Iran Energy Revolution part 1

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Iran Energy Revolution part 1

  1. 1. Revolutionising Irans Private Sector Part 1: Problems and Solutions Chris Cook I.C.C.I.M, Tehran, 2nd July 2012
  2. 2. Introduction Wimpole International Is a Network of experts with unrivalled capabilities in the architecture and implementation of market instruments and infrastructure Institute for International Energy Studies (IIES) For Research on international energy markets and energy economic issues2 13/06/10
  3. 3. Setting the Scene Session One – Problems and Solutions  Context  20th Century Problems  21st Century Solutions Session Two - 21st Century Financing  Development Investment and Trade Credit Clearing  Case Studies  Outcomes Session Three – 21st Century Funding  Funding Investment  Case Studies  Outcomes 3 13/06/10
  4. 4. Session One - Executive Summary Context  Markets  Iran Problem  Dollar Economics and Dollar Diplomacy Solutions  Nondominium - framework agreement eg ECO Energy Charter  Stock - credit instrument  Financing – stock based on goods and services  Funding – stock based upon productive assets 4 13/06/10
  5. 5. Context - Prepay In the late 1990s Enron discovered Prepay Commodities sold at a discount for dollars & delivered later Example: oil market price $100: 1m barrels sold for $90 now and delivery in 6 months Enron used Prepay to defraud creditors and investors Since 2005 investment banks and producers have used prepay to defraud the oil market
  6. 6. Context – Oil Market
  7. 7. Context – Saudi Oil Production Prepay Unstable Equilibrium Prepay Shock
  8. 8. Context - Geopolitics US is managing oil price decline to & through $60/barrel Why? US gasoline prices <$2.50/gallon pre-election US antagonists such as Iran, Russia and Venezuela will be destabilised: populations will blame government not US Saudis have hedged (sold forward) using futures contracts at the expense of speculative buyers
  9. 9. Context – Price Collapse
  10. 10. Context – Irans Balance Sheet Massively solvent  Energy Resources – huge reserves of oil, natural gas, also solar energy and wind  Human Resources – probably one of the greatest pools of intellectual capital there is  Zero $ Debt  BUT capital stock depreciating through lack of investment
  11. 11. Context – Irans Income & Expenditure Dangerously illiquid and inflationary  Physical and Financial Sanctions  Revenues collapsing  Cut off from dollar system  Subsidies unsustainable  Rampant inflation caused by deficit-based bank-created currency
  12. 12. Problems Dollar Economics  Inflation  Wasteful energy use  Volatility makes investment difficult  Dollar diplomacy
  13. 13. Solutions Nondominium  Neutral framework agreement for sharing of risk and reward  Nondominium does not own anything, employ anyone, or contract with anyone but its members do Stock  Undated prepay instrument returnable in exchange for value  Created, issued, exchanged and returned within Nondominium framework
  14. 14. Nondominium Users CustodianInvestors Managers
  15. 15. Nondominium Custodian  Custody of data and accounts  Mutual Guarantee Energy Users – exchange value for the use of energy Energy Managers  Operate system, manage risk, provide quality control Energy Investors  Buy Units of stock returnable in exchange for energy  Custodian issues energy stock on instruction of producers  Manager supervises issue, exchange & return
  16. 16. Nondominium Neutral  No stakeholder has a dominant right  Stakeholders have veto rights  Mathematics: +1, -1 and 0  Physics: positive, negative and neutral  Economics: Public, Private....and Nondominium Complementary & Consensual  Additional to existing agreements  No-one has to join unless they see it as in their interests
  17. 17. Stock
  18. 18. Energy Stock Stock  Original form of equity – not shares in Joint Stock Company  Prepay/credit instrument issued at a discount to market price  Returnable in payment for energy supplied  Prepayment for supply  UndatedReturn  Discount gives absolute return: eg $10s worth of gas for $8 now  Rate of Return is variable – literally the rate over time at which stock may be returned to the issuer or sold  No interest (money for the use of money)
  19. 19. How it Works Stock Consumers $ or Stock energy Returned Stock CustodianInvestors Stock $ Stock Proportional Shares Managers, Producers
  20. 20. Energy Economics Energy-based Currency  Energy Clearing Union  Mutual guarantee of energy stock issue  Energy value exchanged/swapped by reference to the dollar  Dollar simply used as a unit of measure to keep score of transactions and investment  There is no scarcity of metres and kilogrammes !
  21. 21. Energy Economics Energy Investment  Danish policy after 1973 oil shock exposed energy insecurity  Identify desired outcome eg heat, electricity, transport  Identify solution with least fuel input  ie what happens in the system for each KwH of electricity or Mmbtu of heat produced?  Energy return against energy invested – least energy cost solution  Energy investment through stock may be priced in dollars
  22. 22. Transition through Gas - International Caspian gas energy co-operation project Potential for gas stock as energy currency Potential Caspian gas benchmark price in dollars Potential for oil and electricity to be priced and swapped by reference to gas Potential for investment: energy loans begin with gas loans E is for Energy Co-operation - potential for Russia, Iran (producers) to link with China (consumer) to create the E-3 ECO members may then join to create an E-12 And so on to the EU............?
  23. 23. Transition through Gas - Iran Raise domestic carbon fuel and electricity prices to international level Producers issue energy stock (Energy Rials) to population Energy Rial equivalent to energy content of a unit of gas Banks manage transparent issue, exchange and return Producers accept Energy Rials against energy supplied Outcome – an Energy Standard of exchange – Currency stabilised – Wasteful consumption minimised – There can never be a shortage of metres, kilogrammes or standard units of account

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