Opportunities and complexities in Indigenous co-ownership 5 min read
As global awareness of Indigenous people's rights gains traction and reshapes corporate engagement, Indigenous co-ownership in resources and renewables projects has emerged as a transformative trend. In Australia and elsewhere, this shift in the approach to ownership of projects reflects the increased focus on the recognition of Indigenous rights and the potential for their exercise to bring about economic development of Indigenous peoples' lands for their benefit.
In this Insight, we provide a snapshot of the global shift to co-ownership models and explain how it is guided by business human rights obligations and evolving models of ownership that are changing conventional approaches.
Key takeaways
- The United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP) and the UN Guiding Principles on Business and Human Rights are setting the benchmarks for companies' responsibilities to respect human rights and for stakeholder expectations
- Co-ownership models are a component of meeting these standards
- Internationally, co-ownership models have been implemented into resources and renewables projects by tailoring existing corporate ownership structures
- Co-ownership models can deliver a variety of significant benefits but there are also challenges associated with the model and the implementation
Rights and standards driving change
Co-ownership models differ from traditional compensation or cultural heritage agreements with Indigenous groups, as well from other benefit sharing models. In co-ownership models, the Indigenous group is brought into the project to a greater extent. This can take various forms, including ownership; involvement in management decisions, or in identification of impact mitigation and cultural heritage protection measures, or receipt of revenue distributions.
The trends towards adoption of co-ownership models in resources and renewables projects should be examined in the broader context of a global trend towards a more robust human rights based-approach to Indigenous consultation and engagement, by both government and business. International human rights laws and standards – such as UNDRIP and the UN Guiding Principles on Business and Human Rights – are setting the benchmarks for companies' responsibilities to respect human rights and for stakeholder expectations. Co-ownership models are a component of meeting these standards.
As co-ownership arrangements require effective negotiation and engagement with Indigenous groups, they have the potential to achieve better recognition of Indigenous self‑determination and better compliance by companies with commitments to international human rights obligations. In parallel, they can operate to de-risk projects from experiencing community opposition.
Emerging project structures
Internationally, co-ownership models have been implemented into resources and renewables projects by tailoring existing corporate ownership structures, many of which will be familiar to existing project owners:
|
Model |
Description |
|
Indigenous–developer partnership |
This is a form of general partnership that brings the expertise of developers into project ownership with an Indigenous group. While decreasing the ownership share, inclusion of an experienced partner can de-risk the project and increase bankability. Case study: The $3 billion East Kimberley Clean Energy Project has brought together Indigenous corporations and an energy developer. |
|
Limited partnership |
Inclusion of limited partners in a partnership structure decreases individual partner risk to only their capital contributions. This model provides a flexible structure for the allocation of risks and liabilities between partners. Case study: The 15MW Zonnebeke Wind Project in Canada was initially formed by developers with the intention of creating flexibility for future partners. Local landholder West Moberly First Nation then joined, with a minority stake in the project. |
|
Equity ownership – incorporated joint venture |
The Indigenous community purchases equity in a project, normally by purchasing shares in a special vehicle company created for the purpose of carrying it out. The structure provides clear risk limitation benefits, but when the ownership is small, control or governance may be correspondingly reduced in the proportion of equity ownership. Case study: The 350MW Rivière-du-Moulin wind farm in Canada shares equity ownership with local First Nations groups. |
|
Equity ownership – unincorporated joint ventures |
Unlike with an incorporated joint venture, where parties acquire shareholdings in a company, an unincorporated joint venture does not involve the establishment of a separate legal entity but, rather, is a contractual mechanism for parties to co-own all project assets, contracts and information, etc., as tenants in common. This is very common in Australian resources and, to a lesser extent, in renewable energy projects. |
|
Alliances and frameworks |
Flexible contract arrangements allow parties to work with each other and then identify the most appropriate co-ownership model, and governance framework, on a project-by-project basis. Case study: Yindjibarndi Energy Corporation has recently signed a memorandum of understanding with Rio Tinto to explore opportunities to collaborate on renewable energy projects to supply Rio Tinto's operations in the Pilbara. |
Key considerations
Co-ownership arrangements present both opportunities and complexities. Key considerations include:
- Objectives and capabilities: alignment of the parties' interests beyond the project in question and in allocation of risk – their expertise and capital position may also influence the preferred model;
- Nature of asset: suitability of the asset, including greenfield / brownfield status;
- Acquisition: approach to the valuation of equity or partnership shares, including consideration of discounts;
- Revenue: rights associated with revenue streams, including royalties and offtakes;
- Tax and accounting: tax implications of the business or sources of revenue and assets;
- Governance: composition of the board, and structures to manage any conflicting project interests;
- Arrangements: protection of interests in the event of future ownership changes;
- Compliance: negotiation around existing agreements and legal frameworks, such as native title or cultural heritage arrangements;
- Party capability: each party's expertise and capital will be relevant to the project's ongoing financial viability;
- Remedy: whether a co-ownership approach is intended to remedy previous infringement of Indigenous' peoples rights; and
- Exit rights: the process for exiting, including the impact on approvals and investment capital.
Next steps
Models of Indigenous co-ownership can provide both significant benefits and challenges. They have the potential to deliver considerable economic benefits and foster self-determination among Indigenous communities, and improve the relationship between those communities and companies developing projects on Indigenous lands.
Conversely, there are challenges associated with determining the appropriate co-ownership model and with implementing it. Early consideration of, and action to address, these challenges is critical to ensuring the long-term success of co-ownership relationships.