1. Department of Resources, Energy and Tourism APEC Energy Trade and Investment Study

2. Part 1 – overview and key conclusions

3. PricewaterhouseCoopers Page 3 APEC Energy Trade and Investment Study Agenda Introduction APEC’s challenges Scope and methodology Barriers to trade and investment Role of international organisations Next steps Conclusion

4. PricewaterhouseCoopers Page 4 APEC Energy Trade and Investment Study Introduction and Overview Discuss the implications of the APEC Energy Trade and Investment Study and to reach a shared understanding of realistic actions that member economies can undertake to improve energy security and sustainable development Move from dialogue to realistic actions -Working with APEC -Working within individual economies -Working in concert other international organisations Development of Draft APEC Energy Trade and Investment preamble and Action Plan

5. PricewaterhouseCoopers Page 5 APEC Energy Trade and Investment Study APEC’s continuing prosperity is dependent on developing new sources of secure and environmentally sustainable energy APEC is host to the world’s top four energy consumers and three of the top four energy exporters By 2030 APEC will: -Move from a net exporter to a net importer of LNG, coal and oil -Require $US6 trillion of new energy investment At a time of uncertainty surrounding: -Climate Change -Declining supplies -Global financial uncertainty

6. PricewaterhouseCoopers Page 6 APEC Energy Trade and Investment Study APEC is a net importer of oil, but has substantial reserves of gas, coal and uranium – the imbalances will grow as demand expands and supplies fall. By 2030 indigenous production will equal only 75% of demand Net imports of primary energy supply by energy type for 2005 (ktoe) Source: APEC Energy Trade and Investment Study

7. PricewaterhouseCoopers Page 7 APEC Energy Trade and Investment Study Energy security remains a critical issue for APEC economies Energy security has moved beyond simple availability of oil to encompass all energy sources and a broad range of objectives: -Security of supply -Economic security – affordable energy -Socio-economic security – improved access to rural and poor areas -Environmental security – reduction in pollution and greenhouse emissions “As a diverse region comprising economies with vastly differing reserves, including major net importers and net exporters, it is likely that energy security can be achieved more easily in cooperation than by individual economies in isolation” APEC Energy Trade and Investment Study, p11

8. PricewaterhouseCoopers Page 8 APEC Energy Trade and Investment Study A key component of improving energy security is by identifying, prioritising and removing barriers to energy trade and investment Objectives, Methodology and Scope -Its aim is to identify and prioritise border and behind-the- border barriers to energy trade and investment across APEC. -A mixture of literature reviews, stakeholder consultation and a prioritisation of the barriers -Barriers were identified at a thematic level i.e. non-energy or economy specific, large-medium sized infrastructure and focussed on commercial energy technologies

9. PricewaterhouseCoopers Page 9 APEC Energy Trade and Investment Study A prioritisation may be able to usefully inform decisions by APEC leaders in terms of focused action and dedication of resources to promote energy investment and trade Priority categoryBarriers HighPolicy uncertainty Lack of competition and anti-competitive behaviour Medium / highWeak legal systems Inadequate infrastructure Limits on foreign ownership of energy businesses Screening or approval requirements for foreign investment in energy businesses Medium / lowInefficient or excessive taxes Energy import and export policies Operational restrictions LowPolitical issues / instability Poorly functioning financial markets Corruption

10. PricewaterhouseCoopers Page 10 APEC Energy Trade and Investment Study Role of international organisations differ in their geographic coverage of APEC economies, their degree of focus on energy versus other sectors, and their key roles and activities The roles and key activities of key international organisations working across APEC economies generally comprise: -Facilitating and encouraging communication between Governments -Sharing ideas and best practice on regulation -Sharing ideas and best practice on technical matters -Conducting research and analysis -Highlighting barriers and problems -Facilitating private sector partnership -Financing or leveraging finance of others -Hold member economies accountable for action The role of APEC going forward is to work with other organisations on developing focussed & concrete actions to promote trade and investment

11. PricewaterhouseCoopers Page 11 APEC Energy Trade and Investment Study How study can inform APEC economies Phase 1: Identification and Prioritisation of Barriers Phase 2: Development of Draft Action Plan Phase 3: Post Roundtable Information Sharing “The uneven resource distribution [within APEC] means that international cooperation is required to sustain primary energy supply through trade … but also creates a unique opportunity to work together to support the achievement of energy objectives for all economies.” APEC Energy Trade and Investment Study,

12. PricewaterhouseCoopers Page 12 APEC Energy Trade and Investment Study Areas for potential follow up Identification of barriers for commercialisation of new technologies, renewable energy and distributed energy Studying the barriers to energy trade and investment at an energy type-specific level in order to facilitate appropriately targeted action to address them. Economies may redefine prioritisation of barriers in the context of their own circumstances and level of economic development to ensure it is appropriate. Indentify areas where benefits are dependent on international collaboration e.g. technical standards, climate change or cross border infrastructure

13. PricewaterhouseCoopers Page 13 APEC Energy Trade and Investment Study Conclusions – Potential Role for APEC The Study has highlighted the barriers to energy trade and investment which stand in the way of improving energy security in the region. Going forward APEC may seek to: -Continue to support the Asia Pacific region in the role and activities of other international organisations -Address areas which it considers are not being accorded priority by these organisations -Assist member economies in developing “best practice” regulation and improving collaboration in addressing cross-border barriers -Developing focused & concrete actions to promote trade and investment

14. Comments

15. Part 2 – priority barriers and prioritisation analysis

16. PricewaterhouseCoopers Page 16 APEC Energy Trade and Investment Study Prioritisation – multicriteria analysis Useful where factors cannot be satisfactorily quantified and / or valued but are important to the assessment. Involves the assessment of key elements against a set of criteria that include both quantifiable and non-quantifiable factors Allows barriers to be assessed fully on the basis of all driving factors

17. PricewaterhouseCoopers Page 17 APEC Energy Trade and Investment Study Prioritisation – multicriteria analysis Stakeholder conversations revealed: -Differences by energy type -Difference by prevalence across economies -Difference by strength of barrier to market entry Other factors influencing priority -Effect on investment productivity -Economic impact of removal

18. PricewaterhouseCoopers Page 18 APEC Energy Trade and Investment Study Prioritisation – multicriteria analysis Scoring of high / med / low based on understanding through literature review and stakeholder consultation Scenario analysis with different criteria weighting to ‘test outcomes’ Barrier priority categories emerged

19. PricewaterhouseCoopers Page 19 APEC Energy Trade and Investment Study Prioritisation – multicriteria analysis Priority categoryBarriers HighPolicy uncertainty Lack of competition and anti-competitive behaviour Medium / highWeak legal systems Inadequate infrastructure Limits on foreign ownership of energy businesses Screening or approval requirements for foreign investment in energy businesses Medium / lowInefficient or excessive taxes Energy import and export policies Operational restrictions LowPolitical issues / instability Poorly functioning financial markets Corruption

20. PricewaterhouseCoopers Page 20 APEC Energy Trade and Investment Study High priority barriers – policy uncertainty Relates to unpredictable regulations or unclear policy direction Increases risk for investors and therefore deters investment Climate change policy uncertainty raised as a particular issue for investment

21. PricewaterhouseCoopers Page 21 APEC Energy Trade and Investment Study High priority barriers – lack of competition and anti-competitive behaviour Where the regulatory and institutional environment does not enable overseas investors to access the same opportunities as State owned enterprises Where incumbent firms attempt to limit competition in the market Includes: -discriminatory treatment between overseas and domestic investors -lack of price deregulation -subsidisation of domestic energy sources

22. PricewaterhouseCoopers Page 22 APEC Energy Trade and Investment Study High /medium priority barriers – weak legal systems Where there are: -regulatory gaps -poor protection of property rights -unclear regulations and contract enforcement difficulties Highlighted as ‘economy specific’ Increases investor risk

23. PricewaterhouseCoopers Page 23 APEC Energy Trade and Investment Study High /medium priority barriers – inadequate infrastructure Increase the time and cost of transporting energy from sources of supply to areas of demand Discourages foreign investment in generation capacity and international trade Where clean energy technologies have particular infrastructure needs, lack of such infrastructure can inhibit the growth Some parts of the market should remain regulated – but returns should reflect the WACC Highlighted by stakeholders as significant barrier across net importing / exporting economies, particularly within developing economies, and important for most energy types.

24. PricewaterhouseCoopers Page 24 APEC Energy Trade and Investment Study High /medium priority barriers – limits on foreign ownership of energy businesses Explicit rules for accepting or rejecting investment proposals Some reforms but remains common across APEC economies for different forms of energy Imposed through foreign investment law or energy regulation Restrictions should balance protection domestic interest with: -benefit from liberalised energy trade and investment across the region -benefit from access to energy (e.g. in supporting the activities of productive industries)

25. PricewaterhouseCoopers Page 25 APEC Energy Trade and Investment Study High /medium priority barriers – screening or approval requirements for foreign investment in energy businesses Most economies have foreign investment review process Barrier created where: -foreign investment screening and approval process lacks transparency or predictability -restrictions imposed are disproportionate to domestic interest or security requirements -screening and approval process is considered complex and lengthy

26. Thankyou