Pipeline may be a private affair

The Asian gas pipeline, from China to Singapore, would need billions of dollars of private sector cash, writes NIKKI MANDOW.


Apec leaders at September's summit in Auckland look likely to be asked to consider one of the largest energy projects ever undertaken in the region.

The Asian gas pipeline project, estimated to cost several billion US dollars, is the flagship of a package of measures aimed at kick-starting the Asian economy.

It would see a pipeline being built, largely on the the seabed, between China and Singapore, allowing gas to be picked up and dropped off by producers and consumers right through the region.

The idea of the pipeline comes from the Partnership for Equitable Growth (PEG), a group of top regional business leaders in the Apec Business Advisory Council (ABAC). Several regional leaders, including Indonesian President Habibie, Malaysian Prime Minister Mahathir and New Zealand's Jenny Shipley, have been asked to sit on the PEG board as patrons.

The funding for the pipeline's pre-feasibility study has already been raised - Prime Minister Mahathir has committed $1 million and other money will come from interested oil and gas companies. But even if that study suggests the pipeline should be built, one of the key questions will be whether it is possible to raise several billion dollars, much of it from the private sector, to complete the project itself.

Attracting private sector resources into developing energy supply and infrastructure is the most critical energy-related issue facing Apec economies, says David Natusch, managing director of Wellington-based energy consultancy Resource Development Ltd.

Or, more accurately, encouraging the countries that desperately need such power projects to develop investment frameworks that potential funders require before committing their dollars.

Natusch, who has been involved in the gas industry in Vietnam for nearly 10 years, will be one of a team doing pre-feasibility work on the Vietnamese part of the Asian gas pipeline.

But with another hat on - that of convener of the Minerals and Energy Forum of NZPECC (the New Zealand committee of the Pacific Economic Cooperation Council) - Natusch has been involved over the last couple of years in the development of the "Manual of Best Practices for Independent Power Producers."

This publication, and a similar set of principles for the natural gas industry, are not, as they sound, stodgy technical manuals about power line (or pipeline) specifications. Instead they are textbooks for governments on the legislative, regulatory and institutional practices necessary to attract private sector funding into what has traditionally been a domain reserved for public money.

The World Bank has estimated that energy supply and infrastructure development through to the year 2010 will require investment of $US1.6 trillion in the Apec economies. This may be an over-estimation, given the Asian economic downturn and the development of more efficient technologies. But it is clear that governments, particularly those in developing countries, do not have enough money to provide the finance required. The private sector does.

Up to 90 per cent of the recommendations in the PECC-Apec manual are not specific to the energy sector, Natusch says, but involve measures to bring the reward-to-risk ratio for investors to realistic levels.

"Things like guarantees you aren't going to get nationalised, that you are going to be able to get your money out, that the taxation regime is such to provide a level of comfort for the investor, that there is transparency in decision-making and government approval processes."

Things move slowly in Apec's unilateral, non-binding, consensus-based environment and Natusch estimates it could take 10-15 years for essential changes pinpointed by the Apec-PECC manual to be implemented by all the Apec economies. And a proposal Natusch made for New Zealand to act as a clearing house for monitoring studies of the progress made by each Apec economy towards the energy goals had to be put on hold because of the sensitivity of some in the region to external monitoring.

"I got agreement from [Energy Minister] Max Bradford to set up a series of Web sites for each economy and identify a representative in each of them to keep an update on the progress of electricity and gas reform. I thought it would be a good idea if New Zealand did this because no one feels threatened by us. But the reality is that many of the economies have an antipathy to the idea that Big Brother is watching you."

The other main PECC-Apec initiative in the energy area is the establishment of the necessary ground rules for harmonising energy development with necessary environmental conservation. Work is going on in a variety of areas, including:

* Cross-border trade in energy and energy products.

* Rationalisation of standards and specifications for energy products and technology throughout the APEC region.

* Establishment of technology transfer mechanisms and pathways.

* Promotion of new and alternative energy sources - including solar and wind power, co-generation of electricity and heat, high efficiency electricity generating systems and alternative transport fuels.

* Minimising emissions associated with energy production and end use to conform with the Kyoto Environmental accords relating, primarily, to greenhouse gas emissions and cross-border environmental pollution.

So far, any New Zealand involvement in the PECC-Apec energy initiatives has been largely for the sake of the advancement of Apec principles, rather than any immediate direct benefit to New Zealand or its companies. Geographically remote, and mainly uninvolved in energy and energy product trading, New Zealand has contributed, rather than gained.

But Natusch believes New Zealand has experience in several areas seen as vital to promoting private sector involvement in the energy sector - in particular deregulation and privatisation, environmental management, rapid pursuit of new and alternative energy technologies, and the ability of government and institutional systems to act rapidly in response to the investment requirements of the private sector. This ought to enable us to exploit the opportunities presented by Apec far more than we have done, he says.

"We are listened to seriously because we have already been down that road," Natusch says. "We've got a lot to contribute, for example, through our experience, some good, some bad, of the Resource Management Act."

Exploiting our experience is more difficult, but Natusch would be keen to see an organisation like the New Zealand Trade Development Board acting as a focus to bring together groups of consultant teams specifically oriented to the energy development needs of the region. "Individual companies are too small and tend not to have the blessing of government. But you could promote the New Zealand experts as a group to those overseas officials having to implement the reform of the investment environment necessary to get private sector energy investment. You would promote the experts as people to come in to do a turn-key job in another country, to lay out a model and time line to get from point A to point Z."

* Nikki Mandow is a former manager, external relations at the University of Auckland's New Zealand Asia Institute. This is the ninth in an occasional series by the NZ Committee of the Pacific Economic Cooperation Council (NZPECC) dealing with policy issues ahead of this year's Apec summit in Auckland. Other articles ran on August 19, September 22, October 13, November 2, November 25 1998, February 12, April 13 and May 27.


The Asian gas pipeline, from China to Singapore, would need billions of dollars of private sector cash, writes NIKKI MANDOW.


Apec leaders at September's summit in Auckland look likely to be asked to consider one of the largest energy projects ever undertaken in the region.

The Asian gas pipeline project, estimated to cost several billion US dollars, is the flagship of a package of measures aimed at kick-starting the Asian economy.

It would see a pipeline being built, largely on the the seabed, between China and Singapore, allowing gas to be picked up and dropped off by producers and consumers right through the region.

The idea of the pipeline comes from the Partnership for Equitable Growth (PEG), a group of top regional business leaders in the Apec Business Advisory Council (ABAC). Several regional leaders, including Indonesian President Habibie, Malaysian Prime Minister Mahathir and New Zealand's Jenny Shipley, have been asked to sit on the PEG board as patrons.

The funding for the pipeline's pre-feasibility study has already been raised - Prime Minister Mahathir has committed $1 million and other money will come from interested oil and gas companies. But even if that study suggests the pipeline should be built, one of the key questions will be whether it is possible to raise several billion dollars, much of it from the private sector, to complete the project itself.

Attracting private sector resources into developing energy supply and infrastructure is the most critical energy-related issue facing Apec economies, says David Natusch, managing director of Wellington-based energy consultancy Resource Development Ltd.

Or, more accurately, encouraging the countries that desperately need such power projects to develop investment frameworks that potential funders require before committing their dollars.

Natusch, who has been involved in the gas industry in Vietnam for nearly 10 years, will be one of a team doing pre-feasibility work on the Vietnamese part of the Asian gas pipeline.

But with another hat on - that of convener of the Minerals and Energy Forum of NZPECC (the New Zealand committee of the Pacific Economic Cooperation Council) - Natusch has been involved over the last couple of years in the development of the "Manual of Best Practices for Independent Power Producers."

This publication, and a similar set of principles for the natural gas industry, are not, as they sound, stodgy technical manuals about power line (or pipeline) specifications. Instead they are textbooks for governments on the legislative, regulatory and institutional practices necessary to attract private sector funding into what has traditionally been a domain reserved for public money.

The World Bank has estimated that energy supply and infrastructure development through to the year 2010 will require investment of $US1.6 trillion in the Apec economies. This may be an over-estimation, given the Asian economic downturn and the development of more efficient technologies. But it is clear that governments, particularly those in developing countries, do not have enough money to provide the finance required. The private sector does.

Up to 90 per cent of the recommendations in the PECC-Apec manual are not specific to the energy sector, Natusch says, but involve measures to bring the reward-to-risk ratio for investors to realistic levels.

"Things like guarantees you aren't going to get nationalised, that you are going to be able to get your money out, that the taxation regime is such to provide a level of comfort for the investor, that there is transparency in decision-making and government approval processes."

Things move slowly in Apec's unilateral, non-binding, consensus-based environment and Natusch estimates it could take 10-15 years for essential changes pinpointed by the Apec-PECC manual to be implemented by all the Apec economies. And a proposal Natusch made for New Zealand to act as a clearing house for monitoring studies of the progress made by each Apec economy towards the energy goals had to be put on hold because of the sensitivity of some in the region to external monitoring.

"I got agreement from [Energy Minister] Max Bradford to set up a series of Web sites for each economy and identify a representative in each of them to keep an update on the progress of electricity and gas reform. I thought it would be a good idea if New Zealand did this because no one feels threatened by us. But the reality is that many of the economies have an antipathy to the idea that Big Brother is watching you."

The other main PECC-Apec initiative in the energy area is the establishment of the necessary ground rules for harmonising energy development with necessary environmental conservation. Work is going on in a variety of areas, including:

* Cross-border trade in energy and energy products.

* Rationalisation of standards and specifications for energy products and technology throughout the APEC region.

* Establishment of technology transfer mechanisms and pathways.

* Promotion of new and alternative energy sources - including solar and wind power, co-generation of electricity and heat, high efficiency electricity generating systems and alternative transport fuels.

* Minimising emissions associated with energy production and end use to conform with the Kyoto Environmental accords relating, primarily, to greenhouse gas emissions and cross-border environmental pollution.

So far, any New Zealand involvement in the PECC-Apec energy initiatives has been largely for the sake of the advancement of Apec principles, rather than any immediate direct benefit to New Zealand or its companies. Geographically remote, and mainly uninvolved in energy and energy product trading, New Zealand has contributed, rather than gained.

But Natusch believes New Zealand has experience in several areas seen as vital to promoting private sector involvement in the energy sector - in particular deregulation and privatisation, environmental management, rapid pursuit of new and alternative energy technologies, and the ability of government and institutional systems to act rapidly in response to the investment requirements of the private sector. This ought to enable us to exploit the opportunities presented by Apec far more than we have done, he says.

"We are listened to seriously because we have already been down that road," Natusch says. "We've got a lot to contribute, for example, through our experience, some good, some bad, of the Resource Management Act."

Exploiting our experience is more difficult, but Natusch would be keen to see an organisation like the New Zealand Trade Development Board acting as a focus to bring together groups of consultant teams specifically oriented to the energy development needs of the region. "Individual companies are too small and tend not to have the blessing of government. But you could promote the New Zealand experts as a group to those overseas officials having to implement the reform of the investment environment necessary to get private sector energy investment. You would promote the experts as people to come in to do a turn-key job in another country, to lay out a model and time line to get from point A to point Z."

* Nikki Mandow is a former manager, external relations at the University of Auckland's New Zealand Asia Institute. This is the ninth in an occasional series by the NZ Committee of the Pacific Economic Cooperation Council (NZPECC) dealing with policy issues ahead of this year's Apec summit in Auckland. Other articles ran on August 19, September 22, October 13, November 2, November 25 1998, February 12, April 13 and May 27.