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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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Wednesday, 22 January 14
HANDY/SMAX: TALK OF RATES INDICATES A STEADY TO FIRMING TREND - INTERMODAL
Last week closed off on the red once more for the Dry Bulk market, which continues to see freight rates trying to get steady feet. Nonetheless, with ...
Wednesday, 22 January 14
EXPORT BAN ON UNPROCESSED MINERALS EFFECTIVE 12 JANUARY 2014 - THREE - YEAR REPRIEVE FOR SOME, BUT UNCERTAINTY REMAINS: PWC
COALspot.com: On 11 January 2014, only hours before a long-debated ban on the export of unprocessed minerals was to come into effect, the Government ...
Wednesday, 22 January 14
DRY SECTOR: SENTIMENT REMAINS STRONG - INTERMODAL
As we have now entered 2014 and the Chinese are soon entering their Year of the Horse (sit tight for the ride!), it is a great opportunity to see ho ...
Wednesday, 22 January 14
SGX SUCCESSFULLY LAUNCHED FREIGHT FUTURES
COALspot.com: Singapore exchanged announced that, SGX Freight Futures were successfully launched on 20 January 2014, and the first trade ...
Tuesday, 21 January 14
PORT OF NEWCASTLE SHIPPED SLIGHTLY MORE COAL WEEK ON WEEK
COALspot.com: In the week ended 20 January 14, power plant and semi-soft coking coal shipments from the port of Newcastle in Queensland, totalled 2. ...
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- Bukit Asam (Persero) Tbk - Indonesia
- Edison Trading Spa - Italy
- Australian Coal Association
- Pipit Mutiara Jaya. PT, Indonesia
- Gujarat Sidhee Cement - India
- Price Waterhouse Coopers - Russia
- IEA Clean Coal Centre - UK
- PNOC Exploration Corporation - Philippines
- Siam City Cement - Thailand
- Coalindo Energy - Indonesia
- Trasteel International SA, Italy
- Jaiprakash Power Ventures ltd
- Indian Energy Exchange, India
- PowerSource Philippines DevCo
- Uttam Galva Steels Limited - India
- Semirara Mining and Power Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Ministry of Finance - Indonesia
- Electricity Authority, New Zealand
- Essar Steel Hazira Ltd - India
- Altura Mining Limited, Indonesia
- Bhatia International Limited - India
- Holcim Trading Pte Ltd - Singapore
- Commonwealth Bank - Australia
- Orica Mining Services - Indonesia
- CIMB Investment Bank - Malaysia
- Vizag Seaport Private Limited - India
- LBH Netherlands Bv - Netherlands
- Banpu Public Company Limited - Thailand
- Globalindo Alam Lestari - Indonesia
- Mercator Lines Limited - India
- Miang Besar Coal Terminal - Indonesia
- The University of Queensland
- Barasentosa Lestari - Indonesia
- McConnell Dowell - Australia
- Oldendorff Carriers - Singapore
- Pendopo Energi Batubara - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Maharashtra Electricity Regulatory Commission - India
- Savvy Resources Ltd - HongKong
- Bahari Cakrawala Sebuku - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Thiess Contractors Indonesia
- Merrill Lynch Commodities Europe
- The State Trading Corporation of India Ltd
- Jorong Barutama Greston.PT - Indonesia
- Jindal Steel & Power Ltd - India
- Chamber of Mines of South Africa
- Global Business Power Corporation, Philippines
- Romanian Commodities Exchange
- OPG Power Generation Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- PTC India Limited - India
- Ministry of Transport, Egypt
- Ceylon Electricity Board - Sri Lanka
- Bhushan Steel Limited - India
- Indonesian Coal Mining Association
- Indogreen Group - Indonesia
- SN Aboitiz Power Inc, Philippines
- Leighton Contractors Pty Ltd - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Gujarat Mineral Development Corp Ltd - India
- Eastern Energy - Thailand
- Interocean Group of Companies - India
- New Zealand Coal & Carbon
- Kaltim Prima Coal - Indonesia
- Manunggal Multi Energi - Indonesia
- CNBM International Corporation - China
- Intertek Mineral Services - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- International Coal Ventures Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Deloitte Consulting - India
- Bharathi Cement Corporation - India
- Georgia Ports Authority, United States
- Bulk Trading Sa - Switzerland
- Wood Mackenzie - Singapore
- Kideco Jaya Agung - Indonesia
- IHS Mccloskey Coal Group - USA
- SMC Global Power, Philippines
- Maheswari Brothers Coal Limited - India
- Africa Commodities Group - South Africa
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Sindya Power Generating Company Private Ltd
- AsiaOL BioFuels Corp., Philippines
- Energy Link Ltd, New Zealand
- Timah Investasi Mineral - Indoneisa
- Directorate Of Revenue Intelligence - India
- Kobexindo Tractors - Indoneisa
- Power Finance Corporation Ltd., India
- Central Electricity Authority - India
- White Energy Company Limited
- Bukit Makmur.PT - Indonesia
- Tata Chemicals Ltd - India
- GVK Power & Infra Limited - India
- South Luzon Thermal Energy Corporation
- Bayan Resources Tbk. - Indonesia
- Standard Chartered Bank - UAE
- Electricity Generating Authority of Thailand
- Heidelberg Cement - Germany
- Karbindo Abesyapradhi - Indoneisa
- San Jose City I Power Corp, Philippines
- ICICI Bank Limited - India
- Iligan Light & Power Inc, Philippines
- VISA Power Limited - India
- Carbofer General Trading SA - India
- Baramulti Group, Indonesia
- Gujarat Electricity Regulatory Commission - India
- Global Coal Blending Company Limited - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- GMR Energy Limited - India
- The Treasury - Australian Government
- Attock Cement Pakistan Limited
- Semirara Mining Corp, Philippines
- Kapuas Tunggal Persada - Indonesia
- Parry Sugars Refinery, India
- Vijayanagar Sugar Pvt Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bhoruka Overseas - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Meralco Power Generation, Philippines
- ASAPP Information Group - India
- Xindia Steels Limited - India
- Siam City Cement PLC, Thailand
- Orica Australia Pty. Ltd.
- Mjunction Services Limited - India
- Straits Asia Resources Limited - Singapore
- Wilmar Investment Holdings
- Ind-Barath Power Infra Limited - India
- Karaikal Port Pvt Ltd - India
- Mintek Dendrill Indonesia
- Meenaskhi Energy Private Limited - India
- TeaM Sual Corporation - Philippines
- Anglo American - United Kingdom
- Indo Tambangraya Megah - Indonesia
- Thai Mozambique Logistica
- Sical Logistics Limited - India
- Samtan Co., Ltd - South Korea
- Medco Energi Mining Internasional
- Salva Resources Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Kumho Petrochemical, South Korea
- Toyota Tsusho Corporation, Japan
- Petron Corporation, Philippines
- Singapore Mercantile Exchange
- Posco Energy - South Korea
- Latin American Coal - Colombia
- Videocon Industries ltd - India
- GAC Shipping (India) Pvt Ltd
- SMG Consultants - Indonesia
- Ministry of Mines - Canada
- Rio Tinto Coal - Australia
- Sojitz Corporation - Japan
- Krishnapatnam Port Company Ltd. - India
- Dalmia Cement Bharat India
- Metalloyd Limited - United Kingdom
- Malabar Cements Ltd - India
- Binh Thuan Hamico - Vietnam
- Alfred C Toepfer International GmbH - Germany
- Madhucon Powers Ltd - India
- Energy Development Corp, Philippines
- Parliament of New Zealand
- Borneo Indobara - Indonesia
- European Bulk Services B.V. - Netherlands
- Planning Commission, India
- Economic Council, Georgia
- Rashtriya Ispat Nigam Limited - India
- Agrawal Coal Company - India
- Grasim Industreis Ltd - India
- Ambuja Cements Ltd - India
- India Bulls Power Limited - India
- Marubeni Corporation - India
- Eastern Coal Council - USA
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Tamil Nadu electricity Board
- Petrochimia International Co. Ltd.- Taiwan
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Larsen & Toubro Limited - India
- Therma Luzon, Inc, Philippines
- Coastal Gujarat Power Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Renaissance Capital - South Africa
- Riau Bara Harum - Indonesia
- Minerals Council of Australia
- Indika Energy - Indonesia
- Indian Oil Corporation Limited
- Goldman Sachs - Singapore
- GN Power Mariveles Coal Plant, Philippines
- London Commodity Brokers - England
- Sakthi Sugars Limited - India
- Antam Resourcindo - Indonesia
- Chettinad Cement Corporation Ltd - India
- Coal and Oil Company - UAE
- Sree Jayajothi Cements Limited - India
- Simpson Spence & Young - Indonesia
- Cement Manufacturers Association - India
- Sinarmas Energy and Mining - Indonesia
- Sarangani Energy Corporation, Philippines
- Global Green Power PLC Corporation, Philippines
- Bangladesh Power Developement Board
- Kohat Cement Company Ltd. - Pakistan
- Aboitiz Power Corporation - Philippines
- Australian Commodity Traders Exchange
- Mercuria Energy - Indonesia
- Kepco SPC Power Corporation, Philippines
- Makarim & Taira - Indonesia
- Star Paper Mills Limited - India
- Billiton Holdings Pty Ltd - Australia
- Central Java Power - Indonesia
- Lanco Infratech Ltd - India
- Vedanta Resources Plc - India
- Kalimantan Lumbung Energi - Indonesia
- Independent Power Producers Association of India
- MS Steel International - UAE
- Aditya Birla Group - India
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