Policy Risk Index Released for the Belt and Road Energy Resources Investment

Political Risk Assessment Report onthe Belt and Road Energy Resources Investment (“Report”) was recently releasedin Beijing and concurrently Renmin University of China released the EnergyInvestment Politics Risk Index (“RUCIEIPRI). The said report and index werecompleted by a professional research team led by Xu Qinhua, DeputyDirector-General of Energy and Resources Strategy Research Center under RUCNational Development and Strategy Institute, Director General of RUCInternational Energy Strategy Research Center and Professor of RUCInternational Relations School.

The Report reveals that with different energy resourcesendowment of China from the nations along the Belt and Road, energy and investmentcooperation will enhance energy security of the nations along the Belt and Roadreduce regional energy poverty and improve the quality of life of people in theseregions, in the meantime, lay a solid foundation for China to cooperate with thesecountries in other fields. Therefore, energy sector is the top priority inimplementation of the Belt and Road Initiative. It is pointed out in the Reportthat investment always come along with risks and energy investment is always inlarge amount, which means that energy investment has greater risk. Among theserisks, political risk is the most difficult to be qualified and controlled. Thereport defines political risk as  changesuncertainty resulted from changes of complex and multiple factors includingpolitics, economy, society and ecological environment. It divides politicalrisk into high and low level. Based on research on index of domestic andforeign investment, the Report innovatively added energy resources andenvironment and climate, conducted index design for 39 indicators involving 6perspectives and firstly released Renmin University of China Energy InvestmentPolitical Risk Index, based on which measures political risk of each countryalong the Belt and Road.

According to the Report, Singapore, Malaysia and UnitedArab Emirates are categorized as countries with low political risk for energyinvestment; 22 countries with relatively low political risk for energyinvestment include Kazakhstan, Saudi Arabia, Poland, Brunei, Vietnam, Russia,Oman, Qatar, Kuwait, Hungary, Israel, Estonia, Romania, the Philippines,Mongolia, Thailand, Azerbaijan, Latvia, Slovenia, Indonesia, Lithuania andGeorgia; 28 moderate investment risk countries covers Iran, Turkey, India,Slovakia, Czech Republic, Bahrain, Bulgaria, Egypt, Turkmenistan, Serbia,Albania, Myanmar, Kyrgyzstan, Cambodia, Laos, Sri Lanka, Belarus, Iraq,Croatia, Pakistan, Armenia, Bangladesh, Tajikistan, Ukraine, Yemen, Jordan,Bosnia and Montenegro; 8 relatively high investment risk countries involvesSyria, Lebanon, Moldova, Macedonia, Uzbekistan, Maldives, East Timor, Bhutanand 3 high-risk investment countries are Nepal, Afghanistan and Palestine. Nocountry is believed to be having very low or very high investment risk in thisreport.

According to the report, high political risk areas withvery low political risk assessment score for energy investment are mainlylocated in South and West Asia, North Africa, the region's political riskrating dimensions low, mainly due to frequent wars, rampant terrorism and lowgovernance capacity; some Middle East and southern European countries havecertain investment risks; in Southeast Asia and other CIS countries, theoverall investment risk is not too high; investment risk in Mongolia and Russiais also in a relatively stable state. The Report said that the success of theBelt and Road Initiative lies in the construction of "Silk Road EconomicBelt". Russia and Central Asian countries are important countries along the"Silk Road Economic Belt", so we need to do a careful analysis of thehistory and current situation of international energy cooperation of thesecountries, select the optimal mode for the Chinese energy investments andreduce challenges presented by political risks. In the international energycooperation with Russia and Central Asian countries,  the government, energy companies, financialinstitutions and international organizations play different roles.

As thepower of the national level, government is a pioneer and supporter of theprojects. Energy companies are the contractor, operator and maintainer of theproject. Financial institution is critical to the success of a project.Commercial banks, especially state-controlled banks, play an important role infinancing large-scale energy projects. National organizations provide channelsfor consultation and solution of problems for two or more unfamiliar countries.International environmental and human rights organizations play important role inreducing environmental impact of energy projects and safeguard the interests ofthe local population. The optimal mode of energy investment should integrateabove mentioned five vital parties to minimize risk.

Inaddition, the report finds that the impact of climate on energy cooperation inthe region is gradually rising. In the context of addressing climate change,environmental laws and regulations of each country are not the same. Somecountries have established strict carbon emission standards; some countries aretrying to conduct energy restructuring; some countries exclude certain types ofenergy. Chinese energy investors should carefully study the legal systemsenvironment before release investment to avoid loss. They should also cooperatewith local governments and relevant authorities for early warning ofenvironmental risks and take on social responsibility. The report also pointedthat the issue of climate change and environmental issues are not justconcerned at the government level. Pollution or carbon emission resulted from energyinvestments may also generate opposition or protests from the non-governmentalor international organizations. Enterprises conducting energy investmentoverseas should have environmental protection awareness, build effectivecommunication and response mechanisms and improve the capability of dealingwith trans-boundary pollution. Experts noted that t the NPC energy index releasedby the Report is China's first professional assessment to political risk forforeign energy investment, which will enhance the right to speak our country inthe international market and provides an important reference for our governmentto develop policies and for enterprises’ decision making.