2015.10.06 geopolitical risk

Geopolitical Risks

BRUSSELS, 20-21 October www.ferma.eu

FORUM 2015Venice, Italy 4-7 October

Content1. Introduction (MRO)

2. Setting the scene (SB):

• Situation: Oil price• Drivers for the drop• Where is affected?

3. Panel discussion:a) The risks from a company perspective (JMGM - PF).b) Political Risk analysis (SB – RL – PF – JMGM).c) The Future: What is next in geopolitical risks? (PF – JMGM – RL).

4. Questions (MRO).

5. Closing: Wrap up 3 ideas to take home (MRO)



Content1. Introduction (MRO) This Work Shop is dedicated to Edwin Viktor Meyer,

chair of the programme committee for the FERMA Forum 2015



Content 2. Setting the scene (SB):

• Situation: Oil price• Drivers for the drop• Where is affected?



Oil Price



Drivers for the drop

•!

• China

• KoS

• Russia

• US



Consequences - Political Risks

• Growth

• State budgets

• State projects

• Taxes & fees

Regional dependence



Where is affected



Content

3. Panel discussion:a) The risks from a company perspective (JMGM - PF).

b) Political Risk analysis (SB – RL – PF – JMGM).

c) The Future: What is next in geopolitical risks? (PF – JMGM – RL).



The risks from a company perspective

(JMGM) Change in market condition, Risk identification

(PF) Legal reaction from a corporate / finance perspective



"When the deal goes down"

-Way out/Renegotiate -The experience of renewables:

Claims for breach/negligence Avoid/delay payments strategies Bankruptcy Investment arbitration PRI triggered

- Be early to avoid, to mitigate,to be successfull



Be early doing what?

1. Coordinate (as in crisis management: it is!) 2. Comply (duties,payments,notifications,time limits...) 3. Protect evidence (Check-Key individuals-Discoverable vs. Privileged external counsels) 4. Write little (subjec to contract) 5. Stop (New contracts/in transit) 6. Control corporate stress (de-motivation=seriously increase risks) 7. Exhausting friendly settlements (ADR)



If you cannot avoid litigation/arbitration... be aware that...

-Rule: contract duties must be fulfilled -Exceptions?

Force MajeureEconomic HardshipTermination (break/defective performance)



The risks from a Political Risk analysis

(SB) Aggraveted risks: current politicalInstability

(PF) Legal reaction from a corporate/ finance perspective




(RL) Insurance market solutions

Insurable solutions to Geopolitical Risks as a consequence of the fall in oil price.

For countries that have heavy reliance on the export of oil as its main source of revenue, the reduction in oil price could have significant negative impacts on any reforecast economic position and outlook. How a governments reacts or approaches such fiscal deterioration may impact existing or future investments and obligations. Below are a number of scenarios which are currently covered by insurance market:

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(RL) Insurance Market solutions

Scenarios which are currently covered by insurance markets:

• 1. A Government may be forced to default on outstanding payment responsibilities as it no longer has the means to honour such obligations. (Insurance cover that would indemnify against such a risk – Contract Frustration cover)

• 2. A New Government may elect to renegotiates a companies supply or project agreement (that may have been issued

by a former government) or revise royalty previsions for existing and operational concession agreements. - Such renegotiation may be used to generate more favourable terms and additional revenues(Insurance cover that would indemnify against such a risk – Breach of Contract/Selective Discrimination/Arbitration Award Default cover)• 3. A Government may elect to non certify contractors work on a construction project, even though the work

complieswith the terms and conditions agreed to under the project agreement(Insurance cover that would indemnify against such a risk – Breach of Contract/Arbitration Award Default cover)





(RL) Insurance Market solutions

Scenarios which are currently covered by insurance markets:

• 5. A Government may elect to Expropriate, Nationalise or Confiscate fixed assets or mobile equipment

(Insurance cover that would indemnify against such a risk – Direct Expropriation cover) • 6. A Government invokes changes to legislation, regulation and taxation which collectively over time makes

operating in that country unsustainable (Insurance cover that would indemnify against such a risk – Creeping Expropriation cover)

• 4. A Government decides to introduce an immediate discriminatory tax levy on profits to generate additional revenues

(Insurance cover that would indemnify against such a risk - Indirect Expropriation Risk cover)




Midnight Clauses: applicable law & jurisdiction

PRI: never straight forward payment

(Waiting period, burden of proof of loss, suing, enforcing, protecting recovery) Generally law: host country Is the cure on jurisdiction? Arbitration

"Safe harbour" courts

Enforcement: signatories?

"Italian torpedo" risk?

Waiver sovereign inmunity




(PF) The Impact of “midnight clauses” (jurisdiction legislation)

(JMGM) A risk management perspective



The future: What is next in geopolitical risks?

(PF)

(JMGM)

(RL)




Closing (MRO) Questions.

(MRO) Wrap up 3 ideas to take home



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2015.10.06 geopolitical risk

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