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GOVERNMENT INTERVENTION: Where an investment attains national importance, it is not uncommon for unexpected claims to arise around compliance, environmental impact and the (re)interpretation of the JV agreement.


In some cases, political forces can change the rules of the game even after the venture is underway and substantial CapEx has been invested. JVs, Production Sharing Agreements (PSAs) and Production Sharing Contracts (PSCs) for oil and gas exploration projects in Africa, where politics are a primary concern, need to assess the likelihood and potential impact of government concessions being agreed and adhered to. They must also consider the potential level of government support, or expected intervention as the venture establishes itself and becomes operational.


One area in which this frequently plays out is in the recruitment of employees. African regimes often mandate that extremely high proportions of the workforce be local, irrespective of the availability of technically competent locals. This can mean that the JV struggles to employ technically competent people and/or is forced to use ineffi cient and costly employment models to work around this. For instance, IT vendors and suppliers may not be available in all territories and the management team may fi nd local customs and preferences require them to employ many more individuals than planned.


Oil and gas projects also frequently struggle with a lack of certainty around government concessions which can change at limited notice depending on the political ‘wind’. Finally, government under-investment in an already challenged infrastructure can lead to unforeseen operational challenges.


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GOVERNANCE: Different standards, behaviours and traditions apply, and local knowledge is all important.


Whether you are dealing with governments, national oil companies or corporations, it is essential to understand the true motivation of joint venture partners, and actively manage how these motivations change over the years. For governments granting mineral or exploration rights, for instance, international oil companies need to appreciate that their joint venture partner will want to be seen to deliver value to their electorate, whether through equity rights, resources or assistance with infrastructure projects. Periodic governance ‘health-checks’ are essential to ensure these disparate needs are refl ected in the ongoing JV governance framework.


IT IS INCUMBENT ON COMPANIES TO THINK CAREFULLY


UP FRONT ABOUT WHO THEY WILL PARTNER WITH, WHAT THEIR FORMAL AND INFORMAL AGREEMENTS SHOULD LOOK LIKE AND HOW THEY WILL GOVERN THE VENTURE


© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member fi rm of the KPMG network of independent member fi rms affi liated with KPMG International Cooperative, a Swiss entity. All rights reserved.


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