GCC 'should use foreign assets' to fund oil

Gulf countries and other Arab oil producers should use part of their overseas savings to fund hydrocarbon expansion projects to offset the squeeze in global liquidity, an official Arab group said yesterday.

The Dammam-based Arab Petroleum Investment Corporation (Apicorp), which groups 10 Arab oil producers, said the global fiscal distress had forced regional nations to shelve several projects, adding that this had largely depressed the value of energy investments.

Nearly two years after the eruption of the crisis, securing sufficient funds for costly energy projects in the Arab region is likely to be considerably more challenging than any time before, Apicorp said in a study, sent to Emirates Business.

"Although the credit and oil markets have somewhat stabilised, the speed at which redundant projects are likely to be brought back is still uncertain... economic and energy investment recovery, will ultimately depend on the pace of global growth. Meanwhile, banks may not resume significant lending yet," said Apicorp, an affiliate of the Kuwait-based Organisation of Arab Petroleum Exporting Countries (Oapec).

"Accordingly, our main policy recommendations fall within four areas. Firstly, Arab governments should continue making up for shrinking foreign capital inflows to the region by reallocating internally more of the assets invested abroad by their sovereign wealth funds."

The group's second recommendation is that Arab governments, in providing liquidity and enhancing capitalisation of pan? Arab financing institutions, should target those contributing to the development of the petroleum and energy industries, which remain a powerful lever for economic and social development. Thirdly, in reviewing their investment strategies, public and private project sponsors should exclude from any "option to wait" power and power/water projects, the study said.

"Finally, in the context of heightened risk aversion, and the resulting pressure on the availability and cost of capital, the best policy response is to continue reducing perceived risks. In this regard, there is a need to improve the investment climate, which should remain the prime concern of Arab policy makers."

According to the study, which was presented to last week's Arab energy conference in Doha and this week's economic forum in Riyadh, lower costs and project delays in the wake of the global crisis have depressed the energy investment requirements in the Arab world by nearly 15 per cent during 2010-2014.

Its figures showed most regional nations had postponed projects but the bulk of the investment reductions were in such key oil and gas producers as the UAE, Saudi Arabia, Kuwait, Qatar and Algeria.

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