Countries like Saudi Arabia, and the UAE have set ambitious net zero targets. Are the measures that are being taken to reach these goals sufficient?
This is a very important question. The discourse on energy transition has to start changing. And having COP27 and the COP28 in the region in 2022, and 2023, I think will be a great opportunity for this change to happen. Because an energy transition that is balanced, that is proactive, that is inclusive, requires the dialogue to be much wider between all the stakeholders than what took place in COP26, for example.
The region in particular sits at the intersection of both sides of the transition. It’s one of the largest hydrocarbon producers, and, at the same time, it has embraced and started serious measures the diversification of the energy mix, and this is how the transition ought to be looked at. It’s not a zero sum game, where one side wins and the other side loses. The objectives of the energy transition should not be mutually exclusive ones, but rather an integrated process of diversifying the energy mix, and making all elements of the mix greener and cleaner, if you will.
So COP27 and COP28 following that should be the forum for this discourse and this description of the transition to take shape and to include everybody. In COP26, for example, the oil producers were not even invited. And without an inclusive process that includes producers of hydrocarbon, the whole transition can be in jeopardy. At the end of the day, energy security is very important for energy, sustainability and the energy transition to succeed and to happen.
APICORP along with the Saudi-based Islamic Development Bank announced the Infra Initiative, a $1 billion private sector fund, earlier this year. In your opinion, how important is it to make the private sector also part of this conversation? And how will such public-private partnerships help in achieving our energy diversification goals?
Sure, this is a very good question to explain how the partnerships between multilateral financing institutions can help in both accelerating the energy transition in the right balance direction that I explained, and at the same time mobilise additional funding to investments and the projects and the transactions that are required in this direction. We both are multilateral financial institutions, in the case of APICORP owned by the 10 Arab oil producers, who are also members of the Islamic Development Bank.
What this fund is all about is to identify infrastructure transactions in the widest scope of infrastructure, including of course, energy infrastructure, and try to finance these projects by either debt or equity with mobilising also additional funding from other players who come in partnership with us and focusing on the private sector.
At the end of the day, the role of the private sector in energy investments has accelerated over the last few years. APICORP issues an annual energy investment outlook for the next five years, and clearly over the last five years or so, the participation of the private sector in executing energy and infrastructure projects has grown by 20-25%.
Using different schemes, you have public private partnerships, you have private equity, and you have project finance, again through the mobilisation of funding that could happen by having both APICORP and the Islamic Development Bank, bringing other commercial and other MDBs with us, for this objective. It’s an ambitious target of $1 billion, it will also focus on countries that are coming out of conflict in the region, or are in the middle of a transition where the hydrocarbon and the energy sector plays a key role in that transition and that transformation.
APICORP, for example, is owned by countries in the region who are coming out of conflict, who are some of them still in conflict and the role of the energy sector in how these countries will shape their future will be key. So supporting private investments in these areas will be very much required.
Could you run us through some of the challenges that we’re likely to face within the sector in 2022? As we’ve let go of 2019-2020, we see precautionary measures being taken away. Are there any new challenges that we need to face? And how can we turn those into opportunities?
First of all, the energy transition challenges and how all stakeholders will play it out in order to have an inclusive transition that does not jeopardise energy security and energy affordability, and let’s see how the two upcoming COPs can strike that balance. You have the oil markets, and fluctuations and volatility that could happen in the oil prices. We thought that we had been saved from that aspect, it seems that a huge surprise was in the making.
Then you have still the effects of the pandemic on demand, on supply chains, and now with another global crisis, this could see a different level of intensity. And finally, you have countries that have to take fiscal measures, austerity measures as well, that may have implications or repercussions on the sector itself and the wider economies, and may disrupt the plans that were in place in many countries of the region and elsewhere for economic diversification and energy diversification.
So I’d like to always see the glass half full, let’s see how that unfolds, and whether there is a light at the end of the tunnel in 2022 given all these challenges, and all these risks that have suddenly become very real and concerning.
