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Tuesday, 28 January 14
RESOURCE NATIONALISM OR PROTECTIONISM FOR THE MINING AND EXTRACTIVES INDUSTRY - JOHN WHITTAKER & MICHAEL SWANGARD
 Resource nationalism or protectionism for the mining and extractives industry as well as soft commodities sector and the oil industry.
‘Resource nationalism’ or, ‘protectionism’, is one of the major issues affecting the commodities markets today. The state introduction of legislation to protect the ownership and management of natural resources is not a new phenomenon. It has, however, been on the rise over the last few years, particularly in Asia. John Whittaker and Michael Swangard, trade & commodities partners at Clyde & Co, examine the issues.
The mining and extractives industry is particularly vulnerable to the uncertainty, risks and costs associated with resource nationalism, but the phenomenon is also an ever present threat in the soft commodities sector and the oil industry. Ongoing volatility in the global economy means that governments are looking to companies to fund the shortfall in revenues and to regain control over natural resources.
Although the natural resources within the territory of a state ultimately belong to that state and its people; certain rights over these resources can be ceded to businesses to allow the resources to be exploited and the benefits realised. When a state lacks the financial, technical or administrative expertise required for the sole exploitation of its resources, investment from large international organisations is often vital. However, resource nationalism is often determined by the prevailing economic and geo-political circumstances in that country and the value of the commodity concerned.
Indonesia, for example, is an important player in the global mining industry. It is one of the world’s largest exporters of thermal coal, nickel and tin. The mining industry is also very important within Indonesia; it contributes between 5 – 6 percent of Indonesia’s total GDP, and in particular provinces of the country, mining forms a much higher percentage of the local economy. In recent years, the Indonesian government has sought to secure greater control by suppressing the export of non-value added (raw and unprocessed) mining products, such as mineral ores. In September 2013 however it reversed its thinking as these nationalistic resource rules threatened to slash mining exports from January and widen a current account deficit which is already at a near-record high.
China meanwhile continues to pursue its policy of imposing export quotas on Resource nationalism rare earths despite their declining price and demand. This policy has raised allegations that the Chinese government is artificially orchestrating the increase in the price of rare earths, prompting the US, EU and Japan to jointly file a complaint with the WTO in March 2012. In response, China has argued that its actions were taken to ensure sustainable development and environmental protection. Protectionist policy is likely to be kept under review by governments in the region while economic uncertainty persists – resulting in more disputes between host governments and foreign investor companies. This means we can expect a rising tide of litigation and increased diplomatic tensions, particularly as state-owned enterprises (SOEs) and Sovereign Wealth Funds invest more in resource projects overseas.
Feeling the consequences
Even where no barrier or restriction exists, the spectre of resource nationalism is sufficient to dissuade many potential investors from ‘going to the source. ’Resource nationalism can increase both sunk and prospective costs thereby damaging the viability of certain projects. These costs include tax and royalty payments; heightened financial costs and insurance payments (due to the increased risk); export duties; and the cost of setting up the infrastructure required to exploit the raw materials.
Projects have undoubtedly been deferred and delayed, and in some cases investment withdrawn altogether, because of the degraded ‘risk/reward equation’ brought about by resource nationalism.
Managing the threat
As long as the current geo-political and economic conditions prevail, states will have the upper hand and the shadow of resource nationalism will hover over the commodities market. In order to deal with this risk, businesses need to consider how best to manage and mitigate their exposure and adopt sensible measures to address the issue.
Strategies include:
- Maintaining a positive and transparent relationship with the host state and adopting good internal and external corporate social responsibility practices.
- Partnering with local firms with good political links/ welcoming equity participation of the host state so as to build common interests.
- Making stabilisation, adaptation and foreign arbitration clauses part of any agreements with the host state.
- Taking advantage of bilateral and multilateral investment treaties.
- Obtaining insurance against political and other risks associated with resource nationalism.
When a state changes its laws and such changes impact negatively on a foreign investor’s business, there are options open to that investor to pursue. Provided the investment has been structured to take “As long as the current geo-political and economic conditions prevail, states will have the upper hand and the shadow of resource nationalism will hover over the commodities market. In order to deal with this risk, businesses need to consider how best to manage and mitigate their exposure” advantage of a Bilateral Investment Treaty, the investor may consider bringing a claim.
Looking to the future
Increasingly the phenomenon is not limited to emerging economies and a growing number of countries, including Australia and the UK, are implementing or evaluating policies designed to ensure their home state retains the maximum benefit possible from its natural resources.
Ultimately the phenomenon is not going away and therefore organisations must continue to implement appropriate risk management and engage with local governments to promote better understanding of the value projects bring to the host state and the people who live there.
By: John Whittaker & Michael Swangard, Clyde & Co, UK.
About Authors
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| John Whittaker |
John Whittaker : John has extensive experience of acting for some of the world’s largest trading companies and also governments. His primary focus is on international arbitration, litigation disputes arising in commodity trades and public international law.
John has handled disputes before many international arbitral bodies including the LCIA, ICC, SIAC trade bodies and foreign tribunals and before the Commercial Court in London. This includes a number of significant cases in the countries of the former Yugoslavia, Russia and the Far East. (John Whittaker, Partner, London, E: john.whittaker@clydeco.com)
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| Michael Swangard |
Michael Swangard : Mike specializes in international dispute resolution governed by arbitration bodies including: LME, ICSID, UNCITRAL, LCIA and ICC, as well as trade association tribunals such as GAFTA, FOSFA, CTF, SAL and RSA. He also advises clients on disputes before the English High Court and in the context of private mediations.
Mike is “lauded for his “fresh, no-nonsense approach to legal issues.” Chambers UK (Michael Swangard, Partner , E: michael.swangard@clydeco.com)
About Clyde & Co
Clyde & Co is a global law firm with a pioneering heritage and a resolute focus on its core sectors of aviation, energy, infrastructure, insurance, marine, and trade. With over 1,400 lawyers operating from 35 offices and associated offices in six continents, the firm advises corporates, financial institutions, private individuals, and governments. The firm has a reputation for its work in emerging markets, being the largest international firm in the Middle East and with a rapidly expanding network across Asia, Latin America and Africa.
Views and opinions / conclusion expressed herein are personal views of the authors and not that of COALspot.com.
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Thursday, 30 January 14
JPU SETTLEMENT PRICE AS A BENCHMARK WILL DECLINE IN IMPORTANCE BUT REMAIN RELEVANT, SAYS WOOD MACKENZIE
JPU price will remain above spot, trending closer to spot till 2015 then increasing to 2035.
Japanese Power Utilities (JPU) are approaching a cru ...
Thursday, 30 January 14
PANAMAX MARKET IS SOFTENING ON LESS ACTIVITY IN BOTH HEMISPHERES - FEARNRESEARCH
Handy
In the Atlantic rates have been slowly sliding but ows can still achieve decent money for TArv´s. USG positions still being fixed in re ...
Thursday, 30 January 14
TANKER PROFITABILITY IS THE 'MILLION-DOLLAR' QUESTION FOR SHIP OWNERS THIS YEAR - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The tanker market conditions are expected to remain challenging throughout the year for tanker owners, but even more pressing will be the issue of a ...
Tuesday, 28 January 14
GLOBAL COKING AND STEAM COAL PRODUCTION HAVE GROWN 2% TO 3% TO ABOUT 7.1 BILLION TONNES AS OF THE END OF 2013 - VDKI
COALspot.com (Press Release): Initial figures on the world hard coal market at the VDKi ((Association of Coal Importers - German) New Year’s R ...
Tuesday, 28 January 14
AUSTRALIAN NEWCASTLE PORT'S WEEKLY COAL EXPORTS JUMP 13.75% WEEK ON WEEK
COALspot.com: In the week ended 27 January 2014, power plant and semi-soft coking coal shipments from the port of Newcastle in Queensland, totalled ...
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- Electricity Generating Authority of Thailand
- Siam City Cement PLC, Thailand
- Ambuja Cements Ltd - India
- International Coal Ventures Pvt Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Kumho Petrochemical, South Korea
- Siam City Cement - Thailand
- PetroVietnam Power Coal Import and Supply Company
- Thai Mozambique Logistica
- Madhucon Powers Ltd - India
- Trasteel International SA, Italy
- Cement Manufacturers Association - India
- Karbindo Abesyapradhi - Indoneisa
- Timah Investasi Mineral - Indoneisa
- White Energy Company Limited
- Larsen & Toubro Limited - India
- Indogreen Group - Indonesia
- Sarangani Energy Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Mercator Lines Limited - India
- LBH Netherlands Bv - Netherlands
- Ind-Barath Power Infra Limited - India
- Formosa Plastics Group - Taiwan
- Jorong Barutama Greston.PT - Indonesia
- New Zealand Coal & Carbon
- Mjunction Services Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Maharashtra Electricity Regulatory Commission - India
- ICICI Bank Limited - India
- Medco Energi Mining Internasional
- Sical Logistics Limited - India
- Metalloyd Limited - United Kingdom
- Ministry of Transport, Egypt
- Binh Thuan Hamico - Vietnam
- TNB Fuel Sdn Bhd - Malaysia
- Orica Mining Services - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- PowerSource Philippines DevCo
- Ministry of Finance - Indonesia
- Vizag Seaport Private Limited - India
- Karaikal Port Pvt Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Gujarat Sidhee Cement - India
- Bukit Baiduri Energy - Indonesia
- Planning Commission, India
- Bangladesh Power Developement Board
- Essar Steel Hazira Ltd - India
- Independent Power Producers Association of India
- Samtan Co., Ltd - South Korea
- Bukit Asam (Persero) Tbk - Indonesia
- South Luzon Thermal Energy Corporation
- Romanian Commodities Exchange
- Electricity Authority, New Zealand
- Attock Cement Pakistan Limited
- Parliament of New Zealand
- Agrawal Coal Company - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Meenaskhi Energy Private Limited - India
- Central Electricity Authority - India
- PTC India Limited - India
- Global Business Power Corporation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Therma Luzon, Inc, Philippines
- Bulk Trading Sa - Switzerland
- Kapuas Tunggal Persada - Indonesia
- Marubeni Corporation - India
- Sree Jayajothi Cements Limited - India
- Global Green Power PLC Corporation, Philippines
- Intertek Mineral Services - Indonesia
- Sindya Power Generating Company Private Ltd
- Interocean Group of Companies - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Posco Energy - South Korea
- Borneo Indobara - Indonesia
- Bharathi Cement Corporation - India
- Grasim Industreis Ltd - India
- Price Waterhouse Coopers - Russia
- GN Power Mariveles Coal Plant, Philippines
- Altura Mining Limited, Indonesia
- Maheswari Brothers Coal Limited - India
- The Treasury - Australian Government
- Thiess Contractors Indonesia
- Wood Mackenzie - Singapore
- Indian Energy Exchange, India
- Sakthi Sugars Limited - India
- IEA Clean Coal Centre - UK
- Heidelberg Cement - Germany
- GAC Shipping (India) Pvt Ltd
- Pendopo Energi Batubara - Indonesia
- Bukit Makmur.PT - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Australian Coal Association
- Lanco Infratech Ltd - India
- Deloitte Consulting - India
- Malabar Cements Ltd - India
- Star Paper Mills Limited - India
- Barasentosa Lestari - Indonesia
- Africa Commodities Group - South Africa
- Bayan Resources Tbk. - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Kobexindo Tractors - Indoneisa
- ASAPP Information Group - India
- Straits Asia Resources Limited - Singapore
- Coal and Oil Company - UAE
- Latin American Coal - Colombia
- Asmin Koalindo Tuhup - Indonesia
- Kideco Jaya Agung - Indonesia
- The University of Queensland
- Uttam Galva Steels Limited - India
- Port Waratah Coal Services - Australia
- Petrochimia International Co. Ltd.- Taiwan
- Indonesian Coal Mining Association
- Makarim & Taira - Indonesia
- SMG Consultants - Indonesia
- Chettinad Cement Corporation Ltd - India
- Tata Chemicals Ltd - India
- Singapore Mercantile Exchange
- Economic Council, Georgia
- Bhoruka Overseas - Indonesia
- GVK Power & Infra Limited - India
- AsiaOL BioFuels Corp., Philippines
- Central Java Power - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Rio Tinto Coal - Australia
- Iligan Light & Power Inc, Philippines
- Petron Corporation, Philippines
- Indika Energy - Indonesia
- Standard Chartered Bank - UAE
- Simpson Spence & Young - Indonesia
- Energy Link Ltd, New Zealand
- Indian Oil Corporation Limited
- The State Trading Corporation of India Ltd
- Jaiprakash Power Ventures ltd
- Savvy Resources Ltd - HongKong
- Globalindo Alam Lestari - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Minerals Council of Australia
- Vedanta Resources Plc - India
- Aditya Birla Group - India
- Orica Australia Pty. Ltd.
- Parry Sugars Refinery, India
- Merrill Lynch Commodities Europe
- Riau Bara Harum - Indonesia
- Indo Tambangraya Megah - Indonesia
- Global Coal Blending Company Limited - Australia
- Georgia Ports Authority, United States
- Offshore Bulk Terminal Pte Ltd, Singapore
- Jindal Steel & Power Ltd - India
- San Jose City I Power Corp, Philippines
- Coastal Gujarat Power Limited - India
- Cigading International Bulk Terminal - Indonesia
- PNOC Exploration Corporation - Philippines
- Baramulti Group, Indonesia
- Kartika Selabumi Mining - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Meralco Power Generation, Philippines
- Gujarat Electricity Regulatory Commission - India
- McConnell Dowell - Australia
- London Commodity Brokers - England
- Wilmar Investment Holdings
- Eastern Energy - Thailand
- GMR Energy Limited - India
- Kaltim Prima Coal - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Videocon Industries ltd - India
- India Bulls Power Limited - India
- Edison Trading Spa - Italy
- Ministry of Mines - Canada
- Xindia Steels Limited - India
- Alfred C Toepfer International GmbH - Germany
- Aboitiz Power Corporation - Philippines
- Sojitz Corporation - Japan
- Coalindo Energy - Indonesia
- SMC Global Power, Philippines
- Billiton Holdings Pty Ltd - Australia
- OPG Power Generation Pvt Ltd - India
- Anglo American - United Kingdom
- Oldendorff Carriers - Singapore
- Toyota Tsusho Corporation, Japan
- Mintek Dendrill Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Gujarat Mineral Development Corp Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- MS Steel International - UAE
- Power Finance Corporation Ltd., India
- Kepco SPC Power Corporation, Philippines
- Antam Resourcindo - Indonesia
- Carbofer General Trading SA - India
- IHS Mccloskey Coal Group - USA
- TeaM Sual Corporation - Philippines
- VISA Power Limited - India
- Directorate Of Revenue Intelligence - India
- SN Aboitiz Power Inc, Philippines
- Australian Commodity Traders Exchange
- Commonwealth Bank - Australia
- Semirara Mining Corp, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Bhatia International Limited - India
- European Bulk Services B.V. - Netherlands
- Chamber of Mines of South Africa
- Bhushan Steel Limited - India
- Banpu Public Company Limited - Thailand
- Dalmia Cement Bharat India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Renaissance Capital - South Africa
- CNBM International Corporation - China
- Tamil Nadu electricity Board
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Energy Development Corp, Philippines
- Ceylon Electricity Board - Sri Lanka
- Goldman Sachs - Singapore
- CIMB Investment Bank - Malaysia
- Manunggal Multi Energi - Indonesia
- Mercuria Energy - Indonesia
- Eastern Coal Council - USA
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