Transcript Energy Investment Outlook for the APEC Region

Financing Energy Projects
in Developing & Transition Economies
APEC EGNRET Workshop on Financing New and
Renewable Projects
12-13 May 2004, Hawaii
Yonghun JUNG, Ph.D
Vice President
Asia Pacific Energy Research Centre
Total Primary Energy Demand in APEC
(1980-2020)
TPED is expected to grow at an annual rate of 2.1 percent (1999-2020) and it is translated into
$3.3 trillion to $4.4 trillion of new investment requirement.
Mtoe
10000
NRE 1.1 % p.a.
9000
Nuclear 1.7 % p.a.
8000
Hydro 2.7 % p.a.
7000
Natural Gas 2.6 % p.a.
6000
5000
Coal 2.1% p.a.
4000
3000
2000
Oil 2.1% p.a.
1000
0
1980
1990
Oil
Coal
1999
Gas
Hydro
Nuclear
(Source) APERC (2002), “Energy Demand and Supply Outlook 2002”
2010
New and Renewables
2020
Energy Growth by Region (1999-2020):
Oil, Coal and Natural Gas
Significant proportion of new investment will be required in developing economies.
Mtoe
1,200
Oceania 3%
1,000
800
SEA 16%
NEA 10%
Oceania 1%
Oceania 2%
SEA 12%
NEA 11%
LA 3%
LA 3%
China
27%
600
SEA 9%
NEA 10%
LA 12%
400
Russia 7%
China
42%
200
NA 35%
Russia 16%
China 14%
Russia 19%
NA 34%
NA 13%
Oil
North America
Russia
Coal
China
Latin America
Natural Gas
Northeast Asia
(Source) APERC (2002), “Energy Demand and Supply Outlook 2002”
Southeast Asia
Oceania
Total Investment Requirements
2000 – 2020, by Infrastructure
Total = Trillion 1999 US$ 3.4 to US$ 4.4
Coal and delivery
costs
3%
Electricity
generation and
transmission
49%
(Source) APERC (2003)
Oil and gas
international trade
9%
Oil and gas
pipelines
16%
Oil and gas
production,
processing,
petrochemical
23%
Total Investment Requirements
2000 – 2020, by Economy
China
United States
Russia
Canada
Mexico
Korea
Japan
Indonesia
Thailand
Australia
Malaysia
Chinese Taipei
Chile
Vietnam
Singapore
Philippines
Peru
Hong Kong
Papua New Guinea
New Zealand
Brunei
1,307
762
689
288
243
195
162
137
103
95
91
69
68
59
48
41
25
10
7
4
4
0
(Source) APERC (2003)
200
400
Low limit
600
Hi Limit
800
1999 Billions US$
1000
1200
1400
Energy Investment
Requirements by Region (2000-2020)
China takes the largest share (29%), followed by North America (24%) and Russia (16%).
Northeast Asia
10%
Latin America
8%
Oceania
2%
China
29%
Southeast Asia
11%
Russia
16%
(Source) APERC (2003)
North America
24%
Share of Energy Investments Relative
to the Size of Economy (2000-2020)
Developing economies of APEC will require larger size of energy investment relative to GDP.
Japan
Hong Kong
New Zealand
United States
Chinese Taipei
Australia
Korea
Peru
Mexico
Philippines
Singapore
Canada
Thailand
Chile
China
Indonesia
Malaysia
Brunei
Russia
Vietnam
Papua New Guinea
-
(Source) APERC (2003)
0.15
0.18
0.27
0.28
0.75
0.76
1.27
1.40
1.41
1.49
1.54
1.57
2.31
2.60
2.62
2.65
3.07
3.37
4.39
4.60
1.00
2.00
3.00
4.00
Percentage
5.00
8.38
6.00
7.00
8.00
9.00
Historical Trend of Energy Investments
for Utilities in Selected Member
Economies
Share of Energy Investment in GDP
The relative size of energy investments greatly vary depending on the level of
economic development, industry structure and living standards.
7%
Viet Nam
6%
5%
4%
China
3%
Canada
Korea
2%
Japan
Indonesia
1%
USA
Mexico
0%
0
5
10
15
20
25
GDP per capita (Thousand 1990 USD)
(Source) APERC (2003)
Canada
China
Indonesia
Mexico
USA
Viet Nam
Japan
Korea
30
Risks for Energy Sector
Investment
• Economic Risks
– Completion Risk
– Discount Rate Risk
– Currency Risk
– Environmental Risk
– Raw Material Supply Risk
– Infrastructure Risk
• Political Risks/ Institutional Risks
– Political Violence
– Expropriation Risk
• Force Majeure
Lessons Learned from
the IPP Projects in Asia
Economy
China
Indonesia
Thailand
Project
Financial Risk: Estimated rate of return was 18%, however,
Shiajiao B and C
government placed a cap at 10%. Newly offered low rate of
stations in Guandong
return has prevented new project from taking off.
Currency Risk: Devaluation of the Rupiah made PLN
Paiton power plant
unable to cover the initial contract rate at $0.055/kWh, and
PLN will not pay more than $0.03/kWh.
Economic Risk: In 1999, 4 of the 5 international consortia
Phase I of the project project agreed to delay the project to help EGAT to cope with
over supply.
Phase I and II of the
IPP project
Chinese
Taipei
Korea
(Source) APERC (2003)
Reason for Failure
Phase III of the IPP
project
SK Taegu project
Lack of local support: 2 IPPs out of 8 were cancelled due
to the lack of local government support.
Infrastructure Risk: 6 IPP project plans were submitted and
Taipower considered to make power purchase agreements,
however, due to the lack of transmission line, projects in the
central and south regions have togher time, while projects in
the north have a good chance.
Infrastructure Risk: Taegu Electric was planning to build
two LNG fueled combined cycle power plants, but the
problem of lack of industrial water supply and difficulties in
laying down pipeline networks delayed all the construction
work.
Share of Energy Investments Relative
to the Size of Economy (2000-2020)
Developing economies of APEC will require larger size of energy investment relative to income level.
9%
Papua New Guinea
Energy Investment Needs as Share of
Gross Domestic Product, 1999-2020
8%
7%
6%
5%
Viet Nam
Russia
4%
3%
2%
1%
China
Brunei Darussalam
Malaysia
Chile
Thailand
Indonesia
Mexico
Peru
Philippines
Korea
Chinese Taipei
NZ
0%
$0
$5,000
$10,000
Hong Kong, China
$15,000
Australia
$20,000
GDP Per Capita in 1999, 1999 US Dollars
(Source) APERC (2003)
Canada
Singapore
Japan
$25,000
USA
$30,000
Sizes of Savings Relative to GDP
(Group A, B and C)
Proxy for domestic capital availability
Less than enough capital availability for developing economies of APEC.
Ratio of Savings against GDP
35.0
30.0
25.0
20.0
15.0
10.0
5.0
Group A
Group B
Group C
0.0
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
(Source) World Bank (2002), “World Development Indicators”
Development of Bond Markets in Asia
Development of capital market is needed to efficiently channel the
available financial sources.
Economy
Domestic Bond Market as
Share of GDP
Public Bond Market as
Share of GDP
Corporate Bond Market as
Share of GDP
1996
2000
1996
2000
1996
2000
China
14.6%
30.1%
10.3%
21.0%
0.5%
0.8%
Indonesia
0.15%
0.01%
0.13%
0.01%
0.02%
0.00%
Korea
45.9%
58.4%
8.4%
15.9%
17.4%
20.3%
Thailand
10.4%
25.5%
6.4%
21.2%
2.5%
4.0%
Malaysia
72.5%
85.3%
29.9%
31.6%
23.3%
47.2%
110.2%
147.8%
91.5%
81.7%
58.3%
24.2%
USA
(Source) APERC (2003), “Energy Investment Outlook for the APEC Region”
Project development
comes down to financing
• Lack of domestic funding sources for some
developing economies
– Underdeveloped equity market and bond market
• Risk should be appropriately reflected on rate of
return
• Reconsideration of Pricing - issue of subsidy
– Question on affordability remains.
• International lending organisations, regional
development banks and export credit agencies are
and will be playing important role to add credibility to
the project off-take.
Role of Multilateral Development Institutions
• Multilateral Development Institutions (MDI) include:
– World Bank, IFC and IMF.
• Their contribution to investment in and financing of
energy project plays minor role.
– MDI’s contribution does not exceed $10 billion/year, while
annual world investment requirements is more than $150
billion.
•
Despite small contribution, MDI’s participation is
quite important.
– Improve creditworthiness of projects,
– Assurance of transparent legal, administrative and
regulatory procedures.
• E.g., the Philippines’ National Power Corporation
– The World Bank’s guarantee helped NPC to obtain a 15year maturity in issuing bond.
Importance of Government Role: A Case of
Laibin B, BOT Project in China
Guangxi
Provincial
Government
Site Lease
Performance
Guarantee
Guangxi
Construction
& Fuel Co.
Guangxi
Industry Power
Bureau
18- Year BOOT
agreement
Power Purchase
Agreement
Fuel Supply
Agreement
Laibin B
350
2*350
* 2MW
MWCoal
Coal- fired
Power plant
Coface /Commercial
Banks
Loans US$ 502 m
(Source) Nevitt and Fabozzi (2000)
Alstom
60%
Equity US$ 154 m
EdF
40%
Off take
Guarantee
Implications
• Energy investments in the APEC region will be needed between
US$ 3.4 trillion and US$ 4.4 trillion for the next twenty years.
– Requirements of energy investment vary greatly depending on the
level of economic development, industry structure and living
standards.
• For some developing APEC economies, capital may not be readily
available.
– Demand prospect
– Pricing, including subsidy issue
– Lack of domestic capital market
• Project developers need to appropriately asses the demand
prospect, availability of infrastructure and affordability.
– Lessons have been learned that project off take depends on the
structure of security package including government guarantee.
• Governments need to take into account economic and social
benefits besides financial viability of energy projects.
– Policy objectives
– Environment