Belt and Road Summit
ASEAN's Energy Future: Six Factors That Will Determine Belt And Road Success
“Don’t underestimate the impact of new energy technologies” added Dr. Jiang, one of China’s leading infrastructure experts during the ASEAN project development panel discussion. He said while renewable energy tech attracts a lot of attention today, new fossil fuel solutions are also achieving impressive outcomes in terms of reducing fuel consumption, emissions, and costs.
Talking about investment horizons, he said energy developers must look more closely at affordability, and returns over the whole life of a plant. He said there are also more financing options available today to support a wider range of projects depending on budget, capacity, and conditions.
Fellow panelist, Ian Mathews, director project and export finance, Australia New Zealand (ANZ) Banking Group said deregulation in the power sector was another trend that could emerge across ASEAN in the near term. He said Indonesia, which is seeking to add 35GW of capacity by 2024, is presently considering new measures to attract more foreign investment to fund new power generation projects.
Project risk assessment
Another panelist, Mr. Gao Yuan, director of projects, Harbin Electric International Company (HEI) shared a checklist of risk factors to consider ahead of finalizing international energy infrastructure investment decisions. Like Dr. Jian, Mr. Gao has vast experience in power design and project management of power plants in China and abroad. His six-point checklist covered:
- Political risk
Security and stability is paramount consideration, and developers, and partners, must consider issues impacting the political climate of the nations they want to invest in. Understanding the country’s social and cultural background is also critical. As an example, Mr. Gao said developers interested in Indonesia should understand the country’s multi-culturalism, and the diverse populations served by potential projects - this knowledge and insight plays a big part in helping determine affordability estimates.
- Market risk
Install and use reliable first-class equipment (where possible). Mr. Gao said using less familiar, or known technologies to cut costs, or corners, can often lead to missteps, and cost overruns in the long run.
- Labor risk
Localization is critical and developers should try to hire as many local people as possible to work on the projects. Mr. Gao said building a broader talent base to increase capacity is another priority for developers and EPCs – project budgets should therefore include financing for local training and education programs.
- Technical risk
Work with local contractors, vendors, and suppliers who have a good track record in meeting global operating best practice benchmarks. Carefully reviewing, and selecting, right-fit partners is further ‘insurance’ to help meet project deadlines, and budget and quality targets.
- Financing risk
Price in currency fluctuation in budget and financial projections. Other variables that could impact financing includes the level of market regulation, taxation policy, and land ownership rules. As with contractors, and suppliers, it’s important to work with reputable local financial institutions – especially banks with experience in supporting infrastructure projects involving foreign and local players.
- Project Execution Risk
Establish clear areas of responsibility among the suppliers, contractors, and other parties involved in a project to avoid potential misunderstandings, and conflicts that could slow or derail the project. Ideally, the areas of responsibility should be recorded in a legal document, and signed by all parties said Mr. Gao.