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lonDons FInest - tHe HalKIn

london’s f i n e s t

lonDon’s FInest - tHe HalKIn

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THE HALKIN

When The Halkin fi rst opened in 1991, it was thought to be the fi rst design-led boutique hotel in Europe, providing a perfect balance of service and style. 20 years on, the hotel has become the benchmark for contemporary hotels around the world.

Conceived and created by Christina Ong, The Halkin is internationally regarded as one of London’s most sought-after address. Nestled in a quiet residential street in London’s exclusive Belgravia, the hotel provides a home away from home with luxurious guest rooms, Asian style service and fabulous dining at the hotel’s award-winning Thai restaurant, nahm.

With its fantastic location close to Hyde Park Corner, the luxury shops of Knightsbridge and Mayfair, The Halkin allows guests to easily immerge into London’s rich culture. The Halkin is a purpose-built hotel – but the property’s Georgian-styled façade of weathered bricks, Portland stone and arching windows gives litt le away, blending seamlessly into its Belgravia surroundings. Once, inside, the supremely contemporary and innovative design of Italian architects, Laboratorio Associati of Milan, has created a hotel where every detail is tailored for the sophisticated traveller. The concept at the heart of the hotel’s design was the ‘Expansion of Space’, a sensation which can be experienced throughout The Halkin. Above the light and airy lobby soars an atrium ceiling decorated with a mural ‘skyscape’, created by the Italian painter Valentino Vago. The lobby is open-plan in design and fl ows seamlessly into the hotel’s bar on the left and reception on the right, while ahead is the entrance to nahm.

nahm is the acclaimed restaurant from celebrated Australian chef David Thompson. nahm opened in July 2001 and serves innovative Thai cuisine. The restaurant is light and airy with arched windows, wooden slatt ed screens, red and gold walls and wellspaced seating. There are just 41 guest rooms and suites at The Halkin, all generously proportioned and individually designed and decorated. These are reached from a striking corridor of black, corrugated-wood panelling which fl ows in a powerfully sculptural curve on each level. All

rooms are furnished to superlative standards in an uncluttered and elegant style which uses pale cream fabrics and warm Pomelé Sapele veneers. Exceptionally comfortable beds are fitted with Egyptian cotton sheets and sumptuous goose down pillows. Many rooms have separate seating and dressing areas, and all offer luxurious marble bathrooms with deep tubs, separate walk-in showers, anti-mist mirrors and plentiful COMO Shambhala amenities, exclusive to COMO Hotels and Resorts. Suites on the fifth floor feature stunning, high curved ceilings that follow the arch of the barrel-vaulted roof, and large dormer windows allow light to flood in. A 49sq metre gym offers the latest in Life Fitness exercise equipment including two treadmills, a cross trainer, two exercise bikes, various hand weights, a bench and stretching area. Guests have also the opportunity to enjoy in-room COMO Shambhala spa treatments or to use the facilities of the Metropolitan London, a short five minute walk away.

C t Conta

The Halkin

Halkin Street

London SW1X 7DJ Website: halkin.como.bz Direct Reservations: Tel: +44 (0) 20 7333 1059 Fax: +44 (0) 20 7333 1100 US Toll Free: 1 888 HALKINH

Email: res@halkin.como.bz

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Mining, Minerals & natural Resources

Mining’s Contribution to Sustainable Development

The extraction and processing of minerals to provide services important to human society has gone on for millennia. The resulting metals and minerals play a vast, essential and evolving role in today’s society, a role that will continue far into the future, inevitably expanding to include usages that are not currently understood.

However, in some communities and regions, the environmental and social legacy of mining and metals manufacturing is far from positive. In the early 1990s, concerns linked to this observation led some to question whether in certain circumstances the presence of a mineral endowment was a kind of ‘resource curse.’ We now know that this does not need to be the case. If managed responsibly and eff ectively, mining and metals manufacturing can and will provide a foundation for achieving the kind of life that diff erent cultures seek. But what does this ‘managed responsibly and eff ectively’ really mean? Minerals and metals are a critical part of developing a modern society – providing essential products, wealth, jobs and opportunity. But in some countries these resources have been misused and squandered, fuelling confl ict and political unrest. There have been disputes over land use, property rights, environmental damage, transparency of revenues and a growing debate about the distribution of the spoils. At the same time, demands for a ‘green’ and/or ‘low-carbon economy’ are growing. Critically, the millennium development goal of reducing poverty must be met. In reality, for humankind to walk more lightly on the earth and to achieve the poverty reduction that is needed across the world, we need evolution that is marked by innovation, creativity and sensitivity. These needed approaches are not possible without mined metals and minerals.

The International Council on Mining and Metals (ICMM) was formed in 2001 to catalyse change and enhance the contribution of mining, minerals and metals to sustainable development. Our 22 member companies employ close to one million of the 2.5 million people working in the mining and metals sector worldwide. These companies have some 800 operations in 62 countries and produce many of the world’s commodities – 38% of the gold, 30% iron ore, 37% platinum and 34% nickel (World Mineral Production 2004-2008, British Geological Survey 2010). These operations place our members on the front line in dealing with the many complex environmental and social issues apparent today. Mine projects follow a life cycle that starts with exploration and proceeds through construction, operation, closure and postclosure. Something that is litt le understood is that across this full life cycle, a 20 to 30 year operating mine can involve fi ve to seven generations of ‘relationship’ between

industry and host community at a given location. The ‘seven generation’ perspective of many indigenous peoples has thus a practical and direct application to mining and metals operations. In following a path that is ‘responsible and eff ective,’ an approach is called for that is built on a full understanding and explicit recognition of all benefi ts, costs, risks and responsibilities that accrue to all parties that are aff ected. This is a tough challenge and inevitably entails collaboration to ensure that an equitable distribution of these is achieved. Each one of these benefi ts, costs, risks and responsibilities is complex when viewed from the perspectives of diff erent interests, but all must be considered.

For example, from a country-level macroeconomic perspective, the generation of foreign direct investment, foreign exchange, and government revenues are all very important. At the local level, however, it is the direct benefi ts of jobs, infrastructure and community services that become critical to consider. It is here that a community’s confi dence can be enhanced in achieving the future that it wants for itself.

When developing a mine, companies risk the capital of their investors to create the project and ultimately generate a return. However, communities too face risk in terms of the eff ect mining has on their way of life over the long-term. More importantly, if we are to ensure that the needed balance of benefi ts, costs and risks is achieved, all parties – government, company and community – carry certain responsibilities that must be clearly assigned and resourced. This is to ensure that accountabilities maintained and learnings drawn out lead to long-term performance refi nement and improvement. opportunity for a positive contribution over the long run. Importantly, within the mining and metals industry there is a key role for collaboration as well. Mines often occur in clusters and when they do, collaboration between companies to address service and infrastructure needs of projects and communities alike is critical if the possible effi ciencies are to be achieved – not only for the mine projects but also for the region and not only for the time of operating mine but also for long after. Small players in the industry are nimble, agile and fast movers. Large companies have the resources and the technical skills. There is an opportunity to value and benefi t from each other’s skills and strengths. Seen in this way, the mining and metals industry is a complex, interdependent web of players. Aristotle said it is not always the same thing to be a good man and a good citizen. We need to become bett er at communicating what the real contribution of the mining and metals industry is – how we can redefi ne this contribution, make it stronger and ensure it is bett er understood across the world. Open and transparent decision-making will enhance trust and respect. A full and open treatment of strengths and limitations is also essential, as is listening and hearing others’ concerns.

If you ask engineers to design something so that the ecosystem after you have fi nished is just as nimble and just as capable of reproducing, they will accept that challenge and fi nd a solution. If you do not ask them, they will not do it. It is our own creativity that makes this possible. You may ask: what is the value of mining to your country – can it be a bridge to a bett er future? Our answer is yes, if the process is done responsibly and eff ectively. Learning our way forward to being more responsible and eff ective thereby strengthening our contribution to sustainable development, is the task before ICMM, its members and the industry as a whole.

The industry has made signifi cant progress in the last 20 years, but there is much yet to do. The long-term nature of mining provides an opportunity to be a partner with communities over multiple generations. If the activities are designed and implemented in a way that refl ects the overlap in values of all the parties – government, company and community – there is a tremendous

International Council on Mining and Metals (ICMM) 35/38 Portman Square London W1H 6LR United Kingdom Switchboard: +44 (0) 20 7467 5070 Main Fax: +44 (0) 20 7467 5071 info@icmm.com

MInInG, MIneRals & natURal ResoURCes

Elena Nekhaev, Director of Programmes, World Energy Council World Energy Council 5th Floor - Regency House 1-4 Warwick Street

London W1B 5LT

United Kingdom Tel: (+44 20) 7734 5996 Fax: (+44 20) 7734 5926

info@worldenergy.org www.worldenergy.org

The World Energy Council – Energy Today and Tomorrow

Today, at least 1.5 billion people in the world (more than a quarter of the world’s population) do not have access to modern energy services. To highlight this fact, the United Nations has declared 2012 the ‘Year of Sustainable Energy for All’. Any strategic decision requires due diligence and hard data. This is particularly true in the energy sector, given long lead times that can often span decades. It is also in this sector where there are huge and untapped opportunities – an example of this being that according to the Organisation for Economic Co-operation and Development (OECD), while US$28 trillion is held in pension funds, only 1% is invested in energy infrastructure. Since 1934, the World Energy Council (the ‘WEC’) has been producing the Survey of Energy Resources, a unique and authoritative reference publication. Published every three years and released at the World Energy Congress, the survey provides a wealth of data and information for 15 energy resources. The fi ndings from the 2010 survey have set the scene for businesses, investors and policymakers on which to base their decisions.

The Broad Picture – Energy Demand Rises, Fossil Fuels Dominate

Before looking into the future of the energy sector, it might be useful to look back at the history over the past decade. World population has grown by 12% and today over 60% of all people live in Asia. Primary energy consumption has grown by 20% and electricity by more than 30% over the past decade, while the oil price has fl uctuated from 10 to nearly 150 dollars per barrel. Fossil fuels are dominating the global energy mix and will continue to act as the backbone of energy supply for decades to come. All energy resources have an impact on the environment, be it greenhouse gases emissions or heavy particles, water issues, and consumption or visual pollution. The leading fossil fuel is coal, which is playing a vital role in the global economy by reinforcing security of supply and contributing to price stability. Stable prices for fuel supplies are therefore fundamental to world economic prosperity.

Coal

Coal is widely distributed around the world, with signifi cant reserves in more than 75 countries. Since coal is most often both produced and consumed in the region of origin, it explains the relatively small world trade in coal compared with the gigantic trade in oil. Coal is by far the dominant fuel in power generation – coal-fi red power plants produce about 40% of the world’s electricity. However, given the mounting concerns about the adverse impacts of fossil fuel combustion on the environment and climate, there is a pressing need to develop and deploy technologies which will allow the continuing use of fossil fuels but in a much cleaner way. In the case of coal, Carbon Capture and Storage (CCS) is one of these large-scale clean coal technologies being developed to capture carbon dioxide (CO2) emissions from burning fossil fuels at large point sources (mainly electricity generating power plants). At the same time, there is a growing interest in carbon utilisation. Carbon Capture, Utilisation and Storage (CCUS) is considered to be technically feasible and commercially viable in a few existing injection activities in the oil and gas industry for Enhanced Oil Recovery (EOR). At present, there are eight large-scale CCUS projects operating worldwide and six more under construction. Six of the operating projects are in natural gas processing, while the other two are in synthetic fuel and fertiliser production. Five of these projects also use captured CO2 for EOR. The implementation of some of these projects has been delayed by funding shortages, and the need for an approved regulatory framework for CO2 transport and storage.

Oil

The past few years have clearly demonstrated the volatile nature of oil and the world’s continuing dependence on this leading energy resource. However, the increases in oil price during this time have not been caused by dwindling global reserves, as they are not only large enough to meet the demand for a few decades but it is far too early to be worried about peaking oil reserves. In fact, since the 1970s, the reservesto-production ratio (R/P) for oil and gas has consistently remained at around 40 years for oil and 50-60 years for gas. Furthermore, proven oil reserves have increased during 1987-2007 by 17% and proven gas reserves by 38%. However, while there are vast reserves of oil globally, the concentration of energy resources in certain regions and growing supply routes to the main markets is certainly posing a problem. Moreover, there are vast reserves of unconventional oil. For example, total world resources of oil shale are currently conservatively estimated at 4.8 trillion barrels – almost four times more than the crude oil reserves, which stand at 1.3 trillion barrels. Economically recoverable oil shale reserves are also much lower and are widely distributed around the world. Some 40 countries have registered about 300 deposits, with the USA accounting for 77% of world reserves. In the Middle East, only Jordan

and Israel are reporting oil shale data, with Jordan estimating its reserves at 28 billion barrels and Israel at 79 billion barrels.

Producing energy is an energy intensive business. Some estimates indicate that the oil and gas industry consumes up to 20% of the energy it produces for its own processes, and contributes more than 10% of global energy related CO2 emissions. Energy effi ciency in upstream oil and gas operations is low by any standards, but although the most advanced gas fi red combined cycle technologies reach effi ciencies of 60% and above, the global average in the upstream is currently closer to 20%. While this presents a signifi cant opportunity for energy effi ciency improvements, it is not easily achievable considering the long-term nature of energy investments.

According to the global information company IHS CERA, an average of 4.5% of annual oil fi eld productivity loss needs to be compensated for by new fi eld developments to maintain existing levels of production. Applying this number to oil and gas and allowing for 1.25% annual demand growth, requires the development of new resources with peak capacities equivalent to 200% of existing production facilities over the next 30 years. Developing these new resources with a close focus on energy effi ciency could make a big diff erence, and achieve primary energy savings of 10-30% and CO2 emissions reductions of 20-50%.

Natural Gas

Natural gas is today a major component in securing the objectives in the global energy trilemma – economy, energy and environment. The physical properties of natural gas; the high degree of concentration of the global resource; the substantially lower carbon footprint relative to other fossil fuels combined with the development of North American unconventional natural gas supply (mainly shale gas); and the high cost and slow pace of lower carbon alternatives – all of these have focused att ention on natural gas as a ‘bridge’ to a low-carbon future. Today, unlike oil, there is no real gas market globally. However, there are regionalised gas markets in North America, Europe and the industrialised parts of Asia, each with diff erent market structures, conditions and expectations. In the world total primary energy supply, natural gas accounts for 20.7%, and its share in the total electricity production is about the same. The relative abundance of natural gas and its fl exibility therefore make it an important political force around the world – one that will have a signifi cant infl uence on further development of the global energy sector, and may over time assume a role similar to the one currently played by oil. Eastern and Central Europe have had a preview of possible implications of supply interruptions, when gas supplies from Russia/Ukraine were disrupted for a few days during the winter season in 2010. Since natural gas produces the smallest amount of CO2 per kWh of all the fossil fuels, replacing coal and oil by natural gas where economically possible (for example, in generating electricity), is a technically, economically and environmentally sound option. However, unless CCUS is competitive with other lowcarbon alternatives, in the longer term such growing emissions constraints will limit the role of all fossil fuels, including natural gas. The world's natural gas resources are abundant and gas reserves are adequate to support the current level of production for the next 200 years. Unconventional gas resources will also grow in importance, not least because of the depletion of conventional gas fi elds. Gradual growth of natural gas production costs has already led to the development of some unconventional gas resources (for example, gas from deep formations or low-permeability reservoirs). Some resources that were previously considered as irrecoverable are now being considered and classifi ed as proved. Furthermore, development of unconventional gas sources such as shale gas, natural gas hydrates, dense gas-bearing reservoirs and coal bed methane, could provide vast reserves of clean and environmentally friendly energy for centuries.

Continued development of shale gas in North America and other countries with signifi cant resources, will have an impact on the global gas markets. However, this impact is expected to remain moderate in the short-to medium term. This is nothing comparable to what happened in the United States in mid-2011, when natural gas prices in North America (Henry Hub) hovered around US$3.70/Mbtu, which was about 72% less than at the heights of 2008. The increasing use of shale gas will primarily impact power generation, transport fuels and the petrochemical industry. Collaboration is the Key The World Energy Council’s Survey of Energy Resources and its other fl agship publications are providing hard data and information for global, regional and national energy strategies. As the principal impartial global network of energy leaders and practitioners, the WEC also informs decision makers by hosting high-level events and working through its extensive member network to facilitate the energy policy dialogue. The WEC represents the entire energy spectrum, with more than 3,000 member organisations located in over 90 countries.

There are two ways for corporates to take a direct role in the World Energy Council’s global activities. Firstly, the Global Partners programme which provides innovative energy and energy-related companies with immediate visibility and connects them to global WEC's members; Secondly, the Patron programme which enables exclusive organisations to engage, to help catalyse new thinking by way of supporting the WEC’s global and regional agendas. For further information, email John Bourne at bourne@worldenergy.org.

MInInG, MIneRals & natURal ResoURCes

Glen Ireland Christopher Langdon glen.ireland@lw.com christopher.langdon@lw.com +44 (0)207 710 1120 +44 (0)207 710 4720

Mining and the Many Faces of Resource Nationalism

The tendency of host governments and local communities to assert greater control over their natural resources has come to be known as ‘resource nationalism’. In its many forms, resource nationalism presents clear and long-term challenges for private companies engaged in mineral exploration and mining. Modern resource nationalism can be traced back to the 1950s, when countries such as Iran and Saudi Arabia (and later Kuwait, Nigeria and Libya) took steps to assert greater control over, and acquire direct ownership of, their petroleum resources. However, resource nationalism emerged as a dominant theme in the mining sector only the 1990s, in the midst of the so-called commodity ‘super cycle’ (which ended abruptly with the 2008 fi nancial crisis). Despite the collapse in metals prices during the fi nancial crisis, the momentum behind resource nationalism appears undiminished. If current trends continue, the mining sector might, within a period of 20 years or so, begin to resemble the modern oil and gas industry. Currently, the world’s 13 largest companies, in terms of petroleum liquids reserves, are all governmentcontrolled national oil companies (NOCs).

ExxonMobil, the world’s largest publically traded independent (i.e. non-NOC) oil and gas producer, holds the 14th position. The world’s fi ve largest non-NOC oil and gas producers hold, collectively, only 3.8% of the world’s petroleum liquids reserves.

Commentators, investors and other participants in the mining sector sometimes assume that resource nationalism is a phenomenon restricted to developing countries, where respect for the rule of law and sanctity of contracts is often perceived to be low. However, the reality is very diff erent. Elements of resource nationalism can today be found in virtually every country that is blessed with abundant natural resources, including many OECD (Organisation for Economic Co-operative Development) members. Resource nationalism has many faces. While some countries still engage in ‘old school’ tactics of nationalisation and direct expropriation, such examples are becoming less common. Instead, host states have begun (often with the assistance of international legal advisors) to deploy a sophisticated ‘playbook’ designed to achieve greater control over, ownership of, and economic participation in, their mineral resources. The tactics include some or all of the following: disruption or denial of access to key rail, port or energy infrastructure; failure to provide security; allegations of breaches of environmental, fi scal or other laws; enhanced compliance activity and audits; allegations of breaches of concession or development agreements; refusal to grant, or revocation of, operating, environmental or other key permits; use of discretionary powers; changes to laws to impose additional economic or administrative burdens; and withdrawal from international treaties designed to protect foreign investors. In recent years, host states have begun to propose the formal renegotiation of mining rights with greater frequency and increased forcefulness, often in the context of an alleged contractual breach but sometimes with no legal basis whatsoever. Such proposals present mining companies with a diffi cult choice – engage in a process that may not be entirely consensual and will almost always lead to value-destroying changes (with litt le legal recourse available), or decline an invitation to renegotiate and risk irreparable damage to their government relations or retaliatory measures. The appropriate course of action is not always obvious, and must be considered and managed carefully. By way of example, in 2007, the Democratic Republic of the Congo (DRC) initiated a review of mining licenses granted during the period of civil war (1998 to 2003).

Freeport-McMoRan chose to engage with the government and, after protracted negotiations that lasted more than a year, reached an agreement in which the state increased its ownership of Freeport’s Tenke project and the project became subject to a more onerous fi scal regime. First Quantum, by

comparison, maintained that its contracts with the DRC were legally binding and fair, and declined to consider amendments. By 2010, First Quantum had lost virtually all of its mineral rights in the DRC, and was forced to seek redress through international arbitration.

States are now routinely passing legislation mandating direct state ownership and/or control of new (and sometimes existing) mining projects. Occasionally, such legislation is accompanied by proposals to form or expand the operations of a national mining company that is owned or controlled by the state. For example, the Republic of Guinea recently adopted a new mining code under which the state is entitled to a 15% free carried interest in mining projects, and has an option to acquire a further 25%. When states enact such laws, aff ected private holders of mining rights are often forced to provide soft loans, guarantees or other fi nancial support, to enable the state to acquire its interest following delicate and time-consuming negotiations. These private/ public structures can result in signifi cant value leakage for private participants, and can throw up signifi cant challenges in the context of arranging project fi nancing for mine development projects. In response to strong commodity prices and robust corporate profi ts, a number of governments have sought in recent years to introduce ‘super-profi ts’ or ‘windfall’ taxes, royalties and other fi scal measures designed to give the state a greater economic interest in their domestic mineral resources. In 2010, Prime Minister Kevin Rudd of Australia proposed the introduction of a 40% super profi ts tax on mining companies, arguing that “all Australians own these resources and deserve a fair share”. This provoked a furious response from the mining industry, including from Tom Albanese of Rio Tinto who felt that the proposed tax came “close to nationalisation and expropriation”. BHP Billiton’s Chairman, Jac Nasser, complained that the “proposed super tax fundamentally, abruptly and unfairly changes the rules of the game”. While the subsequent political fallout led to the Prime Minister’s political demise, elements of the proposals continue to form part of legislation currently working its way through the Australian legislature. These types of measures are not new and can be traced back to the Crude Oil Windfall Profi t Tax Act passed by the United States Congress in 1980, which imposed an excise tax on oil in response to record-high prices. However, what is new is the proliferation of these types of taxes around the world. In recent years, we have seen minerals-related windfall taxes imposed (or debated at the highest political levels) in several developing countries, including Zambia, Peru, Ghana, South Africa and Mongolia. While some countries, including Zambia, have adopted and subsequently turned away from windfall taxes, the trend of governments taking an increasing share of the value of mineral resource production shows few signs of abating. Another aspect of resource nationalism involves the introduction of restrictions on foreign control of mineral properties, or the use of anti-trust or other laws to achieve a similar result. In May 2008, Russia introduced signifi cant limitations on the ability of foreign investors to acquire control over ‘deposits of federal importance’, and the government-approved list of such deposits includes virtually all signifi cant mineral projects in the country. Earlier this year, Indonesia introduced a law requiring foreigners to ensure that they do not hold more than a 49% equity interest in mining operations following the tenth year of production. Similarly, OECD countries have not been above using their laws to prevent foreign control of natural resources. In 2010, the Canadian and Saskatchewan governments eff ectively thwarted a proposed bid by BHP Billiton for one of the world’s largest producers of fertilisers, PotashCorp. Prior to that, the Australian government and foreign investment authorities, on grounds of national security, blocked China Minmetals’ $1.7 billion bid for Oz Mineral.

Mining companies need to adapt to the current political and legal environment, by developing strategies for mitigating the risks associated with resource nationalism. Such strategies will generally involve an integrated risk-mitigation plan that incorporates: structuring investments to ensure the strongest possible legal protections; where possible, entering into a robust concession or development agreement with the state; and lastly, managing relations with the host government and local communities to minimise risk on an on-going basis. Investment protection should be one of the main considerations when structuring a new investment (alongside tax, fi nancing and regulatory considerations), especially in a country deemed to be high-risk. In particular, consideration should be given as to whether an investment can benefi t from available bilateral investment treaties (BITs). Treaty protections are separate from the contractual and legal rights an investor may have under a concession or development agreement. BITs add an extra layer of protection and can be used to protect investors from interference from local courts and, in some circumstances, to assist in the enforcement of arbitration awards. Signifi cantly, many BITs grant foreign investors a right to enforce BIT protection directly against the State in a binding international arbitration (usually under the auspices of the International Centre for the Sett lement of Investment Disputes). Of course, BITs and development agreements are not the only sources of protection against the forces of resource nationalism. An integrated strategy can also incorporate some or all of the following elements, as appropriate: obtaining fi nancing from local fi nancial institutions and investors; obtaining fi nancing from export credit agencies and/or international fi nancial institutions; inviting the state to take equity participation in the mining project; encouraging the development of local downstream businesses; promoting local benefi ciation; political risk insurance; and lastly, ensuring positive relations with the host government, both at a national and local level.

Therefore, perhaps the best strategy for protecting against resource nationalism is to ensure that each mining project is positioned in a way that fairly balances the economic benefi ts to foreign investors, national and local governments, and the community of which it forms a part. One-sided mining concession or similar agreements invariably become a source of simmering resentment, and can serve as a catalyst for resource nationalism in its many forms. Glen Ireland, Christopher Langdon and Victoria Salem, Latham & Watkins LLP

MInInG, MIneRals & natURal ResoURCes

ATMD Bird & Bird LLP Sandra Seah Partner Tel: +65 64289429 sandra.seah@twobirds.com www.twobirds.com

The Evolution of the Mining Industry

The mining industry is a global industry with operational reach across developing and developed countries. In many developing countries, it is often a signifi cant contributor to GDP (e.g. Philippines) and arguably a means to alleviate poverty (e.g. Mozambique). For some countries, mining also provides a stable boost to their economies against the backdrop of a global economic downturn. Minerals and metals are valued for their use in low carbon development – indium, germanium and lithium being examples of some of the minor metals used in clean technology innovations. Certain strategic minerals such as copper, lead and manganese are also stockpiled for national security and military needs or requirements, during national emergencies. While the exploitation of mined resources provides countries with considerable opportunities for economic development, it also involves trade-off s with respect to the environment and the surrounding communities. Countries, communities and companies thereby face challenges and risks as they develop steps to ensure a responsible and sustainable approach towards growing this unique industry. Mining Sector Reforms Historically, the mining industry has been monopolised by state-owned public corporations, leading to a decline in productivity in almost all mineral industries. As more countries become alert to the fact that their mining sectors need to be shaken up or risk losing their lustre, reform is fast becoming the new roadmap to shape up unwieldy systems and institutions. A textbook case in point – the improved political environment in Guinea – has already led to the start of substantial new investment in the mining sector, which could average 40 percent of GDP or more per year during the coming years. Mining sector reforms usually comprise of several key elements, which may be implemented with varying degrees of political willpower. The usual starting point is the enactment of the revised mining legislation (mine code, implementing regulations and investment agreements), accompanied by revisions to the mining taxation to internationally comparable standards. It is also necessary on the road to reform to strengthen institutional support through re-organising government agencies responsible for supervision of the sector, and to ensure that human resources in the public and private sector are both adequate and properly trained. In most cases, state-owned enterprises have to be privatised or sold to private investors. Alongside such developments, mining title registries and clear land management systems should be put in place, and environmental protection legislation and enforcement provisions strengthened. In particular, environmental impact assessment law needs to be developed in tandem with mining sector reforms, and more emphasis should perhaps be placed on the cumulative impacts and long-term eff ects of mining activities, rather than a straightforward project-by-project assessment (R. Lyster, Z. Lipman, N. Franklin, G. Wiff en & L. Pearson (2009): Environmental & Planning Law in New South Wales. Sydney: The Federation Press). Where possible, modern earth and environmental science database management systems should be implemented, with adequate resources for geological cartography, geochemistry and geophysical surveys. Remote sensing imagery is also needed to constantly track and chart the mining environment. Ample evidence in Latin America and Africa demonstrates that countries which have undergone mining reforms and which have managed to adopt modern business environments are bett er able to att ract private sector investment in mining exploration and production. This in turn provides tax revenues, export earnings, employment possibilities, infrastructure development in rural areas, and transfer of technology to the host countries.

Mining companies intending to partake in exploration for metals or mineral deposits amid a wave of mining reforms, or fi nanciers for mining ventures in such jurisdictions, will need to fi nd a viable corporate structure as well as a sound investment and compliance programme, to best adapt to the evolving legal and organisational changes. Coal Restructuring In major coal-producing countries such as Russia, Poland, India and China, the restructuring of the coal sector may take diff erent forms, depending on the country's commitment to broader policy, regulatory and institutional changes. Such changes are essential for a competitive, socially and environmentally responsible coal industry to thrive.

However, with the recent chilling news that the stockpiles of the world’s largest coal port are now exceeding levels last seen in late 2008 (Shots on coal (6 June 2012): Financial Times: pp. 12), lacklustre demand may mean that another form of restructuring may soon show its face if coal prices come tumbling down. If on an assessment of a particular country’s internal and external coal markets, it is

evident that supply potential far exceeds demand, the downsizing of the coal industry in both capacity and employment terms is likely to be imminent. Without dumping more depression on the story, it is also entirely possible that measures may have to be identifi ed, to discontinue higher cost operations with appropriate physical and environmentally acceptable mine closure programmes. Of course such programmes must be allied to a socially responsible framework to displace, retrain or provide fi nancial support to excess members of the workforce. Such restructuring may also be critical, to ensure that the coal sector operates in the long-term on a fi nancially self-sustainable basis in an internationally competitive arena. Process-at-site and Local Procurement

Another emerging trend is possibly the realisation by mining companies that processing and procurement procedures can drastically alter their bott om line. When an ore or concentrate is processed at the mine site, non-standard compositions and higherthan-normal impurities may be acceptable, since it is then possible to optimise the mineconcentrator-smelter combination to achieve optimum recovery. It is also possible to select the process stage and process streams that are most benefi cial from an economic (and possibly environmental) perspective, for removing particular impurities. Such optimisation is usually not possible when ores or concentrates are traded and processed at a distance from the mine site or are sold to third parties for processing. (W.J. Rankin (2011): Minerals, Metals and Sustainability: Australia and New Zealand: CRC Press/ Balkema). At the same time, mining companies can also enjoy savings and boost economic growth in their host countries by purchasing more equipment, supplies and services from local companies. Raising the share of local procurement by mining companies spreads the benefi ts of mining more evenly across its host country’s economy, creating jobs and stimulating the sustainable development of local enterprises. Therefore, it is incumbent on governments to pro-actively enact and implement appropriate policies and regulations to encourage local procurement, all the while providing a supportive enabling environment for enterprise development and investment. Governments are also able to require that mining companies develop and submit local procurement plans; review concessions on targeted import tariff s and duties; promote linkages and investment along the mining supply chain; and lastly, allocate revenues from mining to support local supplier development. The South African Black Economic Empowerment Act of 2003 and the Broad-Based Socio-Economic Empowerment Charter for the South African Mining Industry (2005) are good examples. These provide for historically disadvantaged South Africans to be given preferred supplier status in the supply of capital goods, services and consumables.

Mining companies should also be transparent about informing local communities on procurement opportunities, for example, in camp management, civil engineering works, construction, transport, and technical areas such as drilling, mining, and equipment maintenance. This will ensure that the local communities can benefi t economically from mining operations (World Bank: (January 2012): Increasing Local Procurement By the Mining Industry in West Africa (Report No. 66585-AFR)). Having a consistent and formal approach to local procurement helps to ensure that mining companies do not only extract wealth, but create opportunities as well.

A Broad-based Approach to Mining Agreements The Mining Law Committ ee of the International Bar Association has started a project to prepare a Model Mining Development Agreement (MMDA), to be used by mining companies and host governments for mining projects. The MMDA is intended for use in developing countries where a mature mining code is not in place. It may also be of use where the relevant mining code has to be supplemented by private agreement, or used as a starting point for negotiations with state-owned mining enterprises. The MMDA aims to strike a balance between interests of governments and those of investors, as the broader political climate cannot be ignored either. For instance, Indonesia is currently considering a tax on coal exports and a quota on production and higher royalties, which signals to investors that Indonesia is moving towards safeguarding its domestic supply obligations: Indonesia’s govt to curb coal exports (5 June 2012: The Business Times: pp. 16).

What is interesting about the MMDA project is that it has broader objectives, which seek to contribute to sustainable development – not just of the project itself but the local, regional and national community as well. While the project clearly recognises that a mining development must be commercially viable, it is also aware that there are other critical issues around which modernday contract negotiations should proceed. The project encourages all parties to a negotiation to take a broader integrated look at the relationship between the proposed project, the state and the local communities. The natural, social and economic environments around the mining project are also essential considerations. The fi nal MMDA product is web-based and publicly accessible. The public nature of this MMDA also encourages local communities and civil society groups to contribute in a sound manner to negotiation processes. Conclusion

As the mining industry constantly evolves, issues of sustainability and stewardship of valuable resources are now coming to the forefront. However, a concerted eff ort will have to be made by all countries, communities and companies involved, to develop and maintain modern and fair systems and processes, in order to maximise the benefi ts to all stakeholders in a socially and environmentally responsible way. ATMD Bird & Bird - Mining & Minerals Credentials

Bird & Bird mining lawyers represent a number of mine owners and mining interests in various jurisdictions. Our lawyers have worked on a diverse array of work in this sector including opening of greenfi eld mine operations; acquisition of substantial minerals operations; regulatory issues; public listing and private placements; environmental impact issues; mine management rights; mergers and acquisitions; demergers; claims on mining machinery; credit facilities and tenders. We also provide the full range of legal support services for the life-cycle of mines and processing mills – from start-up, fi nancing and development – to transportation, infrastructure, freight and port facilities and shipping negotiations across multiple jurisdictions.

MInInG, MIneRals & natURal ResoURCes

JAPAN

Davis & Takahashi Horitsujimusho Gaikokuho Kyodo Jigyo Hiroaki Takahashi Partner Tel: 81-3-6234-1240 htakahashi@davis.jp www.davis.jp

The Introduction of The Mining Amendment Act in Japan

With the introduction of the ‘Mining Amendment Act’ (the ‘Act’), the Mining Act of Japan has been amended for the fi rst time in 61 years. The rapid growth of demand for global energy in both emerging and developed economies has created international competition for natural resources in recent years. Coming into force on January 21, 2012, the Act has been enacted to fi rstly, ensure proper maintenance and management of domestic mineral resources, and secondly, to overcome the existing problems of the current Act. Traditionally, Japan has been regarded as a non-natural resource country, dependent on imports for most of its mineral resources and energy. However, with the remarkable advancements in technological innovation, mineral development in Japan has become feasible and att ractive – in particular, marine mineral resource development. Mineral resource development in the ocean around Japan has att racted a lot of att ention from the international business community. The sixth largest ocean area in the world, Japan’s ocean resources – including the exclusive economic zone (EEC) of 200 nautical miles – have greatly expanded its available mineral deposits. Not surprisingly, further att ention to the proper management and development of domestic mineral resources (including development with foreign capital) is expected in the near future.

Problems Prior to the Mining Amendment Act

The Mining Act has never been amended since its enactment in 1950 – a time lag that has resulted in a number of problems that need to be addressed. We look at some of the key problems and issues. Firstly, the old Mining Act has no provisions sett ing out the requirements for applicants desiring to be granted mining rights. Without such provisions, the government has not had the ability to adequately screen applicants that seek mining and development rights, to ensure that they have the ability to develop the mineral resources. As a result, numerous applications have been made for new mining rights by persons with no ability to undertake the mineral development. Secondly, the old Mining Act has the ‘fi rstto-fi le’ policy, where the fi rst person to fi le an application for the mineral rights is granted priority. This – together with the new opportunities opening up in marine mineral development – has contributed to the increase in applications for mining rights by applicants without substantial ability or incentive to undertake development. It is situations like these that lead to speculative actions in the market.

Thirdly, the old Mining Act has no regulations governing the exploration of mineral resources, which has resulted in disordered exploration activities being conducted. The government has been especially concerned with mineral exploration activities by foreign ships in Japan’s ocean areas. To address each of these problems, the following amendments have been made under the Mining Amendment Act.

New Permission Criteria for the Creation of Mining Rights

Under the new requirements in the Mining Amendment Act, the applicant must demonstrate that it has fi rstly, the necessary ‘fi nancial basis’, i.e. suffi cient funds and certainty of funding; secondly, the necessary ‘technical capability’, i.e. looking after all aspects of the business (organisation, structure, business history etc) with the primary technicians; and thirdly, the necessary level of ‘social credibility’, i.e. no history of violating criminal laws, other relevant laws or material disputes with investors.

There is also an additional and more comprehensive requirement, which now allows the government to deny permission for mining rights to an applicant where it hinders the promotion of public interest from the viewpoint of a stable supply of minerals. More specifi cally, the requirement is that the mineral resource development cannot be ‘extremely inappropriate’ in light of domestic and foreign social and economic circumstances, nor can it be likely to hinder the promotion of public interest. The Minister of Economy, Trade and Industry has provided some guidance to interpret this comprehensive requirement, and has illustrated cases that would not be in compliance.

A New Procedure to Create Mining Rights

The Mining Amendment Act defi nes ‘Specifi ed Minerals’ as including oil, natural gas, certain ocean fl oor minerals and asphalt. As Specifi ed Minerals have been determined to be particularly important for the national economy, a stable supply is therefore particularly necessary. There is now a new application procedure for mineral rights in respect of these. While the previous application procedure was based on a ‘fi rstto-fi le’ policy, this does not apply to Specifi ed Minerals. Instead, the government is to designate a Specifi c Mineral Lot and solicit for applications for mineral rights, granting permission for the mineral rights to the applicant it determines is most appropriate, in accordance with the applicant satisfying the permission criteria requirements.

A New Permission System for the Exploration of Minerals

The term ‘exploration for minerals’ generally means activities involving the ‘investigation’ into geological structure that are necessary for developing mineral resources. It is limited to investigations that do not accompany mining activities and which are undertaken in a fi xed area. As mentioned above, under the old Mining Act, the exploration for minerals has not been subject to regulation.

However, under the Mining Amendment Act, a new exploration permission system has been established, whereby an applicant desiring to undertake exploration for minerals will be required to apply for permission in advance. The requirements include a determination of the appropriateness of the applicant’s proposed exploration methods and that it has not violated the Mining Act. Another requirement is that the exploration is not ‘extremely inappropriate’ in light of domestic and foreign social and economic circumstances, nor is it likely to hinder the promotion of public interest.

NIGERIA

Adepetun Caxton-Martins Agbor & Segun Taiwo Afonja Partner, Energy & Project Finance Group Tel: +234 1 4622093-4; +234 803 303 2977 tafonja@acas-law.com www.acas-law.com

The Investment Potential of Mining in Nigeria

There is signifi cant evidence that Nigeria has over 34 diff erent solid minerals distributed in the country’s richly endowed geology. Some of the known minerals include; gold, coal, bitumen, iron-ore, tantalite/columbite, lead/zinc, sulphides, barytes, cassiterite, limestones, talc, feldspar and marble. Ownership of solid mineral resources is vested in the Nigerian government which grants the following titles to explore, mine and sell mineral resources: (i) the Reconnaissance Permit; (ii) the Exploration Licence; (iii) the Mining Lease; (iv) the Small Scale Mining Lease; (v) the Quarrying Lease; and (vi) the Water Use Permit. The use of land for mining operations is given priority over other uses of land, and is considered (for the purposes of access, use and occupation of land for mining operations) to constitute an overriding public interest within the context of the Nigerian Land Use Act. It is worth noting that the Ministry of Mines and Steel Development, responsible for formulating policies and regulating operations in the solid minerals industry, has prioritised the development of seven strategic minerals (‘7SM’) – coal, bitumen, limestone, iron ore, barytes, gold and lead/zinc. As world-class minerals, these have been carefully chosen for development in view of their strategic importance to Nigeria’s economy, and the suffi cient quantities that are available to sustain mining operations for years to come. Companies engaged in mining activities are liable to Companies Income Tax at the rate of 30% on assessable profi ts, and education tax at the rate of 2% on assessable profi ts. A value added tax of 5% is payable with respect to vatable goods and services. Royalty, annual fees and rentals are also payable. However, incentives on mining activities include: fi rstly, a three to fi ve years tax holiday for new mining companies and

CHILE

Eelaw Energy and Environment Legal Advice Paulina Riquelme Founding Partner Tel: (56) (2) 2299567 priquelme@eelaw.cl William Faulconer Associate Tel: (56) (2) 2299567 wfaulconer@eelaw.cl www.eelaw.cl

The New Chilean Environmental Compliance and Enforcement Rules: A Burden or Opportunity? Chile has recently undergone a radical change in its environmental framework regulations. These amendments focus on improving the environmental policy-making process. They introduce adjustments to the environmental assessment system, create a new compliance and enforcement system, as well as provide access to adequate environmental justice. With this scenario in mind, a new agency was created with the specifi c mandate to ensure that companies and individuals comply with the environmental regulations – the Superintendence of the Environment (the ‘Superintendence’). The Superintendence plays the role of head and coordinator of environmental compliance and enforcement. To meet this task, it has been att ributed a wide range of faculties, such as access to a variety of environmental compliance mechanisms and broad inspection powers. It also has the ability to establish temporary measures for the protection of the environment and impose sanctions that can range from US$900 to over US$9 million, or could even entail the revocation of an environmental permit and permanent closure of a project. In order to compensate for these powers, the Chilean legislators have determined that a technical jurisdictional counterpart is necessary. To that eff ect, they have mandated the submission of a Bill to create the Environmental Tribunals, which eff ectively leaves the Superintendence’s enforcement and punitive powers pending until their establishment. This Bill was recently approved and will start to operate towards the end of 2012. In the meantime, the Superintendence has been busy gathering the necessary information to make an eff ective and effi cient enforcement policy once all its powers come into force. With this objective in mind, environmental permit holders have been encouraged to upload their obligations to its database.

Why should companies voluntarily declare their obligations? The Superintendence has stated publicly that it will be strict in a system of deferred royalty payment determined by the investment level and nature of the project; secondly, a 95% capital allowance on qualifying capital expenditure incurred on exploration, development and processing; thirdly, an annual indexation of unclaimed balance of capital expenditure by 5% (only applicable to mines that commence production within fi ve years of enactment of the Nigerian Minerals and Mining Act 2007); fourthly, the carrying forward of losses; fi fthly, exemption from customs and import duties on approved plants and machinery, equipment and accessories – imported specifi cally and exclusively for mining operations; and lastly, interest income tax relief.

Nigeria’s solid minerals wealth is rumoured to exceed her oil wealth. The favourable fi scal regime put in place makes Nigeria an att ractive investment destination for those wishing to exploit her solid minerals potential.

enforcing every single one of the obligations contained in each environmental permit. This might sound an obvious approach, but it has come as a shock to industry in Chile. Up until now, enforcement faculties have been dispersed in several diff erent agencies and have turned out to be diff use and ineff ective. The current sanctions have also had a low deterrence eff ect. The new approach towards environmental compliance and enforcement is a reality soon to be faced by all productive activities. In this context, an opportunity arises for permit holders to put in order their projects, according to the obligations contained in the permit and the commitments undertaken in the process of obtaining it. Furthermore, it is a chance to advance in corporate thinking regarding sustainability and in doing so, forge a new path towards corporate and social responsibility. As the new regulations clearly intend to preclude the approach of ‘business as usual’, they can either be seen as a burden or an opportunity.

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Malaysia is one of the world’s top 20 trading nations

Malaysia is ranked 21st in overall performance out of 134 countries. The country’s top trading partners includes Singapore, Japan, the United States, China, Korea, Indonesia, Hong Kong, Taiwan and Germany. To date, Malaysia has signed bilateral investment agreements with more than 70 countries. In addition, Malaysia has signed or implemented four bilateral FTAs and at regional level, Malaysia and its ASEAN partners have established the ASEAN Free Trade Area. ASEAN has also concluded FTAs with China, Japan, Korea and India, as well as Australia and New Zealand.

MALAYSIA – UNITED KINGDOM In 2009, Malaysia was United Kingdom’s 35th largest trading partner, and U.K. was Malaysia’s 16th largest trading partner. Malaysia’s highest number of exports to the U.K. in terms of product sectors is electrical and electronic products. Other top exports to U.K. include machinery, appliances and parts, chemicals and chemical products, and transport equipment. In 2009, Malaysia’s bilateral trade with partner United Kingdom has a total export value of USD $1,099.44 million. Several of the major Malaysian companies operating in UK includes Petronas, MAS, Air Asia, Proton, Genting Group, and Laura Ashley, just to name a few. Major investors from UK in the Malaysia include Astrazeneca, Standard Chartered Bank, Ernst & Young, and Glaxosmithkline. MATRADE Malaysia External Trade Development Corporation (MATRADE) was established as a statutory agency under the Ministry of International Trade Industry (MITI). MATRADE is the national export promotion agency, and is responsible for assisting Malaysian companies to promote products and services in the international market. MATRADE’s vision is to promote Malaysia as MATRADE’s vision is to promote Malaysia as a globally competitive trading nation, and its’ mission is to promote Malaysia’s enterprises to the world. MATRADE is also actively involved in assisting foreign companies to source for suppliers of Malaysian products and services, and is represented worldwide at 40 locations in major commercial cities. MATRADE PROMOTIONAL ACTIVITIES Mr. Raja Badrulnizam Raja Kamlazaman

MATRADE runs and take part in many promotional activities to help Malaysian entrepreneurs, such as promotional booths, in-store promotions, trade promotional visits, trade fairs, and so forth. Some of the latest promotional activities carried out by MATRADE London include Interiors Birmingham 2010, specialized marketing missions, as well as the recent Malaysia Kitchen Programme (MKP). MKP aims to educate and inform consumers in United Kingdom about Malaysian cuisine and Malaysian restaurants. This programme is also carried out in various parts of the world. The MKP was considered a success, such as in London where year-long activities such Taste of London at Regents Park, Promotions at Selfridges London, Birmingham and Manchester, Trafalgar Square Night Market and Winter Market at Westfi eld Shopping Centre were carried out by MATRADE. Centre were carried out by MATRADE. Malaysia External Trade Development Corporation (MATRADE) 17, Curzon Street, London W1J 5HR

Tel: 020 7499 5255/4644 Fax: 020 7499 4597

London@matrade.gov.my www.matrade.gov.my

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ARSA Lawyers of Malaysia

Messrs Abdul Raman Saad & Associates, Advocates & Solicitors, also brand-named “ARSA Lawyers”, was established more than 30 years ago by its founder Datuk Dr Abdul Raman Hj Saad and today, it is one of Malaysia’s leading legal service providers for all business and commercial endeavours. The legal fi rm is easily remembered by its ever popular acronym, ARSA by its esteemed clients, friends and supporters not only in Malaysia, but also beyond its borders, in Singapore, Indonesia and the Middle East. ARSA is also a member in the international legal group, Inter-Pacifi c Bar Association (IPBA) and Asian Islamic Finance Alliance (AIFA) A wide and comprehensive range of legal services off ered by ARSA makes it a “onestop” centre for its clients’ total business expectations and commercial aspirations. ARSA’s main practice areas include, inter alia,: Corporate & Commercial Banking & Finance Real Property & Conveyancing Litigation & Dispute Resolution Corporate Finance Islamic Banking & Finance (IBF) Building & Construction Information Communications Technology(ICT) Intellectual Property & Biotechnology International & Cross Border

ARSA is currently promoting and actively specializing in areas of ICT and Islamic Banking & Finance (IBF) as two new and exciting areas of growth due to their increased demand in the market. In tune with that demand, ARSA has enhanced its human capital to face globalisation and liberalisation of its services by adopting strategic alliances and creating business synergy with global law fi rms, academia and other industry players. ARSA advises stakeholders on investment into Malaysia, particularly in the new regional development of Iskandar Development Region (IDR) in the state of Johor where ARSA has a strong presence. ARSA is driven by the strong conviction that it has to stay ahead of the needs of its clients and, to this end, ARSA’s core group of lawyers ensures that all legal problems aff ecting their clients are addressed to proactively. For its years of service with distinction and excellence, ARSA has been given due recognition and was awarded the Islamic REIT’s Deal of the Year by Islamic Finance News in 2006. In 2009, the Deputy Prime Minister of Malaysia, Tan Sri Dato Muhiyiddin Yasin, while offi ciating ARSA’s brand launch, congratulated ARSA for its pioneering eff orts in promoting Islamic Finance, both locally and globally. In 2010, ARSA was nominated as one of the leading Islamic Finance lawyers for Islamic Banking & Finance, Islamic Project Finance and Islamic Real Estate by Islamic Finance News. ARSA is also certifi ed with the international accreditation of ISO 9001:2008 for quality management system that produces time-andcost-effi cient deliveries to its clients.

ARSA Managing Partner Datuk Dr Abdul Raman Saad dars@arsa.com.my

In 2008, ARSA was involved in the fi rst successful conversion of AXIS REIT, a conventional REIT to an Islamic/Shariah compliant REIT.This exercise successfully produced an alternative method in encouraging Middle Eastern Sovereign funds and Muslim Fund managers in accessing high quality assets which generate a stable stream of cash fl ow backed by a steady portfolio of tenants which off ers investors high yield returns and certainty of income other than just relying on the expansion plans of the then existing two Islamic REITS or the new listing of other Islamic REITS on Bursa Malaysia. Another innovative aspect is that, notwithstanding that there is no specifi c guidelines to regulate this conversion, it was achieved through the spirit of cooperation between the regulators, issuer and its advisers to achieve common goals. From the compliance perspective, ARSA and the Shariah advisor work closely together in a specialised Shariah compliant due diligence module to ascertain the position of the existing portfolio to ensure that it complies with the permissible activities ratio under the Islamic REIT Guidelines issued by the Malaysian Securities Commission. In the areas of Biotechnology, Intellectual Property, Technology & Telecommunication (BITT) which includes Information Communications Technology (ICT), ARSA had advised a healthcare provider on a series of agreements for the supply, delivery, installation, testing, commissioning, post acceptance maintenance, and support for their IT environment which will manage the administration, fi nancial and clinical operations at its 10 hospitals in Peninsular Malaysia, where the project value was RM40 million. KUALA LUMPUR Level 8, Bangunan KWSP, No. 3, Changkat Raja Chulan off Jalan Raja Chulan, 50200 Kuala Lumpur, Malaysia Tel : +603-2032-2323 Fax : +603-2032-5775 Key Partner : Zain Azra’ i Abd Samad Email : zain@arsa.com.my Website : www.arsa.com.my

MELAKA 240A&B, Jalan Melaka Raya 1, Taman Melaka Raya 75000 Melaka, Malaysia Tel : +606-283-4857 Fax : +606-284-7868 Key Partner : Mahdi Baharom mahdi@arsa.com.my www.arsa.com.my

JOHOR BAHRU Level 12, Menara Pelangi, Jalan Kuning, Taman Pelangi 80400 Johor Bahru, Malaysia Tel : +607-333-0222 Fax : +607-334-9490 Key Partner : Norliza Mohammed liz@arsa.com.my www.arsa.com.my

ARSA provides services that assist stakeholders evolve in a managed way to meet the legal and regulatory challenges in this fast paced globalization. In tune with that demand, ARSA has enhanced its human capital to face globalisation and liberalisation of its services by adopting strategic alliances and creating business synergy with global law fi rms, academia and other industry players. ARSA advises stakeholders on investment into Malaysia, particularly in the new regional development of Iskandar Development Region (IDR) in Johor where ARSA has a strong presence. ARSA renders high quality service where the client will benefi t from customised and focussed legal advisory and transactional work.

368-B Jalan Tun Razak 50400 Kuala Lumpur, Malaysia Tel: +603-2179 8000 infokul@micasahotel.com www.micasahotel.com The Gardens, Mid Valley City Lingkaran Syed Putra 59200 Kuala Lumpur, Malaysia Tel: +603-2268 1188 resvnkul@gardenshtlres.com www.gardenshtlres.com

MiCasa All Suite Hotel, Kuala Lumpur & The Gardens Hotel & Residences, Kuala Lumpur

The mere mention of Kuala Lumpur, Malaysia, conjures up images of a bustling capital city, impressive skylines, modern transport network and traffi c congestion during rush hour. However, despite the daily dash, one would be surprised to fi nd the tranquillity and serenity of resort-style living right in the heart of the city. Often tagged as ‘fabulous, modern, chic, inviting’, the MiCasa All Suite Hotel, Kuala Lumpur, Malaysia, is strategically located within the embassy enclave in the Kuala Lumpur city centre, walking distance to the KLCC and the Petronas Twin Towers, only a 15-minute car-ride to the KL Sentral Station for the 28-minute KLIA Express ride to the Kuala Lumpur International Airport. Those with an appreciation of the arts will be delighted to know that the Petronas Philharmonic Hall, National Museum and art galleries are also located nearby. This 242 all-suite urban resort off ers a select choice of suites from one to three bedrooms, decorated in warm, earthy tones, comprehensively furnished with luxurious amenities, fully-functional kitchenett e and even a shopper’s service for grocery purchases. On the premise is the award-winning Cilantro Restaurant, a favourite fi ne-dining venue renowned for its French cuisine with Japanese infl uence, is popular amongst the discerning diners in the city. Then there’s the Tapas Bistro & Bar serving Asian & Western cuisine, whilst The Deli tempts you with gourmet sandwiches, pastas, pastries and cakes for dine-in and takeaway. Other highlights include the salt water swimming pool, a gymnasium and self-service common laundrett e. With its unassuming low-rise buildings, intimate ambience and impeccable service, there is a sense of arriving ‘home’ at this tropical oasis in the heart of the city. Its sister hotel, the The Gardens Hotel and Residences Kuala Lumpur, is indisputably another preferred choice of accommodation in Kuala Lumpur. Superbly located within the upscale precinct of The Gardens at Mid Valley City, Kuala Lumpur; one of the most compelling business, leisure, hospitality and retail destination in South East Asia, it is served with immediate access to an extensive network of expressways with commuter rail at its doorstep and is a mere 28-minute ride on the KLIA Express rail from KL Sentral to Kuala Lumpur International Airport. This prestigious hotel being the only hotel in Malaysia off ering a totally smoke-free environment in all enclosed areas, features 448 luxuriously appointed guestrooms and 199 fully-serviced residences, providing a combined total of 647 luxuriously furnished rooms. Guest facilities include a gymnasium, infi nity swimming pool, business centre, meeting and conference facilities, a ballroom with a seating capacity of 540 persons, an executive lounge and fi ve outstanding restaurants and bars to indulge in, whilst the adjacent Gardens Mall and Mid Valley Megamall provide an endless kaleidoscope of retail outlets for the ardent shopper and entertainment venues for the family. The hotel complements its two equally successful sister hotels; the Boulevard Hotel and Cititel Mid Valley, located within the same vicinity of the rapidly growing retail and commercial business district of Mid Valley City. Both the MiCasa All Suite Hotel, Kuala Lumpur and The Gardens Hotel & Residences, Kuala Lumpur are two of the hotels under the CHM Hotels portfolio. The other CHM hotels in Malaysia include the Boulevard Hotel Kuala Lumpur, Cititel Mid Valley Kuala Lumpur, Cititel Penang, Pangkor Island Beach Resort, Pangkor, and the MiCasa Hotel Apartments in Yangon and St Giles Hotel, Manila.

MiCasa All Suite Hotel

The Gardens Hotel & Residences

The Gardens Hotel & Residences

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Malaysian Competition Law as Applied to the Airline Industry

25-2, Block B, Jaya One Section 13, No. 72A Jalan Universiti, 46200 Petaling Jaya, Malaysia. T. +6(03) 795 88 310 F. +6(03) 795 88 311

info@christopherleeco.com www.christopherleeco.com The Malaysian Competition Act, passed by Parliament in 2010 (‘Act’) came into force on 1 January 2012. This article examines its application to the airline industry, which is of particular interest and signifi cance at this time to Malaysia as it seeks to develop as an airline hub. We start by examining the new competition law, before looking at the issues that may arise from collaborations in the airline industry. Competition Act 2010 The Act applies to any commercial activity by any company (including government-linked companies) within and outside Malaysia which aff ects competition in any market in Malaysia – except for those sectors exempted by the Act industries under the purview of the Communications and Multimedia Act 1998 and Energy Commission Act 2001, which have their own competition provisions. The regulator of the Act is the Malaysian Competition Commission (‘MyCC’). Under the Act, companies which are found to have infringed any of the prohibitions, may be liable to a fi ne of up to 10% of their global revenue for the period during which the infringement occurred. Directors, Chief Executive Offi cers, Chief Operating Offi cers and managers may also be severally and jointly liable to hefty fi nes and imprisonment. Despite being separate legal entities, a parent company and its subsidiaries may be considered as a single enterprise if they form a single economic unit within which the subsidiaries do not enjoy real autonomy in determining their actions on the market. Anyone who has suff ered loss or damage as a result of the infringement also has the right to take civil action against the company. Generally, competition law in most jurisdictions around the world covers three main pillars – prevention of anti-competitive agreements, abuse of a dominant position, and ruling against anti-competitive mergers and acquisitions. However, while the Act is similarly framed, it does not provide for regulation of mergers and acquisitions which may be anti-competitive. Nonetheless, the resulting entity would still come under the Act if it results in a dominant position. Even if there are separate legal entities, a parent company and its subsidiaries might still be considered as a single enterprise if they form a single economic unit within which the subsidiaries do not enjoy real autonomy in determining their actions on the market. The government has also not ruled out the possibility of introducing the third pillar in the future.

Anti-Competitive Agreements Section 4 of the Act prohibits horizontal and vertical agreements between enterprises where the agreement has the object or eff ect of signifi cantly preventing, restricting or distorting competition in any market for goods or services. However, there are safe harbour exemptions which are essentially for enterprises which have a market share below the thresholds indicated in the guidelines issued by the MyCC. Horizontal agreements which have the eff ect of price-fi xing, market sharing, limiting or controlling production, market outlets or market access, and bid rigging are prohibited under the Act. There is no safe harbour for such anti-competitive agreements. Similarly, vertical agreements, including tie-in arrangements and exclusive dealings which set up entry barriers against new entrants in a particular industry, may also be anti-competitive. Abuse of a Dominant Position Enterprises are prohibited under Section 10 of the Act from engaging in any conduct which amounts to an abuse of a dominant position, such as by imposing unfair purchase or selling prices; limiting or controlling production; market outlets or market access; refusing to supply; applying discriminatory conditions that discourage new market entry; engaging in predatory behaviour towards competitors; or lastly, buying up scarce supplies in excess of the dominant enterprise’s own needs. There is currently a public consultation proceeding on proposed guidelines in this area..

The Application of Competition Law to the Airline Industry In the airline industry, typical anticompetition issues include global alliances, tariff coordination, code-sharing, price-fi xing, airport capacity and slots allocation, predatory pricing, frequent fl yer programmes, corporate discount schemes, and travel agent commissions. These anticompetition issues may arise from day-to-day dealings with competitors, agents, customers, joint venture partners, airport operators, and suppliers. They may come under the scrutiny of competition authorities. In many countries, airlines have to seek permission and clearance from the competition authorities before they are allowed to form an alliance. The authorities will consider the terms of the agreement, the potential impact of the alliance on the relevant markets, as well as whether the alliance would result in excessive market dominance. The authorities in many jurisdictions are generally supportive of alliances (as they would result in cost savings, bett er connectivity and foster greater synergies between the airlines), with the exception of those alliances that result in elimination of competition. However, there is a recent fi nding that suggests that consumers do not actually receive bett er cost savings as a result of an alliance.

Code-Sharing Code-sharing is an arrangement between airlines where an operating airline allows the marketing airline, as a code-share partner, to market and sell tickets on the operating airline’s fl ights. Code-sharing agreements are generally permissible as they provide substantial benefi ts to consumers such as seamless connections, greater network access and competitive airfares. However, some code-sharing agreements may give rise to anti-competitive concerns as the multiple displays of code-shared fl ights on computer screens – including that of the marketing airline – push down other airlines’ fl ights to be displayed on the following screens which may be missed by consumers searching for other fl ight options. The code-sharing may also cover comprehensive integration of marketing and sharing of operational information that could result in distortion of healthy competition practices. These concerns would probably not occur where airlines operate in diff erent market segments and use diff erent business models. In Europe and the US, exemptions have been granted to a number of co-operation agreements between airlines, on the condition that the whole arrangement benefi ts the customers of each party by providing access to a wider range of routes. Recent exemptions closer to home, were the approvals granted by the Competition Commission of Singapore for the Singapore Airlines Limited (SIA) and Virgin Australia Airlines Pty Ltd’s codeshare, and for All Nippon Airways Co. Ltd, Continental Airlines Inc and United Airlines Inc Joint Venture. This had the objective of achieving ‘metal neutrality’ between the enterprises such that it is makes no diff erence ‘which airline operates the underlying metal (i.e. the aircraft) on each route’. Abuse of a Dominant Position Merely being in a dominant position is not unlawful; it is the abuse of a dominant position that is prohibited under the Act. Examples of such an abuse of a dominant position in the airline industry include: imposing excessive, predatory, or discriminatory pricing; the exclusive application of only one tariff on a given route; off ering discounts or commissions with a view to excluding competitors from the market; and lastly, refusing to supply or allow access to essential facilities.

Predatory Pricing Predatory pricing is a huge concern amongst the airlines in the fi ght for larger market share. Predatory pricing is where a company sets the price for its products or services below the cost of producing, or providing the products or services in order to force its competitors to exit the market. Once the competitor is eliminated, the company will then raise its price to an exorbitant level to recoup loss of revenue suff ered during its predatory pricing exercise. However, in light of collaboration, it is unlikely that there will be any predatory pricing between collaborators. Instead, airfares for each airline will probably be aligned to complement each other in their respective market segments. Frequent Flyer Programmes Frequent fl yer programmes and corporate discount schemes which have the eff ect of providing incentives to customers to stick to one particular airline or alliance, may be viewed as creating an anticompetitive eff ect. However, in the case of an alliance, consumers could benefi t from the programme, since the ‘air miles’ earned with one airline may now be redeemed by travelling with an associate airline that serves other destinations.

Travel Agent Commissions Similarly, travel agent commission agreements or use of proprietary ticketing systems which oblige travel agents to be dedicated to one particular airline and discourage them from selling tickets for other airlines, may be anti-competitive behaviour and should generally be avoided. For example, British Airways was found to have abused its dominant position, by operating a commission scheme that had the eff ect of excluding British Airways’ competitors from the UK markets for air travel.

Conclusion

Some may view collaboration as eff ectively reducing or removing competition, as each airline will dominate a market segment with no competitor in that segment. On the other hand, even with the collaboration, the airlines continue to face competition from each other and from other airlines in the market, especially if consumers still have suffi cient options to fl y with other airlines. However, collaboration need not necessarily be a bad thing in itself if it is aimed at focusing on the core competency of each airline, and fostering closer ties between the airlines so as to enable them to compete with bigger players in the industry. As such, so long as the airlines comply with the applicable laws, the collaboration may eventually yield greater benefi ts to consumers. The International Chamber of Commerce has recognised that the trend of forming alliances and other forms of cooperation among airlines is increasing, and that it can be benefi cial to the industry and consumers. Nevertheless, it is also felt that these cooperative agreements must be subject to fair and objective competition rules, so as to create a stable and predictable legal environment at the same time as protecting the rights and interests of other players in the industry. The Act will certainly have an eff ect on the shape of the Malaysian airline industry in years to come. Hopefully it will be a positive one.

Christopher Lee & Dr. S. Nadarajah

spotlIGHt on MalaysIa

Raising the bar on global safety standards in oil and gas

UNITED KINGDOM, UNITED ARAB EMIRATES AND MALAYSIA

Worth billions to the global economy, the oil and gas industry is poised for signifi cant growth in the next fi ve years with a rise in production activity, asset decommissioning and the estimated demand from the emerging off shore renewable and carbon capture and storage industries creating a signifi cant demand for a safe and skilled off shore workforce and supply chain. OPITO is a unique organisation which delivers standards to improve workforce safety and competency in worldwide oil and gas provinces. The world class network of OPITO approved training providers now stretches across 30 countries with more than 150,000 people trained to OPITO standards worldwide last year. Industry funded and employer-led, the company recently underwent a major restructure to help it bett er address the growing needs of the oil and gas industry both internationally and in the UK. The international organisation works with governments, national oil companies, multi-nationals and contractors to meet their skills needs, providing independent advice and guidance on eff ective management of workforce skills development, emergency response and occupational standards and qualifi cations and quality assurance of training delivery. OPITO has structured itself to meet the ever increasing demands of the global industry by establishing international support offi ces in Kuala Lumpur, Malaysia and Dubai in the United Arab Emirates. Its international workforce helps to support and guide 70 approved training providers who have passed stringent tests to allow them to pass on the OPITO message. Amongst other initiatives, OPITO has led in the creation of employer forums in key provinces and has been able to break new ground by delivering Basic Off shore Safety Induction and Emergency Training in India, Saudi Arabia and Libya. In January, the company signed a landmark memorandum of understanding with the Iraq Ministry for Oil, Training and Development Directorate to help the war-torn country develop the skills and training necessary to enable exploitation of its hydrocarbon resources.

Ian Laing, managing director of OPITO International, said: “By 2030, global energy demand will be almost 35% higher than it was in 2005 and hydrocarbons will continue to provide the majority of the world’s energy needs.

“For any company working within any industry, its people are its most valuable asset. Standards are developed by the industry to refl ect today’s off shore oil and gas working environment. Many markets are not as mature as the UK and therefore the skills off ering has to be diff erent. OPITO wants to be at the forefront in serving these markets so we have separated our business to refl ect this and provide a distinct off ering for each province. “The memorandum of understanding with Iraq is an exciting opportunity for OPITO and acknowledgement of the high regard in which our standards are held globally. But more importantly this is a major step forward for the people of Iraq, who if they are to successfully re-build their country must create a safe, sustainable and profi table oil and gas industry.” Working in partnership with the government and the industry in Iraq, OPITO will set out a broad strategy which will help build the skills base through use of standards and qualifi cations, best practice and proven learning products. ”As with each of our partnerships, this is a long-term relationship which we are confi dent will strengthen as the country develops and prospers,” added Mr Laing. “Employers are in agreement that safety standards around the world have improved as a result of what OPITO does and are choosing voluntarily to adopt OPITO standards because they are recognised by employers around the world as the best for the oil and gas industry. “While the individual gains an advantage, the industry as a whole, in turn, also reaps the benefi t of a robust quality assured training and competence environment.” While OPITO continues its international drive, the company remains committ ed to serving the UK industry. It is widely recognised as the industry’s focal point for skills, learning and workforce development in the United Kingdom. A major initiative for the North Sea industry has been the introduction of the Minimum Ian Laing Managing Director, OPITO International + 971 4 4458482 + 971 4 4458481 Ian.laing@opito.com www.opito.com

Industry Training Standards (MIST) programme which aimed to ensure the off shore workforce has the necessary safety awareness and training to avoid risk and ultimately incidents. Covering nine basic safety elements, including the core topics of risk assessment and permit to work, with new key safety awareness centred on mechanical lifting and platform integrity, to date, 90% of the UK workforce has undertaken the training. “MIST set a new common standard to ensure that everyone, regardless of role or discipline, has the same basic safety understanding. An entirely voluntary programme, its success is testament to the continued commitment within the industry towards ensuring the highest possible safety standards,” said Mr Laing. “It provides the industry with a solid platform on which to build its skills base further in the future and an international version of the training programme has been made available to the global oil and gas industry.”

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