Risks arise from revocation of mining licenses in the DRC

Sylvia Tonova of Pinsent Masons, who specialises in investor-state dispute resolution, was commenting after news emerged that the rights of 29 companies to operate mines in the DRC were unilaterally cancelled by the DRC government. The decision is an example of the political risk that mining companies are often exposed to said Olivier Bustin, also of Pinsent Masons, who advises businesses in relation to major mining projects.

“The DRC minister of mines has allegedly grounded her revocation orders by reference to non-compliance with social obligations, in particular those deriving from the clauses of the specifications signed with local community representatives and the local administrative authority – these specifications are drawn up for each mining project on a case-by-case basis, under the supervision of the provincial minister of mines,” Bustin said. “Payment of an 0.3% allocation of annual turnover, intended to finance community development projects could be another source of concern – these funds must be paid into, and are to be managed by, an ad hoc public organisation set up for each mining project, but mining companies are partly dependent on the state establishing organisations for this purpose.”

“Several NGOs have already issued statements challenging the objectivity of these sanctions, which should be subject to strong objections from mining permit holders,” Bustin said.

Tonova said mining companies are often exposed to ‘resource nationalism’, withdrawal or cancellation of operating rights, changes in legislation, expropriation or other arbitrary or discriminatory government actions – and that they may need to look beyond contract or domestic law to international treaties for legal remedies against those actions.

“Most investment treaties protect against unlawful expropriation and unfair or arbitrary treatment of foreign investors and provide for the resolution of disputes between foreign investors and the host states through international arbitration conducted under different institutional or ad hoc rules which guarantee an impartial and independent forum for the resolution of these high-stakes, politically sensitive disputes,” Tonova said. “Invoking or even threatening to invoke investment treaty rights may bring the host state to the negotiating table.”

Anti-corruption expert Edward Jamesof Pinsent Masons said mining companies impacted by the DRC government’s action need to be alive to the risk of solicitation of bribes when seeking restoration of their rights to operate mines in the country.

“The companies impacted by the extraordinary action should not lose sight of the potential corruption risks,” James said. “Whilst negotiating a resolution with the government may be a viable route to consider, they should steer clear of unknown persons that arrive on their doorsteps with promises that they can solve the situation based on who they know. This is especially the case if the agents indicate they could help for a fixed, upfront or success fee that does not make sense.”

“If the companies negotiate directly, they should be aware of the risks of demands for settlement payments to restore the licenses. Payments should not be made in physical cash, nor should they be made into the bank accounts of any individuals. Any settlement reached should be an official settlement with payment to the relevant government department, and not purported proxies. The safest course would be to engage appropriate counsel to aid and advise on the approach,” he said.