Oil deregulation stumbles on Asian currency turmoil

Oil deregulation stumbles on Asian currency turmoil

SINGAPORE (Reuter): The currency turmoil in Asia is creating further hurdles for investment in energy, but governments should not allow that to hinder their struggle towards deregulation, analysts said yesterday.

"Asia will welcome funding especially for the electricity and pipeline grid," said Gordon Kwan, an oil and gas analyst from Daiwa Securities in Hong Kong.

He was referring to the $150 billion Southeast Asian plan for a gas pipeline grid and multi-billion dollar power grid.

"But it is very difficult right now given the state of the economies and the uncertainty facing some of the countries such as Thailand and the Philippines...particularly with the currency devaluation, the pipeline project is in limbo," Kwan said.

Investment bank Goldman Sachs has cut its 1997 gross domestic product forecast for the four economies worst-hit by currency speculation -- Thailand, Malaysia, the Philippines and Indonesia -- to 5.2 percent from 6.3 percent.

Although above growth rates seen in most of the developed world, equities in the countries were sliding this week.

The Philippine peso suffered a sudden seven percent fall Thursday. Malaysia's ringgit hit a new low versus the dollar.

"Who is going to finance projects if they are going to get their money back in pesos and baht?" asked Kwan.

Analysts said the Asia-Pacific Economic Cooperation (APEC) forum needed to provide risk-free regulatory regimes and open markets to attract funds to finance growth in Asia's energy industries. The World Bank has estimated $100 billion per year was needed through 2000.

Energy ministers from the 18 APEC members agreed on Wednesday they should encourage more foreign investment in power. They met for two days in Edmonton, Canada.

APEC member countries, including North and South American and Asian countries such as China, Thailand, Indonesia, Australia, are attempting to establish free trade amongst developed nations by 2010 and undeveloped nations by 2020.

Thailand, the Philippines, Japan and South Korea have made the most inroads in energy deregulation, analysts said.

But others like Indonesia, Malaysia, Taiwan, Vietnam and China have yet to make meaningful moves, struggling to reconcile the strategic importance of energy with growth and protecting domestic industries.

James Brown, Merrill Lynch's Asia-Pacific's oil and gas analyst told Reuters that the devaluation would create negative market perception, something governments would want to avoid.

"But the fact remains with currency devaluation or not, these countries need to build their industries and there comes a point where you have to encourage foreign investment to move a country forward," Brown said.

"It is ultimately what is driving deregulation...that these countries tried to build their industry with their own resources and found they don't have the resources," said Brown.

"There is a problem for a country with a depreciating currency, but it is a much bigger picture...a problem relating to broader economy of the country.

"They are not in a position to let their currency problems get in the way of deregulation," Brown said.