Women in Resources Victoria Event – Panel discussion examining the competitiveness of the Australian resources industry

On 17 July 2014, Women in Resources Victoria held a panel discussion examining the competitiveness of the Australian resources industry.  The event was very well attended and topical in light of recent industry and media discussion of the current challenges facing the resources industry and the Government’s focus on the regulatory environment.

The panel discussion was chaired by Mr Michael Catchpole, Chief Executive of The AusIMM and featured the following eminent speakers (listed in order of speaking): Kate Vidgen, Executive Director at Macquarie Capital, Brooke Miller, CFO of BP and Karen Stoffels, General Manager Finance at MMG.  Each speaker examined the topic from a different perspective.

  1. Key factors affecting resource investment choices in Australia against overseas locations (Kate Vidgen, Macquarie Capital) – Ms Vidgen spoke about the key factors affecting resource investment choices in Australia against overseas locations.  Ms Vidgen observed that there is currently ‘a wall’ of new capital seeking investment in the resources sector and therefore the challenge for Australia was to capitalise on its competitive advantages.  In considering the attractiveness of Australia as a location for investment, Ms Vidgen examined a number of commonly cited perceptions (i.e. increased sovereign risk, lack of cost competitiveness and lack of infrastructure) and critically assessed the extent to which they were in fact grounded in reality. In short, Ms Vidgen concluded that many of these common perceptions were not accurate and opportunities existed for Australia to further leverage its competitive strengths, particularly in the area of innovation.
  2. The Three C’s of Competitiveness: Cost, Capability and Curiosity (Brooke Miller, BP) – Ms Miller also observed that there is currently an enormous opportunity in the market provided the right resources and conditions can be brought to bear.  In relation to the creation of the right conditions, Ms Miller identified the following three factors:
    • Creation of a ‘cost culture’ – this is not about focusing on always being the cheapest; instead, it requires an intelligent and strategic examination of the nature of the costs being incurred (aided by good tracking and a constant awareness of changes in the environment) and the extent to which they are linked to a company’s value proposition. However, equally, in the resources industry a focus on safety is essential.
    • Increased capabilities – in particular, the advent of new technology and ‘big data’ which is now driving analytics will continue to change the way business is done and provide opportunities for innovation.
    • Curiosity – Ms Miller observed that in comparison with other countries, Australia has a real competitive advantage in terms of being prepared to challenge the status quo which often results in innovation.
  3. Choosing the right skills base and diversity mix within the work force to maximise productivity (Karen Stoffels, MMG) – Ms Stoffels discussed the challenges of creating a collaborative and productive work environment in circumstances where team members are from diverse backgrounds.  Ms Stoffels identified a number of strategies that she has successfully used in the past to bridge cross-cultural issues when managing a team located in a different country including: establishing a common purpose or goal by face-to-face meetings and agreeing on a long-term strategy up-front, adopting an inclusive approach that allows all team members to feel that they have had an opportunity to contribute, and identifying a ‘trusted adviser’ with local knowledge who is able to explain the unique differences of doing business in a particular country.  

Following the debate, Mr Catchpole moderated a question and answer session from the audience that prompted further interesting discussion of a variety of issues including the likely impact of the current Government’s new policies and how best to institutionalise a culture of innovation.

For further information, please contact Jennifer Galatas, Senior Associate, Melbourne, or your usual Herbert Smith Freehills contact.

The possible consequences of the termination of Indonesia’s Bilateral Investment Treaties

The Government of Indonesia recently indicated to the Dutch embassy in Jakarta that it intends on terminating all of its existing bilateral investment treaties starting with its treaty with the Netherlands. Indonesia has entered into bilateral investment treaties with over sixty counties including Australia, China, Singapore and the United Kingdom.

The outright removal of any future treaty protection for investments in Indonesia is of considerable concern to existing and prospective investors. In the absence of this treaty protection, the only remaining recourse for many investors are the Indonesian courts or diplomatic channels.

Some commentators have suggested that Indonesia instead intends to use the termination as a means of renegotiating the terms of all the bilateral investment treaties. However this appears unlikely as it would involve separate discussions with over sixty nations regarding investment protections.

If Indonesia did terminate all of its bilateral investment treaties without substituting them for alternative arrangements, the consequences for investors would not be immediate. Many of the bilateral investment treaties will still not expire for a number of years and Indonesia is not able to terminate them until their expiry. Further, many bilateral investment treaties have ‘sunset periods’ during which investors can continue to rely on the protections in the treaty.

Indonesia continues to be a signatory to a number of multilateral investment treaties. These will continue to afford protection to investors through international tribunals. The protections and dispute resolution mechanisms under Indonesian investment law also continue to apply.

Despite there being a number of alternative protections for investors, this recent news changes the investment landscape in Indonesia. Investors are advised to carefully consider how their investments are structured in order to ensure that they remain protected in the future.

The full article, written by Haydn Dare is available here.

For further information, please contact Haydn Dare, Senior International Counsel, Jakarta or your usual Herbert Smith Freehills and Hiswara Bunjamin & Tandjung contact.

Indonesia indicates intention to terminate all of its Bilateral Investment Treaties?

According to the Netherlands Embassy in Jakarta, Indonesia has informed the Netherlands that it has decided to terminate the Bilateral Investment Treaty between the two nations from 1 July 2015. The Embassy also states that “the Indonesian Government has mentioned it intends to terminate all of its 67 bilateral investment treaties“.

Nearly all Bilateral Investment Treaties expressly stipulate a period of time during which the agreement is in force; most commonly, 10 years. Either Contracting State is then allowed to terminate the treaty after that initial period. If notice of termination is not given then, the treaty will provide for the agreement to remain in force for a further period. In the case of the Netherlands, its BITs usually provide for a further 10 year extension and require notice of termination to be given at least twelve months before the expiry of the current period of validity. However, under what is known as a ‘sunset clause’, existing investors are then still entitled to rely on the protections found in those BITs that have been terminated and remain able to do so for a period after the BIT’s termination. In the case of the Netherlands-Indonesia BIT the ‘sunset’ will last for a 15 year period.

It is not clear whether this move to terminate the Indonesia-Netherlands BIT is the first in a programme of terminations as the Netherlands Embassy suggests. The Indonesia-Netherlands BIT is the oldest of Indonesia’s BITs and the intention may simply be for Indonesia to negotiate a more “modern” Investment Treaty, providing for more clearly defined protections and dispute resolution provisions.

However, it would not be surprising if the Churchill Mining Plc v Indonesia cases (ICSID Cases ARB/12/14 and 12/40) have prompted more sweeping action by the Indonesian Government. Churchill and Planet Mining Pty began arbitration against the Indonesian government in May 2012 at ICSID in Washington. On 24 February 2014 the ICSID Tribunal rejected Indonesia’s jurisdictional challenges leaving Churchill free to proceed with a claim for damages of not less than US$1.05bn, excluding interest. This decision has caused outrage in Indonesia.

If the Indonesian government has decided to begin a programme of terminating its BITs, this would be a bold move. However, it would not be without precedent. South Africa has begun a similar programme of termination, terminating its BIT with Belgium-Luxembourg in 2012 and issuing cancellation notices for its BITs with Germany and Switzerland. Nor are these countries alone in expressing concern about the availability of investor-state dispute settlement. Australia has previously indicated its reluctance to agree to such mechanisms. Just last week, Germany announced that it did not want investor-state dispute settlement provisions included in a trade agreement between the United States and the European Union.

Termination of its BITs does not, however, indicate that Indonesia is withdrawing from all investment protection obligations and mechanisms. Even if all its BITs were terminated, Indonesia would still be subject to its obligations under ASEAN. Furthermore, Indonesia has also expressed interest in joining the Trans Pacific Partnership (or TPP), should that proceed.

In its 2013 report, UNCTAD noted the possible future trend away from bilateral arrangements and towards wider, regional, multilateral agreements involving greater economic integration and free trade obligations. It will be interesting to see whether Indonesia’s move prompts yet more nations to follow suit. If they do, we may well be looking at a dramatically different investment protection picture in future.

For further information, please contact Craig Tevendale, Partner, Vanessa Naish, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.

How to navigate dispute resolution in Africa

As investment continues to flow into the continent, the number of disputes is also rising
Over the last decade investment into Africa from foreign companies, financial institutions and private equity groups has soared, while investment between African countries is also increasing. For those willing and able to seek out its opportunities, Africa represents the world’s largest emerging market, but there are several factors that are particular to doing business in the continent that mean the scope for dispute resolution will inevitably increase.

For instance:

  • Governments may seek to revisit past legislation or renegotiate agreements with a view to obtaining higher revenues
  • As the ‘soft law’ obligations of companies are increasingly on the radar of governments and civil rights organisations, disputes could arise where companies are alleged to have made investments without due care for the rights and concerns of local communities
  • Disputes may also be caused by dealings with governments that are under international censure or sanctions regimes, or with unethical officials in legitimate governments

Commercial issues

Before resorting to litigation or arbitration in Africa, there are several commercial issues that should be considered. First, it is important for companies to assess their framework of operations, as there could be existing or potential projects in the country that militate against getting into a full-blown dispute.

Second, the publicity of litigation may play into the hands of competitors, as there could be plenty of other investors ready to step into disputing parties’ shoes.

Third, the majority of disputes in Africa are resolved through commercial settlement, with companies and states alike preferring negotiation over the uncertainties of litigation or arbitration.

Finally, legal technicalities often carry greater weight in African jurisdictions than in Western proceedings, so the relative strengths of parties’ legal positions need to be factored in with care.

Litigation

It is not always possible for international companies to confine the conduct of litigation to their own shores. African state entities that enter into contracts may require that any disputes are resolved before their local courts applying local law, or by domestic arbitration.

While many jurisdictions have well-developed legal systems with commercially minded and experienced judges, local courts in some countries suffer from delays, protracted appeal and enforcement processes, and judiciaries that are less well-equipped or used to dealing with complex international transactions.

The civil court structures across all African jurisdictions generally have a predictable hierarchy. Local courts typically derive jurisdiction from the sum in dispute, with higher courts being reserved for larger disputes. Almost all jurisdictions have a Court of Appeal and Supreme Court (or equivalent).

Aside from the civil court system, traditional courts often play a major role in rural areas. Village elders or specialist lower courts may determine property disputes under customary law, and in some jurisdictions the application of customary law permeates throughout the entire court system.

Arbitration

Many investors are reluctant to expose themselves to proceedings in local courts with which they are unfamiliar, and hence the neutrality, choice of rules and venue and confidentiality of arbitration are attractive.

There are several jurisdictions where local laws provide the necessary legislative and judicial support for onshore arbitration, but in other jurisdictions less experienced judiciaries and untested legislation point to offshore arbitration being the better choice.

Regardless of whether offshore or onshore arbitration is chosen, its chief advantage is the ability to enforce an award.

This article was written by Stéphane Brabant, Partner, John Ogilvie, Partner and Paula Hodges, Partner, at Herbert Smith Freehills.

Record Mining Investment set to continue

Mining investment is up 74 percent since last year, and 34 percent in the last six months.

Last week the Bureau of Resources and Energy Economics (BREE) published their biannual report on Mining Industry Major Projects – showing the silver (or is that gold?) lining in the face of economic doom and gloom.

At the end of October there were 102 projects at an advanced stage of development with a record high capital expenditure of $231.8 billion.

So can we expect more for 2012? Put simply – yes. Investment is set to continue with 302 less advanced projects registering a potential capital expenditure of $224.3 billion.

BREE’s Chief Economist said “Significant growth in coal, iron ore and gas exports are expected to occur over the medium and long term, underpinned by the capital investment that is occurring in these sectors.”
Of the 102 advanced projects 40 are Mineral Projects representing capital expenditure of $30.7. billion Major iron ore projects include: CITIC Pacific’s US$6.1 billion Sino Iron Project; BHP Billiton’s US$3.4 billion Jimblebar mine and Fortescue Metals Solomon Hub Stage 1 having an iron ore capacity of 60 million tonnes a year at a capital cost of US$2.7 billion. The largest advanced gold project is Newcrest’s Cadia East development in New South Wales, which is scheduled for completion in 2013 with a capital cost of $1.9 billion.

37 Energy Projects with capital expenditure of $170 billion. The Gorgon LNG project is the largest single resource project undertaken in Australia with an estimated capital expenditure of $43 billion.

21 Infrastructure Projects with a capital expenditure of $25 billion. The largest of these is Wiggins Island Coal Terminal which is located in Gladstone at an expected to cost around $2.5 billion to construct.

4 Mineral Processing Plants with a capital expenditure of $6.4 billion. The two largest mineral processing projects are both alumina refineries. The Worsley Refinery Efficiency and Growth project in Western Australia, scheduled for completion in 2012 for an estimated capital cost of US$3.5 billion. Expansion of the Yarwun refinery in Queensland at an expected capital cost of US$2.3 billion.

In 2010-11, New Capital Expenditure increased by 28 per cent to $51 billion, an all time record around three times the average annual expenditure over the past 30 years ($17.1 billion).

In 2010-11 Exploration Expenditure increased 9 per cent to $6.2 billion from 2009-10, the second highest level on record. Nearly all sectors increased their exploration with Coal increasing by 62 per cent; Copper 60 per cent; Base Metals 46 per cent; Uranium 26 per cent; Iron Ore 27 per cent; and Gold 13 per cent. Petroleum was the only major sector to slide decreasing by 8 per cent.

The accumulated capital expenditure of Completed Projects in the last six months totalled $9.6 billon. The largest energy project was the Cossack Wanaea Lambert Hermes field redevelopment and floating production, storage and offtake vessel located at the North West Shelf in the Carnarvon Basin, Western Australia, completed at a cost of US$1.47 billion and has the capacity to produce up to 60,000 barrels a day of oil. The Kitan oil project at a capital cost of US$600 million has an oil production capacity of 35 000 barrels a day.

What a great time to be a part of such a vibrant and prosperous industry

For a full copy of the report go to:
http://www.bree.gov.au/documents/publications/resources/BREE_MEMP_NOV2011.pdf