Question 1:
The investments most vulnerable to political risk are those that depend directly on
the balance of payments of a country, such as, for example, bonds of the republic,
debt guaranteed with the nation.
While those that are least vulnerable are confiscation, policy changes and transfer.
Factors that influence an investment’s vulnerability are government policies, wage
costs and depreciation.
The oil pipelines can serve for a long time and are almost immobile, and they have
high vulnerability, so on a scale from 1 to 10 it would be 7.
Question 2:
Political risks affecting the ability to receive interest payments can be considered as
Nationalization, Gradual expropriation, forced divestiture.
Nationalization and Gradual expropriation: The state-owned Kazakh company KMG
bought half of BG’s share and at a later time, Kazakh officials demanded that the
KMG to be made of co-operator of the Kashagan field and later the western oil
companies agreed to allow KMG to double its stake in the consortium.
Forced Divestiture: Petrokazakhstan, a Canadian owned company was forced to sell
out its operations in southern Kazakhstan to a Chinese company.
The most critical risk is Nationalization.
Question 3:
According to the rising price of oil, new deals have to be set between the host
country (Kazakhstan) and the consortium so the contract should be renegotiated in
light of the higher market price.
Yes, being a member of the consortium doesn’t change the fact that the contract
needs to be renegotiated.
Question 4:
International businesses can protect themselves from these geopolitical struggles by:
- Keeping an outward-looking approach: it is about keeping an eye on the politics in
regions where business operates and learning from the successes and pitfalls of
other MNCs operating in similar geographic locations.
- Looking at the data: External data can show problems on the horizon.
- Being prepared: Creating a corporate foreign policy and carrying out geopolitical
due diligence.