Attracting foreign investment and, more specifically, project
financing to global power markets requires addressing a common mix
of issues concerning project cost and revenue risks. Solutions can
vary, however, to accommodate resource and institutional
differences among markets. Herein we use three markets ? Brazil,
China, and Indonesia ? as examples that offer attractive
supply/demand fundamentals but remain challenging for foreign
investment and project finance.
Currently, Brazil faces significant impediments to attracting
project finance in urgently needed thermal capacity, while China
and Indonesia being relatively dormant despite strong underlying
fundamentals, as each country is in process of changing its
structural approach to securing power generation investment. The
unique resource and institutional features of fundamentally strong
but economically challenging investment environments beg for
finding structural and market solutions. We review current
impediments to securing investment and suggest several
institutional and structural modifications to overcome financing
While regulatory, market, contract, and investment protection
frameworks differ between countries, overall political and
macroeconomic stability represents perhaps the most important
feature determining relative attractiveness to investors.
As a central component of effective national economic development,
power sector infrastructure investment policies often closely
reflect the country's political and economic stability;
specifically, the country's ability to balance fiscal with sector
investment and income distribution policies. The ability to attract
investment capital is dependent on the country's ability to manage
cost recovery across the power sector through effective tariff, tax
collection, and/or cross-subsidy systems. These efforts are eased
by an efficient, competitive and transparent market structure. In
sum, the ability to affect a solution to the project financing
challenge, based on a market model, relies on a predicate of:
? An effectively functioning...
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