Friday, April 24, 2009

Visit to Estudio Beccar Varela and Mi Amigo Roberto Crouzel

BUENOS AIRES -- Buenos dias from South America.

With the Rocky Mountain Mineral Law International Institute meeting now concluded, I am in full swing meeting with various prominent South American lawyers, law firms, and academics.

Today, for instance, I met with Robert Crouzel (right in picture; the very impressive Puerto Madero development is in the background), a lead partner with the well-known law firm of Beccar Verela in Buenos Aires.

As part of our meeting, Mr. Crouzel introduced me to a group of young and talented lawyers at the firm who are interested in environmental and natural resources issues. I described the LLM program in Denver as well as the fact that in August DU will be offering two one-week "short courses" that can be taken for credit in the LLM program.

I am more convinced than ever that based on the challenges that the world faces -- energy issues, lack of food in some parts of the world, the need for natural resources development -- South America, and in particular Argentina, are poised to play a large role in helping the world face our collective challenges.

This is not to suggest that I or anyone else for that matter has all of the answers regarding what role Argentina will play, but reality suggests that a few things be taken into account: This is a country of enormous size with a great deal of fresh water; it has significant expertise in raising livestock and grains for food; it is quite unexplored in terms of oil and gas and mining opportunities; and it benefits from a significant pool of attorneys who are looking ahead.

In 10 years time, it may well be that we will look back on the years from 2009-2019 as the decade when the promise of the Western Hemisphere came fully into bloom. North America needs a strong and economically prosperous South America and vice versa. The challenge for programs such as the DU LLM is to identify how best to set these developments in motion.

With the assistance of leaders like Mr. Crouzel and the work of young lawyers such as the ones I met, I am confident that good things will follow.

Wednesday, April 22, 2009

The Rocky Mountain Mineral Law Foundation: The World's Premier Natural Resources Educational Organization

BUENOS AIRES -- The Rocky Mountain Mineral Law Foundation (RMMLF) has just concluded its "10th International Mining and Oil & Gas Law, Development and Investment" conference in Buenos Aires, Argentina.

For those interested in a career in the natural resources and environmental fields (and the two are more interlinked today than ever before), attending the meetings of the RMMLF represents an enormous professional opportunity.

A quick glance at this year's program topics indicates why this group should be on the radar screen of all environmental and natural resources professionals regardless of where they live in the world or what their practice speciality entails:
  • "Resource Development: The Key Role of Law and Institutions."
  • "Allocation of Profits to Communities From Mining and Oil and Gas Operations."
  • "Economic Basis of Latin American Mining Regimes."
  • "Recent Trends and New Developments in Latin American Mine Project Finance."
  • "Corporate Social Responsibility and Human Rights."
  • "Nationalization of Oil and Gas Enterprises: New Trends and Strategies."
  • "Oil and Gas Reform/New Trends in Argentina, Brazil, Chile, Ecuador, Mexico, Venezuela."
  • "Mining and Ecosystems Preservation."
Moreover, the conference provided attendees the opportunity to learn from as well as rub shoulders with the "best and the brightest" of the mining and oil and gas sectors.  Just a few of the notables:
What the RMMLF talks about might be surprising for those not familiar with the group.  In addition to learning about the "nuts and bolts" of the sector, one is also apt to hear discussion about how these industries simply must improve their relations with communities in which they operate, the need for a more "sustainable approach" to extraction-based projects, and the need for a well-defined and enforced system of environmental standards.

The RMMLF, which is the premier natural resources educational organization of its type in the world, was founded in the late 1950s.  The current president is David E. Pierce (on the right in the photo), a well known oil and gas expert and law professor at the Washburn University School of Law.  David P. Phillips (on the left) is executive director of the RMMLF.  Don C. Smith, director of DU's Environmental and Natural Resources Law Graduate Program (middle), attended the event and chaired a panel discussion on Oil and Gas Reforms and Trends.

The next major event for the RMMLF is the 55th Annual Meeting, which will be held July 23-25 in San Francisco.

Developments, Trends & Strategies to Address Nationalization of Oil & Gas Interests

BUENOS AIRES -- Key developments, trends, and strategies related to the nationalization of oil and gas enterprises was a featured discussion as part of the three-day Rocky Mountain Mineral Law Foundation International Institute meeting held in Buenos Aires April 20-22. 

This topic was of particular interest to conference attendees in light of recent developments in Bolivia, Ecuador, and Venezuela where the respective governments have taken steps to nationalize key energy-related sectors. 

Carlos Urruita of Brigard & Urruita of Bogota, Columbia, began the presentation with an observation that Columbia has largely avoided nationalizing the energy sector.  Columbia has not experienced the “resource curse” related to the mismanagement of national resources that leaves a resource-rich country less well off than might be expected because the country has not had an abundant supply of hydrocarbons.  He pointed out that in the 1960s foreign oil companies left the country because of government mandated low oil prices.  

Moreover, despite the anti-foreign investor sentiments in many countries, the Columbian public remains largely of the view that foreign capital is need to develop oil and gas reserves, he said.  In addition, the country maintains a long acceptance of the rule of law and democracy and has enjoyed an independent judiciary that is not afraid to rule against the government.  

On the other hand, there is the possibility of nationalization, he said.  The constitution includes a provision providing that private interests must give way to the public interest in some situations. 

A different view of nationalization was provided by Victorino Tejera of Maclead Dixon in Caracas, Venezuela.  His comments were focused on what should be done pre-investment to protect against a possible nationalization.  One important strategy is to channel investments through corporate structures organized in countries that have bi-lateral investment-related treaties with Venezuela.  He mentioned that Venezuela has 24 bilateral treaties in place, although none with the United States.  As a result, U.S.-affiliated companies organize investments through Canadian and Swiss companies.  A second strategy, he pointed out, is to negotiate a provision for offshore international arbitration. 

Brian King of Freshfields Bruckhaus Deringer LLP’s New York office explained potential strategies for situations where a private entity uses provisional remediation measures in the context of arbitration.  He noted that the power to grant provisional measures is broad.  Key elements that must be established include: 

  • A right in need of protection
  • Urgency
  • The measure is necessary to prevent severe harm

Finally, John Bowman of King & Spaulding LLP in Houston explained the newest trends related to state-sanctioned nationalization of oil and gas interests.  The first trend is “away from forced seize of assets to a more nuanced approach which is the forced re-negotiation of contracts.”  The second trend, he asserted, is a developing string of cases that say such an approach violates international norms related to the “fair and equitable treatment standard.”  

Tuesday, April 21, 2009

Rethinking The "Mining Model"

BUENOS AIRES -- As day two of the Rocky Mountain Mineral Law Foundation International Institute in Buenos Aires got underway it was even clearer that the issue of how the business of mining is conducted with respect to the local communities where it takes place is a huge challenge for the sector.

One of the highlights was a panel entitled, "Resource Development: The Key Role of Law and Institutions."  Adriano Trinidade of Pinheiro Neto Advogados of Brasilia, Brazil, presented a paper written by Elizabeth Bastida of the University of Dundee, describing the traditional assumption in this manner: "Mining per se contributes to development.  The overall development of mining is positive."
However, he pointed out that more recent developments -- including community opposition to some mining projects -- has caused many to rethink this assumption.  "Private markets require well-functioning legal systems that provide for stability and predictability.  In addition, the law should support institutions of well-functioning markets," he said.  But this has become more difficult to achieve as private investors have watched several mining projects encounter huge opposition, thus putting investors' money at risk.

Luis Carlos Rodrigo, an internationally recognized mining lawyer from the Lima firm of Estudio Rodrigo, Elias & Medrano, talked about Peru's experience with mining in general and the challenges the industry currently faces.  He began by noting that, "As of 1993 almost all state owned operations have been privitized with great success in terms of production." On the other hand, the success of how companies operate within communities is a more nuanced matter.
Many companies operating in Peru have become leaders in corporate social responsibility, one method of trying to address community relations challenges.  However, he identified some key problems to the long-term well-being of the mining industry in Peru:
  • Mining companies are not doing enough to call attention to their community relations efforts; this is a result of many years of maintaining a "low profile" in terms of talking about the mining sector.
  • The terrible past of the mining sector; "environmental legacies" in the form of badly polluted and managed sites continue to be "concrete evidence of previous contamination."
  • The government has failed to regulate "informal miners," who operate without respect to environmental obligations or standards.  "The government has failed to act because it is a social problem," he said.
  • NGOs and "political radicals" have taken advantage of the government's lack of action to oppose mining generally.
  • There is an enormous amount of money (collected from the mining companies) waiting to be spent for projects to help the communities in which the mines operate, but the funds have not been spent; the government seems very reluctant to allocate these funds for fear of making one group or another unhappy, he said.
In order to deal with these challenges, the government needs to deal with informal miners while major mining companies need to understand that the media helps set local perceptions and expectations.  There also needs to be a commitment to making sure the benefits of mining are shared with society as a whole.

Finally, he spoke of a crucial element in mining companies' addressing the challenges ahead of them: "Today companies are structured to favor short term decisions and results.  This needs to be changed and bonuses and benefits cannot be based on short term results."  In this regard, companies must understand that it is in the long-term interest of the mining industry to avoid short-term decisions that only result in longer-term problems with the communities in which they operate.

Monday, April 20, 2009

Mining and Oil & Gas Opportunities and Challenges in Latin America

BUENOS AIRES -- The major theme of the first day of the 7th Biannual Rocky Mountain Mineral Law Foundation International Institute in Buenos Aires, Argentina, was marked with a series of presentations about how "community relations" issues are becoming increasingly important in oil and gas and mining development projects.

As one speaker said, "It doesn't matter if you have the legal right to develop and open a facility if the local community doesn't want you there."

Luke Danielson, the principal of Sustainable Development Strategies in Gunnison, Colorado, and a globally known leader in the sustainable development of natural resources arena, gave one of the day's leading presentations.  He pointed out that today's challenges for the natural resources industry are different from yesterday's.  

"There was a time we struggled for safety," he said.  "We seem to have learned a lot and while no amount of accidents can be deemed acceptable, the progress is enormous.  We are in the middle of the road with the environment, but there has been considerable progress.  On the other hand, we are still largely very baffled about how to get along with the communities in which the companies operate.  We lack a clear conceptual framework and a clear understanding of our objectives in terms of working with local communities."
Putting it more bluntly, he said, "This may be the key issue confronting the industry."
Mr. Danielson identified several fundamental questions:

  • What is law?  "It doesn’t do any good to comply with the law if at the end of the day you can’t move ahead on projects," he said.
  • What is development?  "If the objective is to create sustainable development around mining operations, we have to define what is development."
  • What are the alternatives to how business has traditionally been carried out.

His thesis contains three parts. First, natural resource development brings accelerated change to regions with traditional cultures, subsistence livelihoods, and natural ecosystems.  Second, these are often areas with weak local governments and institutions.  And third, there is often a lack of capacity to manage this change to achieve a positive form of development.

Revenues are needed, he said, to compensate for impacts on livelihoods.  They are needed to provide basic services such as public health, security, education, potable water, and electrification.  Above all, revenues are needed to strengthen the institutions that manage this process of change. 

The "essential elements" of any sustainable development effort must be:

  • Ability to plan and manage the development process.
  • Ability to resolve disputes and conflicts.
  • Ability to respond to community sentiment.
  • Accountability for success or failure; the people who make decisions are held accountable by the community. 

Distilling all of his observations, Mr. Danielson pointed to three challenges:

  • Impacts begin long before there are revenues.
  • The “off again, on again” flow of revenues associated with developed projects.
  • Impacts continue after the revenues end; a huge social need remains after revenues end. 

"These are very difficult challenges and in many places local government is not able to manage them effectively," he said.