AFRICAN LEGAL SUPPORT FACILITY

Godfred PennChief Counsel

Office of the General Counsel

World Bank, Washington DC, 9 July 2009

OUTLINE

1. What is the African Legal Support Facility (ALSF)?

2. Why was it created?

3. Where will it be domiciled?

4. How will it work?

5. What are its expected benefits?

6. What will ALSF not do?

7. ALSF Functional Structure

8. Next steps

1. WHAT IS THE ALSF

An International Organization created with sponsorship of AfDB

Purpose: Enhance access

of African countries to sound technical

legal advice in dealing with

lawsuits by Vulture Funds

& other claims that arise

or may arise from contracts

entered into with third parties

to finance development in extractive industries.

1bis. ALSF CURRENT STATUS

As of July 5 2009 35 countries have signed the treaty establishing the ALSF

2 International Organizations (the AfDB, OHADA) have also signed

11 countries have accepted, approved or ratified the treaty

The ALSF treaty entered into force on December 15 2008 in accordance with its Article XXIX

2. CREATION OF ALSF #1/4

60’s-70’s-80’s - African Gov’ts contracted Loans with Commercial Banks for diverse development purposes (e.g. mining, trade and infrastructure)

The bulk of these projects turned out to be white elephants because of the lack of legal expertise

Commercial banks sold their unpaid loans to individuals, companies and vulture funds

The reaction? Outrage from African Ministers of Finance 2003, the G8 members at Gleneagles (2005), African Round Table (Addis-Ababa 2008), and by ADB and Other Multilateral Donors.

2. CREATION OF ALSF #2/4

1.1.vulture funds = outrageousOne example to illustrate: Donegal vs. Zambia: Donegal International bought Zambian debt

owed to Romania in 1999: Original Debt = 15 million USD Amount of purchase by Donegal = 3.4 million

USD Donegal’s Claim = 55 million USD (17 times) Court Judgment obtained = 15.4 million USD Settlement = 15 million USD.

2. CREATION OF ALSF #3/4

Vulture funds = merciless

Vulture funds: Buy debt at large discount Sue for the total amount &

penalties on debt Refuse to Participate in HIPC relief

of Debtor Countries debt After obtaining judgment or arbitral

award, they attach the debtor’s assets in foreign countries (e.g. France, UK,USA)

Since 1999, at least 19 countries have been sued by vulture funds

2. CREATION OF ALSF #4/4

Weak capacity in negotiation and drafting of contracts:

Views of African Ministers of Finance; Cancellations: Liberia, DRC, Guinea Renegotiations, DRC, Liberia etc;

3. ALSF DOMICILE AND STRUCTURE

Governing Council(12 members)

Management Board(5 members)

Director

AfDB• House ALSF

• Provision of initial allocationof 10million UA

Other Donors• Other contributions

ALSF will have 3 bodies

4. HOW WILL ALSF OPERATE?

Defense against Vulture Fund Litigation •Minimize the diversion of debt relief gains•Strengthen assistance to HIPCs and Fragile States•Provide funding assistance for hiring qualified law firms in the defense of debtor interests•Assistance on terms suitable for each indebted member nation

Commercial Transactions (e.g. mining concessions)

•Provide legal support in negotiation of contracts•Hire of highly qualified lawyers•Use precedents created to build knowledge and expertise for Government negotiators

5. ALSF EXPECTED BENEFITS

Legal expertise to countries involved in

Vulture Fund litigation Legal advise to countries

wishing to negotiate complex development

contracts with 3rd parties

Payment of services

from Funds endowed by ADB,

other donors and MNCs

Creation of a knowledge database

Training for a core group

of negotiators in debtor countries

Enhancement of the fiscal viability of

projects especially in EIs

5bis. ALSF EXPECTED BENEFITS

Grants to LICs for Vulture Fund litigation not to exceed 1 million EUR per beneficiary

50%-50% cost sharing for eligible countries with better than LIC economic performance

Reimbursable advances for MICs for Vulture Fund litigation and negotiation

Reimbursable advances not exceeding 5 million EUR per beneficiary for negotiating complex commercial contracts

6. ALSF: What ALSF will not do

Not encourage non compliance with covenants in loan agreements

Not assist in the non-enforcement of legitimate claims

Not itself participate directly in negotiations or to resolve claims

Not deal directly with law firms on its own account

7. ALSF: a functional structure

The organs have been set up since June 29 when ALSF held its Constitutive Assembly.

There is now a Governing Council of 12 members (9 currently appointed);

The Management Board of five is in place; The Executive Director will be appointed by the

Management Board shortly... ALSF is now functional.

8. NEXT STEPS

Taking of Office by Executive Director

Operationalization of the

administrative machine

Encouragement of countries…

that have not yet signed the

agreement to do so.

Lobbying for more funds

from member countries and

orgs.

Examination of Requests from Member Countries (pending requests from Djibouti, Guinea, DRC & Liberia)

Provision of demand-driven services to member countries

AFRICAN LEGAL SUPPORT FACILITY

Godfred PennChief Counsel, GECLAfrican Development Bank

Thank you for your attention