed date from commercial production that is related to the cost recovery period, and so on. The important thing is we are not trying to impose one model or one result only. The point is to be able to reflect that on-the-ground situation and expectation that defines the commercial need and define stabilization in accordance with that commercial need.

Next. Um, so here's an example of how we limit the scope of stabilization specifically for international tax treaties, which has been an issue that has come up in a number of international tax disputes in the sector and in arbitrations. And there have been a number of instances where international tax treaties have been included in a stabilization regime. And the question has arisen whether that stabilization should apply even when the tax treaty no longer is applicable, whether it's been terminated by the treaty partners or because the expiration of that tax treaty has occurred as of the text of the treaty. And so, we make it very clear that the tax treaty should only apply as long as it remains in force and has not been amended, and if it's been amended, then the amendment should apply notwithstanding the stabilization period. What we wanted to highlight here is that there can be a lot of nuance and technical detail, and this is one of those areas where we see that technical detail become very important to address if tax treaties are included in the scope of stabilization.

Next, please. Um, another issue that has arisen here that we wanted to address in terms of implementation is the transferability of stabilization provisions. Now, if we go back to the first principle that the stabilization should reflect the commercial need at the time of the investment between the investor, that specific project, and the country, it led us to the basic conclusion that stabilization provisions should not be transferred, extended, or automatically renewed unless specifically provided in the law, but always subject to government approval. In other words, there has to be a need to, there has to be the need to demonstrate that commercial need if the stabilization is going to be renewed or transferred to a new investor. What does that same commercial need that existed at the initiation of the first investment continue to apply later in time to a new investor? And only if that question is answered in the affirmative should there be consideration of the renewal or transfer of the stabilization clause. It shouldn't be considered in a way as an independent asset in the contract of the investor. That's not, that takes us more to the opportunism end of negotiating stabilization, not the defined commercial need.

Next, please. Um, the other side of the coin, and I'll try and speed up here, Ali. I know we're coming short on time. This is an addition of the OECD principles, and it really comes out of a good deal of the OECD's other work on tax avoidance, tax evasion, and so on. And it recognizes, it starts with a recognition of the obligation of investors to pay all the taxes owed and the rights of governments to enforce those tax laws. And it extends to governments retaining the right to respond to structural or operational changes made by the investor that create tax avoidance or tax evasion by the investor. Well, let me give one very quick example. If, during the operation of a mine, the investor company decides to sell all of the production of that mine to a related third party at a below-market price, and that related third party then sells the production on to another company at a proper market price, that becomes an issue of tax avoidance, at best tax evasion at worst. Either way, the government should have the room to adjust its how it values the production in order to maintain the tax level that was originally anticipated, and the level of tax payments that were anticipated originally before the investor changed its operational approach. That's one example of where this might apply. This is to some extent an exclusion from stabilization in that it allows this type of reaction to measures taken by the company that impact the level of tax revenues of the government. And there is a limitation here to the extent that the government should continue to apply internationally recognized tax practices in how it makes its own adjustment to those corporate operational or structural changes. So, it's not wide open. There is a limit. There is a sort of fencing in of the types of responses governments can take, but it does ensure that the governments have measures available to maintain the same level of revenues that they anticipated. And I think the last, next slide is the last one I think.

Yeah. Um, so in summary, in terms of implementing this approach, we see the need for governments to review all of their legal sources on stabilization for consistency. So, that could include their investment laws, their tax laws, their mining laws, and so on, their contracts, if they use contracts, their permits, if they use permits, for any new provisions to assess the commercial need, to integrate the role of project modeling into their decision-making, and accompanying that, the obligation of investors to provide the actual and true project projections. Consider the alternatives. Flexible, responsive regimes is the focal point of the alternative to fiscal stabilization, so that profit levels adjust automatically depending on the actual commercial situation facing the operations of the mines on a year-to-year basis. And an important point that we haven't talked about yet, but it really is an important point, is there should be an accessible and systematic consultation mechanism. Parties shouldn't wait for a dispute. Governments and investors shouldn't wait for a full-on dispute before engaging and talking about issues. There should be yearly reviews. There should be more than yearly opportunity, access to a consultation mechanism if the government or the investor feels there's a need to have a sit-down and say, where are we? What's going on here? How do we respond to a specific problem, a specific market condition, a specific set of tariffs we hadn't anticipated, or whatever the case might be. And finally, to ensure transparency in the approach, both within government laws and within the contracts and the final agreements on these issues. So, with that, I'll end it and turn it back to you, Ali.

Thanks very much, Howie. That was fantastic. I hope that we have given everyone sufficient cause or reason to go in and dig into the IGF guidance for governments. What we've tried to do, as Howie said, is really move from the OECD principles, which are a fantastic starting point, and without which we wouldn't have a guidance note, and put them into practice, to really break them down and understand what they mean and how countries can apply them at the level of the domestic law as well as in contracts. So, as Howie said, when you go through our guidance, you'll see that we've provided model legal language for both the law and for contracts. And there's a lot of overlap between the two of them, but there are some important differences as well. So, we really hope that this is a helpful resource that does allow or enable countries to move forward on stabilization. The OECD principles are a really critical step forward in terms of the normative framework on stabilization, and this guidance is the next step in terms of actually putting them into practice.

So, we have several questions in the Q&A function. So, I'm going to just provide, give Howie an opportunity to respond to a couple of them before we turn it over to our panelists. And there are some really good questions in here that I think relate to what you've been saying, Howie. The first is in relation to the Pan-African Investment Code. And so, the participant here is saying that the Pan-African Investment Code recognizes the right of states to regulate in the public interest, but that right is limited, notably by requirements that the measures adopted are not discriminatory or unjustified. So, how does this relate to stabilization clauses? That's the first one. The second one is around disputes arising from changes in law that are about essentially countries taking action on climate. So, we're seeing a lot of countries taking steps to meet their climate targets, and that is raising issues with existing investments. So, how are we dealing with those? And I think that's a question that we've been discussing in terms of, in particular, the non-fiscal issues, stabilization and non-fiscal issues. And then the last is, Wars, I hope, I think Howie touched on this a bit towards the end anyway, about periodic review clauses. So, how do they work with, so Wars is saying extractive contracts have periodic review clauses which are invoked when circumstances change. How do they work with stabilization? And I think you've provided some guidance there, and we go into more detail in our note that sets out how to, the legal text that you would need to have in your contract or in your law to provide a transparent and systematic approach to reviewing the terms of the contract that are subject to stabilization. So, over to you, Howie.

Okay. First, in terms of the Pan-African Investment Code, which is a protocol now, because it's really a protocol to the Pan-African Free Trade Agreement. Um, in my view, what we've set out here is 100% consistent with that Pan-African Investment Protocol. I know the protocol well. I was one of the consultants who participated in early versions of it. The code itself is derived from the SATA model investment agreement text, in particular version two of that from the KESA regional investment agreement, and so on. So, there's a history to developing the Pan-African Investment Protocol, which is perfectly consistent, and in my view, comes to the same, the exact same conclusion. The fact that the words might not be identical doesn't really alter my view on that. The principles and the approach is identical. The direction, the spirit of it, and most of the language of it is very much the same between what we see in these OECD Guiding Principles and what is in the final text of the Pan-African Investment Protocol. So, I don't think there's any issue there of divergence. I think the principles and the normative structure are very much identical to it. Fabian may have a different view on that, and if you do, Fabian, please feel free to say so after.

Um, in terms of the change in law provisions relating to climate change, I mean, climate change is obviously, to me anyway, I should, for full disclosure, I was, I started my career negotiating climate change and was part of the drafting of the Framework Convention. So, I go back almost 30 years on climate change now, plus 30 years. And I also view the climate change process, even though we actually don't have a single international treaty that sets out a binding emissions standard or a binding emissions limitation, this is one of those areas where that limitation, that changes in law have to be based on international treaties. This is precisely one of the reasons that limitation was removed in the OECD text, because there is, in fact, no binding international treaty that sets a specific emissions limit. But the international climate change processes under the UN certainly ensure that addressing climate change is not arbitrary. And assuming the legislation passed is not directed just at one specific company and therefore could be argued as discriminatory, but assuming it's more broadly based, then there shouldn't be an issue with discrimination either. And there shouldn't be an issue with bona fides. If anything, the Framework Convention from 1992 and all of the process that has followed that shows this is a legitimate issue. And mining companies, like every other sector, every other sector, have been on notice since 1992 that this is an issue that needs to be addressed. And at some point, it needs to be addressed with what I would call alarming seriousness. The tipping point gets closer and closer because of the years of not regulating it. So, I think as long as the measures are not discriminatory, all of the other criteria for legitimately regulating in the climate sector should be easily met by a government that is taking legitimate, non-discriminatory measures.

And finally, Howie, I might just stop you there. Thank you for that. I think with Wars's question, we went into a bit of detail on how to do review in your previous intervention. So, I'll provide some more thoughts on that in the chat, Wars. But I've also noted Bob's question around the interaction between stabilization and the global minimum tax. So, Bob, we'll come back to that in the next round. But if I can now, and I see Tom's also responded to that there, so that's great. We have some guidance that addresses this issue of stabilization and the global minimum tax. So, I would like to now hand over to our panelists to share some of their thoughts, having different perspectives. So, first, I'd like to invite Fabian, if you're able to unmute yourself and turn your camera on. Do we have you? I hope I can't see you there. So, that's okay. We'll wait and see when Fabian returns. So, Solongu, can I come to you first? Drawing on your experience in Mongolia. So, the question that I would like to put to you is, how have stabilization clauses impacted revenue collection and other policy issues in Mongolia, and what steps has the government taken to reform these provisions in the law and mining contracts? Over to you.

Sure. Thank you. So, I guess all the issues that have been discussed, it's really timely issues for countries like Mongolia. So, our country's economy is very much dependent on the mining sector. Over 93% of our export revenues are from the mining sector, copper and coal are the main commodities, and over 30% of the GDP comes from the mining sector. So, obviously, we have had experiences with the stabilization clauses or stability agreements. I would say that I think we had the experience of three generations of stability agreements in Mongolia. In the late 1990s, early 2000s, we had the stability agreements that were entered into with certain mining companies which provided very broad tax exemptions and tax stability clauses. And based on the project revenue streams, it turned out that the tax exemption clauses were not very beneficial to Mongolia. So, we kind of moved from providing tax exemptions in the investment agreements to attract investment or to provide incentives for project developments.

And in 2009, we entered into a major investment agreement with Rio Tinto on the copper-gold project. And this agreement has very broad tax stabilization clauses, reflecting some of the provisions from our then applicable tax legislation and the tax stabilization clauses provided cost-based tax incentives. And these tax incentives are currently becoming subject to dispute. So, all of the major issues that Howard mentioned in his presentation are actually currently under consideration for us in terms of renegotiation, especially in relation to how to treat international tax treaties and how to treat international best practices, especially transfer pricing related issues, and what would be the scope of the stabilization and also the duration of the stabilization.

So, and after this agreement, we entered into a kind of third-generation investment agreement early this year. And this third-generation agreement kind of reflects our lessons learned from the previous agreement, and we try to narrow down the scope of the stabilization, and we try to make it very clear that not all the tax laws and legislation are frozen. We're kind of providing only stabilization in relation to tax rates and also trying to have more economic equilibrium-based approach. But again, it's always, I think, a kind of a lesson, a learning curve for Mongolia how to negotiate these kinds of agreements. And especially for our government, the key issue has always been information asymmetry because the investor has much better information about the project, and so they have more control over the project, especially in relation to capital costs, operational costs, and the general market conditions. And it's not very easy to create the balance between the revenue certainty and the commercial need for the stabilization clauses.

So, I will just give a few examples from why we think that the scope of the stabilization clauses are very important for renegotiation is that in our current dispute with Rio Tinto, Rio Tinto's position is that when they entered into the investment agreement in 2009, their position is that all of the tax laws and legislation that were applicable back in 2009 were kind of frozen, and that would apply to the project for a duration of 30 years. And obviously, it's a very difficult position to maintain because since then, a lot of international initiatives have been taken, especially in relation to transfer pricing. We also cancelled a few international tax treaties that affect the project. And also, in relation to the actual scope of the transfer pricing related clauses in the investment agreement, that is currently in dispute. So, it's not very easy to navigate these clauses when there is an actual dispute arises, and our investment agreement doesn't have provisions that provide a review mechanism. So, there is no obligation to review the contractual obligations for a certain period of time or if there is a change in circumstances. And our position is that obviously the tax stabilization clauses need to be adaptable and flexible so that it actually can survive the change in environment and the project duration. And I would really recommend having these kinds of review mechanisms in investment agreements reflecting the economic equilibrium. Otherwise, once these agreements are entered into for a project duration or for a longer period of time, it's very difficult to revisit these clauses, and based on our experience, it's not very easy to justify the renegotiation unless there is a very, very big issue of dispute.

So, I would say that for negotiators from the government side, it's definitely, I think, a very daunting task, taking into account information asymmetry and obviously these negotiations take place in a political environment. So, obviously, we also need to take into account various political demands and also the need to provide revenue to the state, etc. And one thing we also learned is that it's always recommended to have parliamentary approval for these kinds of contracts, especially if there are extensive tax stabilization clauses, so that these kinds of clauses survive the political discussions in the host country. So, that's kind of my overall conclusion, but I would be happy to take questions. Thank you.

Thank you very much, Solongu. We really appreciate you sharing your experience so generously. And I think the point that comes through very clearly is the need for a country, for a government to really carefully think through its approach to stabilization, whether it's willing to grant it, and if so, under what conditions and what form it should take at the outset. Because, as you say, once that's done, it's very difficult to undo and to go back and can be challenging to get companies to come back to the renegotiating table. So, having these conversations up front and having a clear approach is essential. And hopefully, this guidance provides some help in that direction.

So, next, I'd like to turn to Fabian, who I think is with us again now. Fabian, if you're here, please can you unmute yourself? Hello. Are you getting me? We are getting you. Fabian, welcome. Thanks very much for joining us. So, Fabian, the question that I wanted to ask you is, given your experience in Cameroon and internationally in terms of supporting mining contract negotiations, so a lot of work has been done to try and strengthen the capacity of resource-rich developing countries to negotiate better mining contracts. In your experience, what challenges remain, and how do these impact the negotiation of stabilization provisions specifically? So, we've had Solongu give us a deep dive on stabilization in Mongolia's experience. If you can kind of take us back out to look at how this fits within the broader context of negotiating better mining contracts.

And what work, uh, remains to be done there? Over to you.

Thank you very much, Ali. I've been around, although, uh, you couldn't see me, uh, but I'm confirming to you that I've been following very, um, I've been following the conversation going on, and I would like, first of all, to praise, you know, OI and yourself for taking this, uh, initiative of, uh, gathering, uh, such, uh, a, a very knowledgeable people, you know, to talk about an issue that is of great concern to the people of the developing countries in particular.

Let me continue in French, in, uh, uh, saying that, um, in above capacity, the, the negotiation.

[Music]

Organized negoti. There is still a room for improvement. There is still a room for improvement.

Um, set.

International.

Company. International. Orient. Close. The stability.

Mayor. Business as usual. Business as usual. For development. Stability. Undevelop. Perfect.

Thank you very much, Fabian. We appreciate your intervention and, and thank you for also, uh, speaking in French for our francophone colleagues who are joining us today. We appreciate it.

Um, Ali, can I interrupt just for one sec? Just for one sec. One second. Um, because I wanted to respond very specifically to Fabian's point on developing countries and what do mining companies negotiate with developing countries? And if you go back to your slide, the original slide number, um, which one is it? Number five. I'm not suggesting you pick it up. You'll see under the chart that you have there, there's a footnote that says no full freezing clauses for South Asia, Eastern Europe, Southern Europe, Central Asia, or OECD countries. This is exclusively an issue for developing countries that face these types of demands.

Thank you very much, Oi. Thank you. You are coming to my point. Thank you. And what I'm saying at the end of the day is that I think we should go on the spot and find out what the situation is before starting a relevant conversation on this issue.

Thank you, Ali. Thank you. Thank you, Fabian. No, I think we agree that there's definitely a need to update the research on the practice in the design and use of stabilization provisions. The report I was referring to is from a while ago. I think in our experience, the situation is largely the same in terms of the, the types of countries that are most impacted by stabilization provisions, but, but that's also because sometimes these countries also present greater risk, although, uh, we live in a, in a world today where there's a lot of countries where you could look to invest where there's significant, um, political risk.

Dave, uh, I'd like to turn to you now to talk us through the key factors that go into an investment appraisal and how and where stabilization clauses may play a role. And I'm also going to ask you to take a stab at Bob's question around the global minimum tax. And I think in particular there, it's interesting to think about how the, the new approach to stabilization that is set out in the OECD principles and in our guidance, um, how that, how that would impact uptake of the global minimum tax.

Thank you, Doug. Yeah, thanks, Ali. Good afternoon. Well, it's afternoon where I am and you are, I think, but good afternoon or morning or evening here to everyone and, and congratulations and, and thank you to, uh, to IGF for, for the publication of the paper and the opportunity to, to contribute today. Um, I'll talk broadly about the investment appraisal process, but limit my specific comments on stability to, to fiscal stability because that's where, uh, my experience, um, is.

Um, so mining investment appraisals are, in my experience, quite rigorous, structured processes that help decision-makers allocate capital. Uh, the projects are large, they're long-term. They're often irreversible once underway, and companies look at quite a wide array of variables: geology, infrastructure, permitting, ESG exposure, commodity price outlooks, but, but at the core of the appraisal is a financial model that, that estimates the net cash flows over what can be a multi-decade period. And, and two outputs really dominate that analysis, that it might be the, the internal rate of return or the IRR, um, so a hurdle rate of return on invested capital, and the net present value calculation, or the net present value of forecast cash flows, uh, and when, and where that is expected to be positive. And these, um, financial models inform whether a project clears the company's investment hurdle and whether it will be prioritized over other potential, uh, opportunities.

So within that model, the fiscal regime, being tax rates, royalties, depreciation rules, ring fencing, capital allowances, they all can play a decisive, uh, role. And, and even small changes in effective tax rates or, or cost recovery timing can, uh, shift the project economics. It's not, you know, maybe not the most impactful thing, um, in the, in the calculation, but it can shift the economics. And so if the model assumes one royalty rate and reality delivers another halfway through or just when you start, um, production, then that can change the return profile of an otherwise viable project.

So what investors need most, and, and I think need is different to what you might, um, you know, some, some of the anecdotal evidence suggests that maybe asked for and has been asked for in the past, what they need most is not about low tax. It's about securing predictability and reliability. And in, in my experience and in my view, that's where taxability agreements can play a role, whether that's negotiated or embedded in, in domestic legislation that's updated.

Um, they can limit, uh, or offset the impact of fiscal changes during the life of a project or, or more likely during the early stages of a project where the cash flows are most important in, in this long-term financial analysis. And, and whether negotiated or embedded in legislation, um, and I think this goes to a point that, that Howie was making earlier. You know, there must, at the foundation, be a balanced negotiation. There must be symmetry in access to information and, and commitments on both sides towards the requisite, um, confidentiality, capacity, capability, and transparency, um, but between the investor and the tax administration, if that is, you know, actually stabilizing something, uh, into something that is agreeable for, for both, um, parties.

Um, importantly, they're not about preventing change altogether. Um, I think investors accept that laws can change and evolve. Um, what investors are typically looking for is that once capital has been committed, once money is sunk, the basis on which that investment was made won't be changed without, without recourse.

Because these clauses don't guarantee profitability. They just protect the integrity of the assumptions on, on the investment decision that's made. And, and they can provide a degree of predictability in what otherwise might be, and this is probably where they're most appropriate, um, a highly exposed or politically contested operating environment. So where confidence is lacking, perhaps due to recent policy volatility or a lack of track record or some opaque legislative processes, that's when some form of formal stability might become more of a necessity for a commercial investor. Uh, and in, in many cases, that is a requirement for, for project, um, financing as well, because capital is mobile.

Well, I think that's why it's so important for investors. You know, mining companies might have 10 or 20 or even 30 projects in their pipeline globally, all competing for a finite pool of investment, and, and a jurisdiction that lacks a predictable fiscal environment, um, or, or worse, one that retroactively changes terms after investment is committed, will struggle to attract capital relative to countries that are more stable, regardless of its geographical, uh, geological potential.

Sorry. Uh, another important nuance is timing. Um, typically these clauses aren't required at the exploration stage. They become relevant once material investment decisions are, are on the table. And at that point, you know, stability becomes quite a rational ask, not to avoid tax, but to ensure that the commercial deal being signed holds for, for five or 10 years of, of operation. And the ICMM report, which was referenced, I think in the IGF report, the Unlocking Prosperity, um, report does underscore this logic. It calls for well-designed tax systems that are predictable, competitive, and, and aligned with sustainable development goals.

Um, and, um, it also makes a point that stability and adaptability, they're not opposites. A stable regime can still evolve so long as the process is transparent, consultative, and, and doesn't penalize committed capital over, over other forms of capital. Um, then, then I, we don't see any, any conflict there.

Um, so I know we're running a bit short on time, so I will conclude there. I'll maybe move on to the globe, uh, question now.

Um, so thanks for, for the question. I mean, from an investor perspective, um, I think, um, if you're located, um, as, as many are, in, in large capital exporting OECD or G20 countries that will have, um, IIR top-up taxes that will top up taxes you have elsewhere. If an investor finds itself in a situation where it's paying less than the, the 15% global rate in a jurisdiction because of a stability agreement, um, I've, I find it hard to believe that the investor would rather pay that additional tax in the country where its head office is located than in the, the local jurisdiction.

And I think they would probably be open to, to renegotiating on that. I think in, in practice, and this is more anecdotal for me, it's not, it's not an issue that I've had to deal with myself, but in practice, that can be problematic. You know, where there are other challenges. Maybe if it's a long-standing agreement and there are, um, other areas of dispute, maybe they're not even tax areas of dispute in relation to that, that agreement or other changes. If you're going into a renegotiation, then, then there may be a perception that the floodgates might be opening. It might be an opportunity to, to change other terms, and that might give more nervousness. But in general, I think you would find international investors very, uh, open to, um, to making sure that, um, whatever rate of tax they're paying, if, if there, you know, it should be, it should be paid where the activities happen, rather than somewhere else.

Thanks very much, Dave. Um, appreciate your contribution and responding to that. And I think just on that last point, I would add that you recall how we presented this principle of revenue certainty in the OECD guiding principles. Um, and what that means is that if companies engage in restructuring, for example, to facilitate profit shifting, that governments should, their hands should not be tied, right? They should be able to go back and revisit, uh, provisions that were otherwise stabilized to address that. And in there, we talk about, um, the fact the government should be able to respond to changes in international tax norms, for example, that are bona fide and, you know, that are supported by consensus. Whilst it, it's maybe a bit hard to argue that the global minimum tax is per se an anti-avoidance measure, um, it's certainly within that, you know, category. And so we would like to think that the approach that the OECD principles have taken in this regard of leaving space for countries to adapt and respond to changing international tax norms, that that would also extend to the global minimum tax, at least the spirit of it.

Um, so I just wanted to add that. Um, before I turn to Nicola, uh, I'm just trying to go through questions as well to make sure that people, um, you know, get, get the answers that they want. So long ago, very quickly to you, we had a question from, um, Dill Wende that was, um, given the issue of the obsolescing bargain in the extractive industries. Uh, and so that meaning that, you know, these investments are very long-term, there's a lot of, um, capital put in up front. So at the outset, the government may be incentivized to offer very favorable terms and then look to try and change that later on once the investor is locked in. So Delwende said that given that, isn't stabilization the most efficient approach? And I think it would be good to hear your thoughts on that.

Uh, I would say that not necessarily, because I think the rationale for and the scope of the stabilization clauses really needs to be justified by actual commercial needs. So I think, uh, most of the times, as, as Fabian said, there is a bias that, uh, developing countries should offer these kind of, uh, clauses to investors, and it, it shouldn't be kind of a blank check for, for, uh, uh, providing a stable tax environment. And I would say that some of these provisions actually create more tensions, uh, and disputes rather than provide, not providing a platform for, uh, mutually beneficial relationships between host country and investor. So I would say that, uh, it actually needs to be assessed, uh, case by case, especially the scope of the duration, otherwise, uh, I think, not everyone, obviously, no one wants disputes, right? And then once you are locked in a very complex tax dispute, it's very difficult to get out of that, that tax dispute, especially when you have high capital cost, uh, projects, and then there, so obviously there is the political environment and need for, uh, revenue certainty, etc. But I would also add that for host countries, obviously, uh, to attract investment and to get more investment, it's important to provide a stable, uh, environment. But I would ask again, for companies, are they actually doing business, uh, planning for a, for a period of 30 years? I would say no, because most of the senior management are appointed for up to five years, and they're actually just, you know, uh, would like to have more like this kind of secure, stable environment, uh, which would, I guess, uh, cause less headache for them, uh, for planning. But I would, I would really encourage for investors to really try to have more adaptable, flexible clauses. I think 30 years is too long, especially for, for developing countries. And then, so international norms are evolving. Uh, I would, I would say that OECD BEPS initiatives and profit shifting, uh, related initiatives is, so I think, important. And I would say that I don't think multinational companies actually have a business planning for, for 30 years, uh, without any adjustment. So I think that should also need to be, I guess, reflected in, in negotiations with host countries. Maybe 10 years is a reasonable duration rather than, uh, the entire project duration. So, uh, I guess that's where, uh, the point of, uh, rent-seeking comes in, what, what Howie mentioned.

Thanks very much. So we appreciate that and sorry to rush you. Nicola, can you take us forward? Um, so a lot of the work that we've done on stabilization has been trying to deal with issues that we would like to think are issues of the past, kind of legacy issues. Unfortunately, that's not always the case. But now looking forward, what are some of the new trends and emerging issues that you think are impacting stabilization provisions, and how can resource-rich countries avoid some of the mistakes that they might have made in the past?

Yeah. Uh, thanks for having me. Happy to be here. And I'll try to be extremely quick because I know that we're running out of time. But, um, I would say a, a key issue, a key trend that's emerging is, um, of course, the expected dramatic increase in demand for critical energy transition minerals. Uh, per the IEA, expected if countries, um, actually implement their announced, um, climate pledges, demand for these minerals could more than double by 2030, triple by 2040. So evidently, producer countries, and I'm speaking specifically about, um, low and middle-income producer countries, are very keen to take advantage of this expected surge and to maximize benefits through not only attracting investment and accelerating exploration and, uh, production of these minerals, but also through value addition or increasing value addition through processing and refining of minerals in country.

So, you know, this brings us to the important question of how to attract investment. And I think we've been very clear that, um, companies are looking for some kind of predictability, some kind of stability, some kind of regulatory certainty. Uh, we're very clear in the, the report that we've published that non-fiscal issues should not be up for stabilization, but that doesn't change the fact that countries should be looking to provide some kind of regulatory certainty in this area. And I think a key issue there is refining, updating, strengthening, um, the regulatory and legal framework with respect to some of the key risks that are emerging. And a key one of that is environmental impacts.

Um, a lot of these minerals are located in, um, areas of high water stress. So, at least 16% of, um, of critical minerals mines and mining areas and deposits are in areas of high and extremely high water stress. Over 50% overlap with indigenous lands or lands, um, where peasant groups have recognized or claimed rights. Um, and it's an increasing source of deforestation, critical minerals mining. So countries should be looking in advance to kind of establish the regulatory framework to address some of these potential or ongoing environmental impacts. And one key one is strategic impact assessments and using that to determine land use in advance where mining can take place under what conditions, with what kinds of special restrictions, and that will avoid scenarios sort of like the Echo or scenario for those of you that are familiar. It was a complicated arbitration case, and there were many different components to it. But, you know, the, the key premise was a company was granted a concession in an area, um, that was later designated as an area where mining was prohibited. Part of the concession overlapped with that area. So, you know, countries want to define in advance where exactly mining can take place. The UN Security, UN, um, Secretary-General's Panel on Critical Energy Transition Minerals suggested that states should be looking to establish no-go zones in areas, uh, that are protected or areas, uh, that should be conserved in advance.

Um, there's also a temptation to, in order to accelerate, um, mining, to use fast-tracking licensing processes. That's kind of an issue that's been coming up in our work. And of course, the risk there is undermining, uh, valid and effective, uh, ESIA, environmental and social impact assessment processes, or bypassing, uh, free prior and informed consent processes where they're required in country. And, you know, these will have impacts on, uh, being able to negotiate and establish durable contracts going forward, because of course, social license to operate is important, and also a country needs to be assessing the benefits of the revenues that they can get from these minerals against other impacts and the, uh, social economic development effects of those impacts.

Um, so, you know, valid contracting processes, um, that don't kind of take shortcuts that undermine, um, the integrity of those processes would be extremely important. And I, I see we're close to time, so I think that I'll actually pause there. But, um, with respect to value addition, I think the messages are the same. Before we start with stabilization or tax incentives or incentives in general, it's about getting the fundamentals right. What is the national strategy? Um, what are the enabling conditions? Access to finance, reliable infrastructure, clarity of, of regulation that can actually set the conditions to attract the necessary investment instead of thinking first of, um, stabilization clauses and incentives in contracts. So I'll end there. Thanks.

Thanks very much, Nicola. We appreciate and sorry we're a bit squeezed for time. Um, just to echo what you said, I think our view is that it's really important for, as these new opportunities emerge, for example, in relation to value addition, that countries remember the past and, and previous experiences, and they, they look at the investment or the opportunity at face value, right? So do the assessment, cost-benefit analysis, and so on to see whether or not there is again a commercial need. And we keep coming back to this point, is, is there a commercial need for stabilization? If there is, fine. There's a need, and it should be limited in time and scope and so on. But, um, it's not necessarily a given that there is a need, and, and that shouldn't change, you know, when we're talking about value addition. Is, um, there's no reason to believe that, you know, stabilization, for instance, is going to be, um, you know, any more important when it comes to value addition than it has been in relation to the extraction in the past. So thank you very much for that.

Um, before I turn to Lara, uh, I just, to make sure we get to some more of the questions, Howie, just briefly on international arbitration. Um, whether you would like to share some reflections on that, particularly as it relates to tax and the issue of tax sovereignty?

So I can see Susie's also chimed in there in the Q&A. I, I think in, in terms of the issue of, of international arbitration, uh, I agree with the comment that popped up in the chat that it's the worst possible, uh, approach to dispute settlement. It reflects, uh, the use of, of an international arbitration mechanism, essentially reflects the complete breakdown of every other potential mechanism to resolve disputes. And international arbitration, by its nature, leads to only one type of result, and that's a win-lose result. Someone wins, someone loses. There is no, no, uh, other result from international arbitration. So to my mind, um, and this is recognized by Rugy's work, this is recognized by the International Bar Association work on the MMDA years ago, and in the OECD work, um, more broadly, building in ongoing consultation mechanisms, preventing small disputes becoming big disputes, preventing, uh, a specific tax issue becoming an overwhelming barrier to the, the future of the project. Whatever this bit, whether it's an environmental issue or a tax issue, it doesn't matter, uh, providing ongoing consultation mechanisms, providing a mechanism that simply allows the investor and the government to stand back on a regular basis, not because there's a critical dispute, but because you're involved in a 20, 30, 40, 50-year relationship, to stand back on a regular basis and say, "Are we achieving our goals?" Or do we need to do something differently to achieve those goals? And do we have to look at some of those goals and recognize we have to change them? We're 20 years from when the project started. The world has moved on, the situation has moved on. Do we need to rearticulate some of those goals in order to prevent disputes? And integrating those issues, um, in a systematic way with the local communities who directly feel the impacts, both the positive and the negative impacts most directly, making sure those communities have a chance to engage in those processes, not necessarily to dominate them, but to engage in them in an effective way so that their their points of view are included, that's how you set up an effective mechanism. If you go to arbitration as an, someone who has done it as an arbitrator, I can say that's the worst-case scenario. I think there was also a question from Ethiopia. You wanted me, I, I won't, just for the time, I'd like to give Lara the last word. Um, she started all of this with the OECD guiding principles, so it's only right that she should finish it.

So Lara, what are your reflections on the conversation that we've had today and your thinking on the support that countries and industry need to implement the OECD principles, and how our guidance can help?

Thank you very much, Ali, and to all the panelists for this, uh, very insightful, uh, discussion, and also to follow up on the mandate we received from our governing board to work with other partner organizations to, um, uh, promote the use of the, um, guiding, uh, principles. So thank you for moving from guiding principles to, uh, drafting principles to assist with the operationalization of, uh, the guiding principles for durable extractive contracts.

So in my view, for the successful implementation of the, um, guiding principles, um, it would be necessary, in the first instance, for all the parties that are at the negotiating table, but also for financiers, lawyers, and communities that are affected, as Howie pointed out, by the, um, uh, contract, to understand that these extractive contracts should be designed for the long term, so that they can withstand the test of time. And that's what we've tried to do with the development of these, uh, guiding principles. And this means recognizing that there are a lot of unknowns and uncertainties, um, when, uh, the negotiating parties enter into a contract or sign a contract, and that these unknowns and uncertainties are outside of either party's, uh, control, and that there are, um, risks, whether real or perceived, that vary between them, and that also vary, um, at the different stages of the project, so over time. So this is, uh, I think the framework within which these, um, negotiations should be started with a clear understanding of these, uh, important elements.

Then the second point is that each party pursues different objectives, and all the parties need to recognize that this reflects legitimate positions and interests, and that there are also specific interests and rights of third parties, such as financiers and, uh, local communities, that need to be factored into the negotiation, uh, uh, process. And most importantly, as we have heard from the discussion, the negotiation and signature of these contracts is not at all the end, but just the starting point of a long-term dynamic relationship and operational partnership to fulfill what should be agreed upon and, uh, understood objectives based on a shared and realistic understanding of expectations that need to be carefully managed at the beginning of the process, but also throughout the life cycle of the project.

So to withstand the test of time, extractive contracts should provide a framework that is able to manage short-term pressures coming from both governments and investors and provide adaptive, flexible, uh, mechanisms that can help adjust to changing circumstances and to the consequences also of changes in law, while maintaining an alignment of interests that reflect a balance of risks and rewards for the parties across a range of outcomes and market conditions. So whether or not, uh, stabilization clauses are the right mechanism to achieve this, will depend on, uh, specific, uh, context and, uh, circumstances. But the, your work is very important because what really matters, as we have heard, is how these provisions are, uh, drafted in order to deal with an intrinsic dynamic long-term relationship that is subject to many unknowns, evolving risks, and prevailing uncertainties.

Um, what we know from the contractual practice on stability provisions is that sometimes these, uh, clauses have often been taken as a deceptive shortcut to address these complex issues. Lawyers, and I take the liberty to say this because I'm a lawyer by training, try to get the best possible conditions for their clients, and also financiers seek to ensure that their loans are repaid, and these are all legitimate, uh, concerns that need to be, um, considered. However, the result is sometimes that the stability, uh, provisions reflect win-lose negotiating strategies that sow the seed of conflict, as they try to crystallize an unfolding relationship where changes occur at all levels within the industry, within the host countries, within the market, and in local, um, communities.

So the guiding principles, uh, uh, really offer a common reference and a concrete mechanism for investors, governments, and third parties as well to manage these, um, risks, including regulatory, uh, risks, shifting from negotiating tactics and presumptive solutions to balanced risk and cost allocation mechanisms that are meant to ensure an alignment of interests throughout the life cycle of the extractive projects and across a wide range of outcomes and market conditions. Uh, and let me reiterate the importance of designing responsive, uh, fiscal, uh, regimes or terms, as recommended in guiding principle eight, in order for also the fiscal, uh, regimes to, um, help achieve this balancing exercise, um, under circumstances that change, um, over time.

Moving forward, I believe that more could be done at the pre-negotiation stage, um, including for critical energy transition minerals projects, to use the guiding principles and the IGF practice note as a common reference to openly and transparently discuss contentious issues, including stability, uh, provisions, with the involvement of governments, industry, lawyers, negotiation support providers, financial institutions, and communities, as part of the preparatory work that needs, uh, to be done to inform robust, uh, negotiations, uh, ideally setting the parameters to shape durable, equitable, and mutually beneficial relationships, um, in order to reduce risk for governments, investors, and also third, uh, parties, and adequately deal with incomplete information at the time of the negotiation and signature of the contract. And this cannot be done in abstract, as we heard multiple times today, but needs to be done at the country and project level, looking at the specific contract and taking into consideration the potential risks, rewards, and country circumstances, and also reflecting, um, the level of capacity that can be deployed in a specific instance.

So thank you very much for, uh, this opportunity, and I look forward to future opportunities of working to work together to implement both the guiding principles and the IGF practice notes. Thank you.

Thank you very much. Um, that brings us to a close, and I would like to thank Howie in particular, um, for all of his efforts over the years in relation to our mining tax work, um, but also in particular on this stabilization note. So it's really wonderful to have got here. I think it's an incredibly valuable resource for countries. It's still such a tricky topic, and we're glad that we've been able to take the principles and, and begin the process of putting them into practice, and there is more work ahead, and we hope to do that, uh, collectively with all of you. I put in the chat, you know, feel free to reach out. Um, if your country would like assistance in this area or you're keen to collaborate, we're very open, uh, to working together, and we're already working with several countries to reform their approach to stabilization.

So thank you all for being with us. Thank you participants for sticking with us. I apologize that we've run over. That is the fault is all mine as the moderator and chair, but thank you for staying with us. I think it's testament to how important this issue is for many of you, and we're glad to have been able to make a contribution and look forward to exploring next steps as we now move from implementing the principles, uh, into a guidance, and now implementing the guidance into practice. We hope so. Thank you everyone, and I wish you a great rest of your day.