(a)        In certain projects, the government may take an ownership stake in the project company. There may be different reasons for this, for example, a requirement of the government to maintain some management control over the project company; as a means of injecting funding into the project (possibly to make the project more bankable); public perception (to show that the project is still, at least partially, publically held) or to extract value in the future from the project. Government ownership interests are common in many mining transactions, and the government’s rights in respect of such ownership interests are typically enshrined in law.

(b)        The percentage of ownership interest will depend on whether the government wants to have management rights in respect of the project company or wants the interest to be “off balance sheet”. Even where the government does not have management control, the shareholders agreement may enable the government to have a veto right in respect of certain matters. The shareholders agreement will be the key document which governs the rights and obligations of a government shareholder, along with the constitutional documents of the project company or any holding company vehicle. Issues which will need to dealt with include:

(i)         What voting rights will the government shareholder have? Will these be the same as the private investors?

(ii)        Should the government pay for the equity interest in cash or will it be a “free carry interest” (i.e. free of charge)? Rather than pay cash for the interest it is more likely that the payment will be “in kind”, for example, through some other form of support or contribution or through issue of the concession itself.

(iii)       Will the government shareholder be required to participate in any equity call e.g. for further development costs? If not, will their interest be diluted by any new issue or remain in the same proportion? The term “free carry interest” refers to the other shareholders “carrying” the government shareholder through the period when calls may be made, potentially for the duration of the concession.

(iv)       Will the government shareholder have a right to have a nominee appointed to the board of directors? This may give rise to conflict of interest issues – is the appointee acting in the interests of all the project company shareholders or as a representative of the government?

(v)        Will the government shareholder be entitled to a fixed return?

(vi)       What provisions are there relating to transfers? For example, will pre-emption rights be included?