Today the Financial Times is running an interesting article about how Peter Hambro Mining lost £100m in market value overnight because of threats from the Russian government to revoke mining licenses. The environmental claims, like the Sakhalin gambit, appear to be totally bogus, and representatives from Hambro are telling the press they have broken no rules.
At what point will the authorities realize that these kinds of assaults on both foreign and domestic companies are bad for business, and that this elevated political risk will eventually scare away foreign investment? Not any time soon, because Western banks and corporations are sending the message that there is no consequence for this kind of economic gangsterism - investment has shot up to $35.3bn in the first nine months of this year.
From the FT:
The biggest political risks are in natural resources as Russia pushes to retake state control over strategic assets. That drive seems to be spreading from oil and gas into areas such as metals and mining.At the same time, Russian authorities are systematically reviewing licences to exploit natural resource assets and penalising those not sticking to the agreed development timetables. ...
"Peter Hambro Mining is rather high profile, which has served them well but this has also made them a target," he says.
PHM may have become a victim of its visibility and the crackdown on companies the government feels are not developing fields quickly enough.
If foreign companies are seen to be sitting on projects, the government prefers to have someone else - preferably Russian - take over, speeding up job creation and tax generation. Even Russian companies, such as Lukoil, have suffered similar threats to withdraw licences. ...
Outside natural resources, the biggest difficulties businesses face are red tape and corruption. Labyrinthine requirements for permits and licences create plenty of opportunities for officials to demand bribes.
"Corruption is probably the most immediate threat and difficulty that any business faces in Russia - and the trend is increasing," says Carlo Gallo, Russia analyst at Control Risks, the business risks consultancy.
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The Soviet Union of Russia is not the only place
where such kleptocracy runs rampant.
Consider the business-history of the Soviet Union of Canada.
About 30 years ago the Davis regime in Ontario
enacted a rent-control law in order to gain votes from tenants
when their electoral position was weak.
However this new law had an exemption
which allowed a new investor in an apartment building to raise rents
as much as necessary to cover the costs of refinancing the building.
This rent-control law eventually drove Cadillac-Fairview, a real-estate developer,
to dump 60,000+ apartments on the market
since rent-control prevented them from covering cost-increases
with corresponding rent-increases.
The apartments were sold to a private-equity consortium led by Greymac
and which included such notables as Dr Branco Weiss,
a Swiss venture-capitalist.
This was an entirely legitimate transaction at the outset.
Greymac planned to refinance the transaction
with some help from various trust companies
(which are essentially banks in Canada by another name)
and to cover refinancing-costs with rent-increases as permitted by the law.
However tenants in these apartments
then applied much political pressure to the Davis regime
and so they rescinded this exemption
and made this amendment retro-active to the starting-date of rent-control
in Ontario.
This had the effect of sharply reducing the capitalized-value of the properties
and this put the trust companies into contravention of regulatory requirements.
The Davis regime then used this as a pretext
to seize the trust companies and the apartment-properties.
Furthermore, they accused the various investors in this deal
of deliberately engaging in criminal fraud
because they had violated this retro-active law
which had not even been proposed when they first did the deal.
This encouraged all the investors to emigrate from Canada in a hurry
and discouraged them from seeking legal recourse in the courts
and thus embarrassing kleptocratic Canadian politicians.
The Davis regime then auctioned the properties to other investors.
Surprise, surprise!!!.
Just by co-incidence they sold these properties for a pittance
to some political friends of theirs.
Canada regularly delivers such nasty little surprises to investors.
More recently we have the spectacle of South Africa
where about 500+ black ex-Marxist politicians and their friends
have acquired control over most of the South African economy
using such innovative concepts as “black economic empowerment”
and “affirmative action”.
They see it, they want it, and they just take it.
It is as simple as that.
It is really amazing how these things happen
whether in the Soviet Union of Russia,
or the Soviet Union of Canada, or the Soviet Union of South Africa.
Modern rationality gives way to neolithic magicality.
The Stone Age is definitely winning in Russia, Canada, South Africa,
and a few other places.
Posted by Afton | December 1, 2006 5:20 PM
Posted on December 1, 2006 17:20
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