Effective Negotiation
Exercise: Water, water everywhere! General information
Exercise: Water, water everywhere!
General information
This exercise (which has its origins in an actual negotiation) provides the opportunity to
develop and implement realistic negotiation strategies for reaching an outcome. The key
players are the Hudson Mining Company which has rights (or thought it had) to water usage,
and the Premier of Manitoba Province who wants to preserve his province’s natural resources
– including water. The central focus of the negotiations process will be meetings between
government and company representatives, but the process is complex with other critical
negotiations also required before an agreement can be achieved.
Background: the mine
The Hudson Copper Mine in northern Manitoba, Canada, has been operating for three years
and provides employment for 150 workers, many of whom are local. It also provides
infrastructure and education to the local indigenous communities in the Churchill River
vicinity. The local communities see the mine as being critical to their wellbeing – support
comes from the whole spectrum of First Nation and non-indigenous groups.
The Canadian federal government also supports the mine – although it contributes little in
terms of financial incentive, it receives a strong royalty stream from the mine’s production,
currently worth around $350 million (royalties being 15% of the mine’s output value of
around $2.3 billion).
The expected life of the mine on current projections is a further 15 years of operation.
However if the price of copper is maintained then the more marginal fringes of the ore body
may become viable, and therefore extend the life of the mine even further. Because of the
expected increase in copper price the company embarked on a major expansion. The
development work started six months ago and construction work is in progress. When it is
finally completed next year (at a total cost of CDN$1.5 billion), it will nearly double the
capacity of the mine to an estimated $4.3 billion and add a further 30-40 jobs at the site.
Cambridge University Press
1
© Ray Fells 2010 0
Effective Negotiation
Exercise: Water, water everywhere! General information
A critical element in the mining process is the heavy use of water. Some of the mining is
done by leach extraction, and prior to establishing the mine, the Hudson Mining Company
purchased water extraction rights from the Provincial government. The twenty five year lease
– held by the company at an annual cost of $35 million – has a further twenty years to run.
The expanded mine would use the full annual extraction quota permitted under this lease
arrangement.
Background: the Provincial government
The province is due to go to the polls in six months time, though the date has not been set and
campaigning has not started. The existing premier has been in power for just over four years
(one term). His government has been characterised by an emphasis on ‘green’ issues. The
speech to open parliament included the statement that Manitobans can be proud that their
province was the first jurisdiction in Canada to begin acting on climate change, and that their
leadership is now recognised internationally on this issue. He stated:
‘In the coming months a new water conservation strategy will be introduced. Although Manitobans are
accustomed to thinking that there is an abundance of water available for our needs, reducing everyday
use of water is actually the simplest way to improve the effectiveness of our waste water treatment
facilities. It is also a way that businesses and homeowners can save money. Our new strategy includes
consumer-based incentives to help Manitobans reduce their water bills while ensuring we protect this
precious resource for future generations.’
Water scarcity is shaping up to be a key election issue. Analysts agree that whichever party is
‘tougher’ on this issue will gain votes. It is also widely accepted that there is a growing water
shortage in the more populous south of the province, however, this is not the case around the
Hudson Bay, where the mine is located. Environmental studies conducted prior to the
extraction lease being granted established that the mine’s water extraction would not have any
impact on the water table.
Cambridge University Press
2
© Ray Fells 2010 0
Effective Negotiation
Exercise: Water, water everywhere! General information
The Premier has announced a new resource policy which will involve cutting all existing
industrial and agricultural water extraction rates by 50%. The ‘green movement’ and many
other community groups have quickly endorsed the Premier’s new policy. (Their ultimate
goal is to have mining exploration and extraction wound back including having existing
mines closed.) On the other hand, legal experts suggest that the Premier’s announcement to
unilaterally
vary
existing
agreements would be a breach of
contract (to which the Premier
replied
that
his
government
would be enacting legislation to
circumvent any potential legal
challenges from companies). The
Federal government announced
that it would explore its options
to find a way to prevent the
provincial
government
from
implementing its new policy.
Within his own government,
some departments are unhappy
with the Premier’s declaration
because it will discourage future
investment
and
employment
growth. However, within his
own government, the Premier is clearly the Premier – he has clearly and repeatedly stated that
there will be no exceptions to his policy.
Not unexpectedly, the company was taken aback at the Premier’s announcement. A few
measured press statements about the future of the mine being put in jeopardy also conveyed
their total disbelief at what the Premier was planning. Meanwhile the media were having a
field day and actively ‘stoked the fires’ in every direction. Everybody seemed to want to have
their say on the issue and newspaper sales rose markedly – alongside the increasing
community tension over the issue.
Cambridge University Press
3
© Ray Fells 2010 0
Effective Negotiation
Exercise: Water, water everywhere! General information
The participants
The key people in this issue are the Premier and the CEO of the Hudson Mining Company –
neither of whom are actually involved in the negotiations. Despite this, any agreement
reached will have to be acceptable to them. The task of finding an acceptable outcome lies, on
the one side, with representatives of three government departments and, on the other side,
with a team of company negotiators. The three government departments represented are those
of the Attorney General, Mines and Environment. The negotiators will have to determine and
secure approval of their respective positions, then meet and secure a common agreement
before reporting back to the Premier or the CEO respectively.
The Premier’s view (as indicated in a speech to Parliament)
• The province is in a crisis. If we don’t introduce these restrictions there will be widespread
lack of any agricultural water in three to four years time. That would mean economic
disaster.
• This is a forward thinking response to the crisis (in contrast to the ‘backward looking’
opposition that always wants to cut deals rather than make sound policy).
• Any one area or any one company can make a ‘special case’ for itself, but this is a time for
everyone to do their part for the good of the province as a whole.
• The environmental groups support the policy. Not only for its forward thinking but
because it ties the mining industry into the policy (which as always managed to lessen its
obligations in the past through special pleading).
• The agriculture industry supports the policy. On its projections the industry will become
uncompetitive with other provinces and the US if water becomes more costly.
The CEO’s view (as indicated in an interview on national television)
• The CEO and the board are very angry, upset and in a state of ‘disbelief’.
•The deal for water rights was legitimate and in good faith. Bills for the water have always
been paid and the mine has had no regulatory breaches. There was no mention of this when
the premier was invited to the opening ceremony for the expansion six months ago. How
Cambridge University Press
4
© Ray Fells 2010 0
Effective Negotiation
Exercise: Water, water everywhere! General information
could any ‘first world’ government behave in this fashion? It will ruin the company by
deliberately bankrupting business and going back on a twenty five year deal.
• The local community groups (first nation representatives and business leaders) are fully
supporting the company because of the benefits it brings to the area.
• The company employees are scared, angry and are actually are unified with management
on this. After all, a ‘deal is a deal’, right?
Other participants
Attorney General’s Department
Generally recognised as being non-political, but some see the department as giving advice the
Premier wants to hear. The Attorney General (deputy leader of the party) seems to give
different advice if pubic opinion appears unfavourable (or gives a watered down version).
Department of Environment
Generally recognised as being the lobby group for the conservation group, it generally has the
support of the peak indigenous groups. It is anti-exploration and anti-mining, so its priorities
are to prevent exploration and new mining, put controls on any new projects (obstacles,
including bureaucratic delays like reviews and committees), minimise any mining, and have
implementation reviews. Some of the department’s activities have lead to a public perception
that the department seems to support extremists.
Department of Mines
Generally recognised as being the lobby group for the mining companies and mining unions.
It is pro-exploration and pro-mining, so its priorities are to prevent any obstacles to mining,
defer any obstacles (including bureaucratic delays like committees), minimise any obstacles,
and have implementation reviews. An administrative bungle over mining licences has not
helped the department’s reputation.
The Hudson Mining Company
Generally recognised as being a responsible company with good environmental and
community credentials, but like all companies it is driven by economics. A growing
Cambridge University Press
5
© Ray Fells 2010 0
Effective Negotiation
Exercise: Water, water everywhere! General information
community awareness of the ‘green’ industry, eco-tourism etc, might impact on the
company’s standing.
The negotiations
The company CEO sought a meeting with the Premier. The meeting took place and could
best be described as ‘restrained cordiality’, with each simply stating their case and hearing the
other’s point of view. There was clearly no common ground except to agree that a meeting
between some managers from the mine site and government officials might be useful, if only
to exchange information in a non-political environment.
You are going to be involved in that meeting between government and company
representatives.
Before that meeting can take place, the relevant departments in government have to meet,
explore the options and agree on a position; this position then has to be endorsed by the
Premier. Similarly, the company negotiators will also have to meet to explore options and
agree to a position which they can then put to the CEO.
Once each party has a position that it can present, the meeting between government and
company negotiators will occur. The negotiators may have to refer back to the Premier or
CEO during the course of the negotiation. External events may occur which then have to be
taken into account by the negotiators.
Any agreement reached by the negotiators has to be agreed to by the Premier and CEO
separately (in private), before the two can meet and publicly announce the details.
Alternatively they can publicly announce that no agreement is possible (in separate press
conferences).
Cambridge University Press
6
© Ray Fells 2010 0