Tuesday, Dec 11, 2012

Dubai: Cross-border collaboration could help the Arab world maximise its gains from energy resources that could be piped and distributed across the region through a regional energy grid as a large number of opportunities are currently available, especially following the Arab Spring, according to the multilateral development bank focused on the Arab world’s energy sector.

The region holds 60 per cent of the world’s proven oil and 40 per cent of gas reserves — the benefits of which could be distributed to countries across the region through joint collaboration. The Middle East and North Africa (Mena) region has witnessed a 500 per cent increase in energy demand during the last 30 years.

“Cross-border collaboration on energy projects will help strengthen regional economic cooperation in the energy-rich Arab world, which is currently facing a funding gap due to the withdrawal of traditional project finance resources by European lenders,” Ahmad Bin Hamad Al Nuaimi, chief executive and general manager of Arab Petroleum Investments Corporation (Apicorp), told Gulf News in an exclusive interview.

One such venture is the Dolphin Energy Project that is piping Qatari gas to power UAE and Omani economies and industries.

Apicorp, a multilateral development bank set up by the 10 member states of the Organisation of Arab Petroleum Exporting Countries (OAPEC) in 1975, has participated in direct and syndicated energy finance transactions worth in excess of $130 billion (Dh477.5 billion). Apicorp’s aggregate commitments in these transactions, both in equity and debt, are valued in excess of $11 billion so far.

Engaging the private sector

“Although Apicorp has initiated cross-border investment in the Arab world’s energy sector, we are taking this further by engaging the private sector in facilitating cross-border energy projects,” he added.

The organisation, that had earlier formulated its five-year plan maturing in 2016, has already achieved its objectives by as early as 2011. He says the region offers exceptional opportunities.

Although some Arab countries produce and export crude oil that powers the major economies of the world, the region itself is a net importer of refined and finished products. The further enhancement of midstream and downstream capabilities is crucial for Arab world countries to leverage the region’s energy resources to expand the development of finished and refined products. Apicorp’s mandate is to assist in developing those midstream and downstream industries that will help produce intermediary and finished products for consumers and reduce import dependence.

According to the latest Apicorp market research, Mena energy capital investment is expected to add up to $740 billion for the five‐year period 2013‐17. In Saudi Arabia, investment is projected to reach $165 billion, mostly engendered by Saudi Aramco, Sabic and its affiliates as well as Saudi Electricity Company (SEC), as standalone domestic private investors have continued to struggle to attract capital. The UAE has established itself for the second consecutive review as the region’s second largest investor, with projects worth $107 billion. These investments will not only increase hydrocarbon production, but also help create more opportunities in the region’s hydrocarbon map.

Abu Dhabi, for example, is creating a Dh70 billion Chemical City in Ruwais — that will help the public and private sector to benefit from a range of petrochemical industries. Besides, the high oil price that helped the GCC countries to add $300 billion to their coffers is expected to add a further $500 billion this year if the oil price remains at the current level for the rest of the year. Part of this will be re-injected in the upstream, mid-stream and downstream activities.

Eyeing acquisitions

“We are looking at a number of opportunities, including acquisitions and joint ventures, in the UAE, Qatar, Saudi Arabia, Oman, Iraq, Libya and Kuwait that will help add value to the existing energy businesses,” Al Nuaimi says.

“We have already identified a number of mid-stream and downstream projects for possible development. We are also investigating a number of new projects in the UAE that we believe will add value to the UAE economy.”

The company, recently upgraded by Moody’s from A1 to Aa3 while maintaining a stable outlook, said it is growing strongly yet maintaining its prudent risk management strategy. “We have a focused growth strategy. But we want to be careful in this expansion and growth,” Al Nuaimi said. “We periodically update our strategy based on the changes taking place in the market and the regional energy landscape.

“We are also looking at opportunities in acquisition as part of our growth strategy.”

The substantial jump in Apicorp’s ratings reflects the continual reinforcement of the multilateral development bank’s fiscal strengths over the last two years. One of the drivers of the rating upgrade, Moody’s said, was the introduction of $750 million callable capital by its shareholder countries at its general assembly meeting in May 2011, during which Apicorp’s shareholders also unanimously decided to double its authorised capital from $1.2 billion to $2.4 billion, and to increase its paid-up capital from $550 million to $750 million.

Capital adequacy

Moody’s also stated that Apicorp’s capital adequacy position relative to its peers has increased significantly.

“Its risk-asset coverage ratio improved from 210.5 per cent in 2010 to 367 per cent in 2011, a position that is stronger than the median of Aaa-rated companies,” Moody’s says.

“Furthermore, Apicorp has improved the composition of its funding since 2005 with a medium-term bond issuance and other term financing facilities, as well as more stable deposits from partner companies.”

However, Al Nuaimi said, he wants to maintain a healthy balance sheet. The company reported a net income of $51 million for the first half of 2012 compared to $41 million for the same period of last year, representing an increase of 24 per cent. Apicorp’s assets rose 18 per cent in the first half to reach $5.12 billion compared to $4.33 billion over the same period last year.

“Considering the current challenging economic and banking environment where substantial credit upgrades for financial institutions are rare, we believe the Aa3 rating upgrade Apicorp has received is exceptional. The new rating will have a very positive impact on our ability to forge new partnerships with financial institutions and the Arab and international energy industry,” said Al Nuaimi.

Expansion of banking unit

Apicorp, which opened a banking unit in Bahrain in 2006 that is licensed to carry out wholesale banking, is planning to expand it. “We are planning to expand the bank’s presence across the GCC region,” Al Nuaimi said.

During 2012, Apicorp stepped up its efforts to support Arab energy industry development through a series of initiatives. Since the beginning of the year, the company has committed approximately half a billion dollars in project and trade finance opportunities, and has also commenced a collaboration with JPMorgan to expand Apicorp’s energy trade finance services to the Arab world and beyond. In the first quarter of 2012, Apicorp also successfully concluded its first ever SAR 2.5 billion (Dh2.45 billion) shariah-compliant term loan facility, which was oversubscribed by leading Saudi banks.

By Saifur Rahman | Business Editor

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