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Appropriate Financing for Petroleum Development in Developing Countries

The availability of appropriate financing is likely to be a dominant factor determining the scope and pace of energy investment by developing countries in the 1980s. Reliance on self-finance will severely limit development for most countries, but traditional external finance-credit from private banks or multilateral agencies such as the World Bank-will probably play a smaller role than it did in the 1970s. External financing is less likely to be readily available now; at the same time, borrowers have become more aware of its limitations. Because of the time lags and uncertainties involved in most energy-related investments, the nature and volume of financing are likely to have a significant impact on the character and rate of investment.1 In fact, for enterprises or governments that are constrained1. While the relevance of finance to energy policy is clear, the research conducted to date has only scratched the surface. In one of the earliest studies of links between energy and finance, Agmon et al. (1979) examined the financial behavior of key OPEC members and considered the likely effect of changes in financial markets on their capacity and production decisions. Ben-Shahar (1976) and Moron (1978) evaluated the "revenue needs" of OPEC countries and related them to oil production scenarios. Dailami (1978, 1979a, 1979b) constructed econometric macrofinancial models of several oil-exporting countries; he then analyzed the impact of oil revenues on the countries' economy and the attendant influence of policy variables.

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Energy Specializations: Petroleum – Exploration and Production; Energy Investment and Finance – Project Finance

JEL Codes: Q41: Energy: Demand and Supply; Prices, Q42: Alternative Energy Sources, G11: Portfolio Choice; Investment Decisions, G13: Contingent Pricing; Futures Pricing; option pricing, G32: Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill, G01: Financial Crises, G31: Capital Budgeting; Fixed Investment and Inventory Studies; Capacity

Keywords: Oil investment, Developing countries, Finance, Energy policy

DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No3-3

Published in Volume 5, Number 3 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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