Wednesday, February 22, 2006


24 Alessandro-Bacci-Middle-East-Blog-Books-Worth-Reading-ChathamHouse-Conflict-&-Coexistence-Extractive-Industries

Clashes over the terms of mineral contracts have become a political lightning rod in many resource-rich countries. A series of bitter disputes in recent years – some ending in lengthy litigation, project cancellation or even expropriation – has unsettled investors and global markets. These disputes call attention to the fragile and complex relationship between companies and their host governments that characterizes the extractives sector.

The economic significance of the sector to producer countries is well known, as is its role in influencing the fate of political leaders. Consequently, it is often subject to intense global scrutiny – whether over revenue transparency or its environmental legacy. Its impact on the national economy or local communities also remains an area of contested rights, responsibilities and benefits.

A decade of high prices and fast-growing global demand has triggered a new generation of mineral mega-investments. Many of these ventures are located in countries with long-established extractive industries, such as Australia, Chile and Canada. But ‘emerging producers’ – such as Mozambique and Mongolia – are also attracting interest from extractive companies, whether private corporations or state-owned enterprises (SOEs).

Today, public anticipation of the benefits of extractives projects is again rising in many countries, with producer governments asserting greater control over their mineral endowments. But these expectations come at a time when the operational and political context for mineral investments is shifting across the world, raising questions about the long-term future of the extractives sector, especially in developing countries.

Mineral and hydrocarbons production increasingly takes place in geologically, ecologically and politically challenging regions, as opportunities for more accessible reserves dwindle. Water scarcity and the increasing frequency of extreme weather events are raising new risks for investors and producers. Heightened concerns over resource security, environmental degradation and climate change will bring further scrutiny and tensions. Other uncertainties also cloud the market outlook. Talk of the end of the commodities super-cycle is prompting some companies to slash investment, undermining the prospects for resource-led development.

The relationship between host country and company in the extractives sector will remain contentious. In many parts of the world conflicts are set to escalate. Future disputes have significant ramifications not only for the economic and political stability of the countries concerned but also for companies’ assets and reputations.

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