How far will this trend? 9

[rhodie]

see link:

http://www.guardian.co.uk/russia/article/0,,1970064,00.html

With the context that this article provides, I assume things:

1. International Law doesn't address this sort of action.
2. Lack of pollution controls, wage differences, and tax shelters all become opportunties of leverage for parent nations to steal assets from host corporations.
3. China could do this to US manufacturing interests with no challenge.

Your thoughts are appreciated...

 

[moltenmetal]

epoisses: let's take your analogy and make it a little closer to the Venezuelan experience, shall we?

The "old guy" who owns the cherry trees is actually a collection of families who have no other source of income, and not enough capital to buy a ladder themselves. They're already picking and selling everything they can reach from the ground. So they elect an "agent" to negotiate with various "young guys with ladders"- all of them "foreigners" from the big city. Turns out, the guys with ladders aren't interested in merely selling or renting ladders- they want a cut of the cherries- forever. They bribe the "agent" and sign a sweetheart deal, so that they get 90% of the cherries. That 90% of the revenue from the cherry sales doesn't circulate in the local villiage economy- it's taken to the "big city".

The families get wind of this, and elect a new "agent"- a bully this time, who fires the old agent and his cronies, kicks the ladder-merchants off the property and steals their ladders. (oh yeah- and anybody who signs a petition objecting to the theft, gets the sack- as 20,000 or so of the former employees of PDVSA (the Venezuelan state oil company) can attest). Any ladder-salesmen who want back in are free to sign a new deal with the untrustworthy bully.

Both sides are in the wrong. There's plenty of blame to go around.

Businesses are algorithms that maximize profit and retained earnings. They will use force or fraud to get what they want, if they calculate that it's in their business interest to do so (that's where Ayn Rand fell down in her assumption that selfishness was a virtue). Without government regulation and taxation, they'd have us all in chains- and renting the chains to us!

The same goes for "socialist" politicians: they do what maximizes their "political capital" with the poor people who put them in power. If they can get more of that in return for stealing some private capital, especially from a "faceless" multinational corporation, then they'll do it in whatever way they calculate can be gotten away with. Without a functioning market economy, though, their people starve. A market economy only functions if investors and their corporations have defensible property rights!

 

[DrillerNic]

I'm actually quite interested in ownership of natural resources and different liscening systems (hey, it gets boring offshore OK?) and the US is unique in the fact that oil and mineral resources are owned by the particular landowner. The landonwer can sell some or all of the mineral rights to an oil company (or set up their own oil company).

Everywhere else these resources are owned by the state. There are then various way that the resources can be exploited:
1. The state may then give (or sell) a licence for a particular area to an oil company, who then owns the natural resources for the duration of the licence outright. This is the situation in the UK, Norway and Canada amongst others. The oil company pays corporation taxes and royalties on the produced oil. The tax and royalty rates can change: Gordon Brown, the UK Treasury Secretary has increased taxes on UK oil operators three times in the last few years for example.
2. The state may keep ownership of the oil and the exploitation is done by a National Oil Company, that is effectively part of the government. This is the situation in Saudi, Kuwait and Iran. This was the situation in Venuzuala and Brazil too, but they then moved to PSAs (see below).
4. The state may keep ownership of the oil and the exploitation is done by an oil company who is paid for their services. This isn't popular with oil companies who can't book the oil reserves as their assets. This is the situation in Iran.
3. The state signs Production Sharing Agreements with an oil company. These are a fudge: the state keeps ownership of the oil but the oil company "owns" it too (and can book the oil reserves on their asset sheets). The oil company is usually the junior partner with a National Oil Company, and is often the operator. The oil company's capital and operating costs are paid out of the oil produced ('cost oil', it's called, and so the infrastructure isn't theirs) and takes a share of the remaining 'profit' oil. The oil company also pays any taxes and royalties on their oil. These tax, and royalty rates may change: that is what has just happened in Venuzuala: the oil companies were told that their royalty rates would increase to 50%, and that corporation tax would also increase)

The Putin govenment feels that the PSA signed for Sakhalin I & II were weighted against the interests of the Russian government and has been putting pressure on Shell to allow Gazprom to enter the PSA. This pressure has included environmental complaints, and accusations of incompetance regarding the cost escalation. Shell will be reimbursed it's costs to date for reducing it's interests in Sakhalin II, (just as the US oil companies in Aramco were reimbursed when the Saudi's bought it to create Saudi Armaco, the Saudi National Oil Company) but that's not really a consolation for all the lost future production and reserves, or the loss of control at becoming the junior partner (and maybe losing the operatorship?).

Another issue involved with Russian oil is that the privatisation by Yeltsin of the Russian oil industry in the 1990's was massively corrupt: no-one like Abramovitch or Khodorkovsky paid anything like market prices for Yukos or Sibneft, but they were well placed pals of the old regime, and became billionares overnight. Putin is trying to wrest back what he (and a lot of the Russian people) think was stolen from them. His tactics involve false and trumped up charges and other pretty nasty things, though.

Apart from outright appropriation of an oil company's assets (which has happened in a couple of countries in the past) any government is perfectly allowed to change tax and production royalty rates- that is, after all, what governments are there for!!! International law doesn't come into it. An oil company looks at how stable the fiscal regime is when it decides to invest in a country- for example, there are rumbles that the UK is becoming a fiscally unstable place- along with the geological risks and the technical risks.

As for Russia, I don't think there will be anything like this from now on: future PSAs will obvously be signed on less favourable terms to the oil companies, who will base their economic models on different numbers before deciding to go ahead with any projects in Russia.

 

[DrillerNic]

Also, in reply to Beggar and Rhodies's comments about the lack of protection of intellectual property in China, I'm well aware of that (my last company refused to put a manfacturing and service base for their tools in China for that reason), but my point was that if the Chineese government decided to appropriate a Nike factory, any of the trainers made at that factory couldn't be sold as Nike trainers in any Foot Locker or JJB Sports shop etc in the west, as Nike would sue the retailers for selling counterfeit goods (and would win very easily).

However, there's nothing to stop the Chineese govenment from increasing export duty, or introducing a special factory tax or increasing Nike's costs by introducing something like a minimum wage or whatever, which is something Nike will have considered before they decided to build factories in China.

 

[rhodie]

The other shoe drops:

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/12/22/cnbp22.xml

 

[0707]

All nations with oil resources tend to use them as a political weapon. After Russian degradation, cold war becomes a bluff, and the world has become maybe more dangerous. In one side we have the US still very much oil dependent trying to have the control of the nations with the bigger oil resources, in the other side we have Russia who is rebuilding his power, and we have China challenging world economy with growing of 10 to 15%. China is doing great investments in transportation, in electrical water ponds, in communications, and in chemicals. Because of globalisation, China has dismantled western world textile industry originating mass dislocations of these industries to Asia countries with the cheapest manpower. Much of the Western Europe unemployment is due to China and in a similar way can also be attributed to the start of India development.

When China and India workers start to request better salaries those countries will be in trouble and maybe great social convulsions will take place menacing world equilibrium.

The fight against pollution will somewhat put restrictions to both Western Europe and US development, still very much dependents on oil resources.

We live nowadays in a pure capitalist world and the big oil companies have no Flag, they have more power than most of the big countries.

I don´t know how far will this trend.

Regards

Luis

 

[GregLocock]

In what way does Australia use its oil as a political weapon?

Cheers

Greg Locock

Please see FAQ731-376 for tips on how to make the best use of Eng-Tips.