You are on page 1of 3

 Checklist 1.

Key Issues for Host Governments in Resource


Selection Criteria Limitations on Recovery Rates

 Where a Host Government shares in profits,
 Evaluate whether authorisations will be based the operator’s recovery of its original costs in
solely on work programme, cash bidding or a computing profits could be spread out over a
combination of the two. specified period of years, or limited each year
by a specified percentage of the value of
Time Period
 An agreement should be for a fixed time
period, preferably 20-25 years, rather than for Minimum Royalty
“so long as minerals can be profitably  A royalty equal to a percentage of the fair
produced”. market value of production each year,
regardless of profitability, preferably on a
Exploration work programme
sliding scale increasing progressively with
 A work programme should be agreed,
price or revenue.
detailing what is to be done and when,
 A Host Government should be assured of
including drilling, and requiring the
minimum annual revenue, as a rental or
expenditure of a specified minimum amount.
 There may be forfeiture penalties if the work is
not performed. Payments for surface and water rights
 Fair market charges should be made for water
Delivery of Data
and for the use of surface rights.
 All information resulting from exploration,
 Where a fixed annual charge is agreed,
including interpretation should be obtained by
provision should be made for automatic
the Host Government which should have the
adjustments by a price index for changes in
property rights to that information subject to
the cost of living.
 Subject to the operator’s right to use the Accounting Procedures
information for purposes of the Contract.  Contract expenditures must qualify under
rules which prohibit “gold plating”.
Prospect Size & Relinquishment
 Regular audits according to established
 The size of a prospect area should be limited.
 If a comparatively large area is to be subject
to relinquishment provision requiring the Tax Status
operator to give up percentages of the  Tax accounting should parallel contract
exploration area over a period of time. accounting procedures.
 Assessable income should be exclusive of
Sharing Profits
operating costs and depreciation. No tax
 The fiscal regime should be based on a Host
indemnification should be given.
Government’s sharing in the true profits,
including tax credits and allowances and other Bonuses
direct or indirect subsidies, preferably on a  Cash bonuses should be considered: on
sliding scale increasing progressively with signature, on discovery, and perhaps at
revenues or profitability, after the operator has different production levels, keyed to the value
recovered its original costs. rather than the quantity or production.
 A Host Government should be assured that an  A Host Government should not trade off a
operator will not overprice affiliated company share of the profits or a higher royalty for
transactions so as to siphon off profits. immediate cash payments (“front end” money)
if this is not to its long term economic

Page 1
Checklist 1. Continued

Employment Preferences Indemnification

 Nationals should be assured of genuine  A Host Government, officers, employees and
employment and promotion preferences in all agents, should be fully indemnified against all
employment categories (including supervisory, liabilities arising out of operations.
administrative, technical and managerial).
Records & Reporting
 Commitments to provide educational
 All pertinent information should be recorded
opportunities and on the job training to qualify
on a regular basis, with financial information
for employment and promotion.
recorded in accordance with agreed upon
Local Content & Preferences accounting principles (not just those “generally
 Enterprises owned by Nationals should obtain accepted”), and reports rendered at least
preferences in providing goods and services quarterly.
through pre-qualification,
Inspection & Monitoring
 Possible edge or set-aside of 10 -15% in
 Officials and their advisers should be assured
competitive bidding
the right in respect all operations and books
 Must be competitive in quality.
and records at all times.
Concurrence in Basic Decisions
 The Host Government should be assured that
 Host Government consent should be
it will take part in the basic decisions that
necessary for any assignment of any interest
determine how the land will be used and the
including changes in shareholder control.
value of these resources realized.
 These should include concurrence in decision Insurance, Guarantees & Performance
on the location of drill holes or wells, plant, Bonds
equipment, infrastructure and access routes;  Operators should be required to carry
the size, method and rate of operations; appropriate insurance in adequate amounts
the impact of operations on air, surface and for all operations.
 Performance bonds should also be required
sub-surface water, and on community
unless the Operator’s performance is
facilities, conservation, reclamation and
guaranteed by parent corporations with
restoration programmes, marketing
adequate assets, including cash reserves.
arrangements; and annual operating budgets,
where the Host Government share profits.

Page 2