Africa Legal Insight Energy and infrastructure Adam Cooper Iain Duncan Yves Baratte Juliet Reingold Simmons & Simmons 02 July 2012
Exporting gas from Africa: Developing LNG exports in the new global markets Adam Cooper Simmons & Simmons 02 July 2012
A changing world: Atlantic arbitrage 3 /
A changing world: - key drivers Asian economic growth Shale gas revolution Carbon agenda Fukashima Deepwater Horizon Arab spring Euro crisis 4 /
A changing world: - after the revolution 5 /
LNG Export Projects in Africa Current LNG Exporters Algeria Nigeria Egypt Angola Equatorial Guinea Libya New exporters? Mozambique Tanzania Cameroon 6 /
A changing world: - Africa in 2012 Continuing gas supply interruptions in Libya Major discoveries in Mozambique Anadarko (10-30 tcf) Eni (10 tcf) Thai NOC, PTTEP, outbids Shell with $1.93 billion for Cove Energy (inc. Mozambique reserves) Conoco Philips considering exit from $15 billion Brass LNG BG and Ophir report discoveries in Tanzania (2.5-4.5 tcf) Tullow $2.9b farm-out in Uganda to Total and CNOOC 7 /
The Natural Gas Supply Chain PHASE 1 PHASE 2 PHASE 3 PHASE 4 PHASE 5 Exploration for gas GAS Regasification Production of gas Gas liquefaction LNG shipping Transportation of gas to end users End user gas consumption and power generation Transportation of produced gas to liquefaction CASH 8 /
Natural gas supply chain - issues for investors Upstream reserves Upstream development funding Upstream development obligations Upstream gas supply commitments Project funding Proven technology Contractual commitments Supply chain risks (eg: force majeure) Shipping fleet and obligations Downstream facilities Downstream gas market Construction risk O&M risks Permitting risk Political risk Environmental risk Insurance availability risk 9 /
Government Support Stabilisation protections against change in law Comfort as to availability of consents and licences (including export licence) Protections against expropriation and restrictions on the conversion, transfer or export of cash Assurances as to essential supplies (eg: gas) to the project Comfort as to termination of the government concession following contractor default Protections as to the enforceability of the project s commercial contracts and loan documentation Insurer of last resort Assistance with site security 10 /
LNG project finance: - project completion test Satisfactory reserves Development of upstream facilities on track Physical completion and handover Reliability test Project agreements in operational phase LNG tankers available Downstream receiving facilities complete Satisfactory projected economics Satisfactory insurance procurement Full covenant compliance (including environmental covenants) Total bank losses to date worldwide on LNG project finance = $0.00 11 /
Resource Nationalism: DRC, Ghana, Guinea, South Africa and Zimbabwe Yves Baratte Iain Duncan Simmons & Simmons 02 July 2012
Resource Nationalism Definition Resource Nationalism is the term used to describe situations where governments assert increased control over the natural resources located in their territories in order to extract a greater share of the profit made by mining and metals companies 13 /
What this means in practice Increased state equity participation Increased taxes Renegotiation of existing agreements indigenisation policies 14 /
Overview Resource Nationalism measures in specific countries DRC Ghana Guinea South Africa Zimbabwe 15 /
Democratic Republic of Congo The "revisitation" of mining contracts Long history of mining contracts entered into in questionable conditions Process started in 2007 with some support of the World Bank Supposed to last a few months; eventually ended late 2009 About 60 contracts between investors and the DRC or DRC state owned companies renegotiated (equity, royalties, etc) One major contract terminated; licences transferred at discount price to friends of the president Negative impact on the appeal of the DRC for mining investments; World Bank support lost 16 /
Ghana Review of mining contracts Government conducting review and renegotiation of stability investment agreements to ensure mining profits are maximised..[for] the good of the country Tax increases 2012 budget increased corporate tax rate from 25% to 35% Also new windfall tax of 10% on super-profits Already existing output royalties of 5% Questions over effectiveness of implementation 17 /
Guinea Renegotiation of mining conventions entered into under the old Mining Code announced by the Government in 2012 Threats of cancellation of mining conventions that the Government would deem unfair or entered into without transparency objective of the Government: increase its stake in the mining projects Rio Tinto agreed to settle for 700 million USD after long dispute with the Guinean State over mining concessions the Brazilian group Vale is considering stopping its investment plans in Guinea due to the uncertainty of the mining legislation 18 /
South Africa Backlash against the Mining Charter, with companies fearing a lack of transparency in the process of encouraging greater ownership of mining assets by historically disadvantaged South Africans. President Jacob Zuma and the Minister of Mineral Resources (Susan Shabangu) have spoken out against resource nationalism. Julius Malema, leader of the youth wing of the ANC, one of the most vocal advocates of resource nationalism, has been expelled from the Party. African National Congress policy conference (26-29 June 2012) ruled out nationalisation, but revised mining taxes possible. 19 /
Zimbabwe Indigenisation Legislation Indigenisation and Economic Empowerment Act, 2007 Businesses with asset value above US$500,000 must "cede" a controlling interest of not less than 51% to "indigenous Zimbabweans" Statutory Instrument, 2011 Mining companies with a net asset value above US$1.00 Required mining companies to submit indigenisation implementation plans and dispose of 51% of their shares to indigenous Zimbabweans Reserve Bank of Zimbabwe Ordered the country s banks to stop processing export transactions by its largest exporter, Zimbabwe Platinum, because of its failure to comply with exchange control regulations 20 /
Some ways of protecting rights From the authorities Joint-Venture Agreements as a back door to Investment Convention type provisions Multilateral institutions as a protection? Ensuring compliance with applicable regulations with contractual obligations Acquisition/investment legal due diligence is critical In developing countries, relationship with key stakeholders is particularly important national and local authorities local population employees national and international press, NGOs etc 21 /
What to use when things go wrong Local jurisdiction? International arbitration Bilateral investments treaties Political risk insurance Public opinion 22 /
Pit to Port Infrastructure Juliet Reingold Yves Baratte Simmons & Simmons 02 July 2012
Overview Importance of infrastructure to Africa s economy Efficient transport and logistics infrastructure is key for commodity-based economies Mining developments require supporting infrastructure and resources 24 /
Emerging Trends Mine locations are getting ever more inaccessible Terrain, environment and socio-political constraints are increasing Transport costs are becoming a dominant component of mining capex and opex Infrastructure needs as much consideration as ore geology and mine planning 25 /
Rail Map of Africa 26 /
Emerging Trends Mine locations are getting ever more inaccessible Terrain, environment and socio-political constraints are increasing Transport costs are becoming a dominant component of mining capex and opex Infrastructure needs as much consideration as ore geology and mine planning 27 /
Current Railway Transport Landscape 47 railways in 32 African countries Railway concessions since 1990 Total Network size: 70,000 km 55,000 km in operation single track and little electrification Railway standards are from when railways were built over 100 years ago: low axle loads and low speeds under capitalised ill suited to modern requirements limited upgrading track deterioration signalling systems rely on manual networks Some specialist mineral lines West and Southern Africa Mauritania, Guinea, Nigeria, Gabon, Cameroon, Republic of Congo 28 /
Railway concessions awarded in Africa since 1990 29 /
Current Railway Transport Landscape 47 railways in 32 African countries Railway concessions since 1990 Total Network size: 70,000 km 55,000 km in operation single track and little electrification Railway standards are from when railways were built over 100 years ago: low axle loads and low speeds under capitalised ill suited to modern requirements limited upgrading track deterioration signalling systems rely on manual networks Some specialist mineral lines West and Southern Africa Mauritania, Guinea, Nigeria, Gabon, Cameroon, Republic of Congo 30 /
Current Constraints No transcontinental motorway system Road tariffs are high Transport interchanges are complex and create blockages Land-locked countries Customs agencies viewed as logistics unfriendly Railway: transit times are slow services are infrequent security issues absence of reliable cross-border interconnection services track infrastructure 31 /
Trans-African Highway and Major Ports 32 /
Current Constraints No transcontinental motorway system Road tariffs are high Transport interchanges are complex and create blockages Land-locked countries Customs agencies viewed as logistics unfriendly Railway: transit times are slow services are infrequent security issues absence of reliable cross-border interconnection services track infrastructure 33 /
Road Freight Prices in Africa Source: Transport Prices and Cost, AICD 2008 34 /
Current Constraints No transcontinental motorway system Road tariffs are high Transport interchanges are complex and create blockages Land-locked countries Customs agencies viewed as logistics unfriendly Railway: transit times are slow services are infrequent security issues absence of reliable cross-border interconnection services track infrastructure 35 /
Key Transformation Requirements Re-engineer current port, railway and inland waterway systems African mining industry to invest in new and replacement railway and port infrastructure Mining companies to participate in early development of ideas with Host States Railway track access contractual relationships to modernise Better utilisation of the river corridor Create one-stop border posts Reform trucking regulation Automate customs Privatise port management 36 /
Key Infrastructure Legal and Operational Issues Statutory powers Mining Code Specific infrastructure legislation Development rights Timing issues Redirection of resources Environmental and socio-economic impacts Health and safety Land compensation Co-ordination and timetabling Shared use 37 /
simmons-simmons.com elexica.com 38 /