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with Rob Otty, Managing Director, Norton Rose South Africa

22.05.2012 / Energyboardroom

In a recent interview with Engineering News, you remarked that your greatest professional achievement was your participation in the merger between Norton Rose and Deneys Reitz. Can you begin by elaborating on why you consider this merger a personal milestone?

This was the first meaningful international tie-up of significance in South Africa. Our firm had been through a process of strategic review and we concluded that we wanted a global footprint, and a more broadly focused Africa practice. We were fortunate in identifying partners in Norton Rose who have very similar views to our own. I do not believe that one can say the same for many mergers—often, you go into merger discussions for a particular reason, and do not necessarily come out at the other end with what you sought going in.

We came out of the merger with a great deal more than we had anticipated. Culturally, the benefits are clear, in the sense that Norton Rose are genuine partners. They are as passionate about Africa, and South Africa, as we are. They are as passionate about transformation in South Africa as we are—indeed, we deal with transformation at global board level. This says a lot for the ethos of our partners and the global firm.

From an expertise perspective, we are witnessing a prime example of our ability to leverage off expertise and capacity in the group now that South Africa is undergoing its renewables surge. We have been able to tap into Italy, Amsterdam, London, etc. We have brought people into South Africa from abroad, and created opportunities for our lawyers in other countries. The ability to access this broad talent pool has been incredible. It is a matter of expertise, skills, management resources, intellectual property in the sense of precedents and knowhow. Our partners have brought world-class skills to the table.

Has the merger brought about any challenges, as well?

We took a decision very carefully. We accepted, for the purposes of our discussion, that we may lose all of our referrals from other law firms. Whilst we have lost some, due to conflicts, we have certainly not lost the majority. The Deneys Reitz brand had been around since the 1920s, but our clients understood and accepted our decision. The majority of our clients are multinational organizations, so they appreciate the global model and understand the necessity of rebranding. The rebranding itself has been phenomenally successful. In reality I think any fears or concerns we had have been shown to be misplaced.

Norton Rose, on a global level, is recognized as a leader in energy practice. On a local level, South Africa is mainly a mining-based economy. Nonetheless, can you introduce to our readers your capabilities in the energy sector in South Africa, as well as the Sub-Saharan region?

We have historically had a very strong oil and gas practice, primarily based on the strengths of our Cape Town office. When the renewables stream started, and the government began talking about renewables in earnest, we recognized the market would head in this direction and we responded accordingly in terms of our skillset.

To put this in context, during Bid Window 1, of the 28 preferred bidders, we represented 16. For Bid Window 2, which has just been announced, we represent 50% of preferred bidders. There is no doubt that we are the leading energy law firm in South Africa. We have been able to take our existing expertise, leverage our global capability, and provide a very interesting value proposition for our clients. We have a low cost base, international expertise, and the ability to do things that few lawyers in South Africa are able to do. I am very proud of our energy teams. They have become significant contributors to the firm.

Do you see this balance enduring?

I believe that our current revenue mix will remain stable for at least 18 months to 2 years. The renewables space is opening up, and will continue to open up—but the growth of the sector will probably slow over the next 5 years. However, at the same time, we are now following clients into Africa. For example, we have been appointed by a consortium looking to produce 8000 megawatts of power on the West Coast of Africa. We have been busy putting the agreements together and consulting with African governments. Our focus on energy will endure. Will we see the same massive pace in the local energy sector continuing indefinitely? I do not believe so. Nonetheless, we are tapping into new opportunities to assist international companies entering the market.

Norton Rose was quoted as a major player in the Renewable Energy Feed-In Tariff (REFIT). Can you elaborate on your role in this?

We played a role across the board. We have been advising funders, developers, and contractors. In a given project, we are involved with any of those three. We act for the four large corporate banks in South Africa and for major international financial institutions. We act for development funders including organizations like IDC and DBSA. We are truly involved across all relevant areas.

The firm has a strong track record across South Africa. If we look at the oil and gas sector, however, there are a number of other regions booming on the African continent, notably including new areas like the East Coast, following recent gas finds in Tanzania and Mozambique. Have you seen this scenario changing the opportunities in the Sub-Saharan region if we speak about energy?

I believe activities are becoming more and more focused. With what is going on in Iran at the moment, we have seen places like Mozambique and Angola enjoying a greater focus. The turmoil in the Middle East has also shifted a lot of attention to Africa.

East Africa certainly shows an interesting trend. There have been increased opportunities in Ethiopia and Kenya. We believe these will continue. The same can be said of Cameroon. Our focus is, hence, more broad than Sub-Saharan Africa. In Nigeria, for instance, I believe there will be a boom over the next five years if the authorities can get the terror problem under control. If you look at the proposed change in legislation for the petroleum industry in Nigeria, there is set to be a flurry of M&A, funding and disputes activity. There are great opportunities for lawyers. We will continue to look at new areas in Africa to assist energy companies.

Local content has increasingly concerned many of our interviewees that are looking into opportunities in African growth markets. Is it something they should be concerned about?

It should not be a source of concern; rather, organizations should be conscious of its existence. Companies should analyze the domestic markets before they decide if and how to invest. This should not mean that a company does not enter a market; it means that it must strategically structure and secure its investment.

Do you see room for Norton Rose to provide greater comfort to its clients about such matters?

That is exactly the role we play. We provide comfort to clients in how they structure and how they secure investment—because this is of primary importance to the client. We ensure that things are done in such a way that despite local challenges, a client may have access to international justice. Or, we may look at how investment is structured financially: will a local resource base be utilized, or will it be global capital? How will that capital be protected?

Another important role for an organization like ours should be to close the perception gap. At the moment, we see a huge number of active corporate investors in the continent. They are confident in the continent and see value in their investments. Investors that have not yet entered the market, however, still worry about political instability, corruption, and lack of security.

Organizations like Norton Rose can play a role in conveying the realities of African investment. We can help spread a message about the positive aspects of operating in the territory. This is something that we will continue to focus on going forward.

Do you feel that there are false prejudices that the international community harbors about the African market?

I would not call it ‘prejudice,’ but rather a lack of understanding. Take opportunities in China, India, and Africa. New investors seem far more comfortable allocating their capital to China or India. And yet, the very issues they are concerned about in Africa—things like political instability, democracy, corruption—are rated as less risky in 13 African jurisdictions than India and China. There is a disconnect between perception and reality. Investors should not forget the returns in Africa are equal to, if not higher than, potential returns in China and India for the next 5 to 10 years.

South Africa has recently joined the ‘BRIC’ countries China, India, Russia, and Brazil, forming what is now known as the ‘BRICS’ markets. Do you feel that this status has helped to change perception about South African risk?

If we look at the time period since we joined the BRICS, there has not been a significant change in investment patterns. South Africa still receives a small percentage of international FDI when compared to the other BRIC countries. I think South Africa has yet to learn how to truly leverage the opportunities created by our participation in the BRICS.

South Africa is a refining hub in Africa—on the heels of Egypt, Algeria, and, to some extent, Nigeria. Minister of Energy Dipuo Peters mentioned to us that there is wave of investment coming in the refining sphere to refurbish and replace aging facilities, along with a slew of new legislation to affect greater attractiveness in the market. How do you expect this will affect the refining sector in South Africa, and do you foresee challenges?

Simply from a capital perspective, this will be a huge challenge. We can either ignore our current problems in the refining space and miss great opportunities, or we can make the investment and capitalize on the opportunities. If we do make the investment, I believe we can leapfrog ahead of any of our competitors on the African continent. We certainly have the infrastructure and capability to do so. It is a matter of securing the investment from both private and public sources. The major oil producers will probably adopt a ‘wait and see’ approach. They will want equal input from government, and state subsidies. My suspicion, however, is that they will see the opportunities in the sector for what they are, and if government funding is not forthcoming, they will allocate the capital themselves. The prospects are too significant to ignore.

As you mentioned, there is currently a strong focus on renewable energy. Is there a chance that this reality can limit the attention placed on refining?

If the situation were such that the shift to renewables would happen overnight, then I would say yes. However, we all know that realistically, this will not be the case. If we look at the oil reserves across the continent, then I would be very surprised if attention is not given to refining at this time. There is still a huge scope for traditional oil and gas operations, and I cannot imagine that anyone would yet take their eye off that industry.

South Africa, being the most developed economy on the continent, has a significant role to play in pushing renewables forward and going towards a greener economy. Do you feel that the rest of the continent—which has major infrastructure challenges and concerns that are perhaps much more pressing than green energy—is also ready to make the switch to renewable resources?

The answer is yes and no. Many countries are seeing renewables as an opportunity to skip the first stage. It does not matter what they need from an energy perspective—rather, they need the infrastructure. They can either invest in infrastructure in traditional energy, or they can decide to skip that phase and go straight into renewables. Many of them are doing so, particularly in renewables like solar, hydro, and wind.

The answer is yes in those instances, and no in others. For instance, I would be surprised to see a huge upsurge in renewable energy in Nigeria within the next 5-10 years. The country still has large oil reserves. They have barely tapped into gas. I suspect that there, you will not find a major drive towards renewables. In countries like Tanzania and Rwanda, on the other hand, we are seeing increasing investment in renewables.

South Africa also has a role to play in driving renewables investment throughout the continent. We see a lot of local investment in the sector. The companies involved in these domestic projects are already looking at opportunities outside of South Africa.

We understand that these have been your first 18 months as managing director of the firm. On a personal note, how has this first one and a half year gone for you, and what priorities have you set going forward?

It has been a great year. We have seen fantastic growth in size and revenues. One would always like to look back on their first year and say that it has been a good one, and I feel I can genuinely say this. I am very proud of what our team, locally and globally, has achieved.
Going forward, if I could sum up our plans in two words, they would be ‘clients’ and ‘Africa.’ We will be expanding our Africa practice and we will focus even more on understanding the businesses of our clients, particularly in our key strength area. I expect that clients will see great improvements in our service lines and expertise in this respect.

What is your main challenge, going forward?

Locally, our main challenge remains transformation. This is something that we want to truly get right. It is not about numbers for us: we want Norton Rose South Africa to reflect society. We cannot keep looking at what others have done; we must get it right within our own organization. We get it right by making sure that we are seen as a successful firm in which black lawyers thrive and succeed.



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