Mining companies operating in the Asia Pacific region are facing a changing risk environment, according to Export Finance and Insurance Corporation senior economist, Ben Ford.
Mining companies operating in the Asia Pacific region are facing a changing risk environment, according to Export Finance and Insurance Corporation senior economist, Ben Ford.
Mr Ford, who addressed the Asia Pacific Downunder Conference in Perth earlier this week, said one of the main trends in the region, particularly over the past 12 months, was a move towards resource nationalism.
“A lot of governments in the region have woken up to the fact that they have bargaining power, on the back of increases in mineral prices,” he said.
Mr Ford told WA Business News governments were increasingly trying to work mining contracts in their favour, by renegotiating royalty rates or increasing the amount of capital allocated to social development.
“It’s not a zero sum game; governments realise they need investors, but they’re trying to make sure they get a larger share of the upside,” he said.
In this environment, mining investors faced a patchwork of risk in the region, with great variance between countries.
According to the 2006 Corruption Perceptions Index of 163 nations, produced by non-government organisation Transparency International, Malaysia and Thailand are ranked in the top half of countries, at 44 and 63, respectively.
However, the Philippines, Papua New Guinea, Indonesia and Cambodia were poor performers in terms of corruption, all ranking below 120.
Mr Ford said there was also a wide disparity in operating conditions between countries, citing data from the World Bank measuring the ease of doing business, using benchmarks such as government regulation and protection of property rights.
While Thailand and Malaysia rank highly, the Philippines, Indonesia, India, Cambodia and Laos rank in the bottom 50 of 175 countries by this measure.
“Where Asia scores quite well is political stability, even though Africa is the flavour of the month at the moment,” Mr Ford said. “Risk in Asia is more to do with legal and regulatory issues.”
Decentralisation and increasing regional autonomy in Asian countries is another issue for investors.
“Mining investors in particular will not just have to deal with national governments, but also provincial governments,” Mr Ford said.
“It’s a challenge where different negotiating responsibilities lie. There may be overlap, or regional governments may impose more onerous requirements.”
And said the likely impact would be increased costs for mining companies.
“It’s going to depend where the mine is, how big the project is, whether it’s a green or brown field,” he said.
“Generally, it is going to increase uncertainty, where there are overlaps in regulatory oversight.”
Mr Ford said creeping expropriation was an issue in some countries, with a risk of policy change over time.
He said the Philippines was one country where there was active opposition to mining.
“There’s been a lot of opposition towards mining on what might be called environmental grounds,” Mr Ford said. “Non-government organisations and the Catholic Church have been quite vocal opponents of mining, both from an environmental perspective and also with regard to the dispersion of rewards.”
