Interview

Though globalisation has played a vital role in developing economies across the world it has also created numerous challenges for the industry. It has also increased the volatility of the fluctuating energy market and the unexpected arrays of factors have amplified the risks in the energy industry. Among the many risks, the emerging risks in cross border business have changed the global energy markets. Pavani Reddy, Managing Partner, Zaiwalla & Co. LLP talks about the challenges In Cross-Border Business as well as shares provisions to resolve the critical issues impacting the economies.

By Namrata Nikale Tanna, Oil Asia Journal

Reddy : One of the fundamental areas of concern is the threat of the current geopolitical climate spilling into the global business agenda. For instance, in countries including the US, Britain and European Union, both mainstream politicians and fringe political outfits have started to question the negative impact of globalisation of trade on local businesses, calling for tougher restrictions and tariffs to retain the local competitive advantage. The United States under President Trump has already escalated this notion by introducing trade tariffs on certain Chinese imports including on steel, further escalating concerns of an impending international trade war.

There are increasing concerns that the oil markets, which is susceptible to geopolitics, may be pulled into the global tariff wars, especially as the US is set to emerge as the largest oil producer in the world by the end of 2018. The country has already started exporting crude, including to India, and this has already created power shift.

Reddy :Apart from the politically induced challenges, the key cross-border business challenge in the sector is certainly the aspect of energy supply. With countries increasing their demand for energy usage, especially in Emerging Markets, the supply and demand is usually met through the purchase of oil and gas from energy exporting countries such as Saudi Arabia and Qatar. One of the preferred and cost-effective methods of transportation is via submarine or land pipelines. When these oil and gas pipelines traverse through two or more countries, they are governed by international laws.

With respect to submarine pipelines, there are relatively adequate international rules in the context of UNCLOS 1982. By contrast, there is no uniform legal framework for on-land pipelines. Only some general rules are applicable. The various regional legal frameworks and multilateral instruments about the cross-border pipelines are often open-ended, leaving many legal issues to be solved by international law. While cross-border pipelines are an efficient and common method for transport of oil and gas over long distances, the surrounding legal framework isn’t as efficient to offer adequate support.

OAJ: May we request you to suggest some provision that will help resolve the challenges in cross-border business in the industry?
Reddy :They should improve and expand the international law on oil and gas pipelines to create a single framework of governance. However, this is easier said than done as it would need a serious non-partisan governing body to be set up on an international level which would require drafting a charter that will be accepted and voted by all member of the board. The organisation should also be able to monitor international oil and gas pipelines as necessary, synergies between existing bodies such as the OPEC and IEA, and should also have the capacity to arbitrate resolutions between contesting parties.

OAJ: In today’s volatile, unpredictable world, multinational organizations face an astounding array of challenges, could you possibly throw some light on how socio-economic factors also increase the risk in the cross border business in energy industries?
Reddy :The underlying risk elements for Multi-National corporations are similar across industries – the aspect of geopolitical scruples overblowing into trade retaliations and restrictions. Sanctions are one such tool used by western governments to curtail the cash purse of foreign economies perceived as threats. The sanctions imposed on countries such as Iran and Venezuela for instance has crippled the oil and gas industry in their countries, deepening their economic problems. Apart from local industries, international companies which operate out of / do business with the sanctioned countries get affected.

OAJ: Which countries should work on the complexities of their cross-border regulation process and also we would like to know the countries with the best regulation for the cross-border business?
Reddy: The European Union is one of the success stories for cross-border business because of the single law framework governing the member countries. Similarly, the Gulf States have also formed a working cooperation for cross national trade. Such agreements are an effective means to cooperation. The Energy dependent countries such as India and Pakistan should also ensure greater cooperation to receive a stable supply of oil and gas.

OAJ: What are the main risks that project patrons need to think about before starting new projects?
Reddy : Apart from assessing the political and economic climate of a country, the most important area of surety organisations and businesses should look for has to be the legal framework and the dispute resolution mechanism. In countries such as India, where the legal system is currently far from robust, it is vital that businesses draft contracts with dispute resolution through interracial arbitration as a means to achieve fair and faster readressal

OAJ: The dynamic natures of geopolitics in the various neighbourhood makes building energy pipelines a humongous challenge both in political and commercial terms, what is your opinion on the same & how can we overcome this issue?
Reddy : The only way to create an effective network would be through close cooperation and union between countries. This would also have to be supported by a robust lega framework in place to provide dispute resolution as required.

OAJ: Finally, is India’s regulation flexible and what do we need to learn and implement to boost our economy?
Reddy : The current legal system in India needs a reformation to produce a faster and efficient case handling. This is the most important area of concern for India at the moment, and one means to achieve this would be via opening up the Indian legal system to international best practices. By introducing foreign firms into the system, India will benefit the knowledge sharing and achieve a competitive playing field. This will also attract confidence of international businesses which India is ardently courting.

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