Saturday, July 5, 2008

From Vietnam to Mongolia, resource-rich countries are taking steps to protect their 'national assets', reports Umesh Pandey

As oil prices soar to new heights and nationalist feelings start to emerge about ''national assets'', many companies across the globe are starting to feel the pinch and are looking to brace for a possible backlash, a move that could cause headache to Thai companies expanding outside the safe borders of Thailand. The latest to join the bandwagon is Vietnam, which is facing an economic meltdown after having witnessed robust growth over the past few years. Activity in Vietnam comes after Mongolia undertook its move and talk started to appear in Indonesia of ways to control exploitation of ''national assets''.

In one of the boldest moves yet, the Viet Nam National Coal and Mineral Industries Group (Vinacomin) has recommended the government add coal to the state monopoly commodity list so as to protect the limited natural resource, the Vietnam News agency reported recently.

According to the report, Vinacomin said that this move should be undertaken irrespective of whether another substitute to replace coal is found or not, as coal will always be the main source to ensure the nation's power.

If coal is among the state monopoly commodities, a new legal framework for managing the natural resource will be created that could help protect it, Vinacomin said.

The move follows discussions with foreign coal suppliers and the difficulties in the country to secure a long-term supply of coal in large quantities. These supply constraints come in face of the recently report by the Ministry of Industry and Trade that showed that Vietnam may face a major shortage of coal in the future.

While domestic coal production in 2010, 2015, 2020 and 2025 has been forecast at 47, 60, 70 and 80 million tonnes respectively, local demand in the coming years could grow to 37, 94, 184 and 308 million tonnes, the ministry estimated.

The country would therefore have to import large quantities of coal from 2010 to 2025.

Vinacomin estimates that the country will need 43 million tonnes of coal this year.

Indonesia is contemplating a similar step to lower its coal export volumes in order to maintain the domestic supply, although the idea was shot down before it even reached legislators for consideration.

But the outcome of the discussions that took place was that the state-owned power monopoly, PT Perusahaan Listrik Negara, was ordered to keep a 30-day coal reserve. There are also talks in the market that higher incentives may be offered to coal producers to sell domestically.

The reason is simple. As oil prices surge and coal prices follow suit (coal has risen by about 170% in the last 12 months), nationalism kicks in. Selling the commodities to other countries is viewed by more and more people as tantamount to selling the nation.

Indonesia is one of the world's largest coal-exporting countries. Last year, of its total production of 215 million tonnes, 163 million tonnes, or 76%, were sold overseas, leaving just 52 million tonnes for the domestic market.

Domestic coal demand is expected to reach 90 million tonnes by 2010, up 80% from current levels. Most of this demand is from the electricity generation industry, in line with the government's plan for coal to account for 30% of Indonesia's total energy mix by 2025.

Mongolia, for its part, has been undertaking a move to take control of ''national assets'' and with the former ruling party, Mongolian People's Revolutionary Party (MPRP), winning the elections last week, the likelihood looks ever closer to reality.

Earlier this year, Mongolia's mining minister said that Parliament, then led by MPRP, had been expected to pass amendments to its mining laws and the impact of such a move would be substantial for both new and active players in the market.

Many mining companies see the proposal as an attempt at nationalisation, but the government insists there would be no retroactive takeovers and that the new law will in fact make the rules of the game clearer for everyone.

Bold Luvsanvandan, chairman of the Mineral Resources and Petroleum Authority of Mongolia, had said that under the new law, which could affect billions of dollars worth of investments, the government could hold a 51% stake in ''strategic'' mines as opposed to the current 34% maximum.

Multinational companies have complained of unfair treatment and their view is shared by independent organisations such as the Heritage Foundation and World Growth, although the government believes that ''strategic mines'' with billions of dollars worth of investments and that account for more than 5% of the gross domestic product of the country should be majority-owned by the government.

Now with the former government back in power, the policy will likely be re-tabled in Parliament to pass once again.

With such a vast number of countries now looking to implement ''domestic'' policies on much-treasured assets, the problems for Thai companies are likely to increase. Companies such as Banpu Plc, PTT Exploration and Production Plc and Lanna Resources Plc, which derive the bulk of their revenue from outside the country, are facing the risks of such backlash.

''Due to the current situation of extreme rises in fuel prices and limited resources, it is normal that each country has to review their energy policy, available resources, other related factors and issues and possible solutions to secure their energy supply. Many measures such as control of consumption and imports/exports, taxation, alternative fuels, etc. could be implemented depending on each country's condition,'' Banpu said in an e-mailed statement, adding that most of the measures had not been implemented but are just in various stages of discussions.

PTTEP, one of the largest Thai investors in Vietnam, says that it is not fearful of such moves as the company stood ready with a contingency plan in case things do go unexpectedly wrong.

''We have a risk-management system in place and have ways to control our exposure in any single country that we operate in,'' said Anon Sirisaengtaksin, the chief executive of PTTEP.

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