04/10/2012
APAC
WEEKLY ANALYSIS
(September 29-October 5, 2012)
OVERVIEW
This weekly report covers the top developments in selected countries of Asia Pacific for the week in review, September 29 to October 5, 2012, as they impact on the business and investment outlook for the oil and gas and mining (OGM) sectors.
MAJOR DEVELOPMENTS
Timor: Oil giants 'underpaying' taxes—Timor Leste government
Indonesia: BUMI gets credit rating cuts
Medco to boost ethanol production; NNT cuts down workforce
Thailand: Amid fresh deluge fears, Thailand shines in corporate governance poll
PTT signs agreement to set up retail oil venture in Myanmar
PNG: ADB: PNG missing on benefits from mining, gas sectors
Australia: Australia Pacific LNG project gets land use approvals from Queensland
BHP asks four-year extension for Olympic Dam project
TIMOR LESTE
Timor-Leste Finance Minister Emilia Pires disclosed that the government is set to pursue unpaid taxes which it claims could total as much as US$3 billion from some of the world's top oil heavyweights, including the US-based ConocoPhillips and Australia’s Woodside Petroleum. The government has hired Washington D.C. lawyer Pierre Prosper as an adviser, who said that in cases now before the Dili District Court, he has submitted that companies have "improperly deducted costs" from taxes payable to the Timor government.
Assessment. A high-profile legal battle looms as the Timor Leste government musters the political resolve to closely scrutinize the tax collection from oil companies and to take the latter to court for alleged anomalies uncovered during the course of ongoing investigations.
In this connection, the government is also expected to undertake specific measures to give more teeth to its power and capacity to monitor, enforce the law, and regulate if necessary. In this regard, the government is likely in the near future to review and make amendments to its investment and tax policies affecting the sector, to go with further adjustments or changes in procedural mechanisms particularly in the areas of auditing and licensing.
INDONESIA
International credit rating agencies Standard & Poor’s and Moody’s Investors Service downgraded their long-term corporate ratings of Indonesia’s largest thermal coal producer, PT Bumi Resources (BUMI), from “BB-” to "B+" and from "stable" to "negative," respectively. The cuts were made following an announcement last week by London's Bumi Plc., a 29% holder, that it is launching a probe into potential financial and other irregularities at its Indonesian operations, especially in relation to Bumi Resources.
In another development, oil and gas company PT Medco Energi Internasional announced that it is seeking to build partnerships with other companies to further strengthen its renewable energy business in areas such as the production of ethanol. Meanwhile, the Indonesian government rapped gold producer PT Newmont Nusa Tenggara (NNT), a subsidiary of US-based Newmont Corporation, for allegedly not informing the government of the firm's plan to reduce by 2.8% this month its local workforce based in West Nusa Tenggara.
Assessment. The combined impact of a credit rating downgrade and Bumi's latest corporate governance controversy -- the second one since it listed its shares as Bumi last year -- is widely perceived to be a major setback for the firm, which could leave it struggling to refinance more than $400 million of debt maturities in 2013. Industry and financial experts predicted that any confirmation of the alleged corporate anomalies could further weaken its position in the market, increase production costs, put more pressure on the company's ability to pay off its huge debts, and trigger further credit rating downgrades in the future. Already, the controversy has since sent both companies' share prices tumbling more than 20%.
Bumi's current woes and NNT's cost-cutting measures indicate that Indonesia's mining sector in general is under some kind of strain and appears headed for a slowdown just like many other global players amid weaker China demand and falling commodity prices. On the upside, however, firms like Medco are taking more pro-active steps by diversifying into other product niches such as renewable energy.
THAILAND
Thailand ranked third highest in Asia -- behind Singapore and Hong Kong which placed first and second, respectively, and beating Malaysia and Japan which were tied at fourth -- for showing improvement in corporate governance (CG), according to the CG Watch 2012 report by the Asian Corporate Governance Association and CLSA Asia-Pacific Markets. On the other hand, it remains weak in two big areas: politics and regulation. At present, the country continues to brace from the impact of new storms long before fears of more floods have subsided.
Meanwhile, national energy conglomerate PTT Plc is set to go ahead with plans to establish a retail oil business in Myanmar by working with a local partner, PTT Oil Myanmar Co. This is in line with the firm's goal of becoming a regional oil retailer within five years.
Assessment. Thailand's improved standing in corporate governance is a positive signal to foreign investors even as no quick solutions are likely to come out to address the core problem of corruption in the public sector, nor does there seem to be any solid indication yet of an immediate or lasting political reconciliation under the present leadership. However, the latest survey indicates that despite Thailand's tumultuous history in recent years, business and economic activity have remained relatively insulated from the political uncertainties.
Climate change, which has had serious economic impact on many vulnerable countries across the region and all over the world over the past few decades, is yet another challenge that Thailand needs to address in order to sustain or improve its competitiveness.
PAPUA NEW GUINEA
The Asian Development Bank (ADB) in its latest Pacific Economic Monitor (PEM) said that despite the prosperity that PNG offers to the outside investors, its own coffers do not get as much from the resources sector due to tax concessions and tax levels that are now "on the low side of fiscal regimes in the world." The ADB strongly recommended that PNG review its tax incentives for mining and oil corporations.
Assessment. The ADB's recommendation is likely to increase domestic pressure on the PNG government to reevaluate its investment incentives and tax regimes, particularly concerning the extractive industries. The strongest pressure will probably come from local government units, environmentalists and activist nationalist groups, and local small-to-medium scale miners. The issue involves a difficult balancing act for the PNG government as it takes into account the thousands of workers that are currently employed by the sector and the need to infuse more foreign capital into the economy.
AUSTRALIA
Following approval by the Queensland government, the Australia Pacific LNG (APLNG) Project can now proceed with its 525-kilometre gas transmission line project that will travel from coal seam gas fields in central and southwest Queensland to LNG (liquefied natural gas) plants on Curtis Island off the coast of Gladstone.
On the other hand, BHP Billiton, the world's largest miner, formally asked South Australia for a 46-month extension to its December deadline for the approval of the firm's Olympic Dam project expansion. In August, BHP decided to put the project on hold after reporting a 35 percent slump in annual profit on account of plunging commodity prices.
Assessment. Australia's OGM sector continues to experience mixed fortunes on the back of slower production growth, weaker demand, and overall fears of a global financial crunch.
[email protected]
[email protected]
