Emerging
emergencies
The real risks
when trading
in new markets
Neil Watson
State Practice Manager – WA
Willis
Political risk insurance is vital for companies trading in volatile emerging markets
Every year, we add 77 million people to the planet. By 2050 the
world’s population could hit nine billion. Such population growth
places increasing demands on the world’s natural resources. This
leads to resource nationalism, whereby people and governments
assert control over the natural resources located on their territory.
Increasingly, resource-rich countries in emerging markets are
flexing their muscles as they seek to take a greater share in the
proceeds from strategic projects.
Ernst & Young confirm this in their annual
Business Risks
Facing Mining & Metals Report 2012-2013
,
stating “We have
witnessed a domino effect as country after country has sought to
extract a fairer share of the rewards from depletion of its mineral
endowment. Resource nationalism is regarded as the top risk of
doing business in metals and mining whether that is in developed
or developing economies”.
One such case occurred in July 2012, when the Bolivian
government announced the nationalisation of a silver and
indium mine, Mallku Khota. The mine, valued at US$2 billion,
produces indium and has been operated by a subsidiary of
Canadian company South American Silver (SAS) since 2007.
In May 2012, protests erupted and one person died. Two months
later, some of the mine engineers were kidnapped along with
a local policeman.
At the time the government stepped in and negotiated the
release of the hostages. The mining company believed the
government had negotiated without having to give in to demands
to relieve the Canadians of control of the mine. However, only
one day later the government announced plans to cancel the
SAS concession. By October SAS had notified the government
of a formal dispute, triggering a six-month cooling off period
but potentially leading to international arbitration.
This is just one example of where a mine operator had
felt the contract was secure, only to have the landscape
changed overnight.
According to Neil Watson, State Practice Manager – WA for
Willis, a global risk management and insurance broking firm,
the key insurance consideration for mining companies in the
face of growing resource nationalism is political risk insurance.
“
Political risk insurance can provide long-term security
both for project operators and for those financing projects,”
said Mr Watson.
One of the primary concerns to be addressed is expropriation
risk and the associated physical loss and damage. The recent
Arab Spring and continuing Middle East unrest is indication of
the violence that can follow, or be the cause of, political upheaval.
“
A key question for insurance buyers is which cover to
Minesite 2013
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