PREFACE
Once again as co-ordinator of the Centre's Annual Review (CAR), the writer has the role of introducing and commenting upon the current crop of submissions to our electronic journal in which we showcase the most outstanding recent contributions. As in previous years, the current CAR covering the 2006-2007 period presents a diverse range of papers that reflect some of the hottest contemporary issues currently debated within the ambit of the participants in the natural resources industries, academia and some of the key host countries in the developing world. CAR provides an ideal forum for establishing an insight into the dynamic forces and evolving controls and policies that shape the destiny of our natural resources industries for better or worse.
Our annual review is entirely run by the masters students and comprises an Editor-in-Chief assisted by a team of assistants who have specialised in some of the main disciplines involved. This year it was decided that the assistant editors should also be incentivased with points towards their degree. There were changes at the outset when two members of the board withdrew but we were very fortunate in obtaining the services of two experienced volunteers: Saleh Saleh and Julius Nayak, who have proved to be valuable assets to the team. The task of Editor-in-Chief is particularly demanding and is, in many ways, a tough option to alternative ways of completing a Masters degree. Surprisingly there has always been someone on hand to undertake this task successfully. This year is no exception, Modupeola Ogutuga was selected for the task and has shown the same boundless enthusiasm, drive and initiative, and capacity to get results both from her team and the authors of the contributions selected, as her predecessors. It has taken time to develop a system of assessment capable of treating a very diverse range of topics equally. However the system developed which looks at topicality, substantive content in terms of accuracy, rationale and analytical approach as well as technical aspects, has worked well.
Although there has been a pause for breath in the current record breaking mega boom in the case of the minerals industry, while the oil industry has continued to power ahead to set new price records of over $US 100/barrel of oil (thus slowing the pace of commodity development), there seems to be every indication that the driving forces in the Asia-Pacific region are again gathering momentum. It is therefore likely that high energy demands will continue for the foreseeable future, although the scenario is less clear for the mineral industry. However it seems that the demand for gold and precious metals will be sustained for some time to come, given existing uncertainties in the political and financial climate, while the demand for steel continues unabated enhancing the reserve base as lower and lower iron ore grades augment the profitably exploitable resource base. It is also probable that the current price of non-ferrous metals will also be maintained for some time.
Warehouse metal stocks have been running low, while the output from the new generation of mines (notably porphyry copper mines) that should have begun production some time ago has not yet commenced.
The papers presented in our journal should be viewed against the perspective of this background and also in the light of recent financial uncertainties triggered by the crash in house prices in the US and staggering losses of some of the world's leading banks. A side effect has been the tightening of availability of venture risk capital for exploration projects in the mineral industry.
Given the scenario outlined it is not surprising that energy issues hold centre stage in the current edition of our journal. After all energy in its various forms could be aptly termed both literally and metaphorically as the driver for all our commercial systems. Together with the financial set backs outlined above, escalating costs for oil and other forms of energy have slowed the current boom bringing it to a teetering halt at the brink of a major recession. It would seem that although disaster has been averted for the moment, we are not yet out of the danger zone. Particularly hard hit by the escalating energy costs are the developing countries that are not well endowed with mineral resources and depend heavily on the importation of fuel.
Reflecting these aspects noted above are the wide ranging themes of the contributions selected for the current edition of CAR. It would seem that the nuclear alternative stubbornly refuses to be phased out as the shadows of Chernobyl begin to fade and the major switch to nuclear energy in France has pointed the way for this energy form. The shortfall in energy requirements has yet to be bridged and there is as yet no indication that renewable resources (of which bio-fuels seem to be the most promising type) will be capable of closing the gap. However with the trend in the energy field towards privatisation it seems that nuclear power stations would be hard pressed to become profitable given the huge capital outlay required at the outset. Nevertheless, performance of the new nuclear power stations in Finland will put this issue to the test, as noted by one of our contributors. Another paper indicates a change in attitude towards a nuclear solution in Germany where second thoughts on the phasing out of their nuclear power stations are evident.
Turning to oil exploration the significance of the recent success by Hardman Resources Limited, in partnership with the Ugandan government, marks the first success in the East African region. As the author mentions, the country has a distinctive advantage of avoiding pit falls which have beset oil discoveries in other African countries in the past, such as the 'Dutch Disease' by developing the appropriate fiscal legislation. Moreover the groundbreaking geological model may well incentivase an intensification of exploration within the region. Another original contribution focuses on the impact of the oil price on the oil rig manufacturing industry, an area which has surprisingly so far, received little attention. As anticipated there has been a large increase in the construction of new rigs at increased prices. Another interesting approach explores the enhanced attraction of the marginal fields in Nigeria since the price hike in oil and proceeds to question the wisdom of the 40% limit placed on foreign participation in this field in which foreign technical expertise will play a crucial role in determining a successful outcome. A further candid paper on Nigerian oil criticises the failure of various government commissions to address the plight of the local population in the Niger Delta caused by gross infringements over environmental issues and human rights for which no/inadequate compensation has been received.
The critical role of transportation in the LNG industry is the theme of another paper which is viewed in the context of oversupply of shipping which causes a 'feast or famine' scenario when it is out of phase. However on the upside available shipping could well act as a spur for the spot market. The disposal of associated natural gas in Brazil involving the legal and contractual aspects between producers and consumers is another theme which is analysed.
Another aspect to receive consideration is the 'unbundling' of state gas (and electricity) in line with the EU mandate in an effort to achieve greater uniformity in the energy field. However due to entrenched interests in this field and disparate systems, it seems almost impossible to achieve a workable consensus. The appointment of an independent regulator may be the only hope of salvation.
In the field of the mineral industry a delicate balance is advocated between encouraging foreign investment while ensuring an equitable revenue for government along the lines of the Papua-New Guinea model. While a good endowment and a stable political environment are important these are outweighed by a good neutral balance and a flexible fiscal regime. Other mining issues considered in the current review include transboundary mine closures that comply with the environmental regulations of the neighbouring states.
One does not necessarily have to agree with the "devil's advocate" type of paper. Nevertheless they can play a catalytic role in the induction of lateral thinking. Such an approach is adopted in suggesting the use of thermodynamic principals as a factor in delineating differences in taxation systems applied to the upstream mineral and petroleum industries. Certainly the energy-intensive crushing and grinding of hard ores to extract their valuable component comprises one more step (involving high energy costs) than in the case of liquid fuels and two more than gaseous fuels. Arguably therefore, a case could be made for lower taxation for mineral products to encourage their development.
Successful negotiation is fundamental to the success of all commercial ventures but inevitably conflicts occur which commonly lead to deadlocks. This issue is highlighted by several papers in the current CAR. They focus on the role of conflict resolution procedures under the aegis of various conventions in preference to tortuous, lengthy litigation between the parties concerned. Aspects explored include the effect of public policy on party autonomy in international arbitration and asks whether the recognition and enforcement of foreign arbitral awards under the New York convention 'is a bane or delight' highlighting the vagueness of the public policy in the country concerned, thus providing a loophole where the verdict clashes with the interests of the state concerned.
Considerations on project finance and risk factors involved in financing infrastructure projects in developing countries are also reviewed in addition to the critical role of insurance in the matrix of project finance. In this context other issues evaluated are the risks to lenders involved in financing power projects in developing countries which are critical to further progress.
In the case of controls for greenhouse gas emissions the role of carbon taxes in climate change policy is reviewed. It is suggested that tradable carbon/energy taxes and tradable quotas/permits i.e. market based instruments are preferable to more authoritarian 'command control' procedures.
We extend a warm welcome to visitors to our site and are confident that the 2006/2007 CAR will contain items of interest for everyone.
Dr Arthur J. Warden
Co-ordinator
