Legislation

Legislation regarding extractive industry operations usually encompasses several standard principles:

The legal basis for the ownership of resources and their exploration, development, and production is usually established in the constitution (for some examples, see Box 14). A sector law or code then sets out the principles of law. Provisions that do not affect principles of law, or that may need periodic adjustments such as technical requirements, administrative procedures, and administrative fees, are set as regulations. A well-defined sector law usually includes a definition of the role of the state; security of title; freedom to operate on a commercial basis; access to resources; comprehensive environmental protection requirements; and a framework for fiscal terms (World Bank, 2009).

Figure 10: Relationship between the strategic vision, legislation, regulations and long-term development

Policy / Strategic Vision for EI

Legislation

Regulation

License

Regulatory Agencies

In most countries, rights are divided into exploration and exploitation licenses. Exploration licenses give holders the right to explore for resources that might exist in the granted area. If the resource has been discovered, access to the exploitation of the resource normally requires the granting of a license for exploitation. Governments usually grant exploration and exploitation rights in particular areas by means of concessions, leases, licenses, or agreements. Efficient and effective granting procedures are based on:
1) A clear legal and regulatory framework;
2) Well-defined institutional responsibilities; and
3) Transparent and non-discretionary procedures (The World Bank, 2009).

Sound principles for the design of efficient contracts are needed, to inflict a number of requirements. First of all, exploration companies should have incentives to extract and to invest in both production and exploration. Second, contracts should be time-consistent, which reduces the company’s risk of uncertainty of contract renegotiations or early determination. Terms should be set in law  to the greatest extent possible, to not only enhance stability for the investor but also ensure equal treatment (The Natural Resource Charter, 2009).