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Press ReleaseFrontier Strategy Group Senior Vice President and natural resources expert Stephen Bailey discusses the rising trend of resource nationalism on the ROBTv's "Squeeze Play" CAMBRIDGE, Mass. – (BUSINESS WIRE) – December 15, 2006 – Frontier Strategy Group Senior Vice President and natural resources expert Stephen Bailey discusses the rising trend of resource nationalism on the Friday, December 15 edition of ROBTv's "Squeeze Play." Addressing the causes of the rising trend of resource nationalism globally, Bailey argued that the trend is "largely cyclical" and that the current uptick in resource nationalism is based on "the high commodity price environment, which increases pressure on host governments to claim a greater share of the revenues flowing to international oil and mining companies." He noted that the current trend that we are seeing in the oil and mining sectors is "similar to what oil companies faced in the 1970s as high commodity prices provided the impetus for a rash of nationalizations in the oil sector." More specifically, Bailey discussed the troubling rise in resource nationalism in Russia, where the Kremlin has pressured companies like Shell to transfer majority control of assets to state-owned companies such as Gazprom. When asked why mining and oil companies continue to pour money into Russia, Bailey noted that "companies see Russia as a high risk, high reward investment environment" and, as a result, "many companies are attempting to position themselves to play in Russia over the long-term." Bailey cautioned that while the potential rewards are great, it is important for companies to recognize that "a bet on Russia is really a bet on the Kremlin." He noted that certain companies such as Barrick are "taking a smart, measured approach to investment in Russia by carefully analyzing key signposts and drivers to determine the future political evolution of the country." When asked whether legal agreements are the key to reigning in foreign governments intent on nationalization, Bailey argued that "host governments are unlikely to honor legal agreements unless companies are able to successfully align their long-term political and economic incentives with those of host governments." As a result, companies should focus their efforts on crafting creative, long-term financial and economic incentives rather than on structuring iron-clad legal agreements that "are unlikely to be respected." Bailey went on to say that there are certain countries where it is currently "not possible to create such an alignment of incentives" and that in such cases "Western firms should recognize that they should avoid those countries for the time being, but, at the same time, closely monitor drivers and signposts of change to determine when re-entry is appropriate." He noted that those companies that diligently monitor such signposts "could be rewarded with attractive assets at significant discounts if they recognize the potential of certain nations before the broader market does." The program can be viewed by clicking on the following link and selecting the 5:00 pm ET program video, "Squeeze Play with Amanda Lang:" http://www.robtv.com/shows/past_archive.tv?day=fri About Stephen BaileyStephen Bailey is a Senior Vice President at Frontier Strategy Group and heads the Americas Mining & Energy Practice at the Frontier Strategy Group. About Frontier Strategy GroupFrontier Strategy Group is a global consulting and advisory firm focused on the natural resources industries. Key practices include country-entry and growth strategies, M&A advisory, political risk assessments and permitting assessments. The firm is based in Cambridge, Massachusetts, and has offices in New York and Washington DC. Media Contact:
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