70.71 Group

MUMBAI: Tata Communications said it has tied-up with African ICT firm, AccessKenya Group, to establish an access point (PoP) to the Internet for the telecom operator in Nairobi.

Tata Communications is one of the leading providers of Internet out of Kenya for global internet connectivity to local carriers, service providers and mobile operators.

By building a Tier I Point-of-Presence (PoP), the company will be able to offer other service providers access to a dynamically routed and high-performance global IP network for service delivery, a press release said.

“Tata Communications is one of the world’s largest carriers of international data traffic and for them to set up a PoP in Kenya puts us on the global connectivity map,” AccessKenya Group’s Managing Director, Jonathan Somen, said.

“We have already signed up as the first customer on the jointly launched PoP to enable our customers to benefit from the new connectivity,” he added.

Earlier, service providers in Kenya needed to buy international fiber through a cable network to London in order to offer Internet links to Asia or South Africa.

This meant that all traffic was routed through London rather than through a more direct route.

Service providers purchasing bandwidth from the Kenya PoP will now be able to benefit from higher speeds and direct links offered by the new connection, the release said.

Source:
ET

Triggered by today’s OPEC meetings and last week’s announcement of new regulations governing Brazil’s offshore oil, we are devoting this week’s note to examining whether government control of the resource sector is increasing as commodity prices continue to creep up.

Traditionally as commodity prices rise, national governments have sought to boost their share of the proceeds, either to save or to spend it. When prices fall, by contrast, they have tended to loosen their fiscal regimes to encourage investment and extraction. The period from 2005 through the middle of 2008 was par for the course, in this respect. As the oil price increased, countries ranging from Kazakhstan to Russia to Venezuela sought to reduce the share of key projects managed by foreign oil companies; even the Canadian province of Alberta tried to change its royalty regime. While these policy changes may be politically popular—and according to some analysts may even help fund infrastructure development–they also run the risk of further deferring investment in the oil and gas sector. The combination of weak demand, lower prices and tighter credit all contributed to a reduction in investment in hydrocarbons. While the investment outlook is still weak, some countries eased regulations early in 2009 in an effort to boost revenues and increase investment.

Last week’s announcement of new rules governing deep-sea oil deposits off the Brazilian coast has reignited debate over resource nationalism. Deposits in the pre-salt layer deep beneath Brazil’s seabed are one of the more promising, if expensive, sources of new supply available globally. President Lula unveiled the new rules on what he called an “Independence Day for Brazil.” Among other things, they suggest that Petrobras, the publicly traded but state-run oil company, have a majority stake in any new developments of the deep-sea oil. The move, which marks a change to the country’s profit sharing agreement, would not apply retroactively. Brazil also wants to create a new social fund, channeling some of the country’s profits into social and infrastructure spending—potentially narrowing extreme income divides.

While the new regulations are significant—and their process of wending their way through congress could prove disruptive to Petrobras’ stock and investment decisions—it remains to what degree this should be seen as a cause for great concern. The country is committed to boosting output and increasing refining capability at home and has made it clear that joining OPEC is off the table – doing so would constrain output. Unlike “nationalizations” in the recent past, previously existing contracts with the company will remain valid and Petrobras already had the largest stake in most of these deep-sea contracts. The planned capital increase will dilute existing shares and political risks to Brazilian oil sector could rise after elections next year, especially if Lula gains a larger majority.

Petrobras could turn to other national oil companies in joint ventures as it seeks out new funding. Already, Petrobras has turned to China to meet some of its investment shortfall. China pledged US$10 billion earlier this year, helping fund some of the $174 billion of investments the company has planned for the next five years.

However, Brazil seems unlikely to mimic some of its Latin American counterparts several of whom have long treated national oil companies as a fiscal cash cow. Mexico’s government relies on Pemex for the bulk of its revenue, but production at Mexico’s lead oil field, Cantarell, has been falling since the mid-2000s, and restrictions on foreign investment have left Mexico behind in exploration of Gulf of Mexico waters. Despite its gains from oil hedging, Mexico’s fiscal accounts remain vulnerable and Mexico’s divided politics make more significant energy reform unlikely, deferring any major output increase.

Venezuela, the site of a series of nationalizations ranging from banks, to cement, to oil, actually showed signs of a truce with international oil companies after having forced foreign oil companies to take smaller stakes in the Orinoco Valley. However, most of Venezuela’s partnerships have been with other state-owned oil companies.

Russia has made changes to its fiscal regime in an effort to lure more investment and exploration in hard to access regions. Russian oil production has been stagnant so far in 2009 after falling in 2008. With the government collecting the bulk of the oil price increase and saving it in Russia’s sovereign wealth funds, Russian oil and gas companies became increasingly reliant on external financing and have scaled back investment. While foreign companies are still unlikely to be allowed majority stakes, conditions are becoming somewhat more attractive at least on the fiscal side as export taxes have been reduced. Early in 2009, the Russian government created tax breaks for fields in the development stage in the Black Sea and Sea of Okhostsk. East Siberian fields and other areas newly being exploited recently received a break on the mineral extraction tax.

Iraq’s government, which is heavily dependent on oil revenues and not restricted by OPEC quotas likewise allowed more oil exports at the beginning of the year. The federal government even allowed exports from the disputed joint ventures between the Kurdish regional government and foreign oil companies. However, Iraq was not willing to make significant concessions on long-term investment contracts, restricting BP and the Chinese National Petroleum Company (CNPC) to low returns. They might, however still need to sweeten the deal for others to perk interest.

Even the United States and Canada have been tweaking their fiscal regimes concerning oil production. In 2008, the Canadian province of Alberta brought in new regulations recalibrating oil sands royalties depending on the oil price. Doing so would provide funds for needed infrastructure to maintain development in the sector. However, at current oil prices, the provincial take is very limited and mostly stems from conventional oil and natural gas production. Given the fall in gas prices and output, the province’s fiscal accounts are thus quite strained in 2009. The United States, for its part, is tweaking its fiscal regime concerning oil producers, as higher taxes on resource extraction are one of the ways that the government hopes to limit the future fiscal deterioration. However, the increase in the excise tax on Gulf of Mexico oil production has been deferred. Further development of these reserves, including the ‘giant’ find BP announced in early September, will rely on clarity about these regulations.

The energy sectors of most OPEC members, especially those in the Middle East, have long been dominated by the national oil companies with the proceeds saved or spent by the governments. This state influence is long-standing however. Some, especially in North Africa have tried to lure new expertise for harder to extract resources. However, some state owned oil companies have sought to increase production capacity, even if current production cuts constrain near term output. Saudi Arabia, which sees itself as the oil market’s stabilizer as it absorbed the bulk of OPEC production cuts was one of few countries to actually add new production capacity in 2008 and 2009.

Meanwhile, as the oil price has increased, so too have some investments. The energy companies of the UAE, including Abu Dhabi’s IPIC and Dubai’s TAQA, have continued and increased investments in oil and petrochemicals in 2009, taking advantage of cheaper prices. Chinese oil joint ventures and loans to oil producers have been on the rise in 2009. Last week, PetroChina continued its international spree. The joint venture with the Athabasca oil sands company provides capital, but also indicates the continuing Chinese interest in this expensive oil source. Given that oil sands production tends to require an oil price above $60 a barrel to make a profit, China’s investment implies a relatively high long-term price floor. The investment will also be one of the first test cases for the new Canadian investment regulations formalized earlier this year. Though a government block of the purchase seems unlikely, some parties in the U.S. have expressed concerns about Chinese investment in Canada’s oil patch.

Resource control is not limited to oil and energy. Last week, China, the producer of over 90% of the world’s rare metals, suggested it might restrict exports of these key inputs for batteries and other new technology. Not only did it suggest reducing export volumes, but its companies have suggested strategic alliances to develop supplies in other countries. Although Chinese officials have backtracked from the proposed cuts, export polices are still a risk.

In short, the global picture seems mixed, with several countries bringing back incentives for the most costly, risky oil supplies to encourage private sector investment. Others are seeking to clarify somewhat clouded regimes. These reforms, if implemented correctly, could give greater certainty to investors. Yet it remains to be seen how these policies might encourage or delay greater investment, which will be needed to meet even sluggish energy demand growth.

Source:
RGE Monitor Dated 09-09-2009