By Mahmood Khaghani

Change never comes from within!

February 4, 2019

It is often said that change never comes from within. So I am pleased to report that the presentation by Chris Cook, Senior Research Fellow of the Institute for Strategy, Resilience and Security, University College London at the Iranian and Tehran Chambers of Commerce on Sunday about Energy Fintech: Introducing the ECO, introduced refreshing innovations in the energy field.

H E. Ambassador Dr. Shams Ardakani, convened and chaired the meeting, and in introducing Mr. Cook made clear his view of the necessity for a new energy paradigm for Iran, capable of addressing the era of 'hard oil' he identifies, as oil that is easy to extract becomes scarcer, and the energy intensity of oil extraction increases.

Perhaps the most important message conveyed by Mr. Cook was that Iran should adopt a 21st Century energy strategy based not on conventional economics of 'least $ or Euro cost' – but as with Denmark, after the 1973 oil shock -  an assumption of 'least carbon fuel cost'. That is to say, that Iran should maximize the delivery of energy services such as heat/cooling, power, and transport for any given use of Iran's raw energy commodities.

He then outlined how innovative risk, cost, surplus and data sharing agreements come together with simple energy instruments of energy swaps (eg gas for power) and the Energy Credit Obligation (ECO) as what he describes as Fintech Version Two (2.0). That is to say, the next generation of financial technology which is currently emerging from the initial blockchain and coin innovations which comprise Fintech Version One (1.0).

There were numerous excellent questions and much discussion, and one of the key points which emerged was that there is a misconception that the proposed ECO will in some way compete with existing financial instruments traded on the Iran Stock Exchange and particularly on the Energy Bourse (IRENEX), which is noted for innovation in this field.

In fact, as Chris Cook emphasized, the ECO is a purely financial instrument which may be listed firstly on IRENEX, where it represents a simple but radical instrument for energy payments, short term financing and financial risk management, and may also be listed on the Iran Stock Exchange, where it enables direct Energy Loan investment in renewable energy and energy efficiency projects. Chris Cook pointed out that Energy Loans could potentially mobilize enormous Iranian wealth which currently sits idle in the form of gold, hard currency and is also locked up in real property investment.

In relation to the highly politicized physical energy markets, Mr. Cook suggests the possibility of a new generation of swaps of energy flows, where energy commodities may be supplied, rather than sold, for conversion to refined products and energy services. However, the sensitive issues of legal design, governance and location of such an energy swaps market remain open for discussion and development and are not Mr. Cook's current focus.

Several questioners raised the issue of subsidies, for which Chris Cook had suggested a new ECO Energy Dividend policy option, and there was wide acceptance that the ECO concept could be a powerful new policy tool during the next 1398 Iranian financial year. Mr. Cook suggested that as with all new policies, proof of concepts of the ECO are necessary. It was suggested that these could be conducted in specific ECO-zone locations, for which Free Trade zones such as Kish Island, Qeshm Island, Arvand etc. are very well-suited.

In summing up, Ambassador Dr. Shams Ardekani made clear that the consensus of the meeting was that the proposed energy strategy, and implementation using Energy Fintech as outlined by Mr. Cook, potentially provides the basis not only for constructive Iranian domestic policy but also for constructive energy diplomacy in Iran's international relationships.

In view of this successful meeting held at ICCIMA, Mr. Cook has been invited to further outline and expand upon the proposed Energy Strategy and Energy Fintech concepts at further meetings, including a meeting convened for Tuesday 5th February by the Research Institute for Energy Management & Planning, University of Tehran jointly with Education & Research Institute-ICCIMA and supported by Farab, and also in other informal workshops before Mr. Cook departs Tehran.

PHOTO: Chris Cook (L) and Chamber’s Head of Energy Commission Shams Ardakani at Tehran Chambers of Commerce 

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