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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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- Central Electricity Authority - India
- Sojitz Corporation - Japan
- Therma Luzon, Inc, Philippines
- Madhucon Powers Ltd - India
- Bukit Baiduri Energy - Indonesia
- Carbofer General Trading SA - India
- Thiess Contractors Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- San Jose City I Power Corp, Philippines
- Minerals Council of Australia
- Holcim Trading Pte Ltd - Singapore
- Wood Mackenzie - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- MS Steel International - UAE
- Parliament of New Zealand
- Indogreen Group - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Kartika Selabumi Mining - Indonesia
- Larsen & Toubro Limited - India
- Pendopo Energi Batubara - Indonesia
- Bhushan Steel Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Thai Mozambique Logistica
- Videocon Industries ltd - India
- Coal and Oil Company - UAE
- Altura Mining Limited, Indonesia
- Ministry of Mines - Canada
- LBH Netherlands Bv - Netherlands
- Miang Besar Coal Terminal - Indonesia
- White Energy Company Limited
- Binh Thuan Hamico - Vietnam
- Semirara Mining Corp, Philippines
- Sakthi Sugars Limited - India
- Borneo Indobara - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Krishnapatnam Port Company Ltd. - India
- Gujarat Electricity Regulatory Commission - India
- Meenaskhi Energy Private Limited - India
- Banpu Public Company Limited - Thailand
- Indian Energy Exchange, India
- Bhatia International Limited - India
- Manunggal Multi Energi - Indonesia
- Meralco Power Generation, Philippines
- Australian Commodity Traders Exchange
- Africa Commodities Group - South Africa
- Coalindo Energy - Indonesia
- Heidelberg Cement - Germany
- PowerSource Philippines DevCo
- Maharashtra Electricity Regulatory Commission - India
- Riau Bara Harum - Indonesia
- Global Green Power PLC Corporation, Philippines
- Grasim Industreis Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Directorate Of Revenue Intelligence - India
- Singapore Mercantile Exchange
- Baramulti Group, Indonesia
- Bulk Trading Sa - Switzerland
- TNB Fuel Sdn Bhd - Malaysia
- Orica Australia Pty. Ltd.
- Port Waratah Coal Services - Australia
- Sindya Power Generating Company Private Ltd
- Kaltim Prima Coal - Indonesia
- Mercator Lines Limited - India
- VISA Power Limited - India
- Intertek Mineral Services - Indonesia
- GMR Energy Limited - India
- Global Coal Blending Company Limited - Australia
- Georgia Ports Authority, United States
- Toyota Tsusho Corporation, Japan
- Malabar Cements Ltd - India
- Mintek Dendrill Indonesia
- Australian Coal Association
- Kalimantan Lumbung Energi - Indonesia
- Iligan Light & Power Inc, Philippines
- Bhoruka Overseas - Indonesia
- Sarangani Energy Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Bukit Makmur.PT - Indonesia
- Electricity Generating Authority of Thailand
- Ambuja Cements Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Kapuas Tunggal Persada - Indonesia
- Ministry of Finance - Indonesia
- Interocean Group of Companies - India
- Indo Tambangraya Megah - Indonesia
- Standard Chartered Bank - UAE
- Rio Tinto Coal - Australia
- Eastern Energy - Thailand
- Global Business Power Corporation, Philippines
- Indika Energy - Indonesia
- Agrawal Coal Company - India
- Indonesian Coal Mining Association
- Central Java Power - Indonesia
- Attock Cement Pakistan Limited
- Coastal Gujarat Power Limited - India
- Leighton Contractors Pty Ltd - Australia
- Alfred C Toepfer International GmbH - Germany
- Kepco SPC Power Corporation, Philippines
- Energy Development Corp, Philippines
- Edison Trading Spa - Italy
- Neyveli Lignite Corporation Ltd, - India
- Ministry of Transport, Egypt
- Xindia Steels Limited - India
- Latin American Coal - Colombia
- Vedanta Resources Plc - India
- Tata Chemicals Ltd - India
- PNOC Exploration Corporation - Philippines
- Kumho Petrochemical, South Korea
- Trasteel International SA, Italy
- Jindal Steel & Power Ltd - India
- Essar Steel Hazira Ltd - India
- Makarim & Taira - Indonesia
- European Bulk Services B.V. - Netherlands
- The State Trading Corporation of India Ltd
- SMC Global Power, Philippines
- Tamil Nadu electricity Board
- Dalmia Cement Bharat India
- Aditya Birla Group - India
- AsiaOL BioFuels Corp., Philippines
- IHS Mccloskey Coal Group - USA
- Sinarmas Energy and Mining - Indonesia
- New Zealand Coal & Carbon
- Renaissance Capital - South Africa
- Medco Energi Mining Internasional
- Deloitte Consulting - India
- Electricity Authority, New Zealand
- Karbindo Abesyapradhi - Indoneisa
- London Commodity Brokers - England
- Power Finance Corporation Ltd., India
- Pipit Mutiara Jaya. PT, Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Mjunction Services Limited - India
- Billiton Holdings Pty Ltd - Australia
- Straits Asia Resources Limited - Singapore
- Aboitiz Power Corporation - Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Metalloyd Limited - United Kingdom
- Gujarat Sidhee Cement - India
- OPG Power Generation Pvt Ltd - India
- India Bulls Power Limited - India
- Barasentosa Lestari - Indonesia
- Merrill Lynch Commodities Europe
- Ind-Barath Power Infra Limited - India
- Parry Sugars Refinery, India
- Siam City Cement PLC, Thailand
- Gujarat Mineral Development Corp Ltd - India
- Bayan Resources Tbk. - Indonesia
- Timah Investasi Mineral - Indoneisa
- Uttam Galva Steels Limited - India
- Mercuria Energy - Indonesia
- Maheswari Brothers Coal Limited - India
- Indian Oil Corporation Limited
- Energy Link Ltd, New Zealand
- Wilmar Investment Holdings
- The University of Queensland
- Kobexindo Tractors - Indoneisa
- Star Paper Mills Limited - India
- Planning Commission, India
- Romanian Commodities Exchange
- Bahari Cakrawala Sebuku - Indonesia
- McConnell Dowell - Australia
- Kideco Jaya Agung - Indonesia
- Sree Jayajothi Cements Limited - India
- Cement Manufacturers Association - India
- Sical Logistics Limited - India
- Lanco Infratech Ltd - India
- CNBM International Corporation - China
- ASAPP Information Group - India
- Antam Resourcindo - Indonesia
- PTC India Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Commonwealth Bank - Australia
- Goldman Sachs - Singapore
- Eastern Coal Council - USA
- South Luzon Thermal Energy Corporation
- Globalindo Alam Lestari - Indonesia
- Bangladesh Power Developement Board
- Bank of Tokyo Mitsubishi UFJ Ltd
- TeaM Sual Corporation - Philippines
- Simpson Spence & Young - Indonesia
- Economic Council, Georgia
- Jaiprakash Power Ventures ltd
- Samtan Co., Ltd - South Korea
- International Coal Ventures Pvt Ltd - India
- IEA Clean Coal Centre - UK
- The Treasury - Australian Government
- Bharathi Cement Corporation - India
- Formosa Plastics Group - Taiwan
- Ceylon Electricity Board - Sri Lanka
- Chettinad Cement Corporation Ltd - India
- Marubeni Corporation - India
- Salva Resources Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- GAC Shipping (India) Pvt Ltd
- GVK Power & Infra Limited - India
- Chamber of Mines of South Africa
- Semirara Mining and Power Corporation, Philippines
- Price Waterhouse Coopers - Russia
- SMG Consultants - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Karaikal Port Pvt Ltd - India
- ICICI Bank Limited - India
- PetroVietnam Power Coal Import and Supply Company
- CIMB Investment Bank - Malaysia
- Posco Energy - South Korea
- Independent Power Producers Association of India
- Orica Mining Services - Indonesia
- Oldendorff Carriers - Singapore
- Petron Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Siam City Cement - Thailand
- Anglo American - United Kingdom
- SN Aboitiz Power Inc, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Vizag Seaport Private Limited - India
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