Financing for development. Final Project. - VIGNOLO, BERNARDO
- 2. Financing Energy Infrastructure could help by: “Taking urgent action to combat climate change and its impacts” “Ensuring access to affordable, reliable, sustainable and modern energy for all” At a local level mean Maximizing Energy Security and Local Development subject to Environmental Constraint In line with many of the Sustainable Development Goals 1
- 3. Starting Point: Argentinean Energy Sector Increasing Energy Subsidies (Fernando Navajas, FIEL 2015) Increasing Energy Sector External Deficit (Former Argentinean Energy Ministers 2015, Daniel Gerold) Decreasing Proved Oil & Gas Reserves (Former Argentinean Energy Ministers 2015, Daniel Gerold) 2 Low Diversification of Primary Energy Matrix (Secretaría de Energía de la Nación, 2014)
- 4. Benefits of Capitalization Process in the Energy Sector Encouraging local Oil & Gas production and exploration • Replaces more expensive and more polluting imported fuels (e.g. Diesel Oil and LNG) with cheaper and cleaner local sources of energy (e.g. Natural Gas) • Increases energy self-sufficiency and makes a more efficient use of natural and economic resources Expanding investments in Power Sector • Improves the reserve margin • New and more efficient technologies replace old and less efficient power plants decreasing the average heat rate: in average less fuel is necessary to produce the same amount of electricity Diversification promoted along with the capitalization process • Diversification increases Energy Security • Renewables and Hydro can boost regional development within the country and reduce environmental effects; in some cases (e.g. wind) even at a cheaper cost than imports Maximize: Energy Security Local Development Minimize: Environmental Effects 3
- 5. Sources of Finance Governmental “support is no longer sustainable due to the significant deficits and sovereign debt levels in developed countries…Furthermore, infrastructure stimulus packages will understandably reverse as governments look to bring their finances under control.” What is the future for infrastructure financing?, pwc Creating the right conditions to take advantage of private sector involvement hinging on a judicious balance between risks and returns seems to be the vital function of the public sector. Understanding the challenges for infrastructure finance, Ehlers Two fundamental factors to attract private capital flows are: supportive business environment and a sound macroeconomic framework. From Billions to Trillions: Transforming Development Finance, World Bank and IMF 4
- 6. Factors to attract Private Capital Flows Energy Policies •Return to proper regulatory framework, including necessary updates (“Electricity reform in Argentina. Lessons for developing countries”, Pollit 2008) •Promote long-term energy planning process with broad approval of Parliament •Gradual reduction in energy subsidies - but still considering subsidised prices for those who cannot afford the minimum necessary energy requirements •Promote competitive Power Purchase Agreements (PPAs) and Public Private Partnerships (PPPs) Macroeconomic Stability •Inflation-targeting approach rather than a peg of the exchange rate, could increase long-run stability of nominal exchange rate and avoid frequent forced devaluations (“Monetary Policy and Asset Price Volatility”, Bernanke and Gertler 1998) •Although difficult to implement, a reduction in energy subsidies might help to moderate fiscal deficit and gas/electrical market risks improving macroeconomic stability Institutional and International Issues •Independent Institutions: Justice, Parliament, Central Bank and Official Statistical Organization •Solving financial situation with Holdouts •Promoting open and mature international relationships •Searching for financial and policy support and technical assistance in Multilateral Development Banks Maximize: Supportive Business Environment Sound Macroeconomic Framework Reduce: Risks (e.g. political) 5
- 7. Financing for Development: Billions to Trillions to Action World Bank Group Bernardo Vignolo Industrial Engineer, University of Buenos Aires (Argentina) MSc Energy Economics and Policy, University of Surrey (UK) – In progress bernardo.vignolo@hotmail.com December 2015