Hilmarsson, Hilmar Ϸór
June 2010
Human Resources: The Main Factor of Regional Development;2010, Issue 3, p103
Academic Journal
The purpose of this article is to analyze and assess the situation when a private sector company invests in the energy sector in an emerging market economy in transition. Energy investment can offer high rewards, but so are the risks especially in emerging market countries. For energy investments the host government is typically the offtake purchaser and it may have limited creditworthiness. In this situation the political risks of the project can be high. Energy investments are typically large, capital intensive and long-term which makes the investment even more risky for a private investor. It may take the private sector company 10 to 25 years to recover the investment and earn reasonable returns. There clearly is a need for increased investment in renewable energy in the developing world. However, if the risks are not mitigated, underinvestment in the clean energy sector is likely to occur. The international community has a role to play here and international financial institutions, including the World Bank Group, offer risk mitigation instruments to support investments in risky markets. Given the global needs, however, their involvement so far has been modest and reform may be needed to make those instruments more efficient and accessible for the private sector. This article is based on a review of theoretical literature, secondary data and the author's experience in working for the World Bank Group for 12 years.


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