ALSF-PALU: Partnering to Build a Foundation for Better Commercial Contracts in the Extractive Resource Industry and Infrastructure in Africa

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As lawyers from central and west Africa meet in Cameroon this week  to discuss ways to improve legal support for doing business in the two regions, the African Legal Services Facility Director, Stephen Karangizi shares his perspectives on the functioning of the Facility, and its impact on African countries ten years after its creation was proposed. He also touched upon the ALSF’s partnership with the Pan African Lawyers Union. “One major impact of our actions is that we have contributed to raising awareness on the need for African countries to negotiate better contracts.” Read the interview.

Question: The need to set up the Facility was initially proposed in June 2003 by African finance ministers to help Highly Indebted Poor Countries or HIPCs to resolve increasing problems caused by vulture funds. What is the situation ten years after the idea was brought up? Do you have the feeling that ALSF has impacted African countries?

Answer: As you have just recalled, the creation of the African Legal Services Facility was officially approved by the board of directors of the African Development Bank on April 30, 2008, to assist African countries on the resolution of commercial creditor litigation (especially vulture funds litigation); to negotiate complex transactions; and build legal capacity on the continent. The facility was formally established in June 2009, and became operational in March 2010 with the launch of its activities and operations. The ALSF Board took major actions, including the approval and implementation of six operations in the continent. With a concrete foundation in place the Facility has become fully operational. At the end of 2011, the ALSF saw the appointment of a new governing council and a new management board, as well as my assumption of functions, which represented the end of the interim and transitional period in respect to the launching of ALSF’s activities.

As you may have been aware, the activities of vulture funds can impoverish African countries by depriving them of essential resources particularly following the HIPC processes. On November 23 and 24, 2011, in Tunis the new management board held its first talks on the key roles, actions and strategy of the facility. In terms of specific projects, the board considered approval of a US$ 700,000 grant to the government of Rwanda, to assist the country with capacity building to the energy and mining sectors.

Previously, ALSF had provided some US$ 500,000 to the Democratic Republic of Congo  in 2010 to help in the fight against vulture funds. We are now working with a law firm which will assist the DRC in the litigation process initiated by a vulture fund called FMG Hemisphere. Along with the assistance provided in vulture funds litigation, the ALSF role is also to inform and sensitize countries not only on this issue but also on debt management.

The Facility has also been set up to share and promote knowledge on these questions which are even more important now given the global economic environment. These actions and support will enable countries to anticipate situation where substantial amounts of resources are used to repay some creditors known as “vulture funds" rather than dedicate such resources to priority sectors for development purposes.

The second major impact of the ALSF has been to raise awareness on the need for countries to negotiate better contracts taking account of their long term interests particularly in the extractive resource industry and with respect to concessions especially for infrastructural development. There is huge demand being received by the ALSF to support the African countries in this area. Addressing these needs is important because it is the poorly drafted Contracts that eventually expose the countries to vulture funds.

Question: What has worked well and what has not worked well?

Answer: The vulture fund claims against African countries were at their peak between 2004 and 2008 when the HIPC process intensified and the world economy was doing well. The period of operations for the ALSF coincided with the general worldwide recession. Under such circumstances the vulture funds are not likely to initiate actions. However that does not mean that they have foregone their claims against the governments. We saw in Latin America in the 1990s that, as soon as the world economy recovers, they are likely to resurface and cause problems for our countries. So while the cases have been few, there is a danger that the countries may be lulled into thinking that the problem does not exist.

In terms of functioning well, the ALSF has been able to sensitize African countries about vulture funds and creditor litigation. With its establishment, there is also greater realization in Africa that we need to conclude better contracts in the extractive resource industry and infrastructure particularly with respect to public private operations (PPPs). Finally, all African countries agree that capacity building in the areas of intervention of the ALSF is greatly needed.

Question: What is the balance sheet of your partnership with Pan- African Law Union (PALU) like?

Answer: Our relations with PALU have been extremely mutually beneficial. The ALSF has enabled PALU to conduct capacity building for its members which is one of their key objectives. Through the partnership the existence and role of the ALSF has also been disseminated to all African countries through the sub-regional seminars we have held. The Facility has also used the partnership to identify African lawyers that can carry out the work on the continent since our ultimate objective is to have transfer of the relevant skills to them.

What is important now is to make sure that the momentum gained is sustained through an agent such as PALU which has continental coverage to ensure that in five to seven years’ time we have African lawyers that can effectively defend the countries in non-African jurisdictions and also negotiate and conclude better complex commercial contracts.