The nationalisation of 51% of the Argentinean oil company YPF last month grabbed headlines around the world and brought the issue of resource nationalism into the spotlight. But it did not come in isolation: a number of similar cases have cropped up around the world that point to a potentially worrying trend.
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One of these cases is currently occurring in Indonesia, the focus of this month’s regional report (pp. 14 – 24) . In February, President Susilo Bambang Yudhoyono signed a new regulation that will require at least 51% local participation in mining permits from the tenth year of production. As with much in Indonesian politics, what will now happen in practice is far from certain but the intent is unmistakeable. As Lian Yok Tan, of legal firm White & Case, concludes on p. 24: “It is clear from the recent legal developments that the trend is for the Government to increase local ownership of coal and other natural resources and to increase taxation and other state revenues from the exploitation of coal and other natural resources.”
The move adds yet another layer to the already complex regulatory environment in Indonesia and is a further headache for foreign companies operating there. Unless clarity is forthcoming, this has the potential to weaken the country’s mining industry. Fitch Ratings commented recently that the lack of a reliable and practical regulatory regime could have “substantial negative ramifications” for Indonesian competitiveness and threaten its position as a reliable supplier of thermal coal.
The rewards of the current mining boom are undoubtedly tempting targets for the Governments of resource-rich states, but care is required. Investor confidence is easily knocked and, once lost, difficult to regain. Take the example of Zimbabwe, a country sitting on at least 15 billion t of coal reserves. Despite this and the money that is flowing into neighbouring Botswana and Mozambique to develop coal projects there, the coal mining industry in Zimbabwe is moribund. It is a victim of punitive resource nationalism and suffocating red tape, according to participants at the recent Zimbabwe Coal Indabe. Other Governments should be wary before setting off down the same path.