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THE INDEX — June 1, 2009

Jodi Liss: Breaking the "Resource Curse" by Getting Contracts Right

Many countries in the developing world look to energy and mining to bring in foreign investment. The contracts that these countries sign with extraction companies often offer lop-sided terms when it comes to money, transparency, information, or in certain cases, environmental protection to the host country—all of which heighten the problems of the resource curse. The International Senior Law Project (ISLP) is a non-profit organization which volunteers world-class legal counsel globally on economic development, human rights, and access to justice. The group works with governments who need their services but are too poor to pay, and partners with large established non-governmental organizations (NGOs) to bring their skills to developing world civil society groups. They also offer commercial law skills training. They have worked on projects to deal with extraction related problems in several poor countries, including in Mongolia and Liberia. ISLP’s roster includes about 600 lawyers from the United States, Canada, and other countries. Jean Berman, the executive director, says, “We’ve been very lucky in finding the perfect lawyers for the situation.” Joseph Bell is the Secretary of the Board for ISLP.  He is also a senior law partner at Hogan and Hartson, and chair of the Advisory Board at Revenue Watch Institute, an NGO which works to counter the resource curse. His background is in commercial and regulatory practice, focusing on energy and mining. Recently, he led the ISLP team(s) that renegotiated several important contracts between the government of Liberia and interested multinational corporations, resulting in a great improvement of terms for the government. The following is an interview with him on negotiating with extraction companies for the world’s poorest countries. - - - - Jodi Liss (JL): What problems do developing countries face when negotiating contracts with these huge multinational corporations? Joseph Bell (JB): There’s the problem of asymmetry—in knowledge, information, capacity—between the government and the company. Some countries recognize this and hire outside counsel, which sometimes can help. JL: Do these countries have the existing legal frameworks to guide these contracts?

Jodi Liss: An End to the Resource Curse?

These days, throughout northern Wayne County, PA, farmers are talking less about livestock and dairy prices and more about Norwegian oil policy, Devonian geology, market capitalization, and seismic thumper trucks. Wayne County sits atop part of the enormous Marcellus Shale gas field, and each farmer is looking at a small fortune in future leasing royalties and bonuses. They are also in the process of solving a problem that has stumped the World Bank, the United Nations, and governments around the world. The problem is the so-called resource curse. Usually, when countries discover oil, gas, or minerals, most nationalistic governments in the developing world seek to keep all the wealth that comes from such extraction by claiming exclusive rights to everything below the topsoil. Instead of economic development, what they get is corruption, environmental destruction, violent conflict, a worsening economy, and hoards of angry local people. The resource curse’s current poster child is Nigeria, where corrupt government officials—on all levels—stole hundreds of millions of dollars, thousands died from ethnic conflict and environmental devastation in the oil-producing zones, and the majority of people throughout the country live on less than $1 a day. [caption id="" align="alignright" width="240" caption="Map of the Marcellus Shale"][/caption] In Wayne County (as elsewhere in the United States), it’s the locals who will decide the terms of how the gas is extracted from the ground. Here, the farmers who have farmed the land for generations formed a collective bargaining group, hired lawyers and environmental consultants, and are negotiating with several gas companies on the financial details and the local environmental risks. Drilling for oil or gas has a long, ugly record of contaminating land and water—a potential catastrophe since this area is an aquifer for New York City and Philadelphia. So, many newly arrived former city dwellers in Wayne County are, at best, doubtful and are demanding that regulatory commissions provide even broader environmental protections. They point to people in central Pennsylvania and in the West who signed bad leases and found themselves with environmental nightmares like noise pollution, ruined land, contaminated water supplies, and leaky holding pools full of toxic chemicals.

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