26 June 2014

Clive Palmer and Al Gore team up in a remarkable day for carbon in Australia

Yesterday was a remarkable day here for carbon-related issues.

Clive Palmer has substantially changed position. He won’t support Direct Action - he says that it ‘is a waste of money’. Nor will he support the abolition of various key existing carbon-related statutory agencies or the Renewable Energy Target. What he now advocates is the implementation of an emissions trading scheme (ETS), but one which will be ‘zero-rated’ until Australia’s major trading partners (5  named countries including the US and China) have ‘equivalent’ schemes. He says that he will ‘move amendments’ to the Government’s Bills to do these things. He announced all of this to journalists gathered in the Great Hall of Parliament in the company of no less than Al Gore, both of whom left without taking or answering any questions. There will be plenty of them today.
It appears that he is now advocating a variation on what Rudd announced in July 2013 – an early move to the ‘flexible’ phase of carbon pricing, only a ‘zero-rated’ one. Milne of the Greens has picked up on this saying that she and her party will support moving to the market-based ‘flexible’ phase of carbon pricing under the Clean Energy Act in FY2014-2015 rather than FY2015-2016 as currently proposed.        

Labor has said this morning, through shadow environment Minister Mark Butler, that Labor went to the last election promising to get rid of the fixed carbon price and to move straight to the emissions trading scheme, and that it therefore has no trouble with the repeal of the fixed price but that it does have a problem with the repeal of a meaningful ETS.

Recently, Xenophon and others have made noises that the issues raised by the Government’s Bills are too complex and important to be decided in haste in the first weeks of a new Senate. Palmer’s actions yesterday will add weight to these calls.

Palmer’s position, if maintained, means that it’s likely that the Government’s Bills will be defeated in the Senate, a prospect which was unimaginable until yesterday.

Meanwhile, the Clean Energy Act remains in force unamended.

Stay tuned!

This article was written by John Taberner, Consultant, and Michael Voros, Special Counsel.

For further information, please contact John Taberner, Michael Voros, or your usual Herbert Smith Freehills contact.

13 June 2014

Bright future – the key factors driving economic growth in sub-Saharan Africa

The African market will continue to thrive thanks to increased availability of capital and investment in natural resources, power and infrastructure.

Since 2008 the world economy has undergone significant strain, which has had an effect on growth across all regions. However, in the face of these global headwinds, domestic supply shocks and civil conflict, Africa has been resilient. Of the 10 fastest-growing global economies in 2012, seven are in sub-Saharan Africa (SSA).

Natural resources
Persistently high commodity prices elsewhere in the world in recent years have resulted in renewed demand for Africa's abundant natural resources. This demand is evidenced by the increased foreign investment in the oil and gas sector in several SSA countries such as Kenya, Uganda and Mozambique, with relative success thus far.

Tullow drilling wells onshore in Turkana, Kenya have exhibited good results and declared commerciality with a circa 5,200 barrels-per-day flow rate; Mozambique has been the subject of a natural gas discovery of 100 trillion cubic feet (mainly in the offshore Rovuma Basin); and oil and gas exploration activities in Uganda have had an unprecedented 90% drilling success rate, with 58 of the 64 exploration and appraisal wells drilled in the country to date encountering oil and/or gas.

Accessibility to funding
The increased availability of capital for small and medium-sized enterprises has contributed to economic development in SSA by stimulating sectors that have traditionally been the backbone of growth in countries that do not rely on natural resources. For example, historically SSA's agricultural sector has struggled to access the financing required to sustain growth, with the cost of extending traditional banking infrastructures in rural areas deterring many banks and financial institutions from providing financing for the sector.
However, this gap has been filled, to a large extent, in recent years through private equity funding. This has become more available in SSA as governments move to relax or suspend laws that restrict repatriation of funds or impose currency controls. According to the Emerging Markets Private Equity Association, total private equity capital raised for SSA in 2012 was $1.4bn (£830.3m), with agribusiness proving one of the primary draws.

Infrastructure and power
Power and infrastructure has also become a key investment sector, and is both an opportunity for foreign investors and an essential ingredient in the continued development of many African countries. Interest in infrastructure investments seems only likely to grow, with recent figures from the Commonwealth Business Council showing an average 15%-20% return on investments in SSA infrastructure projects across all sectors.

Successful implementation of the Nigerian power sector privatisation – seen by many as one of the boldest privatisation initiatives in the global power industry over the last decade – may create further investment opportunities in SSA. Other countries may follow the lead of Nigeria and accept that, under certain circumstances, there is no continuing case for retention of infrastructure in public hands and that the constant need for state-owned enterprises to take into account non-commercial and political considerations will ultimately hinder the efficient provision of much-needed power and infrastructure, with consequential long-term detrimental impacts to the interests of consumers and taxpayers.

If continuous efforts to tackle poverty, corruption, inadequate infrastructures and political instability are successful in SSA, the region can expect to see continued economic growth.

This article was written by Gavin Davies, Partner, London and Aleem Tharani, Senior Associate, Kenya.

For further information, please contact Gavin Davies, Aleem Tharani or your usual Herbert Smith Freehills contact.

2 June 2014

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.