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sharing in governance of extractive industries

Benefit sharing in foreign involved appraisal and exploitation of minerals in developing countries should base on appraised reserves, not on production only

Production sharing models commonly used in the distribution of benefit in foreign involved appraisal and exploitation of mineral resources in developing countries are not fair because they deny the developing countries share of the most important profits generated.

They prescribe the developing countries shares of the lesser important revenues which generate from sales of produced  minerals (often after many years of waiting for costs recovery to accomplish) and none of the most significant revenues which generate from whole or partial sale of ownership  rights on appraised mineral reserves to a new owner (s) and/or whole or partial use of ownership rights on appraised mineral reserves as collateral in the mobilization of loans for investing in other more important investment opportunities.

Fair model of benefits sharing in the foreign involved appraisal and exploitation of mineral prospects in developing countries should be one which prescribes the developing countries deserved shares of appraised and exploited mineral reserves, and the rights to sell whole or part of them to other owner (s) and/or use whole or part of them as collateral in their mobilization of loans for investing in other more important investment opportunities.

A fair model should also prescribe the developing countries shares of the revenues generated from sales of produced minerals in accordance to their shares of exploited mineral reserves and a fair share of taxes in respect of all profits involved foreigners would generate in accordance to their shares in appraised and exploited mineral reserves, such as in respect of profits they would generate from sales of any of their shares of ownership rights on appraised and exploited mineral reserves, and from their share of profits generated from sales of produced minerals.

While the profits generated from sales of produced minerals are comparatively small, unreliable, take many years of waiting for costs recovery to accomplish before they could start generating, and are just a minor fraction of the natural capital inherent in appraised mineral reserves, those generated from partial or total sale of appraised mineral reserves, or partial utilization of the rights on them as collateral in the mobilization of loans for investing in other high and quick return investment opportunities, like in mineral resources appraisal elsewhere  or  in the provision of services and supplies to the exploitations of appraised mineral reserves could enable regeneration of profits many times the market value of the mineral reserves sold for profits or used as collateral in the loans mobilization.

Profits generated from provision of services and supplies to the exploitation of appraised mineral reserves are more important because they are lesser dependent on the fluctuations of market prices, which influence heavily on the profits generated from sales of produced minerals.

It means, ownership of shares (preferably majority) on appraised mineral reserves enables developing countries to maximize their benefits by selling all or part of the same for profits to invest in other high and quick return investment opportunities, like in mineral resources appraisal elsewhere  or  in the provision of services and supplies to the exploitations of appraised mineral reserves, from which re-generated profit could be many times the market value of sold mineral reserves still in ground.

Again, owning shares of rights on appraised mineral reserves enables mineral rich developing countries to use all or portion of these rights as collateral in loans mobilization for investing in the other high and quick return investment opportunities, from which profits many times the market value of the mineral reserves used as collateral in loans mobilization, still in ground and in their hands, could also be generated.

Optimal benefit here could be achieved when the mobilization of loans using their shares of rights on appraised mineral reserves for investing in the other higher value investment opportunities accomplishes successfully and repeatedly.

It could be concluded that optimal for mineral rich developing countries are the benefit sharing models which prescribe them deserved shares of ownership rights and taxes on all most important profit generation potentials foreign investors pursue and generate for themselves in their involvement in the appraisal and exploitation of the natural capital inherent in the mineral prospects of the developing countries.

One of the best benefit sharing models for mineral rich developing countries could therefore be one which prescribes them a free carried plus paid for shares of the rights on any appraised mineral reserves in the countries, involving foreign explorers.

If the private sector and workers of the developing countries would also be enabled to invest in and the countries collaborate in the mobilization of own financing, such shares of the developing countries could come to 60 % or more of the right on any appraised mineral reserves in the countries.

Such share of appraised mineral resources would qualify the developing countries a minimum share of 60 % of the price involved in total sale of rights on mineral reserves to other owner (s) plus capital gain tax on the maximum of 40 % of the sale price which would go to the foreign partner (s) involved in reserves ownership.

Moreover, such model very well enables private sectors and workers (through their social security savings) in developing countries to participate comfortably and effectively in any strategic mineral prospect appraisal which would take place in their countries in partnership with foreign explorers.

Sensible entrepreneur wouldn’t invest in the appraisal of mineral prospects for the paltry and uncertain production profits which could only start generating at the end of many years of waiting (e.g. 20 years) for costs recovery by the foreign joint venture partner (s) to accomplish, when it is possible to invest for the most important profits which could be realized from selling all or part of ownership rights on appraised mineral reserves at the end of a very short waiting period of let’s say 3-5 years appraisal period or using partial share of rights on appraised mineral reserves as collateral for loans mobilization to invest in the other more important high and quick return investments opportunities.

Reconsideration of the production sharing models mineral rich developing countries are operating on is therefore a must, because other options exist, which could enable the countries to use their heritage of mineral prospects wisely and generate profits for their generations timely and many times the market value of the would be appraised mineral reserves in the countries.

Good model for mineral rich developing countries is one which gives the countries deserved shares (preferably majority -let’s say 60 % or more) of any mineral reserves appraised in the countries, on which their deserved shares of all important profits foreign investors pursue and generate from sales of produced minerals, whole or partial sales of ownership rights on appraised mineral reserves and utilization of ownership rights on appraised mineral reserves as collateral for loans mobilization to invest in the other more important investment opportunities should be pegged.

Production sharing is main behind the noticeable failure of the foreign companies led appraisal and exploitation of the huge natural capital inherent in the mineral prospects of developing countries to contribute noticeable and sustainable economic growths in the developing countries.

Instead, mineral rich developing countries continue becoming poorer as the foreign led appraisal and exploitation of the profit potentials inherent in their mineral resources continue pegging them only on the minor profits which generate after a long waiting period for costs recovery to accomplish from sales of extracted minerals, and nothing of the most important appraisal profits and appraised mineral reserves they could have timely used as collateral in their mobilization of loans for investing in the other more important investment opportunities in the development of their economies for the benefit of their generations.

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