Assessing the Impact of Declining Oil Prices on EM PE – The View from Southeast Asia

Andrew Affleck, Managing Partner, Armstrong Asset Management

Many in the industry have raised concerns that lower oil prices will hamper the push for renewable energy. Interestingly, cheap oil has had limited impact on the momentum of solar energy uptake as seen in the surge of interest in the latter in the United States, China, India and even the Middle East. Likewise, in Southeast Asia, slumping oil prices have not derailed developers and governments from their long-term plans of achieving a more balanced energy mix.

In Southeast Asia, while consumers, businesses and governments relish in the short respite of lower oil prices, most recognize that the low prices will not last forever. Indonesia and Malaysia are making full use of this window of opportunity to remove fuel subsidies, transition their economies towards a more balanced energy mix and salvage burdened government budgets. In the Philippines, despite the decline in oil prices, the Department of Energy has proposed to increase the quota of solar projects by 450MW, and there has already been a slight increment reflected in electricity bills that will go towards the payment of these solar projects.

At a deal level, one investee business director put it to us as, “the reality in Southeast Asia is that low oil prices are having an impact indirectly.” Outwardly, in some cases it appears that off-takers are opting for electricity generated by diesel due to the decline in oil prices. However, on closer inspection, slow government permitting and approval processes for solar projects have created delays and timing uncertainty. With pending power shortages upcoming in the summer months in certain jurisdictions, the immediate need for more power is pushing off-takers to consider utilizing diesel as a quick, interim solution while waiting for the solar permitting process to catch up.

This, however, is not reflective of the whole region and project development in general. Optimism continues in the clean energy industry—on the ground, both developers and investors continue to ready themselves, waiting for further policy confirmation from the respective governments before moving ahead with construction more aggressively.

Longer term, the sustenance of Southeast Asia’s high economic growth requires growing energy demands to be met in parallel. As such, it is crucial for governments to seek out energy sources that are stable and competitively priced. With the region already facing a net energy shortage, the opportunity for renewable energy as a part of the solution remains highly compelling, and it continues to be an attractive private equity specialist sector.


Read More  Views from the Field on Assessing the Impact of Declining Oil Prices on Emerging Markets Private Equity, including:

The LP View
Richard Rincon, Investment Officer, EM PE, UTIMCO

The Global View
Erik Bethel, Managing Director, Darby Private Equity

The View from Russia
Mike Calvey, Founder and Senior Partner, Baring Vostok Capital Partners

The View from Southeast Asia
Andrew Affleck, Managing Partner, Armstrong Asset Management

The View from Nigeria
Cyril Odu, Executive Partner and Head of Energy, African Capital Alliance

Two Views from MENA
Amjad Ahmad, Chief Executive Officer, NBK Capital Partners, and Nabil Triki, Co-Head of Private Equity, Swicorp