Long-term plan needed to attract private investments in energy
“The private sector needs to have a long-term horizon,” said Richard Paterson, an energy analyst at consultancy firm PricewaterhouseCoopers.
This sentiment was shared by another energy company official, who said the setting of priorities is of utmost importance.
“We need to understand what the overall objective priority is,” said Johannes Teyssen, director of
“Politicians must set a clear scale of priorities between the reliability of the energy sources, the containment of prices and environmental sustainability,” Teyssen said.
He added that to attract private capital, it is essential that the industry knows exactly what the long-term parameters are going to be.
“We need to know under what regime we are operating and the level of reliability, otherwise investors get nervous,” said Teyssen. “It is important that the political process be guided by a well-informed public without which important decisions end up being taken based on false promises.”
By 2030, more than $20 trillion must be invested to meet the world’s growing energy needs, according to estimates made by the United Nations Intergovernmental Panel on Climate Change.
“It is no longer just a problem of energy or the environment, it has also become a financial issue,” said Jamal Saghir, the head of energy at World Bank.
Given the growing demand for energy, the shortage of resources and increased environmental problems, convincing the private sector to spend on technology designed to improve energy production and distribution has become a priority, the panel of exports said.
They said technological progress remains the key to resolving difficult challenges that the energy sector must face in the coming years.
“Technology is the answer, it is the only answer,” said Teyssen. “Without more technology we will continue to produce more CO2.”
Michael Bray, a partner at KPMG Australia, for his part, said without immediate reporting and communications reform in the energy industry,” there is a big risk that this investment will not be achieved and this will have catastrophic financial, economic social and environmental consequences.”
In 2004, Bray warned the energy industry at the World Energy Council (WEC) that without their collective collaboration to reform business reporting and communication in the industry the “stand still” annual global energy investment for 2030 would not be reached.
The Australian energy expert said a critical success factor for raising capital is the need to improve the visibility and clarity of competing investment propositions which should be enabled by implementing an effective business reporting and communications strategy.
For the energy industry, a number of forces significantly complicate raising capital including effects of commodity price and foreign exchange volatility on performance; technological and other risks associated with new projects with longer lead times in increasingly remote and sometimes foreign locations; significantly increased costs despite higher commodity prices; concerns over the social and environmental sustainability of energy investments.
Bray said another factor affecting investments the sector concerns governments channeling profits from energy businesses into non-energy industry use for policy rather than financial reasons.
One factor that is considered an investment hurdle, he said, is that existing financial reporting rule favoring other industries relative to energy, or having unintended consequences in the energy industry.
To add to the problem for the energy industry, KPMG Australia’s report also revealed that the move to International Financial Reporting Standards (IFRS) is not helping the situation from a capital-allocations perspective.
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