Revolutionising Iran's Private Sector

Part 1: Problems and Solutions

Chris Cook

I.C.C.I.M, Tehran, 2nd July 2012

Introduction

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Wimpole International

Institute for International Energy Studies (IIES)

Is a Network of experts with unrivalled capabilities in the architecture and implementation of market instruments and infrastructure

For Research on international energy markets and energy economic issues

Setting the SceneSession One – Problems and Solutions

Context20th Century Problems21st Century Solutions

Session Two - 21st Century Financing Development Investment and Trade Credit ClearingCase StudiesOutcomes

Session Three – 21st Century Funding Funding Investment Case StudiesOutcomes

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Session One - Executive SummaryContext

Markets Iran

Problem Dollar Economics and Dollar Diplomacy

SolutionsNondominium - framework agreement eg ECO

Energy CharterStock - credit instrument Financing – stock based on goods and servicesFunding – stock based upon productive assets

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Context - PrepayIn the late 1990's Enron discovered PrepayCommodities sold at a discount for dollars &

delivered laterExample: oil market price $100: 1m barrels sold

for $90 now and delivery in 6 monthsEnron used Prepay to defraud creditors and

investorsSince 2005 investment banks and producers have

used prepay to defraud the oil market

Context – Oil Market

Context – Saudi Oil Production

Prepay

Prepay

UnstableEquilibrium

Shock

Context - GeopoliticsUS is managing oil price decline to & through

$60/barrel Why? US gasoline prices <$2.50/gallon pre-electionUS antagonists such as Iran, Russia and Venezuela

will be destabilised: populations will blame government not US

Saudis have hedged (sold forward) using futures contracts at the expense of speculative buyers

Context – Price Collapse

Context – Iran's Balance Sheet Massively solvent

Energy Resources – huge reserves of oil, natural gas, also solar energy and wind

Human Resources – probably one of the greatest pools of intellectual capital there is

Zero $ Debt BUT capital stock depreciating through lack of

investment

Context – Iran's Income & ExpenditureDangerously illiquid and inflationary

Physical and Financial Sanctions Revenues collapsing Cut off from dollar system Subsidies unsustainable Rampant inflation caused by deficit-based bank-

created currency

ProblemsDollar Economics

Inflation Wasteful energy use Volatility makes investment difficult Dollar diplomacy

SolutionsNondominium

Neutral framework agreement for sharing of risk and reward

Nondominium does not own anything, employ anyone, or contract with anyone but its members do

Stock Undated prepay instrument returnable in exchange for

value Created, issued, exchanged and returned within

Nondominium framework

Nondominium

CustodianCustodian

Investors

Users

Managers

Nondominium Custodian

Custody of data and accounts Mutual Guarantee

Energy Users – exchange value for the use of energy

Energy Managers Operate system, manage risk, provide quality control

Energy Investors Buy Units of stock returnable in exchange for energy Custodian issues energy stock on instruction of

producers Manager supervises issue, exchange & return

Nondominium Neutral

No stakeholder has a dominant right Stakeholders have veto rights Mathematics: +1, -1 and 0 Physics: positive, negative and neutral Economics: Public, Private....and Nondominium

Complementary & Consensual Additional to existing agreements No-one has to join unless they see it as in their

interests

Stock

Energy 'Stock'Stock

Original form of 'equity' – not shares in Joint Stock Company

Prepay/credit instrument issued at a discount to market price

Returnable in payment for energy supplied Prepayment for supply Undated

Return Discount gives absolute return: eg $10's worth of gas

for $8 now Rate of Return is variable – literally the rate over time

at which stock may be returned to the issuer or sold No interest (money for the use of money)

How it Works

CustodianCustodianStock Investors

Consumers

Proportional SharesManagers, Producers

energy $ or Stock Returned

$

Stock

Stock

Stock

Energy Economics Energy-based Currency

Energy Clearing Union Mutual guarantee of energy stock issue Energy value exchanged/swapped by reference to the

dollar Dollar simply used as a unit of measure to keep score

of transactions and investment There is no scarcity of metres and kilogrammes !

Energy Economics Energy Investment

Danish policy after 1973 oil shock exposed energy insecurity

Identify desired outcome eg heat, electricity, transport Identify solution with least fuel input ie what happens in the system for each KwH of

electricity or Mmbtu of heat produced? Energy return against energy invested – least energy

cost solution Energy investment through stock may be priced in

dollars

Transition through Gas - International Caspian gas energy co-operation project Potential for gas stock as energy currencyPotential Caspian gas benchmark price in dollarsPotential for oil and electricity to be priced and

swapped by reference to gas Potential for investment: 'energy loans' begin with

'gas loans'E is for Energy Co-operation - potential for Russia,

Iran (producers) to link with China (consumer) to create the E-3

ECO members may then join to create an E-12And so on to the EU............?

Transition through Gas - Iran Raise domestic carbon fuel and electricity prices

to international level Producers issue energy stock ('Energy Rials') to

populationEnergy Rial equivalent to energy content of a unit

of gas Banks manage transparent issue, exchange and

returnProducers accept Energy Rials against energy

suppliedOutcome – an Energy Standard of exchange– Currency stabilised – Wasteful consumption minimised– There can never be a shortage of metres,

kilogrammes or standard units of account