• briefing asia infrastructure aug 15, 2006 • briefing asia energy aug 15, 2006

China National Petroleum Corp was awarded four blocks in Nigeria's licensing round in mid 2005 after it agreed to build a hydropower plant in the Mambila, Plateau State and take a 51% stake in the 110,000 b/d Kaduna refinery.
IJAWS WARN OIL COMPANIES: STAY AWAY FROM PLATFORMS, TERMINALS
Nigerian President Olusegun Obasanjo last month pledged that state-owned NNPC would recruit more workers from the oil states in the Delta, while inaugurating a government council intended to further develop the impoverished region.
But leaders representing the 14-million-strong Ijaw ethnic group rejected the development plan and vowed that attacks on oil facilities would continue.
A spokesman for Ijaw Youths Congress told Platts Tuesday the group still holds out for its earlier demands as conditions for peace in the Niger Delta and warned oil companies to stay away from platforms and terminals.
"We will not be manipulated by this administration, you can see that nothing is happening. The oil companies should stay away as long as the our situation remains the same and our rights continue to be ignored," IJC's Joseph Evah said.
"The [companies] are cooperating because they know we are serious and I believe they will not come back to the platforms while their safety cannot be guaranteed," Evah said.
ANALYSTS SAY ATTACKS LIKELY TO CONTINUE
Washington-based analysts PFC said this weekend's attacks demonstrated the growing sophistication of the militant group. Past attacks were merely gun fights in speed boats against the Nigerian navy while the use of car bombs is unusual and demonstrates the group has continuing access to financial flows.
PFC in its latest report estimates that total onshore production is nearly 1 million b/d, with additional production in shallow water area which are reachable by light water craft. Past attacks, PFC said, were limited to the Forcados area but it appears MEND is capable of attacks beyond this region.
There have been numerous calls to raise the percentage of oil revenues returned to the producing states but at present the Obasanjo administrations's attention remains fixed on the political battle over extending the terms for the presidency and governorships.
Until this issue is decided in the legislature, it is unlikely the administration will devote the political energy to address the question of decentralization and increasing access to hydrocarbon revenues in the delta, PFC said.
Continued MEND or other similar attacks are likely to persist over the short to medium term and any further output disruptions will add to bullish pressure on global markets, it said. --Jacinta Moran, [e-mail]
Story
Document PLATT00020060503e25200053

Shell says Nigeria's Warri calm, no word on resuming output
596 words

2 May 2006

09:41 AM

Platts Commodity News

PLATT

English

Copyright 2006. Platts. All Rights Reserved.
Royal Dutch Shell Tuesday said the situation in Nigeria's southern oil region, Warri, was calm despite a car bomb explosion close to parked tanker lorries on the outskirts of the city at the weekend but gave no indication as to when it might resume 455,000 b/d of production shut in for four months.
"The situation in Warri is calm and staff and contractors have been advised to continue to exercise caution in their movements," a Shell spokeswoman said. Nigerian separatist militants blew up a car packed with explosives on Saturday and again warned oil companies to evacuate staff from the restive region.
There were no casualties but the latest attack has given oil companies, who are struggling to resume production shut in by a violent campaign, fresh cause for concern of more unrest as Africa's biggest oil producer and most populous nation heads towards national elections next year.
Shell, who was forced to declare force majeure on Forcados crude oil exports in February, insists that production will only resume when the security situation improves.
"Production shut-in in the Western Delta remains 455,000 b/d (Shell share of the Joint Venture is 30%), and the force majeures declared for Forcados and EA offtakes are still in place," the spokeswoman said.
"We hope to mobilise teams to visit our installations in the Western Delta as soon as possible. We remain very concerned about the potential environmental impact of oil spills resulting from the attacks on our pipelines and manifolds," she said.
"As soon as it is safe to do so, we will commence assessment of damage and begin environmental clean up. We hope all parties will join us in enabling this to happen quickly."
ExxonMobil was forced to evacuate non-essential staff from the Qua Iboe terminal last week after militants threatened to attack the facility.
A group known as the Movement for the Emancipation of the Niger Delta (MEND), which claimed a previous car bomb in Port Harcourt on April 20, said it had detonated 30 kg of dynamite using a cellphone as the trigger.
"This is the last warning to all oil industry workers. This warning goes particularly to tanker drivers and all involved in the petroleum industry in one way or the other," the statement added.
MEND's statement specifically warned China not to come to their region. "We wish to warn the Chinese government and its oil companies to steer well clear of the Niger Delta," it said.
China last week agreed a $4 billion investment deal in which the Chinese would invest $2-billion in Nigeria's downstream sector in exchange for preferential rights on four oil blocks in mini licensing round planned for this month.
Nigerian President Olusegun Obasanjo last month pledged that state-owned NNPC would recruit more workers from the oil states in the Delta, while inaugurating a government council intended to further develop the impoverished region.
But leaders representing the 14-million-strong Ijaw ethnic group, who say they have been cheated out of the oil wealth, rejected the development plan and vowed that attacks on oil facilities would continue. "We will not be manipulated by this administration, you can see that nothing is happening. The oil companies should stay away as long as the our situation remains the same and our rights continue to be ignored," spokesman for the Ijaw Youths Congress, Joseph Evah, told Platts earlier Tuesday (see earlier story at 1211gmt). --Jacinta Moran, [e-mail]
Story
Document PLATT00020060503e2520005e
World

India's rising star eclipsed by extreme poverty, hunger: : Half of children malnourished

Peter Foster

The Daily Telegraph

854 words

2 May 2006

National Post

FINP

National

A13

English

(c) 2006 National Post . All Rights Reserved.
SHIVPURI, Madhya Pradesh - It is the forgotten face of a new and prosperous India, and it belongs to a little sparrow of a child who is emaciated almost to the point of death.
Her name is Devki and were it not for the intervention of a local health worker she would almost certainly have joined the 1.2 million Indian children who die every year because of malnutrition. She still might.
While Africa hogs the headlines, the celebrity endorsements and the crisis summits, the reality is that half the world's 146 million undernourished children live in just three countries: India, Bangladesh and Pakistan.
A report to be published tomorrow by the UN Children's Fund (UNICEF) will offer some sobering statistics about the world's failure to tackle extreme poverty and hunger.
To the outside world, India is striding toward greatness, with an economy growing at 8% a year and potential markets for foreign investors that made it the star of the show at this year's World Economic Forum in Davos, Switzerland.
However in Devki's village of Sersai Khurd, in the central Indian state of Madhya Pradesh, 435 kilometres south of Delhi, the benefits of the emerging India seem a long way off.
A health worker has arrived to check on Devki's weight and see whether her mother, Gangawati, has been keeping up with the breast-feeding program she was given to try to nurse her baby back to health.
The child is unwrapped to reveal a pitiful little bag of bones whose skin hangs off her like an old man's, but soon she is suckling gratefully at her mother's breast.
The causes of her condition --Devki was born weighing 2.2 kilograms, but within six weeks her weight had fallen to 1.6 kilograms -- are as much cultural as they are due to the grinding poverty of Indian village life.
While Devki guzzles, her twin brother, Rahul, sleeps contentedly on a charpoy, his limbs positively plump by comparison with his sister, stark evidence of the social preference for boys that still rules in India.
The reality, explains a UNICEF official, is that when resources are limited, boys get preferential treatment, even if that means girls starve to death. That is the case with Devki's family, who till just two hectares of unproductive land.
Back in Shivpuri, the nearest large town, an eight-bed emergency feeding centre is filled with babies like Devki who mew and cry in the midday heat. It could be a scene from an African famine.
One little girl, 18-month-old Kiran, weighed just 4.3 kilograms, less than half the recommended weight of a healthy one-year-old, when she was brought to the centre a few weeks ago.
Her mother, Gyan Bai, already has two boys and is almost eight months pregnant with her next child. She has made clear she must return to her village, even if that means the death of Kiran. The new child must take priority, particularly if it's a boy.
Children as starved as Devki and Kiran are just the tip of an iceberg of poverty that, for all the Mercedes-Benz dealerships and new cellphone connections, continues to hold back India.
While not starving, almost half of the country's children are malnourished, suffering from anemia and vitamin deficiencies that render them unable to defeat the infections that cause pneumonia, diarrheal diseases and often death.
Although India's new middle classes are often insulated from the poverty in which most Indians still live, research shows failing to tackle poverty will leave everyone worse off.
A recent World Bank report estimated failure to tackle nutritional issues could negatively affect productivity by up to 5% of gross domestic product.
The contrast between India and China is huge. In China, the prevalence of underweight children almost halved between 1990 and 2002, from 19% to 8%, while in India the annual rate of reduction since 1990 is less than 2%.
Tackling nutritional issues will be key to whether India's wider population enjoy the fruits of economic growth in the decades to come.
Worldwide Picture
- Every year 5.6 million children around the world die from causes linked to malnutrition.
- In 1990, the international community pledged to halve the proportion of underweight children by 2015. At current rates of progress, the world is not on target to meet that pledge.
- There are more undernourished children in India (57 million) than in the whole of Africa (41 million).
- After India, the worst countries for malnutrition are Bangladesh and Pakistan (eight million each), China (seven million), Nigeria, Ethiopia and Indonesia (six million each).
SOURCE: UNICEF, Progress for Children: A Report Card on Malnutrition
Ran with fact box "" which has been appended to the story.
Black & White Photo: Rupak De Chowdhuri, Reuters / Homeless Indian children sleep on the pavement in the northeastern Indian city of Siliguri yesterday. Research suggests the country's productivity is being held back by widespread poverty.
Document FINP000020060502e2520001v
Features - Intellectual Property Protection

Protect your IP; In China and elsewhere, intangible assets are more at risk than most CEOs think

By Bill Roberts

3,070 words

1 May 2006

Electronic Business

EB

36

Volume 32, Issue 5

English

© 2006, Electronic Business, Reed Business Information, a division of Reed Elsevier, Inc.  All Rights Reserved
Bill Gates is no fool, but like many other technology executives, he foolishly underestimates the risk China poses to intellectual property. At the World Economic Forum in Davos, Switzerland, earlier in 2006, the Microsoft chairman touted the conventional wisdom that despite a woeful record on piracy, reverse engineering and other forms of IP theft, China—like Japan and South Korea before it—would sooner or later adopt Western ways of protecting IP.
That's not likely in this decade, not likely in the next—or maybe ever.
"The Chinese don't have much stake in IP, and they aren't likely to develop one," says Kenneth DeWoskin, a senior consultant with PricewaterhouseCoopers (PWC).
Among the reasons: China's economic growth is based on low-cost manufacturing, and IP licenses just add cost; government R&D priorities favor derivative products for domestic markets, rather than true innovation that needs patent protection; and policy makers continue to favor the public good over property rights.
"China's interests are in reducing the cost of IP, not in protecting it," DeWoskin says.
DeWoskin, who has spent most of his 40-year business career in Asia, was a principal contributor to Redefining Intellectual Property Value: The Case of China, a 76-page PWC report published in October 2005 (available at www.pwc.com ). The report encourages Western companies and governments to continue to pressure the Chinese to come around on IP rights, but it also suggests that those efforts might be in vain.
The report says global companies should assume that IP risks in China and other emerging countries will not be significantly lowered for years, if ever. It urges them to "reduce dependence on conventional IP protection mechanisms" by devising business strategies that cannot be easily mimicked by less capable competitors. Specifically, companies should strengthen their brands globally, link value-added services to products, accelerate time to market by adopting rapid versioning and other methods, and use acquisitions and mergers to stay ahead of competitors (see "How to preserve IP value," page 38).
IP laws without teeth
When China joined the World Trade Organization in 2001, it made commitments to protect IP rights and has since refined its IP laws; a cadre of government, academic and business leaders continue to promote stronger IP rights. However, the PWC report offers a slew of examples and argues convincingly that despite these recent changes, historical, cultural, social and economic factors are so different that China may never have the Western-style legal protections for IP that most global companies rely on to protect their patents, copyrights and other intangible assets.
The PWC report's conclusion that reverse engineering, counterfeiting, piracy, theft and other forms of IP misappropriation are widespread is based on documented cases and interviews with CEOs of global companies, mostly in technology sectors.
Other studies support the findings. The Business Software Alliance (BSA), for example, estimates that China's software piracy rate was 90 percent in 2004. The piracy rate is the percentage of software installed without a license, as measured by the BSA. Charlie Barnhart, a consultant with Technology Forecasters who has made several dozen case studies of outsourced manufacturing to China, found that it was common for the foreign OEM to discover that its products had been knocked off for the domestic market.
Todd Sloan, an of-counsel attorney in the San Diego office of Ross, Dixon & Bell and a member of the IP subcommittee of the American Bar Association, says, "China has the mechanisms in place, but the question is how effective and how enthusiastic the Chinese are in enforcing them."
"First-to-file" where?
China has a "first-to-file" patent system, but it's not clear whether that means first to file anywhere or first to file in China. Some Chinese companies apparently believe first to file in China will rule the day. Sloan says he knows of Chinese manufacturers that pay close attention to new products going into production for U.S. OEMs, decide if these products have market potential in China and then file patents for the devices in the Chinese patent office before U.S. companies do.
Another problem: In IP rights cases, if Chinese courts respond at all, it is usually too late to do anything and it is impossible to get an injunction to stop the alleged offenders. "There is slow judgment in the United States, but it is predictable and you can always get a temporary injunction to bring things to a halt," Sloan says.
According to the PWC report, there are many other loopholes in China's patent system. For example, fewer than half of patent filing applications are examined for the novelty of their claims, which is the key to receiving a patent in the U.S. In a situation ripe for fraudulent claims, Chinese examiners merely do the paperwork and grant the patent.
In his experience, Sloan has found that executives of larger companies have a better understanding of the risks than those at small- or medium-size companies.
One executive at a big company who understands the risks is Smith McKeithen, senior vice president and general counsel at Cadence Design Systems. Cadence has customers and an R&D center in China. "For the most part, you see movement in the right direction," McKeithen says. "But I would not kid myself that things will change overnight. There are too many deep cores of self-interest that are well served by someone's sliding over someone else's IP rights."
Sooner or later—or never?
McKeithen also believes there are many important business and government people in China who want the country to move toward a stronger IP protection environment. He and many others in the electronics industry think it is important to keep up the pressure through government channels, trade organizations and one on one between business partners.
The semiconductor industry has taken such a tack. "We've done a number of things over the years to try to ingrain the culture of IP rights in China," says Daryl Hatano, vice president of public policy for the Semiconductor Industry Association (SIA). Although there are a few examples of IP theft from chip makers in China, the problem is not as bad yet as it is with digital content providers, software developers and consumer electronics OEMs, he says. But his membership sees a time when it could be a big threat to chip companies if China does not adopt a stronger IP rights regimen. The more advanced Chinese companies become technologically, the more they would be able to reverse engineer or otherwise steal semiconductor IP, he notes.
Like many executives, Hatano is optimistic that China will eventually come around. "The premise we're working on is that it is in China's self interest to improve IP rights protection for two reasons: One is to grow their own innovation and two is to continue to attract quality foreign investment."
Variations on this "sooner or later" argument—because it is in China's interest—is a common refrain among Western CEOs, repeated by Gates at Davos. DeWoskin says that it is flawed thinking.
"It is an unstudied proposition: As Chinese companies innovate and develop their own technology, designs, know-how, trademarks and brands, IP owners will force the government to move forward to protect these assets. Along with vigorous protection of China's growing IP assets, protection will also be extended to their non-Chinese counterparts. Taiwan, South Korea and Japan are frequently cited as examples of this evolution," DeWoskin says.
DeWoskin adds that those who believe this proposition do not understand the fundamental differences between China on the one hand and Japan, South Korea and others on the other. In those earlier examples, when homegrown R&D efforts began to produce IP worth protecting, they embraced Western-style IP protection. This may not happen in China for a long time.
For one thing, government-sponsored research in China is heavily vested in development, not in basic research (see chart below). In fact, according to the PWC report, much sponsored research in China is dedicated to developing derivations of patented products to circumvent royalty fees.
Adds DeWoskin, "Some Chinese companies have grown so fast that they box themselves into the domestic market. In the course of reverse engineering, they don't develop any R&D function. If they want to export, they get slapped back in countries with real IP laws."
The result, he says: Chinese companies seek markets in "rogue states such as Nigeria, Sudan, Iran, Venezuela and Cuba." These markets are looking for the cheapest goods and don't have any more respect—in some cases less—for IP rights than China. "They are all being exported to by China, and most have natural resources such as oil and gas to trade."
Another crucial point: According to a Chinese government analysis (reported in the domestic press), the nation's growth from 2005 to 2015 will be driven by inexpensive IP. "This view emerged after much discussion in the domestic media about the high cost of foreign-owned IP," DeWoskin says. "In addition, China began to pursue litigation charging key individual IP owners and patent pools with monopolistic restriction of trade."
The theme seems clear: IP rights must be constantly balanced against the public good for the sake of China's economic development (see "Socialist ideology prevails," page 42).
IP value management
Western electronics and other companies face a huge problem, because global enterprises create their value almost entirely from intangible assets. PWC cites a survey of the Standard & Poor's 500 that found that 85 percent of the value in those companies in 1998 came from intangible assets. "In the global economy, the ownership of IP is increasingly separated from production," says DeWoskin. He says this means that IP rights, practices and protection are at significant risk, a reality that major global companies will continue to face in the decades ahead.
Some companies are facing the risk by avoiding China as much as possible. Cognex Corp., which makes machine vision sensors, sells in China but draws the line there. "We talk about China a lot in our management and board meetings," says CEO Robert Shillman. "It appears to be an enormous opportunity but you have no control over IP and anyone I talk to who has done business there is losing money." Cognex has opted to do its manufacturing in Thailand, where IP rights are more respected, and has no plans to set up any R&D center in China, like many other electronics companies have done.
The PWC report urges companies to rely less on traditional legal protections in China and think about IP more broadly. PWC calls it "value management." Companies should assume that products will be knocked off and find ways to constantly stay a few steps ahead of the Chinese with the latest and greatest. Global companies should be more capable than Chinese manufacturers of bringing leading-edge products to market faster by accelerating the versioning cycle. They should also adopt life cycle price management that takes advantage of leading technology for price premiums but also drops prices more quickly, making it more difficult for competitors to follow.
Companies also should devise strategies in which the product is not the only differentiating factor; rather, value-added support and services are the intangible assets the competition cannot copy. The report specifically cites Apple Computer's iPod as one such example. It is basically an MP3 player in a world full of such products, but with its design, brand, user interface and music purchasing services, it is much more than an MP3 player, and customers are willing to pay a premium.
"We see some companies pursuing one or another of these strategies but none that are sufficiently integrated throughout their business model," DeWoskin says.
DeWoskin says global companies need to understand the stakes. "The story of this decade is that more and more countries are less interested in protecting U.S. IP rights."
Do you feel your IP is at risk in China? Send your thoughts to [e-mail] .
SIDEBAR
How to preserve IP value
By Bill Roberts
A company may not be able to protect IP through legal means in China, but it can fashion business strategies that preserve IP value.
Although PricewaterhouseCoopers (PWC) hasn't discovered one company that makes the broadest possible use of its recommended strategies, it does offer examples of companies that incorporate some of them.
Among them are Linux distributors Red Hat and MontaVista, which have successful business models based on service, support and rapid versioning, because open source software involves no IP protection. "The service they provide generates more value for their customers than the software would on its own," the PWC report notes.
PWC cites Cadence Design Systems as understanding the importance of linking services and support to software. "Even if the software is pirated, buyers of the pirated software cannot gain access to services necessary to make the software useful," it notes.
Smith McKeithen, senior vice president and general counsel at Cadence, says Cadence has fewer piracy problems than consumer software companies in China, because of the complexities of the EDA tools it sells. Anyone using a pirated copy is not getting the most advanced version. The more complex the design, the more likely that customers will need support and service, virtually guaranteeing that they are willing to pay the license fee.
Cadence's bigger problem has been that it might sell five seats to a company, only to learn that the software is being used by 100 people. In such instances, Cadence finds that the soft-glove approach works better than the threat of legal recourse. "Your salespeople sit down and have a conversation with the company," McKeithen says. "They ask how it is deploying the software and if it is using it effectively. You try not to have inflammatory conversations that stir up national pride."
Another strategy is rapid versioning, in which companies maximize the value of new features and functions, drop prices sooner and move on to the next new product.
ATI and Nvidia are rabid practitioners of rapid versioning in the PC graphics processor market, not because of IP value erosion in China but because the graphics processor market is inherently highly competitive.
"Both Nvidia and ATI are built for rapid versioning," says Dave Orton, ATI's CEO. "We do it so we do not get commoditized. We are faster than Moore's Law. We bring something that is better—not just cheaper—to the market every six or 12 months. In most cases, we bring out something entirely new."
ATI has a significant patent portfolio, which Orton views as purely defensive—something to throw in the other guy's face if ATI is threatened with a suit. "If you look at ATI and Nvidia, we're generally too fast to be litigious," he says. ATI has had opportunities to pursue patent suits against smaller players and has chosen not to. "We figured that it was more important to keep up our rapid versioning pace," he says. "Whether it is in China or the U.S., the best barrier you can create is the gap in innovation."
As he looks around the electronics industry, Orton sees similar rapid versioning efforts in the PC industry, especially by Advanced Micro Devices and Intel, and he sees them increasingly in the