$10trn needed to fund global energy projects
Manama, June 15, 2011
Project finance will have to raise around $10 trillion between now and 2030 to fund energy and infrastructure globally, said a finance expert at a bankers' meeting in Bahrain.
Some $7.2 trillion will be needed for energy projects along with a further $2.8 trillion for infrastructure projects, Charles Russell international finance partner Nicholas Polley told delegates at a Bahrain Association of Banks (BAB) roundtable at the Ritz- Carlton Bahrain, Hotel and Spa.
He said that Islamic finance could play an important role in this with funding for a project or asset that had to be constructed using a Sharia-compliant Istisna vehicle.
For a project that has already been completed, a Ijara leasing structure arrangement should be used.
In the GCC alone in the medium-term, project finance would need to raise around $1 trillion according to Developed Solutions principal consultant Riyad Al Dughaither.
'The GCC has a very young population and is just now coming to the end of a baby boom,' Al Dughaither said.
'We have one of the largest population growth rates in the world at a time when the West has an ageing population,' he added.
'Here we are looking at mega projects in housing, hospitals and other infrastructure from power, water and oil and gas to airports and railways to meet the demand from the population.'
'Given the size of spending this will not be achieved by bank-syndicated lending at a time when in the wake of the financial crisis regional and global banks have a lesser appetite for lending,' he pointed out.
'Projects will have to tap into alternative sources of funding such as capital markets, sovereign funds, public-private partnership and Islamic funding sources and as a centre for the Islamic financial industry, Bahrain can have a strong role here,' said Al Dughaither.
Cappinnova acting head of corporate finance Ahmad Tabbara outlined how they had used Islamic finance to develop a four-star hotel in Makkah and a shopping mall.
He said that at a time when real estate funding had become less popular because of risk, they had designed their funding package in a manner in which investors could look on the projects as tourism risk and retail risk rather than property risk.
Instrata Capital director Patrick Townsend, a fund manager specialising in infrastructure investment in the Mena region, said there was a shortage of debt finance in the region but no shortage of equity.
'The cost of debt has risen but the cost of equity has fallen,' he said.
'The high oil price is allowing governments to develop infrastructure projects which will create jobs for their nationals,' he added.-TradeArabia News Service