THE FINANCING OF ELECTRIC-POWER PROJECTS IN DEVELOPING-COUNTRIES

Developing countries face a buyers' market for power plant, but they face a sellers' market in negotiations to obtain the related finance. The purpose of this paper is to explore these relationships and to highlight the factors that may strengthen or weaken the common interest that the buyers and sellers of power technology have in seeking project finance. The paper charts the rise and fall in the flows of capital to developing countries since the 1970s, and examines the implications of the current debt crisis and the rise in Japanese aid finance. Estimates are made of the likely shortfall between the finance required to meet developing countries' need for electrical energy and the likely availability of funds. Four strategies are then considered that will be required to meet this shortfall. It is concluded that the prospects for developing countries' power sectors are extremely bleak, and that significant areas of the world will have to build their future development on the assumption that electrical energy will not be available. It is considered unlikely that the market mechanism will provide finance on a scale and in a form suitable to the need. Those funds that are available, seem likely to favour power developments that are more rather than less damaging to the global environment.