Managing geopolitical risk
Political risk relates to the preferences of political leaders, parties, and factions, as well as their capacity to execute their stated policies when confronted with internal and external challenges. Changes in the regulatory environment, local attitudes to corporate governance, reaction to international competition, labour laws, and withholding and other taxes, to name but a few, may all be influenced by hard to discern shifts in the political landscape.
For global energy companies, effectively managing geopolitical risk is a strategic imperative. Cross border expansion to fuel corporate growth is commonplace, not only for exploration and production activities, but also for transportation, marketing and refining operations. In some cases, oil and gas reserves are located in troubled or developing markets where considerable cultural, infrastructure, security or technology challenges must be met. At the same time, population growth, especially in Asia, is creating new demand for fossil fuels. Sufficient supply must be in place with supporting infrastructure and distribution to meet these high growth markets.
Markets of particular interest to energy companies seeking to resolve supply challenges or grow their stake today are Russia, the countries of the former Soviet Union, much of North and West Africa, as well as parts of Central and South America. Emerging centers of high demand include China and India. According to the Energy Information Agency, energy demand in these emerging economies of developing Asia is projected to more than double over the next quarter century.
How PwC can help you
Our global network:
Leveraging PwC's global network is a significant competitive advantage for our clients as they manage geopolitical risks:
- We have Centres of Excellence in key energy regions with more than 3,100 specialists serving oil and gas companies full time.
- Our industry specialists understand both the client's business and the local dynamics of doing business in a particular territory; therefore, clients save valuable time and mitigate risks, including political risks.
- Our tax specialists, for example, balance the tax opportunities and risks in a new reporting location to manage the client's overall effective tax rate changes proactively.
Political risk assessment:
- PwC and Eurasia Group have brought together a team of experts to build a Political Risk Assessment (PRA) diagnostic and monitoring methodology that enables companies to isolate and assess the contribution of political risk to their overall risk profile, manage these risks, and identify and capitalise on unexploited opportunities.