Looking at World’s Perspective through World Economic Forum in Istanbul 30 October-1 November

Istanbul, TURKEY | November 05, 2008 by D-8 Secretariat

The World Economic Forum, or WEF, successfully held a special “Europe and Central Asia” meeting at a crucial location in what are crucial economic times.

The 3-days meeting, a first of its kind, started on October 30th in Istanbul.

In choosing Istanbul to hold the meetings, the WEF referred to the city as “a place that symbolizes the merging of continents and civilizations and is the epitome of economic buoyancy.” The meeting brings together international and regional business leaders, government representatives and media personnel, along with cultural and religious leaders from across Europe, Turkey, Russia, Central Asia and the Middle East to “explore the common challenges faced by the regions and to map the path toward a common collaborative future.”

The event-packed meeting, which convenes under the theme “Confronting Challenges in Defining a Collaborative Future,” has three goals:

1. Examine business opportunities in the regions and define strategies to compete with the influence of Asian economies in the wake of global economic slowdown.

2. Address cross-regional challenges, uncertainties and conflicting interests and set the regional geopolitical and security agenda.

3. Advance intercultural and inter-religious dialogue as a precondition for prosperity, stability and security across the regions.

D-8 Organization was invited by Turkish Prime Minister, Tayyip Erdogan, to the event, and was represented by the Secretary General Dipo Alam. Among the speaker at the event was Iran Foreign Minister, Manouchehr Mottaki.

Below are excerpts of meeting with chosen topics of energy and food security.

Food and Fuels

World Economic Forum

Describing the topic as “very, very controversial” over the last few months, Fatih Birol, Chief Economist, International Energy Agency, Paris, presented the two sides of the “food vs fuel” debate. First, he noted that many governments and experts believe that biofuels are a key aspect of addressing energy security and should be given a priority within energy policy. The alternative view is that the push for biofuels has come at the expense of meeting the world’s demand for food and has substantially contributed to recent price hikes in basic food crops.

According to Miguel Veiga Pestana, Vice-President, Global External Affairs, Unilever, United Kingdom, the food vs fuel debate comprises two issues: (1) how much does biofuel production reduce the availability of food crops, and (2) how much does biofuel production contribute to food costs? With respect to food availability, Pestana added that biofuels put significant pressure on arable land, and to reach the biofuel targets considered by the EU will require a significantly higher percentage of arable land to be diverted to biofuel crops.

As to the question of costs, Maurizio Calenti, Group Vice-President, Eastern Europe, Middle East and Africa, Kraft Foods International, Eastern Europe, Middle East & Africa, Austria, believes that the underlying driver is supply and demand. However, Calenti added that other factors also contribute, such as adverse climate conditions, government regulation and the growth of biofuels. Of these, Calenti noted that only biofuel development is within human control. Jeffrey F. Kupfer, US Deputy Secretary of Energy, argued that, though biofuel development may contribute slightly to rising food prices, he believes that the major contributors are agricultural policies, higher food demand, and the transportation costs to move food.

The world should not lose site of the need to have “food security” at the expense of energy security, argued Mehmet Mehdi Eker, Minister of Agriculture and Rural Affairs of Turkey. Eker stressed that “priority should be given to food production” within agricultural policy, though he did acknowledge that a significant input in that was energy. Rising food shortages and higher prices may lead to instability, he warned. Eker believes that there is enough food on earth for everyone; the problem arises because of artificial policies and subsidies that distort the supply side of the agricultural equation.

Expanding on the role of agricultural policy, Ethan B. Kapstein, Paul Dubrule Professor of Sustainable Development, INSEAD, France, stressed that the policies of many nations, namely the United States and the European Union, actually take food away from the market. He highlighted that there is almost no supply-side reaction to the recent food price shocks because of the difficulty in bringing agricultural land to production as a result of such policies. The key, according to Kapstein, is to focus on policies that discourage food production and target their reform.

The development of biofuels is irreversible, and so the world must coordinate its efforts to stem any impact on food prices and availability, stated Bolat Akchulakov, Vice-Minister of Energy and Mineral Resources of Kazakhstan. He advocated the development of common rules and regulations for biofuel development. Kupfer supported this, and added that global standards for biofuels will allow them to be traded as a commodity like oil. Akchulakov challenged the notion that biofuel development is only important for oil-importing nations; citing Kazakhstan as an example of where advances in biofuel development and use are happening in parallel to the country’s extensive oil and gas developments.

Looking ahead, the panel identified three issues that must be addressed as the world develops a balance between biofuel and food production:
1. The availability of water will impact which crops drive biofuel development, and will necessarily promote the development of “second generation biofuels” - those based on non-food crops and organic waste.
2. Investment in research and development must be expanded to develop means to enhance crop yields and bring second generation biofuels to the market sooner.
3. Agricultural trade policies should remove market-distorting principles to allow food production to meet global demand

Energy Update

World Economic Forum and Energy Issues

Setting the stage for this session, Robert Greenhill, Managing Director and Chief Business Officer, World Economic Forum, pointed out that recent months have been particularly volatile across numerous fronts: financial, political and commodity prices. How volatility among these three arenas is related must be considered. Do they affect each other’s fate?

Proclaiming that the world “cannot be a slave of the financial crisis,” Fatih Birol, Chief Economist, International Energy Agency, Paris, noted that two of the world’s most important challenges have not changed since July 2008, when oil prices reached a peak above US$ 140, and today, where they are below US$ 70. First, the world needs continuing investment across the energy value chain, in oil & gas and alternative energy. Lower oil prices will impact investments in both; oil & gas producers are hesitant to commit with falling prices, while alternative energy projects rely on high oil prices to make them economically competitive. A perverse impact of lower oil prices will be that the economic rationale to seek alternatives to oil & gas might be at risk. Second, political attention to climate change has also taken a back seat in recent months; developing a post-Kyoto system, the topic of an upcoming meeting in Copenhagen in 2009, might not live up to expectations because many view CO2 reduction as a luxury on the political agenda. Ultimately, Birol believes the energy sector must have a future vision, where an optimum oil price fair to both consumers and producers evolves, and allows investment to continue to meet global demand and avoid a future supply crunch.

Expanding on the need for energy investment, Khalid A. Alireza, Chairman, Saudi Cable Company, Saudi Arabia, reinforced that every commodity has its cycles, but that oil has been the victim of unfair scrutiny and deprived of necessary investment. That is changing now, but it will take time to catch up, Alireza stressed. Specifically, Alireza believes that recent oil price gyrations are not the fault of producers, but rather the mistake of those in the downstream sectors (refinery and transportation), who did not keep up with the upstream investments of producers because of the stigma attached to the industry by the West. Because oil “is the most fungible commodity to reach the marketplace”, according to Alireza, the role of oil must not be discounted.

How do geopolitical events affect the energy sector? Like Birol’s reference to the financial crisis, Alexander Khetaguri, Minister of Energy of Georgia, highlighted that active engagement by producing, transporting and consumer nations is key to pushing past the inertia of any geopolitical tensions. He pointed out Georgia’s push to increase investment in both hydrocarbon transportation and electricity transmission. Khetaguri believes there is a commercial willingness among private firms to be in the region, strong political will by transportation countries and a readiness to negotiate by producing nations. What is missing is for consumer countries to be more active. Once that happens, Khetaguri thinks the ambition of energy security and diversification might be realized. Timing is key, as evidenced by Russia’s and China’s latest engagement with Central Asian producers - ultimately, it will be “first come, first served”, stressed Khetaguri.

Katherine Hardin, Senior Director and Head, Russian and Caspian Energy, Cambridge Energy Research Associates Inc. (CERA), USA, explained that the concept of energy security actually comprises three fundamental points:

1. Security of supply (concern for Europe and Turkey)
2. Security of demand (concern of the producing nations of Central Asia)
3. Security of transportation routes (concern for all)

Hardin also noted that conservation, which is a huge source of energy, is often neglected, but is vital to achieving energy security. Greenhill added another element for consideration - security of financing. How will multibillion dollar, capital-intensive energy projects be financed over a number of years to ensure that they are built? One silver lining to help this, Greenhill noted, is that the cost of materials has decreased lately, and the availability of skilled labour has risen. This situation, Alireza confirmed, is key to Saudi Aramco’s decision to continue and expedite its long-term projects.

Newssource: World Economic Forum

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