Freed-up Asian power markets seen failing
as investors baulk at risks
Business Times, 9 September, 2004
[ SINGAPORE ] Asian plans for Western-style freed-up power markets are likely to founder as demand grows and investors baulk at the risks, leaving more room for fixed-price supply deals.
China alone needs US$1.9 trillion of new power investment by 2030 according to International Energy Agency figures - more than a year's worth of GDP for the world's second largest electricity consumer. Along with the Philippines , Indonesia , and South Korea , it is looking at creating "power pools" - where generators compete to supply electricity.
The aim is to create an efficient, transparent power market that brings lower prices and lures more foreign investment.
Manila and Jakarta also hope it could ease their mounting state debts by creating an alternative to power purchase agreements (PPAs), the long-term deals that are currently the price of foreign power funding.
But electricity and markets are hard to mix, as shown by slow progress towards reform in Europe and post-liberalisation blackouts in California . In Asia there are extra problems, not least demand growth of 3.5 per cent, over twice the US rate.
I would surprised if the Philippines, Korea and China implement complete deregulation and power pool markets in the next 5 years," said Clive Turton, head of Utilities & Energy Group of Dutch bank ING in Asia. "It doesn't necessarily improve these markets for consumers or investors."
Leaving power prices to the market as supply tightens will only push up prices, something governments are averse to. In countries such as the Philippines and South Korea , electricity is already subsidized by the state.
Some bankers fear that if nations insist on a market-driven system, black outs could follow as foreign investors shy away.
In countries such as the Philippines and Indonesia where regulatory regimes are murky, investors prefer PPAs.
Any reforms would also jeopardize exiting foreign interest in the countries' multi-billion dollar power privatization programmes. Froeign investors, including banks and and wealthy Asian power firms such as CLP Holdings and Singapore Power and Tokyo Electric, are diversifying from their saturated home markets.
They have made a string of investments in Asia . But they are not entering volatile businesses such as merchant power plants and energy derivatives trading. This was the road to Enron Corp's ruin in 2001 that also forced many US power firms to sell Asian and European portfolios to repay debts.
The Philippines and Indonesia hope a shift to power pools will ease the debt burden they have accumulated under PPAs.
Some officials in Jakarta and Manila believe foreign investors will see past the risks and still bid for their merchant power plants in the hope that fundamental economic growth will fuel power demand anyway.
But few investors believe the nations will be able to set up a credible regulatory framework for power pools, or a creditworthy distributor. They also fear existing PPAs will limit liquidity.
"In a market like the Philippines and Indonesia ... you don't have any of these prerequisites," said Vijay Sethu, head of Asia project and structured finance for ANZ Investment Bank.
"To me, they are going down the wrong road ... 'There won't be any credible foreign investment. A real possibility is that the lights could actually go out."
Malaysia and Thailand have already dropped the idea of a freed-up market. So far in Asia, only Singapore and Australia have such a system, and Singapore 's pool is state controlled. - Reuters
Back to Newsclippings | To top
|
