Negotiating Natural Resources

Natural Resources

​Katie Hetherington: Hello and welcome to this session on negotiating provisions on natural resources in peace agreements. My name is Katie Hetherington and I'm a program manager here at the Public International Law and Policy Group. I'm pleased to be joined today by Dr. Paul Williams, the President and Co-founder of the Public International Law and Policy Group. Welcome, Paul. 

Dr. Paul Williams: Thanks Katie. It's great to be here to talk with you about natural resources and peace negotiations. 

What are natural resources and how do they relate to peace negotiations?

Katie Hetherington: Great. So to start us off, Paul, Could you explain to us what natural resources are and how do they relate to peace negotiations? 

Dr. Paul Williams: Katie, natural resources are things like gold, oil, timber, diamonds, arable land, water, things that are necessary for a population to survive, but also things that a population, a state, a government can extract value from, you know, gold, oil, diamonds, timber, can be sold and generate revenue for the country. Water, arable land, and other types of natural resources are necessary to sustain a population, in particular, to sustain local communities. 

What are common goals of parties and mediators addressing natural resources in peace negotiations?

Katie Hetherington: And what are some of the common goals that parties and mediators will likely have as they're addressing this issue of natural resources in a peace negotiation Well, Katie, there are two different sets of goals.

One is to address the fact that natural resources can be drivers of conflict, and so the mediators the parties are going to want to figure out how to ameliorate or to blunt those drivers. On the other hand, they can also be crucial, in particular, the revenue generated from those natural resources can be crucial in promoting a durable peace.

What are some examples of natural resources as conflict drivers?

Katie Hetherington: And Paul, what are some examples of these conflict drivers? 

Dr. Paul Williams: Well, oftentimes there is a misallocation or an asymmetrical allocation of those resources. So, you know, the national government will extract the oil, the gold, the timber from a particular region and provide little or no benefits to the local population. 

So, for instance, in Papua New Guinea, there was a massive copper mine, smack dab in the middle of Bougainville, and although the environmental degradation, the environmental externalities were experienced by the people of Bougainville, they received very little financial benefit. It went to the central government and it was then utilized for the entire state of Papua New Guinea.

Now on the flip side, the illicit trade in natural resources can be utilized to fund non-state armed actors. We've all heard about blood diamonds in Sierra Leone, Liberia, the situation in Sudan, the rapid support forces, the Janjaweed commit a genocide did so in part based upon the gold trade. They would extract the gold and they would sell it, and then they would use that to buy weapons. So, it can fuel conflict from both ends of the spectrum. 

How can the issue of natural resources help to bring about a durable peace?

Katie Hetherington: And on the flip side, Paul, how can this issue of natural resources help to foster and bring about a durable piece? 

Paul Williams: Well, Katie, in many instances, the natural resources play a crucial role in ensuring a durable piece. Peace is expensive, and if a country can access its oil, its gold, its timber, its diamonds, and use that to pay for durable peace. That can actually lock in that peace much quicker.

The international community is usually very good, in particular the world bank and etcetera, about creating trust funds to fund the implementation of a peace agreement. It can take a while, and it's essentially dictated by the interest of the international community what their particular interests are.

Whereas if a country is able to effectively monetize trade in its natural resources, it then has a balance of payment support that it can use to fund the crucial parts of the peace process. It also creates an opportunity cost for a return to conflict. If your region, you've been fighting for greater control of your natural resources, power sharing, etcetera, all of a sudden this wealth is being generated and a certain amount of it's being plowed back into the local community, there's a cost to picking up a weapon and going back to war. 

So when you're in conflict, there's no cost to continuing that conflict because you can't see it. It's not tangible. But if you started to receive the benefit of the nation's wealth, you don't want to lose that by going back to conflict. So that opportunity cost is crucial to anchoring a durable peace.

Is the technical knowledge required unique to negotiating provisions on natural resources?

Katie Hetherington: Thanks, Paul, for that insight into the substantive issue of natural resources. Let's talk now about negotiating provisions relating to natural resources. So, do you think the issue of natural resources is unique in terms of the technical knowledge that's required to negotiate provisions relating to these resources?

Dr. Paul Williams: Well, Katie, I'm so glad you asked me that question because this is an area where peace agreements will falter or break down for the simple lack of the fact that the mediators or the parties haven't brought the necessary technical expertise to the negotiations. It's exceedingly emotional and exceedingly difficult to grasp with discussing ownership management and allocation of revenue from exploited resources.

And so, if you're talking about power sharing, yeah, someone's the prime minister, someone's the parliament, you have a unicameral, you have a bicameral. If you're talking about devolution of power as a unitary federal, most people understand the basics of that, and oftentimes the mediators will bring in experts quite frequently to help walk parties through that.

If you look at some of these, you know, natural resource provisions, they're, scores of pages long. It's quite complicated in order to figure out ownership management and allocation. And it's something that the parties don't know. It's unknown how much oil, how much gold. There's a situation where Aceh agreed to give up its right of self determination in exchange for 80 percent of the revenue from the oil in and around Ache. Four years later, the wells ran dry. They didn't know that when they were negotiating, and that makes people very anxious when it comes to negotiating the provisions related to natural resources because it's undefinable. 

And they don't know how much they're actually going to get. Many of these mechanisms for sharing the management and sharing the revenue are quite complicated and it's not just a number.

If you're doing security sector reform and they say yes, 10,000 of your non-state armed actors can join the army. That's the number 10,000, and the other 15,000 are going to receive X amount of money each to disarm and demobilize. Okay, it can be quantified. Natural resources are much more uncertain. And as Katie, from your work in peace negotiations, uncertainty can be an Achilles heel of a negotiation. 

What is the relationship between resource ownership and resource management?

Katie Hetherington: Paul, I want to draw further on something you've touched upon and that's the relationship between natural resource ownership and natural resource management. Can you talk to this a little further and tell us how this relationship manifests in a peace negotiation and in a peace agreement?

Dr. Paul Williams: So Katie, what's really important in a negotiation is who manages the natural resources. What everybody wants to talk about in a peace negotiation is who owns them, there's this visceral motivation that these resources are ours, if you're representing the central state, they're the state's resources. If you're representing a local population, it's the local population. We own these resources. It actually turns out that although it's highly emotional, it's not a terribly relevant concept. How are they managed and how is the revenue allocated? 

Lately, there's been some innovative provisions where the people of a country own a resource, and I think that is a helpful way of moving beyond the effort to capture resources through this notion of ownership. 

And so, what we mean by management and why management is so important is who's going to contract with the regional or the state or the international entities which are going to extract the oil, the gold, and put it on the open market? Who's going to decide when, where, and how much. Who's going to supervise environmental protection and ensure that the environmental best practices are implemented? Who's going to allocate, and we can talk about revenue allocation a little bit if you'd like, but who's going to actually allocate the money, transfer the money from the central bank account to the regional bank accounts or to other entities that are allocated a share of that revenue?

Look, if you own the resources, but somebody else is managing all of those things, you're not going to see your fair share of those resources and you're unlikely to have the environment and other externalities minimized or protected by that international entity.

So getting into being present in the management structure relating to the utilization of natural resources is really what's crucial. 

What do parties and mediators need to consider regarding revenue allocation?

Katie Hetherington: Well, let's spend a minute or two talking then about revenue allocation. What is it important for mediators and negotiators to be considering in approaching revenue allocation during the peace negotiation process?

Dr. Paul Williams: Katie, it's really important for the mediators and the parties to make progress on basic formulas for revenue allocation, and then to set up a mechanism that implements those formulas every year. The reason is that the parties and to some extent, the mediators, will spend the annual revenue multiple times over in a peace agreement or throughout the negotiation of the peace process. We saw this when we worked with Iraq, We saw this when we worked with a number of other countries. There's so much oil, there's so much gold, there's so many diamonds, we can fund this, this, and this. And that's not actually realistic.

There's also a sense of fairness and equity. Parties want to know how much, what is their percentage share? Oftentimes, they'll ask for a dollar amount, which is really difficult. When we were working with a party in Central Africa, the non-state armed actors just wanted their hundred million a year.

They didn't really care what percentage that was or how much was generated from the natural resources. They wanted a specific dollar amount. You can't really do that in terms of designing a revenue allocation. The other complicating factor of revenue allocation is when you start talking about revenue, there are so many actors that want a share of that revenue.

Look, security sector reform, DDR, the actors who are weaponized, they care about that. Power sharing, it's often the political parties or devolution, it's the local governments. When you say we're gonna have a billion dollars of revenue every year from our natural resources, every constituency is gonna want a share of that.

And, there's an emerging norm to set aside a share for future generations, as well. And so, the negotiations over the allocation have to include so many stakeholders, many of whom are not included in the rest of the negotiations, 'cause there's not a particular interest that they might have in that, and that makes it exceedingly complicated to negotiate and to get to an agreement on a functional revenue allocation.

How to ensure the inclusion of local and indigenous populations in negotiations?

Katie Hetherington: And let me ask you one more question before we conclude this initial introduction to the issue of natural resource allocation. So, when we're talking about this issue, it's of course, crucial as you and I know that parties ensure that the rights of local populations are respected and that indigenous populations are properly included in negotiations. Could you talk about this a little further? 

Dr. Paul Williams: Katie, it's crucial that both local populations and indigenous populations, and sometimes they're the same, they're the same thing, are included in these negotiations, because they may not necessarily be exclusively focused on monetizing those natural resources.

If you line up 10 participants in a peace negotiation, eight or nine out of those participants are going to be focused oneExtracting, selling, essentially monetizing those natural resources. Local communities, oftentimes, are just as interested. in protecting the environment and avoiding the externalities.

So for instance, in the Bougainville peace negotiation, the outcome was to close the mine. It was highly lucrative for Papua New Guinea, but the environmental externalities were so severe that Bougainville just wanted it closed. It wasn't interested in a share of the revenue.

It just wanted to put things back to normal and to return to the peace and harmony that existed in Bougainville in the community. Similarly, with indigenous populations, a forest can have spiritual, cultural, religious value, which substantially exceeds the value of the timber of harvesting the timber.

And so, one has to be, or there may be oil or gold located on sacred lands and revenue can be generated from that, but the damage done to those sacred lands and to their cultural interest far outweighs any monetized interest. And then, the last thing I'll note is that there's deep suspicion when there's a lot of money flowing in a post conflict society, a lot of it can be siphoned off through corruption, both at the domestic level and the international level.

And so, you can say what you want on paper, but the local community is going to be thinking, really, is it worth this allocation of two, three, four percent when we're not entirely sure that we'll get that, but we are entirely sure that they will dig up our land to get to the oil, the gold, the diamonds, the cobalt, the coltan.

So, it's something that you definitely need the local population, indigenous population. And then, I'll just end with this is, look, you don't want to solve one armed conflict, and start another one because you didn't involve a local community or the indigenous populations. 

Katie Hetherington: Thank you so much, Paul, for all of your insights in this session and thank you to everyone for watching this session on negotiating provisions on natural resources in peace agreements. Thanks, Paul. 

Dr. Paul Williams: Thanks, Katie.​