De Beers vs Government of Botswana: What happens next?
Kitso Phiri | Friday June 30, 2023 09:50
Unlike in the past, these negotiations have generated interest both locally and internationally due to several potentially damaging public disclosures on specific aspects of the commercial terms of the agreement, which in the past would ordinarily be subject to non-disclosure clauses.
Underpinning these negotiations, is the government’s demand for more, meaning increase by another 25% of its current share of the Debswana mined rough diamonds and its coincidental partnership and investment in HB Antwerp. The latter move by government has been viewed by many analysts internationally as economic suicide for the country given the choice of partnership with a novice diamond trader over a long and trusted partner in De Beers. This was further exacerbated by remarks by His Excellency the President on government’s potential to resile from the agreement.
The question that comes to mind is, what happens next after the deadline for conclusion of negotiations as set by the parties? What would happen in the event Government does not agree with the De Beers proposals?
Model mining agreements are both creatures of statute and an outcome of private common law. These agreements are established under the Mines and Minerals Act, specifically section 51, which provides that “any application....of a license to mine diamonds shall initiate a negotiations process, in good faith, between Government and the applicant covering technical, financial and commercial aspects of the proposed project including Government participation”.
These model contracts are situated within the domestic legal and policy framework of the country where the investment is taking place. However, due to the internationalization of these agreements, which removes them from domestic laws, subjecting them to public international law, these agreements tend to be governed by a law of another state. This means, in the event of a dispute or stalemate the application and/or interpretation of the agreement in the dispute resolution process would be done in terms of the law governing the contract which would ordinarily be that of another state, in the case of the De Beers deal, the law of the United Kingdom.
Model mining contracts are intended to operate above the domestic law to allow flexibility between the parties. The terms of these agreements reflect the commercial interests as negotiated by the parties. Within these agreements, there are periods for review, where value derived from the partnership by either party can be revisited and/or reviewed in line with the commercial objectives of either party.
In answering the question of what will happen in the event parties fail to conclude an agreement come 30th June 2023, the answers can be sought from the terms of the agreement. The agreement would provide two remedies being mediation or arbitration. The former remedy is the most ideal given the complexity of the De Beers partnership and the commercial implications to the state, both from a governance and economic stand point. Arbitration would only be pursued as a last resort, where mediation has failed to lead to parties to a settlement and parties desirous of a definitive conclusion on their opposing positions. Once an arbitration award has been issued, each party will be bound by the ruling of the arbitrator which ruling can go either way. This can be quite a costly undertaking which will inevitably be funded by taxpayers’ money.
It is important to note that this agreement is not a developmental agreement as we have been previously taught. It is a purely commercial agreement. As such the complexity of the deal and potential repercussions to the economy of Botswana are purely dependent on how these negotiations, both at the negotiation table and in the public sphere, are managed.
It may well be that the Government of Botswana figured it had leverage to influence negotiations by making inflammatory statements that would rattle the De Beers team into kowtowing to its whims. Government of Botswana took a risk which has now aroused interest from everywhere, which many states including those having similar deals with De Beers like Namibia, will be monitoring, and using Botswana’s negotiations as a case study. This has surely mounted unnecessary pressure on government negotiators, who must contend with the information (cost and operational) and the technical (geology and infrastructure) asymmetries in facilitating these negotiations.
Botswana and De Beers partnership is institutionalised and very much tied to the country’s economy. The economy of the country including the economic recovery programme by government is linked to the diamond sector. It would be detrimental for government to make a radical shift to the current order and risk the impact on an otherwise fragile economy. If our economic diversification programmes were in full swing, a risk of this nature would be permissible.
To simply walk away would require years of unbundling an intricate and complex web of local and international investments and infrastructure. Also, Botswana Government has a 15% equity stake in De Beers including several special purpose vehicles that it benefits from in its capacity as an investor in De Beers and independently through its other entities. In a way, government is negotiating with itself and wants to walk away from a contract it concluded with itself, in its capacity as an equity shareholder in De Beers.
Botswana and De Beers partnership is too complex for the government to repudiate. Government is conscious of the risks associated with resiling the agreement. The natural diamond industry is under siege from synthetic diamonds. Reports indicate that De Beers has poured significant investments into synthetics. A survey from the Wall Street Journal indicated that synthetics are increasing their market share and De Beers has piloted its first sales in synthetics. Surely, this is a major concern for the Government of Botswana as a natural diamond producing country. Valuation technologies, intellectual property, sales and marketing have been under the control of De Beers, to the extent that they established the international diamond trade blueprint.
The inflammatory statements were a negotiation tactic intended to sway the outcome of negotiations in the government’s favour. An objective analysis of the developments will end at best with a deal being concluded between the parties or in the event of a stalemate, a dispute being declared and parties going for mediation to reach a settlement.
*Phiri is the Executive Secretary of the Botswana Mineworkers Union but writes in his personal capacity