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