GENERAL
E/ESCAP/1128
16 February 1999
ORIGINAL: ENGLISH

ECONOMIC AND SOCIAL COMMISSION FOR ASIA AND THE PACIFIC

Fifty-fifth session
22-28 April 1999
Bangkok

EMERGING ISSUES AND DEVELOPMENTS AT THE REGIONAL LEVEL: ENVIRONMENT AND NATURAL RESOURCES DEVELOPMENT

(Item 6 (b) of the provisional agenda)

EMERGING ISSUES AND DEVELOPMENTS RELATED TO THE ENVIRONMENT AND SUSTAINABLE DEVELOPMENT OF NATURAL RESOURCES: THE IMPACT OF THE ECONOMIC CRISIS ON THE ENERGY SECTOR

Note by the secretariat

1. INTRODUCTION
2. HIGHLIGHTS OF THE CURRENT FINANCIAL AND ECONOMIC CRISIS
3. IMPACT OF THE ECONOMIC CRISIS ON THE ENERGY SECTOR
   1. Immediate impact on energy prices
   2. Impact on energy demand for primary energy and electricity
   3. Impact on energy supply
   4. Impact of the financial crisis on the financing of energy sector development
4. STRATEGIES AND POLICY OPTIONS TO MITIGATE THE IMPACT OF THE ECONOMIC CRISIS ON THE ENERGY SECTOR
5. PROMOTION OF A SUSTAINABLE ENERGY FUTURE FOR ALL
6. PERSPECTIVES FOR ENHANCED REGIONAL AND SUBREGIONAL
   COOPERATION
7. CONCLUSIONS AND RECOMMENDATIONS

LIST OF FIGURES

1. Net energy imports (+) and exports (-) of selected Asian countries (1995)

2. Price movements of petroleum products in the Republic of Korea

LIST OF TABLES

1. Impact of the economic crisis on selected energy-intensive manufacturing sectors

2. Changes in oil demand and supply

3. Changes in natural gas consumption and production

4. Impact of the financial crisis on expected new private power projects in selected countries, 1998-2001

INTRODUCTION

1. The economic crisis in East and South-East Asia appears to be far more serious and longer-lived than previously anticipated. Among other sectors, the energy sector has been hard hit. In Asia, in particular South-East Asia, energy demand had been growing rapidly over the past two decades. However, since the crisis started in mid-1997, the subregion has been experiencing a significant slowdown in energy demand growth. While the immediate impact of the crisis is felt more on the energy sector itself, the long-term effects may be felt throughout the entire regional economy. The crisis brought serious setbacks to the plans for energy infrastructure development, and it threatens to worsen the energy supply/demand gap that has already been constraining development efforts in many developing countries. The Commission is invited to deliberate on these issues and provide guidance on the future course of action at national and regional levels.

2. In December 1998, the secretariat, with the financial assistance of the Republic of Korea, organized the Regional Workshop on Energy and Environment Planning and the Impact of Financial Crisis on the Energy Sector. One of the objectives of the Regional Workshop was to review the implications of, and identify strategic options to counter, the impact of the financial crisis on the energy sector in Asia. The present note draws heavily on the background documents and country papers presented at the Workshop, and on its deliberations, in which 14 countries and several agencies participated.

I. HIGHLIGHTS OF THE CURRENT FINANCIAL AND ECONOMIC CRISIS

3. Since mid-1997, economies in East and South-East Asia have been facing profound financial and economic difficulties. Many of the countries which had hitherto been accustomed to high and above average annual growth rates are at present experiencing an unprecedented economic recession. The current regional financial and economic crisis was triggered by a series of sharp and unexpected currency devaluations, which first started in Thailand in July 1997, but also quickly engulfed other economies of Asia such as Indonesia, the Republic of Korea, Malaysia, the Philippines and, to a much smaller extent, Singapore. There has been great volatility in the region's financial markets. During recent months currencies and financial markets have tended to re-stabilize. However, several of the region's currencies are still trading at much lower levels than in pre-crisis times.

4. In their search for, and analysis of, the main causes of the Asian financial crisis, economists have blamed the initial complacency of financial and monetary policy makers and a lack of preparedness to react to sudden changes in the market. Many of the Asian economies had for three decades enjoyed rapid economic growth and large foreign capital inflows. During more recent years these trends, accompanied by a continued maintenance of pegged exchange rates, led to currency overvaluation, encouraged yet more external borrowing and brought an excessive exposure to foreign exchange risks. In several of the countries of the region the regulatory framework and oversight of the financial sector for managing those capital flows was inadequate. Many financial institutions were found to be undercapitalized. The eventual destabilization of the financial systems in some of those countries shook public and investor confidence, leading to massive capital outflows and refusal of foreign financial institutions to roll over existing loans or grant more loans.

5. The financial crisis, the international exchange rate adjustments and the continuing market volatility have had a grave impact on the economies of the region and on some of the lending corporations. The costs of imported commodities or components have soared and the costs of debt-servicing of foreign loans have increased sharply in many countries. Many industries have shelved previous expansion plans. In many cases employees have been laid off. The pace of economic development, which until the recent past had been spurred by high levels of investment and generous consumer spending, has faltered into economically and politically dangerous stagnation characterized by company closures, increasing unemployment and sharp falls in consumer spending.

6. The economic crisis has affected not only the countries of South-East Asia, but other countries of the region as well. For instance, the currencies of the countries in South Asia have also depreciated vis-à-vis the dollar by up to 18 per cent. The turmoil in the financial markets of the Russian Federation has negatively impacted the economic recovery and development prospects of the Central Asian economies in transition, while the oil- and gas-exporting countries in West Asiahave been negatively affected through lower than expected export sales and falling world energy prices.

7. At the time of writing of the present document, the full dimensions of the Asian economic crisis are still being assessed, and national economic development forecasts frequently amended, often with downward revisions. Some countries have been more seriously affected than others; consequently, some are expected to require a relatively longer period of economic recovery than others.

II. IMPACT OF THE ECONOMIC CRISIS ON THE ENERGY SECTOR

A. Immediate impact on energy prices

8. The immediate impact of currency devaluation has been a rise in domestic energy costs and prices, in particular in those crisis-affected Asian countries that import fuels. Three of the five countries worst hit by the crisis, namely, the Republic of Korea, the Philippines and Thailand, are highly dependent on energy imports. The devaluation of the currencies in those countries has had its most direct impact on domestic energy prices, in particular through prices of imported crudeoil and petroleum products. Figure 1 shows the energy import dependency of selected Asian economies.

Figure 1. Net energy imports (+) and exports (-) of selected Asian countries (1995)

Source: World Bank, World Development Indicators, 1998.

9. The impact of the currency devaluation on domestic petroleum product prices was particularly evident in the Republic of Korea, which is highly dependent on crude oil imports. Figure 2 shows the immediate impact that foreign exchange rate variations had on domestic petroleum product prices in the Republic of Korea. The domestic oil price increases in the Republic of Korea have occurred despite falling international crude oil prices. The average world price of crude oil actually fell sharply from US$ 19.27 per barrel in 1997 to US$ 12.48 in June 1998, which represents a decline of some 35 per cent.

Figure 2. Price movements of petroleum products in the Republic of Korea

Source of basic data: Korea Energy Economics Institute, Korea Energy Review Monthly, September 1998.

10. The currency devaluation has also had a considerable impact on electricity prices. Prices have been revised upward in some countries in order at least partially to offset increasing costs in local currency of imported fuels. Between June 1997 and June 1998, customers of the Manila Electric Company in the Philippines faced tariff increases of 14 to 16 per cent. In Thailand, the fuel price increases were also immediately passed on to consumers through automatic price adjustments. In the Republic of Korea, increases in electricity tariffs were slightly less than those for petroleum products, owing to comparatively high shares of coal and nuclear energy in electricity production. Nevertheless, between June 1997 and June 1998 electricity prices in local currency terms in the Republic of Korea also increased by nearly 20 per cent. In Indonesia, the Government came under financial pressure to reduce the levels of energy subsidies.

11. In the various crisis-affected countries, governments, utilities, energy companies and end-users were all affected by the increasing energy costs, though the financial burden has often been shared differently. In some countries, governments have reduced energy taxes to cushion the impact of price increases, thus losing some potential revenues. In other countries, such as Thailand, the increased oil import costs led to further fierce competition among the domestic refinery industries and among distributors of petroleum products. Given the stagnation and slump in consumer purchasing power in Thailand, oil companies were not always able to pass the financial burden on to consumers and thus suffered from decreasing profit margins. In the electricity industry, most of the financial burden was passed on to consumers, in particular in those countries where electricity pricing is based on periodic or automatic adjustments. In other countries utilities were forced to absorb most of the financial burden as proposed tariff increases repeatedly faced strong opposition from the public.

B. Impact on energy demand for primary energy and electricity

12. In general, the price elasticity of energy demand is relatively low. Energy price rises do not immediately lead to proportional reductions in consumer demand. The continuing economic turmoil has, nevertheless, considerably affected energy demand in at least three ways. First, as noted in the previous section, the depreciation of local currencies has made imported energy more expensive in the domestic market. Second, the ensuing economic slowdown means declining manufacturing output, which, in turn, implies less demand for energy inputs. Table 1 shows the impact of the economic crisis on selected energy-intensive manufacturing sectors in the worst affected Asian countries. In Thailand, for instance, automobile manufacture fell by 69.7 per cent, while the manufacture of construction materials fell by 39.9 per cent during the first half of 1998 compared to the same period the previous year. Third, the economic contraction translates into reduced corporate and personal income, firm closures and unemployment, which in turn entails reduced energy demand.

Table 1. Impact of the economic crisis on selected energy-intensive manufacturing sectors

(Percentage change in value added from first half of 1997 to same period in 1998)

Sources: Central Bureau of Statistics, Indikator Ekonomi; The Economist Intelligence Unit, Country Report: Indonesia, 3rd quarter 1998; The Nation, 13 October 1998; Korea Energy Review Monthly, September 1998; and The Economist Intelligence Unit, Country Report: Malaysia, 3rd quarter 1998.

^a Forecast for 1998.

Oil downstream sector

13. With declining activity in the industrial and transportation sectors, the previous growth in oil consumption in the affected countries has decreased considerably (see table 2). Moreover, oil-exporting countries like Indonesia and Malaysia are not only facing a decline in domestic oil

Table 2. Changes in oil demand and supply

(Percentage change from first half of 1997 to same period in 1998)

Sources: The Strategist: Singapore Oil Report, 30 September 1998; Korea Oil News, 24 August 1998; Energy Information Administration, 27 August 1998; The Nation, 3 October 1998 and 6 October 1998; Petroleum Institute of Thailand, PTIT Focus, vol. 12, No. 9, September 1998; Vietnam Economic News, No. 29, 1998; Department of Energy, Philippine Energy Bulletin, January-June 1998; Organization of Petroleum Exporting Countries, Monthly Oil Market Report; and The Economist Intelligence Unit, Country Report: Indonesia, 3rd quarter 1998.

^a Unless otherwise indicated.

^b Average for September 1998 compared to September 1997.

consumption but are also being affected by loss of revenue from reduced oil exports. Indonesia exports about two thirds of its crude oil production, mainly to Asian countries. Singapore's export-oriented refining industry relies heavily on the Asian market, which accounts for around 80 per cent of Singapore's total product exports.

Gas sector

14. In relative terms production and international trade in natural gas have remained less affected by the economic crisis. Natural gas is used mainly in power generation and as feedstock in industrial processes. So far only a few countries in the region use natural gas in power generation. The Republic of Korea and the Philippines are net importers of natural gas, while Indonesia and Malaysia are net exporters. As a result of the economic crisis, a reduction in natural gas imports has been reported in the Republic of Korea. In Indonesia and Malaysia, domestic and export demand for natural gas have fallen below expectations and levels of production have temporarily been reduced. Table 3 gives a quantitative indication of changes in gas consumption in the affected ESCAP countries.

Table 3. Changes in natural gas consumption and production

Sources: Indonesia Oil and Gas Statistics, Monthly Report, March 1998; The Strategist: Singapore Oil Report,30 September 1998; and Korea Energy Review Monthly, September 1998.

Coal utilization

15. Coal is used mainly for electricity generation and its utilization has been increasing during recent years, in part owing to the underlying long-term trends of expanding electricity supplies, and in part owing to substitution of oil imports. The available data suggest that coal consumption has tended to increase even with the current economic crisis and in spite of the concerns about increases in carbon or other emissions. In many countries of the region the development and increased use of domestic coal reserves are considered to be the most economical options for electricity supply development and energy security.

Electricity consumption

16. In some countries of the region, aggregate national electricity consumption has stagnated, and in some cases even declined, as a result of the economic crisis. In those countries of East andSouth-East Asia where electricity consumption has declined, most of the reduced demand results from reduced activity in the manufacturing sector. Final electricity demand in the residential sector has been shown to be rather inelastic, at least in the short term. For many of the utilities and other energy suppliers the sudden unexpected reduction and stagnation of electricity demand growth has caused financial strains, more particularly in situations where capacities have recently been expanded, and investment costs are required to be recovered without shortfalls or delays.

17. In countries that have remained less affected by the crisis, such as China or Viet Nam, electricity supply and demand have continued to grow.

C. Impact on energy supply

18. The slump in domestic energy demand has resulted in cuts or a slowdown in domestic energy production. In several countries of the region, utilities and other companies engaged in energy trade and energy supply have come under considerable financial strain, as cost increases in domestic currency terms often coincide with stagnation or even declines in sales. Many companies have reviewed their previous investment and capacity expansion plans, and in some cases decided to postpone or even cancel projects. If seen in longer-term perspective, such adjustments may be undesirable, as they may well lead to future infrastructure and supply bottlenecks once the economic development and expansion process recovers. The sectors that are worst affected are the oil and gas and the electricity sectors.

Oil downstream sector

19. In some of the countries of the region, the oil downstream sector has been affected by the crisis. Stagnating or falling sales, reduced returns on investment and, in some cases, reduced capacity utilization dominate the picture. In Thailand, the impact of the crisis is reflected in the financial performance of the Petroleum Authority of Thailand (PTT). The net profit of PTT for the fiscal year ending in September 1998 slipped to half the previous year's level, with revenue dropping 11.2 per cent. In Malaysia, the economic situation forced the Government to postpone or cancel several planned infrastructure projects, eliminating potential prime locations for new service stations. In Singapore, refiners faced falling profit margins and some companies decided to reduce production levels. In the Republic of Korea, oil-refining companies have also adjusted their operating rate in response to the stagnation of domestic demand.

Gas sector

20. The gas sector in East and South-East Asia is characterized by large long-term investments that are governed and protected by long-term contracts between gas industry developers and, usually, a national oil and gas company. The financial crisis has dampened the prospects of many of the large-scale gas development projects. A number of gas development projects now face delay, if not outright cancellation. For instance, the Petroleum Authority of Thailand was obliged to revise its previous gas development and transmission expansion plans significantly downward, reducing both the number of projects in the investment plan as well as the amounts planned to be invested.

Electricity sector

21. In several of the countries of the region, the financial and economic crisis has at least temporarily slowed down, if not reduced, electricity consumption, and recovery is not expected until after 2000. Thus, some of the Asian countries may face, albeit temporarily, a situation of excess capacity in electricity generation. In most of the worst affected countries, utilities have had to revise downwards their generating capacity expansion plans that were based on high electricity demand forecasts. As a result, a number of power projects are being delayed or cancelled. In many countries of the region, many potential consumers still have no access to electricity, in particular in rural areas. The crisis threatens to retard projects that were aimed at improving the living conditions in those areas. Table 4 indicates post-crisis projection adjustments for electric sector development in some of the ESCAP countries.

Table 4. Impact of the financial crisis on expected new private power projects

in selected countries, 1998-2001

(In gigawatts)

Source: R. David Gray and John Schuster, "The East Asian financial crisis--Fallout for private power projects", Public Policy for the Private Sector (World Bank, Washington, D.C., August 1998).

22. However, in spite of the crisis the countries in East and South-East Asia remain among the developing world's largest markets for further private sector power generation projects. For example, China remains the largest market with its installed capacity ranked second in the world. Private power now accounts for more than half of all generation in Malaysia and represents at least 45 per cent of electricity generating capacity now installed in the Philippines. In Thailand, the first major private sector power generation project will also come on stream in 1999. However, as a result of the crisis, new projects will face much greater difficulties to secure required funding.

23. The contracts between independent power producers (IPPs) and the national power utilities typically specify capacity charge and the amount of electricity that will be sold to national power utilities. Thus, the current economic crisis has greatly increased the risk for the utilities of not meeting projected electricity demand. In addition, payments to IPPs are usually denominated in United States dollars, but national utilities are paid by customers in local currency. In several countries the financial crisis has thus multiplied the local currency requirements to meet the foreign exchange obligations of national utilities. It would appear that in most of the crisis-affected countries the national utilities have shared the greater portion of the market and financial risks.

D. Impact of the financial crisis on the financing of energy sector development

24. With regard to the provision of bilateral and multilateral sources of financing for continued energy sector development, the outstanding role of official development assistance (ODA) requires to be highlighted. Recent trends suggest that aggregate total annual world ODA has been stagnating in recent years and in some cases declining. With the expected continuing slowdown in economic development in the industrialized countries, world ODA may be expected to shrink further in the future. The provision of ODA financing by industrialized countries will continue to play an important, and indeed crucial, role in the consolidation and future expansion of the energy infrastructure and energy industry of the region, and it will remain important as a part of the overall economic recovery process.

25. Over the past two decades private sector financing has assumed a growing and significant role in regional infrastructure development, including the energy sector. Given the continuing constraints on public sector finances and the many other tasks for which government budgets are required, private sector financing will be increasingly indispensable for the development of energy supply. In order to attract private capital to energy sector development, future energy policies will need to guarantee sufficient utility revenues through appropriate priority and regulatory policies.

26. The impact of the financial crisis on projects currently under construction or development and the impact of planned investments on energy supply may be quite severe. Energy industries in most Asian countries borrowed foreign funds to develop the energy infrastructure. The financial crisis affects ongoing and planned investments, not only because of uncertainties in future energy demand, but also because the crisis has raised the costs of doing business in the region, and therefore financing these projects has become more difficult. For many countries, private sector financing for energy investments will become more costly and more difficult to secure.

III. STRATEGIES AND POLICY OPTIONS TO MITIGATE THE IMPACT OF THE ECONOMIC CRISIS ON THE ENERGY SECTOR

27. To overcome current and emerging problems in the energy sector, it is essential, especially for the directly affected economies, to undertake concerted efforts in terms of policies and strategies. Such policies and strategies should address both pricing (tariffs, incentives) and non-pricing issues (investment regulations and incentives). A suitable regulatory framework and positive business environment will remain essential preconditions for the regaining of investor confidence and the attraction of required external investment financing.

28. In the short term, regulated energy prices must be adjusted, as in many instances the tariffs that are denominated in local currency have fallen sharply in foreign currency terms. A policy to raise tariff rates has both positive and negative implications. On the one hand, it is critical for the survival of utilities and investors. On the other hand, energy consumers would doubly suffer, as they already do, from the economic impact of the crisis. However, raising energy prices to a reasonable level, even if gradually, is inevitable. This also means addressing the subsidy issues more urgently than before.

29. Several countries in the region had in the recent past initiated energy sector policy reforms with a view to attracting greater involvement of the private sector. In some cases, the current financial crisis threatens the initial success of these new policies. Energy sector reforms should be continued within the context of the envisaged long-term objectives of achieving a growing privatization of publicly owned national corporations, and the opening and development of regional markets.

30. In the light of the current crisis, several countries in the region are exploring their respective development potentials of indigenous energy resources. A clear policy on energy resource options that will encourage development and utilization of alternative sources of energy is also highly desirable. Diversification of energy supplies, particularly for energy-importing countries, has already been intensified following the financial crisis. In that regard, utilization of natural gas and renewable energy sources is expected to increase.

31. The financial crisis has highlighted the importance of energy security. Indigenous sources of energy should play a greater role than before even if they are not as competitive as the imported ones.

32. In some countries stagnating energy demand has created a temporary capacity surplus. As a consequence, and also owing to a scarcity of funds, previously planned capacity additions have been deferred or cancelled. As the affected Asian economies recover, more energy supplies will be required in future. There is thus a risk that a rise in future energy demand may not be adequately met because of the lack of required infrastructure. Energy being a critical input, inadequate infrastructure may again become a bottleneck for future economic development. Therefore, energy policy should continue to encourage development of energy infrastructures.

IV. PROMOTION OF A SUSTAINABLE ENERGY FUTURE FOR ALL

33. Ensuring an adequate, secure and affordable energy supply for sustainable development remains a high priority for all countries of the Asian and Pacific region. With growing concern over the negative impact of energy development and use on the environment, sustainable energy development has drawn the attention of the national and international communities. On 28 June 1997, at its nineteenth special session, the General Assembly adopted the Programme for the Further Implementation of Agenda 21 and approved the Multi-year programme of work for the Commission on Sustainable Development, 1998-2002. In that Programme, energy and freshwater resources were identified, among others, as requiring urgent action.

34. It may be recalled also that at its fifty-fourth session, in April 1998, the Commission endorsed the fundamental objective of achieving a "sustainable energy future for all", as set out in the above Programme. The Commission recommended that governments should establish, review periodically and develop national action plans for sustainable energy development and management. How to translate this high-level decision into practice remains a major challenge for energy planners. In this context, the ESCAP energy programme has endeavoured to strengthen national capabilities through its technical assistance activities in promoting energy-environment interface. Against the backdrop of the current financial crisis, it is even more relevant today than at any previous time that serious attention be paid to sustainable development, management and efficient utilization of energy resources, including renewable energy.

35. It may be observed that at a time of financial crisis and growing international competition investments required for environmental protection are sometimes given low priority, or are even ignored. However, strategic energy planning approaches that integrate environmental considerations should be pursued for sustainable energy development and management. These strategies should cover issues, such as those in relation to security of supply, infrastructure development and energy efficiency. Such an approach to policies and strategies is also applicable to other countries that were not directly affected by the financial crisis, as they are also faced with similar issues.

36. Most of the countries in the region have in recent years made significant investments to improve capacity as well as efficiency on the energy supply side, but much less investment has occurred in demand side management. Further work remains to be done to reduce unnecessary energy losses, in particular in electricity transmission and distribution systems, and to minimize wasteful uses of energy. Switching to clean combustion technologies, cleaner fuels and renewable sources of energy also offers options for utilities to contribute to sustainable development. Another aspect of the sustainable energy future is fuel-switching from high carbon fossil fuels to low carbon or no carbon energy sources, such as natural gas (low carbon), and hydroelectric and other renewable energy sources, such as biomass, solar or wind (no carbon). To promote efficient production and utilization of energy, emphasis should be placed on providing incentives after laying down the appropriate regulatory measures. Energy efficiency and conservation policy should give a long-needed impetus to reduction in energy intensities.

37. As recommended by the Commission, the ESCAP secretariat will complement the work of the Commission on Sustainable Development in the implementation of the recommendations of the General Assembly. In this respect the secretariat intends to provide a regional forum at the expert level to selected members and associate members of ESCAP for the preparation of inputs to the global consultation process on sustainable energy development, leading to the ninth session of the Commission on Sustainable Development in 2001. The secretariat also recognizes and seeks to strengthen the role that non-governmental organizations can play in the promotion of sustainable energy use and development.

V. PERSPECTIVES FOR ENHANCED REGIONAL AND SUBREGIONAL

COOPERATION

38. Considering the interdependency of the Asian countries, enhanced and better cooperation over energy issues at the regional and subregional level has become a necessity. Particularly with the current trend of opening the energy sector to more private sector participation, a greater scope has arisen for energy trade in various subregions of Asia and the Pacific. However, energy trade, particularly in natural gas and electricity, is currently constrained by lack of infrastructure. Given an appropriate market-based policy, trade in natural gas and electricity can enhance supply security among the cooperating countries. Though the current financial crisis has halted or postponed some future projects in this regard, over time, such cooperation efforts will be of mutual benefit to the concerned economies. Policy dialogue to enhance regional energy cooperation should be strengthened where it already exists and initiated in other potential subregions where it is still not present.

39. Promotion of increased use of renewable energy through adaptation of modern technologies can also be accelerated through regional and intercountry cooperation. In this respect commercialization of renewable energy technologies through the partnership of public and private sectors should be encouraged. Experience gained by some countries in this area can be effectively shared by others through intercountry cooperation.

VI. CONCLUSIONS AND RECOMMENDATIONS

40. Provision of adequate energy supplies remains an important element in the economic recovery and continued socio-economic development. As a consequence of the current economic crisis, the energy sector has been badly affected, directly in some economies and as a contagion effect in some others. While the immediate impact has been on energy prices and on infrastructure development, widening the energy supply and demand gap in the long run may become a constraint unless appropriate strategies are put in place to prevent any potential future deficiency in energy infrastructure as the economies recover.

41. Given the shortage of public sector finances, the future development of the infrastructure, including the energy infrastructure, will increasingly depend on the successful mobilization of private sector investments. Energy policies should create an enabling atmosphere for the private sector in the development and management of the sector.

42. Inclusion of environmental considerations in energy sector decision-making will remain a growing regional and global challenge. Regional countries should be actively involved in the global consultation process leading to a policy forum towards a "sustainable energy future for all", as the Commission on Sustainable Development takes up energy issues at its ninth session in 2001. In that respect the Commission may wish to recommend a preparatory process at the regional level to discuss and agree on a regional position paper.

43. Some of the issues and prospects in the energy sector have the potential to be addressed effectively at the regional and subregional level; these include energy trade/exchange and sharing of experience and expertise in renewable energy technology application. Countries may wish to initiate and enhance regional and/or subregional cooperation in this respect.