Simandou contracts will reflect international sustainability standards

Simandou is a mountain range in Guinea, west Africa, thought to offer the largest untapped source of high-grade, low-impurity, iron ore anywhere in the world.

The iron ore mined from Simandou is expected to be highly sought after by businesses that manufacture steel products, such as those used in the construction of new buildings, in vehicle manufacture, or in and components for renewable energy projects, especially in emerging markets. The high-grade, low-impurity, iron ore from Simandou is especially sought after for use in next generation steel making, where new technologies, such as replacing high carbon emissions coking coal with lower carbon hydrogen, will form a critical pathway for the transition of the global steel manufacturing sector.

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The Financial Times has reported that the project is set to start in 2024, but before the iron ore can be mined, significant infrastructure projects need to be delivered – including more than 600 kilometres of railway lines and a new deep-water port – to ensure that materials and equipment can be delivered to the mine and that the iron ore mined can be transported from the site and shipped globally when the mine becomes operational.

There are two parts to the Simandou project, which are valued at a combined $36 billion, with different project owners and associated developers already in place for each part – including under consortia and joint venture arrangements. Some main contractors have also already been appointed to lead on delivery of the new infrastructure, but the scale of the projects mean a significant number of contractors and specialist sub-contractors will need to be appointed in the months and years ahead to deliver the work.

While local law applies, including requirements around planning and permitting, global standards including those developed by the International Finance Corporation (IFC) – part of the World Bank Group – will be adopted as proxy legal baseline requirements, which will be used by sponsors, for the Simandou project, as recognised good international practice for project financing. Such standards will supplement sponsors’ own environmental and social policies and standards.

Whilst there are differences between global standards, the IFC’s performance standards provide a useful benchmark of environmental and social sustainability requirements for any major project. Their practical application, however, depends on the local context and the specific preparatory, construction, and operational works planned.

To this end, the first of the IFC’s eight performance standards requires an assessment of the environmental and social impacts, risks, and opportunities of a project.

A detailed assessment of the environmental and social impacts of the Simandou project has already been undertaken – it identified a wide range of issues, from the potential impact of works on nature and biodiversity in the area, to its potential effect on water resources and local communities.

Ways to mitigate the impact of the project are also outlined in the assessment. One example of this includes a pledge, in the context of the construction of the railway, to implement measures to protect wildlife, such as animal crossings and train warning systems. Another example is the development of a cultural heritage management plan to identify, protect, and relocate sacred sites of spiritual significance.

The required mitigation plan arising from the assessment will lead to actions that align with requirements of the other IFC performance standards on environmental and social sustainability. They address everything from biodiversity conservation, cultural heritage preservation, and labour and working conditions, to resource efficiency and pollution prevention, and land acquisition and involuntary resettlement.

For a project like Simandou, the applicable requirements will intersect with the specifics of the scope of work for each contractor and supplier, with supply chain risk flow down likely to be the norm, and manifest themselves in all contractual requirements. Given the high environmental and social sensitivities identified within the impact assessment process, and the specific actions within the mitigation plan, the prospective contractors and suppliers will need to demonstrate a detailed understanding of these aspects and evidence a track-record, and an ability to fulfil those requirements in operations, with such considerations forming a critical focus for selection criteria during the procurement process.

Audit and disclosure provisions are also likely to feature in the contracts. It will mean contractors and suppliers will have to document and retain records of the actions they take and submit reports to consultants and other experts engaged by the project owners or main contractors to ensure the applicable standards and international good practices are being met. The reports will also need to be submitted for audit by the client and project financiers.

The Simandou project offers huge commercial opportunities for international contractors and suppliers, but successful bidders must expect to be held to the highest environmental and social standards. It is vital that contractors understand the standards and the operational implications, so that they can anticipate where gaps may occur and the associated exposure to risk, breach of contract claims, and potential performance-related costs of contract fulfilment.