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Iran Energy Revolution part 1
- 1. Revolutionising Iran's Private Sector Part 1: Problems and Solutions Chris Cook I.C.C.I.M, Tehran, 2nd July 2012
- 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 issues 2 13/06/10
- 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. 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. Context - Prepay In the late 1990's 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. Context – Oil Market
- 7. Context – Saudi Oil Production Prepay Unstable Equilibrium Prepay Shock
- 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. Context – Price Collapse
- 10. Context – Iran's 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. Context – Iran's 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. Problems Dollar Economics Inflation Wasteful energy use Volatility makes investment difficult Dollar diplomacy
- 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. Nondominium Users Custodian Investors Managers
- 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. 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. Stock
- 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 Undated Return Discount gives absolute return: eg $10's 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. How it Works Stock Consumers $ or Stock energy Returned Stock Custodian Investors Stock $ Stock Proportional Shares Managers, Producers
- 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. 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. 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. 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