Investment and Finance in the Energy Sectors of Developing Countries

Author/s: Hussein Razavi
1st Edition Year: 1998
Edition: First edition
Language: English
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Description

The World Bank’s projection of world economic growth indicates that while industrial countries are expected to experience a growth rate of 2.4 percent per annum for the next 15 to 20 years, developing countries are likely to see a growth rate of 5.4 percent per annum. The substantial difference between the two growth paths has some significant impacts on energy consumption, energy investments and financial requirements for energy projects.

For example, the investment needs of the power sector in developing countries is expected to be around US $130 billion per year, more than twice the projected power investments in industrial countries. Also, the biggest increases in demand for oil and gas are occurring in the developing world, which is where most of the world’s proven oil and gas reserves are located. Thus, international energy companies, investors, equipment suppliers, contractors and consulting firms are shifting their attention from Europe and North America to developing countries, which are likely to offer more business opportunities in the energy sector in the future.

Although numerous energy projects are initiated, many of these projects do not reach the implementation stage because of difficulties in mobilizing financial resources. The difficulties are due to the presence of various types of political and commercial risks in developing countries. As a result, structuring finance packages for energy projects in developing countries has become a complex discipline that involves innovative combinations of multilateral, bilateral and commercial funds. This paper provides a global projection of energy investments in the developing countries, and then describes emerging methods of financing oil, power and natural gas projects.

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