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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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Sunday, 26 January 14
FREIGHT RATES FALL FURTHER ON LACK OF CARGOES - SOLYM CARRIERS
COALspot.com: The freight market has continued to soften further this week with BDI down by 12.31 pct. BDI was closed at 1,246 points week ended 24 ...
Friday, 24 January 14
US COAL PRODUCTION UP 3.9% ON WEEK IN WEEK ENDED SATURDAY - EIA
COALspot.com – United States the world’s second largest coal producer, produced approximately 19.1 million short tons (mmst) of coal in ...
Friday, 24 January 14
DRY BULK MARKET STRUGGLING TO FIND FIRM FOOTING IN START OF 2014 - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The dry bulk market has been faltering since the start of 2014, struggling to hold its ground as low seasonal demand has hindered further growth in ...
Thursday, 23 January 14
PANAMAX : THIS WEEK THE ACTIVITY CAME DOWN DRAMATICALLY - FEARNRESEARCH
Handy
With the Chinese New Year approaching the activity and rate levels are sliding in both hemispheres. Rates in the Atlantic have knocked off so ...
Thursday, 23 January 14
30 DAYS LEFT TO REGISTER FOR PACIFIC BASIN COAL CONFERENCE
COALspot.com: (Press Release) : IHS Inc. (NYSE: IHS), the leading global source of information and analysis, will host the Pacific Basin Coal Confer ...
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- Leighton Contractors Pty Ltd - Australia
- Ministry of Mines - Canada
- Africa Commodities Group - South Africa
- ASAPP Information Group - India
- PNOC Exploration Corporation - Philippines
- Larsen & Toubro Limited - India
- OPG Power Generation Pvt Ltd - India
- Thai Mozambique Logistica
- Kapuas Tunggal Persada - Indonesia
- Makarim & Taira - Indonesia
- Maheswari Brothers Coal Limited - India
- Vedanta Resources Plc - India
- GN Power Mariveles Coal Plant, Philippines
- Malabar Cements Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- AsiaOL BioFuels Corp., Philippines
- IHS Mccloskey Coal Group - USA
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indonesian Coal Mining Association
- Oldendorff Carriers - Singapore
- Mintek Dendrill Indonesia
- Jindal Steel & Power Ltd - India
- Essar Steel Hazira Ltd - India
- Lanco Infratech Ltd - India
- Goldman Sachs - Singapore
- Thiess Contractors Indonesia
- International Coal Ventures Pvt Ltd - India
- Bangladesh Power Developement Board
- Bulk Trading Sa - Switzerland
- Miang Besar Coal Terminal - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Cement Manufacturers Association - India
- Electricity Authority, New Zealand
- Savvy Resources Ltd - HongKong
- Indo Tambangraya Megah - Indonesia
- Formosa Plastics Group - Taiwan
- Energy Development Corp, Philippines
- Metalloyd Limited - United Kingdom
- White Energy Company Limited
- San Jose City I Power Corp, Philippines
- Jorong Barutama Greston.PT - Indonesia
- SMC Global Power, Philippines
- Cigading International Bulk Terminal - Indonesia
- Rio Tinto Coal - Australia
- Indian Oil Corporation Limited
- Straits Asia Resources Limited - Singapore
- Chettinad Cement Corporation Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Power Finance Corporation Ltd., India
- Bukit Makmur.PT - Indonesia
- TeaM Sual Corporation - Philippines
- Kartika Selabumi Mining - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Merrill Lynch Commodities Europe
- PetroVietnam Power Coal Import and Supply Company
- Bhushan Steel Limited - India
- South Luzon Thermal Energy Corporation
- Globalindo Alam Lestari - Indonesia
- Economic Council, Georgia
- Intertek Mineral Services - Indonesia
- Bhoruka Overseas - Indonesia
- Altura Mining Limited, Indonesia
- Ministry of Transport, Egypt
- McConnell Dowell - Australia
- SMG Consultants - Indonesia
- Tamil Nadu electricity Board
- Coal and Oil Company - UAE
- Australian Commodity Traders Exchange
- Pendopo Energi Batubara - Indonesia
- India Bulls Power Limited - India
- CIMB Investment Bank - Malaysia
- Renaissance Capital - South Africa
- Vijayanagar Sugar Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Standard Chartered Bank - UAE
- TNB Fuel Sdn Bhd - Malaysia
- Gujarat Mineral Development Corp Ltd - India
- Simpson Spence & Young - Indonesia
- Bukit Baiduri Energy - Indonesia
- Mjunction Services Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- PTC India Limited - India
- Edison Trading Spa - Italy
- Maharashtra Electricity Regulatory Commission - India
- Banpu Public Company Limited - Thailand
- Alfred C Toepfer International GmbH - Germany
- Mercuria Energy - Indonesia
- IEA Clean Coal Centre - UK
- Dalmia Cement Bharat India
- Barasentosa Lestari - Indonesia
- GMR Energy Limited - India
- Central Java Power - Indonesia
- Semirara Mining Corp, Philippines
- Iligan Light & Power Inc, Philippines
- Riau Bara Harum - Indonesia
- Kaltim Prima Coal - Indonesia
- Sojitz Corporation - Japan
- Star Paper Mills Limited - India
- Heidelberg Cement - Germany
- Kobexindo Tractors - Indoneisa
- Wood Mackenzie - Singapore
- Bharathi Cement Corporation - India
- Global Green Power PLC Corporation, Philippines
- PowerSource Philippines DevCo
- Parliament of New Zealand
- Ind-Barath Power Infra Limited - India
- Global Business Power Corporation, Philippines
- Carbofer General Trading SA - India
- Medco Energi Mining Internasional
- Rashtriya Ispat Nigam Limited - India
- London Commodity Brokers - England
- ICICI Bank Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Independent Power Producers Association of India
- Directorate General of MIneral and Coal - Indonesia
- Siam City Cement PLC, Thailand
- Vizag Seaport Private Limited - India
- Wilmar Investment Holdings
- Meenaskhi Energy Private Limited - India
- Kideco Jaya Agung - Indonesia
- Commonwealth Bank - Australia
- Krishnapatnam Port Company Ltd. - India
- Global Coal Blending Company Limited - Australia
- Planning Commission, India
- Mercator Lines Limited - India
- Attock Cement Pakistan Limited
- Kohat Cement Company Ltd. - Pakistan
- Electricity Generating Authority of Thailand
- Manunggal Multi Energi - Indonesia
- Madhucon Powers Ltd - India
- Trasteel International SA, Italy
- Sree Jayajothi Cements Limited - India
- Sindya Power Generating Company Private Ltd
- Directorate Of Revenue Intelligence - India
- Indian Energy Exchange, India
- Price Waterhouse Coopers - Russia
- Xindia Steels Limited - India
- Coastal Gujarat Power Limited - India
- Gujarat Sidhee Cement - India
- Posco Energy - South Korea
- Borneo Indobara - Indonesia
- Samtan Co., Ltd - South Korea
- Georgia Ports Authority, United States
- Sinarmas Energy and Mining - Indonesia
- Aditya Birla Group - India
- VISA Power Limited - India
- Indogreen Group - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Interocean Group of Companies - India
- Kepco SPC Power Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Anglo American - United Kingdom
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Billiton Holdings Pty Ltd - Australia
- Meralco Power Generation, Philippines
- The University of Queensland
- Pipit Mutiara Jaya. PT, Indonesia
- Eastern Energy - Thailand
- GVK Power & Infra Limited - India
- Sakthi Sugars Limited - India
- Ministry of Finance - Indonesia
- Grasim Industreis Ltd - India
- Eastern Coal Council - USA
- Kalimantan Lumbung Energi - Indonesia
- Timah Investasi Mineral - Indoneisa
- Aboitiz Power Corporation - Philippines
- Tata Chemicals Ltd - India
- Bhatia International Limited - India
- Uttam Galva Steels Limited - India
- CNBM International Corporation - China
- Minerals Council of Australia
- Ambuja Cements Ltd - India
- Chamber of Mines of South Africa
- Singapore Mercantile Exchange
- MS Steel International - UAE
- Karaikal Port Pvt Ltd - India
- New Zealand Coal & Carbon
- LBH Netherlands Bv - Netherlands
- Indika Energy - Indonesia
- Binh Thuan Hamico - Vietnam
- Baramulti Group, Indonesia
- Kumho Petrochemical, South Korea
- Petron Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Marubeni Corporation - India
- GAC Shipping (India) Pvt Ltd
- Sical Logistics Limited - India
- SN Aboitiz Power Inc, Philippines
- Deloitte Consulting - India
- Antam Resourcindo - Indonesia
- The Treasury - Australian Government
- Energy Link Ltd, New Zealand
- Bahari Cakrawala Sebuku - Indonesia
- Romanian Commodities Exchange
- Bayan Resources Tbk. - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Orica Australia Pty. Ltd.
- Sarangani Energy Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Parry Sugars Refinery, India
- Salva Resources Pvt Ltd - India
- Port Waratah Coal Services - Australia
- European Bulk Services B.V. - Netherlands
- Bukit Asam (Persero) Tbk - Indonesia
- Central Electricity Authority - India
- Jaiprakash Power Ventures ltd
- Agrawal Coal Company - India
- Videocon Industries ltd - India
- Toyota Tsusho Corporation, Japan
- The State Trading Corporation of India Ltd
- Siam City Cement - Thailand
- Latin American Coal - Colombia
- Coalindo Energy - Indonesia
- Australian Coal Association
- Orica Mining Services - Indonesia
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