Reverse the Curse: Maximizing the potential of resource-driven economies

According to a recent report from think-tank Chatham House, arbitration cases have increased nearly fourfold between 2001 and 2010 in the mining sector, reflecting tensions among stakeholders which escalated with the commodity price boom. The rise in commodity prices increased popular expectations, and governments accordingly came under pressure to show that citizens would receive greater benefits as a result of the rising resource revenues.

In the face of growing uncertainty about future prices and demand, however, extractive companies started to face pressure from their shareholders to scale back, delay or even cancel projects.

Governments were therefore seeking to benefit from windfall profits during price spikes, whilst on the other hand the companies wanted the ability to delay or downsize the project during a downturn.

Unfortunately, many contracts did not provide the flexibility required; the Chatham House report notes that model contracts of the 1990s have by and large failed to weather the commodities price boom.

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