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A Brave New World: Navigating Political Risks. Corene Crossin Senior Consultant. Outline. Introduction to Control Risks A world of increasing above-ground risks? New and emerging threats Risk management: common pitfalls and how to avoid them. About Control Risks. - PowerPoint PPT Presentation
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A Brave New World: Navigating Political Risks
Corene CrossinSenior Consultant
Outline
Introduction to Control Risks
A world of increasing above-ground risks?
New and emerging threats
Risk management: common pitfalls and how to avoid them
About Control Risks
• Control Risks is a leading international business risk consultancy. Through over 25 offices worldwide we enable our clients to succeed in complex and hostile environments around the globe.
• Control Risks has advised clients in the mining, minerals and assorted services sectors for more than 30 years. In the last five years we have undertaken more than 400 consulting engagements for clients in the industry.
• We provide the full range of services required by organisations wanting to minimise risks to their operations. Our services include:
– Political and security risk analysis– Due diligence– Information security– Crisis and security management– Incident response
Outline
Introduction to Control Risks
A world of increasing above-ground risks?
New and emerging threats
Risk management: common pitfalls and how to avoid them
A world of risk?
“The ugly face of China's presence in Africa” “Labour Strife Could Impact Copper Supplies”
“Kazakhstan’s metals barons tussle”
“Peru police, indigenous group clash”
“Chile’s miners thirst for water to expand output”
“Transparency fears lead to review of Congo mining contracts”
“Zambian Finance Minister Wants Higher Royalties”
An example: copper producing nations
Political Risk
POLITICAL RISK RATING
EXTREME
HIGH
MEDIUM
LOW
INSIGNIFICANTSource: Control Risks’ Country Risk Forecast
Security Risk
SECURITY RISK RATING
EXTREME
HIGH
MEDIUM
LOW
INSIGNIFICANTSource: Control Risks’ Country Risk Forecast
Ease of doing business
Source: World Bank Doing Business 2007
RANK / 178 COUNTRY
1 SINGAPORE
3 UNITED STATES
7 CANADA
33 CHILE
58 PERU
83 CHINA
106 RUSSIA
109 ARGENTINA
116 ZAMBIA
122 BRAZIL
123 INDONESIA
135 IRAN
138 UZBEKISTAN
159 AFGHANISTAN
178 CONGO (DRC)
Outline
Introduction to Control Risks
A world of increasing above-ground risks?
New and emerging threats
Risk management: common pitfalls and how to avoid them
The changing risk landscape affecting mining
Nationalisation
Expropriation
Political Violence
Currency Inconvertibility
Civil commotion
Strikes
TRADITIONAL
NEW
Corruption
NGOs
Local communities
Artisanal Mining
Crime
HIV
Resource Nationalism
Scarcity of natural inputs
Competitors
Some notable contemporary themes
1. Resource Nationalism
2. Availability of energy and water
3. The presence of new competitors
4. Community issues
1. Resource Nationalism
Focus on sovereignty over mineral resources
Focus on sovereignty over mineral resourcesHigh commodity pricesHigh commodity prices
GL
OB
AL
TR
EN
DS
RE
SU
LT
IMP
AC
TS
Resource nationalismResource nationalism
Contract renegotiation
Contract renegotiation
Expropriation
Expropriation
Fiscal / regulatory changes
Fiscal / regulatory changes
Case Study 1: Congo (DRC) mining review
• The client: a professional services firm acting on behalf of a mining company with a contract in Congo (DRC).
• The concern: the company was concerned about what the ongoing review of mining contracts in Congo (DRC) could signify for the security of tenure for its project in the country.
• The requirement: the company wished to learn more about the trajectory of the review and its likely outcome, in order to anticipate the outcome and – if necessary – seek to alter it and/or reduce its potential impact.
• Our solution: Control Risks undertook detailed research in Congo (DRC). Using this research and our expert network of information providers, we were able to help the client understand the motivations behind the review and to advise on the likely decision of the review on the contract in question. This in turn provided the client with the insights it needed to formulate its formal response well in advance of the publication of decisions by the review body.
2. Natural resource constraints
Demand-side dynamicsDemand-side dynamicsSupply-side dynamicsSupply-side dynamics
GL
OB
AL
TR
EN
DS
RE
SU
LT
IMP
AC
TS
ShortagesShortages
Inability to expand
operations as desired
Inability to expand
operations as desired
Stoppages during
construction / operation of mine
Stoppages during
construction / operation of mine
Tensions with local community
Tensions with local community
Lack of rainfallLack of rainfall
Deteriorating supply infrastructureDeteriorating supply infrastructure
Incompetent / corrupt regulatorIncompetent / corrupt regulator
Growing number of mining projectsGrowing number of mining projects
Projects increasing in sizeProjects increasing in size
Local demographic pressuresLocal demographic pressures
3. The new competitive landscape
Established players
• The benefits of experience….
…. or conservative and risk-averse?• The vast resources of a multinational company• A strategic objective to make profit for stakeholders• A requirement to fixate on host country’s human rights record….
… or a patronising, neo-colonialist attitude?• An excessive and unrealistic expectation that they will address environmental and community development concerns…
… or a justified one?• Burdensome compliance with labour laws• A heavy-handed approach to security?
New entrants
• Inexperienced and naïve…
… or pioneering and brave?• The even vaster resources of a state-owned or state-backed corporation• A strategic objective to secure natural resources for home country• A tendency to tie mining activity in with bilateral loans / infrastructure development…
… or a neo-colonialist attitude?• An alleged lack of regard for environmental, human rights and community issues…
… or laudable non-interference in another country’s domestic issues?• Alleged flouting of labour laws• A cavalier regard to security?
Respect for human rights… political freedom… protection of the environment… local job opportunities… protection of indigenous lifestyles and customs… forced relocations… development of local social and physical infrastructure… HIV/AIDS and other infectious disease issues… labour conditions… conduct of public and private security protecting
mine… direct or indirect contribution of mining revenues to conflict… corruption…
Respect for human rights… political freedom… protection of the environment… local job opportunities… protection of indigenous lifestyles and customs… forced relocations… development of local social and physical infrastructure… HIV/AIDS and other infectious disease issues… labour conditions… conduct of public and private security protecting
mine… direct or indirect contribution of mining revenues to conflict… corruption…
4. “Soft” community issues
GR
OU
PS
IN
VO
LV
ED
CO
NC
ER
NS
TA
CT
ICS
Affected communitie
s
Affected communitie
s
Local pressure groups
Local pressure groups
Artisanal miners
Artisanal miners
International NGOS
International NGOS
Negative media coverage
Consumer boycotts
Protests, strikes & blockades
Criminality
Lawsuits & class-actions
Lobbying of funding sources
Outline
Introduction to Control Risks
A world of increasing above-ground risks?
New and emerging threats
Risk management: common pitfalls and how to avoid them
Common Pitfalls of Political Risk Management
Misunderstanding the “character” of risks
A belief in “total solutions”
Fragmentation of management functions
Focus only on the spectacular risks
Misalignment with project cycle
1) “Political and security risks are the same as other kinds of risk”
2) “We don’t need to worry because we’ve got insurance”
3) “We don’t really have anyone who worries about those kind of risks”
4) “To us, risk management means worrying about wars, elections and terrorism”
5) “Perhaps we should have thought about that but it’s too late now”
In other words…
New Paradigms
Project
Surrounding Risk Environment
Risk management strategy should be aligned with project profile
A blueprint for successful risk mitigation
Understand political, security & social risks
Avoid over-reliance on specific mitigation tools
Clarify the organisation of risk management
Align risk management with the project timetable
Avoid fixation on most vivid risks
• Consult specialist expertise on political, security, social risks• Use an array of primary and secondary sources in research
• “Forewarned and forearmed” – select and apply various, correct
risk mitigation tools identified in risk assessment process
• Create multi-functional project risks task force with visibility,
authority and executive buy-in
• Build regular review of risk profile into the project cycle to enable
consideration of risks when preventative action still possible
• Use “devil’s advocates” to challenge management thinking• Examine full range of possible risks, not just the most obvious or
most dramatic
Outline
Introduction to Control Risks
A world of increasing above-ground risks?
New and emerging threats
Risk management: common pitfalls and how to avoid them
Questions
