Energy revolution part 2

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Energy revolution part 2

  1. 1. Revolutionising Irans Private SectorPart 2: High Risk Investment and Trade Credit Chris Cook Tehran, 2 July 2012
  2. 2. Introduction Wimpole 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. Executive Summary Development Investment  Capital Partnership  How does it work?  Outcome Trade Credit/Working Capital  Clearing Union  How does it work?  Outcome 3 13/06/10
  4. 4. Capital Partnership (Nondominium) Users Value Custodian Stock % Investors Managers
  5. 5. Step One: Undeveloped asset transferred to Custodian in exchange for stock Undeveloped Custodian Asset Stock Units Investor
  6. 6. Step Two: Developer invests concept and time (Intellectual Capital) for stock Custodian Stock Units Stock Units Investors Developer
  7. 7. Step Three: Contractors invest at least profit margin in exchange for stock Custodian Stock Units Stock Units Investors Developer
  8. 8. Step Four: investors buy high risk stock at a deep discount to cover contractor costs Custodian Stock Units Stock Units Investors Developer
  9. 9. Step Five: Development complete; manager appointed; stock sold at low discount Users Value Custodian % Stock Units Investors Managers
  10. 10. Example: Wind Turbine Wind Turbine will generate 2,500 Mega Watt Hours per year for 20 years and costs €1m to install  20% to land owner and maintenance contract  80% available to create stock – 40,000 Mega Watt Hours  Market price of electricity is €5 per Mega Watt Hour  Development investor pays €1m to buy 25,000 Units of 1 Mega Watt Stock each at €4 – ie a discount of €1 or 20%  If after one year he sells 25,000 Units to pension investors at €4.80 he gets a Rate of Return of 16% pa  If after two years, the rate of return is 8% pa; four years 4% pa etc
  11. 11. Outcome of Capital Partnership Development financing for new productive assets New asset class Interests are aligned through a share in the outcome High risk investors buy stock units at a deep discount and sell at a low discount to low risk investors to generate profit Users will always buy stock units to return against use if the price is below the physical market price
  12. 12. Clearing Union – Conventional Banking Value Seller Buyer Bank IOU IOU
  13. 13. Clearing Union - Seller accepts Buyers IOU Value Seller Buyer IOU
  14. 14. IOU is guaranteed by Clearing Union of Sellers & Buyers collectively Value Seller Buyer IOU Guarantee Guarantee Pool
  15. 15. Seller & Buyer pay guarantee charge into Pool held by Custodian Value Seller Buyer IOU Fee Fee Guarantee Pool Guarantee
  16. 16. 1/ Buyer settles credit in money or moneys worth eg energy stock Value Seller Buyer Fee Fee Guarantee Pool Guarantee
  17. 17. 2/System identifies a chain of IOUs A<B<C<D<E<A and nets them out IOU Seller A Buyer B Fee FeeIOU IOU Pool Guarantee GuaranteeBuyer E Buyer C Buyer D IOU IOU
  18. 18. 3/ Buyer defaults: system pays sellers and collects from buyer if possible Default Seller A Buyer Collects Pays Default Pool Seller B Pays
  19. 19. Service provider sets guarantee limits, handles defaults & manages system Value Seller Buyer IOU Fee Fee Guarantee Pool Guarantee Service Fee Service Provider
  20. 20. Outcome of Clearing Union Trade credit with banks as service providers not lenders Goods and services change hands by reference to Rial or $, not necessarily in exchange for Rial or $ currency Credit risk shared by sellers and buyers collectively No interest (money for the use of money) Default costs and operating costs shared Perfect service for Chamber of Commerce to provide for members

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