Asia’s EMI corporations face a surge of competing challenges. Despite increases in early 2017, gains in oil prices have receded since the first quarter, causing many businesses to incur heavy losses. In other segments, while financial distress in the mining space seems to have moderated, changes in regulations are adding new complexities to the mix. The same is true in infrastructure, where a funding gap is adding to constraints. For these reasons and others, 65% of EMI executives say business in their industry is becoming more complex, the highest percentage among respondents from the various industries in our survey. These issues, however, are only the tip of the iceberg and respondents also highlight a series of challenges that they must now contend with to operate efficiently and profitably.
ENVIRONMENTAL POLICIES: CLEAN AND GREEN IN VOGUE
Environmental issues are the top concern for EMI executives as public support for renewable energy gains popularity. Indeed, the shift in the energy mix toward cleaner forms of power will prove costly for EMI corporations as they transition from traditional hydrocarbons to solar, wind, and hydro forms of power. Respondents say this is already happening with increasing frequency, as concerns over climate change and environmental pollution gain traction among policymakers across Asia.
Hand in hand with environmental concerns, adapting to new or changing regulations is another core complexity impacting the EMI market today. It is also a decisive forward-looking priority executives will address in the year ahead, according to 86% of respondents (Figure 1). Uncertainty over energy policy enforcement and shifting legislation is another main concern. By way of example, mining and energy players in Indonesia cited legal uncertainty as a major complexity as the government often changes its position on policy. A dispute over a major US-based mining corporation’s rights to operate the world’s second-largest copper mine highlights these risks and the possibility of similar challenges in other Asian markets. To reduce risk exposure, businesses need to factor in a wider buffer for unforeseen compliance costs and delays when making critical decisions on the feasibility of their endeavours.
REGULATORY CHANGE
ADDRESSING INFRASTRUCTURE
Outside of Asia’s advanced economies, infrastructure, or lack thereof, can often create unexpected setbacks to operations and access to raw materials. Among those in our survey, many highlight unexpected increases in costs associated with bridging infrastructure gaps. Others note that insufficient infrastructure – from drilling and transportation of oil to mining and managing the excavation process – heavily impacted their project returns. As one solution to this, one respondent points out that consolidation within the industry could help EMI businesses reduce costs. Such collaboration could better position EMI corporations to share resources and infrastructure, efforts that could prove beneficial to reducing pressure on their financial performance.
Energy companies often need advice on labor laws, regulatory issues such as licensing and ongoing compliance, as well as land laws. At the very least, an ignorance of the rules – both written and unwritten – can raise the cost of compliance through penalties, legal and social disputes can frustrate business operations, while delays in paperwork can hike up outlay costs through longer production lead times.”
Bee Chun Boo, Partner, Beijing, Baker McKenzie
EMI companies should be engaging with the local community, and this involves a corporate social responsibility element. If the local community can see how they benefit, they are less likely to break out into civil unrest that can disrupt operations and production.”
Jo Daniels, Managing Partner, Yangon, Baker McKenzie
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What else does Jo Daniels have to say?
TRENDS AND KEY COMPLEXITIES:
Environmental policies and the shift in the regional energy mix to renewables are making the business environment exceedingly complex. Uncertainty over energy policy enforcement and the rapid pace of regulatory change in key markets is another main concern among energy, mining and infrastructure (EMI) executives. Lack of infrastructure in some Asian markets is creating setbacks and project losses for EMI corporations.
of respondents feel doing business in the energy, mining and infrastructure sector is becoming more complex.
65%
Figure 1: Which areas do you think will be a major focus for your industry in the next two years?
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ENERGY, MINING AND INFRASTRUCTURE
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