Help exists for Czech companies wanting to do business in the GCC and KSA
The Gulf Cooperation Council (GCC) comprising the United Arab Emirates (UAE), the Kingdom of Saudi Arabia (KSA), Bahrain, Kuwait, Oman and Qatar are experiencing a population boom with combined inhabitants expected to exceed 50 million by 2020, a 30% increase from their 2000 levels.
At the same time, the purchasing power of consumers has rapidly increased as growth in Gross Domestic Product (GDP) soars. GDP is expected to more than double by 2020 in relation to 2000 rates. Using GDP as a conventional measurement of the wealth of a country, it would appear that the GCC is prospering, but when we use an ecological measure of national wealth, taking environmental and social wellbeing factors into account, the situation and future outlook is not so rosy.
Along with urbanisation, rapid changes in demographic profiles, improvements in living standards and untargeted energy subsidies, the GCC region has experienced a significant increase in domestic oil consumption and environmental effluents that are not only detrimental to health and wellbeing but could also undermine sustainability of economic growth and prosperity.
Indeed, the region also has one of the highest per capita rates of energy consumption in the world, with demand originating most notably in the power, water and transportation sectors. Large government energy subsidies in GCC states ranging from 67.8 to 85.5%, artificially keep the price of energy low for the consumer, leading to an over-consumption of energy, large CO2 emissions and excessive traffic congestion. These subsidies mean the traditional economic doctrine, The Polluter Pays Principle, whereby the user of the resource, i.e. the consumer, pays via a fine for the environmental damages caused by their consumption, is impossible to apply.
Economist Intelligence Unit, 2010
Lack of payment for this over consumption by the consumer means there is no economic reason for individuals to amend their wasteful behaviour. This is evident when visiting the GCC states: there is an unusually large number of gas guzzling cars on the road; traditional architectural design including wind towers for cooling buildings has largely been abandoned in favour of fuel-greedy air conditioning units; and private and public lights are frequently left on when they are not required.
Despite their vast hydrocarbon reserves, increased energy consumption at home means there is less oil and gas to export and earn an income from. The figure below illustrates the example of the KSA, the largest oil exporter in the world, which is forecast to consume domestically more than 8 million barrels a day (mbd) of oil by 2030, accounting for more than 60% of domestic production. National income from international oil sales will be slashed, leading to fiscal and current account problems over the long run. A persistence of the current low world oil price will only exacerbate this shortfall.
KSA's Oil Consumption & Supply
Politically though, it will be difficult to withdraw or even lower energy subsidies, as populations feel they have an innate right to benefit from the natural resources belonging to their countries. In addition rulers may not want to encourage political unrest in an already politically unstable region. Yet these subsidies could be switched to energy generated from renewable energy projects in conjunction with offering incentives for energy efficiency projects.
Solar has most potential in the region with various projects already operational albeit on small scales. Examples include a 100 MW concentrated solar power (CSP) and a 10 MW photovoltaic (PV) solar plant in Masdar city in Abu Dhabi; 330 MW CPS and 50 MW PV projects in Kuwait; and 200 MW solar projects in Qatar. Saudi Arabia, the most populous country in the GCC region has a pipeline of 25 gigabites (GB) of CSP and 16 GB of PV solar projects between now and 2030. With the amount of energy needed, nuclear energy cannot be overlooked. GCC governments are investigating the use of nuclear in their energy mix and have commissioned research and development agencies, most prominent is the KingAbdullahCenter for Atomic and Renewable Energy (KACARE).
Investment is being made into renewable energy projects (largely undertaken by government agencies), most notably in relation to solar. For instance, GlassPoint company is deploying solar thermal technology for enhanced oil recovery for Petroleum Development Oman (the national oil company of the Sultanate of Oman). Attention has so far been largely concentrated on renewable energy in the GCC with little or no consideration given to energy efficiency despite the region having a relatively high energy intensity. Governments in the region, especially in Saudi Arabia and the UAE, have started to put in place green building regulations, but the take off of energy efficiency projects in the region will be slow without appropriate incentives. Political clout is required for rapid restructuring of these economies.
So what options does the GCC have if it is not possible to reduce demand by decreasing fuel subsidies?
Sovereign Wealth Funds in GCC states amassed massive capital during the years of high energy prices. This money could be used to help economies achieve sustainable growth. Also, subsidies could be switched from fossil fuels to renewables, appeasing local consumers and maintaining public order.
Where are the business opportunities?
The GCC is going through the same process that the USA and EU went through. There are many companies internationally with experience in running solar projects, offering energy efficiency solutions and managing waste. There are already international companies in the GCC, setting up and running environmental projects. The scope for private sector involvement is large and companies that manage to enter this market are likely to experience large rewards.
As EU member states are a considerable way ahead of the GCC, there is a business opportunity for companies to take advantages of the business opportunities that exist in this region when the correct economic, legislative and institutional environment exists. Many companies are indeed operating projects in the region but some countries have more barriers to enter than others.
Both financial and non-financial instruments are required in the region. Financial instruments include loans to the private sector, public private partnerships, green bonds and green sukuk (used to promote and develop Shari'ah-compliant financial products). Governments could also buy solar equipment for individual homes and businesses. Since energy from fossil fuels is subsidised, there is no financial incentive for consumers to buy this equipment themselves.
Non-financial instruments include institutional frameworks providing long term feed-in tariffs, and the ability to sell capacity to the grid. Energy efficiency targets have already been set but there must be political will to reach these targets. Consumers should also be rewarded financially for switching to an environmentally sustainable behaviour. Government bodies dealing with regulations should have well trained staff so that these institutions can help with the process, rather than being another layer of bureaucracy and slowing down the process.
Thus the subsidies can remain but a hybrid energy economy would exist. There would be a gradual switching of consumers from fossil fuel consumption onto a renewable energy supply, with the latter predominantly managed by the private sector. This, coupled with energy efficiency measures, would ensure the conservation of fossil fuels for future generations.
In more politically progressive GCC states such as the UAE and Qatar, more progress has been made. Although in the KSA, which accounts for more than half of energy consumption in the GCC, considerable amounts of planning have been carried out, but there has been virtually no implementation of projects. Foreign renewable energy companies have been trying to enter the national market for years, without success. Despite the acute requirement to act, procrastination at the top has resulted in a failure to move forward.
Prague based CastleWard with its Managing Director Niki Cutts and Mohammed Salisu from Lancaster CREED Consultants Ltd UK, currently providing advisory services to Habib Investment Company in Jeddah, KSA, have partnered to assist international companies find the right partners in the KSA to successfully enter the Saudi market. The two presented a paper at the Dubai energy club (DMCC) seminar on alternative and renewable energy, on 2 November, illustrating the acute requirement for energy efficient technology and services as well as renewable energy technologies and services.
Both Niki Cutts and Mohammed Salisu will be looking to assist Czech-based companies and consultants to enter the market in the GCC, in particular the KSA.
Read more: http://www.praguepost.com/sponsored/43900-business-opportunities-in-the-gulf#ixzz3Q9tArsp7
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