Flux. Change. Transition. These are bywords in the energy industry of the 21st century. As recently as the 1980s, who would have imagined that words like "dynamic", "entrepreneurial" and "responsive" would apply to the monopolistic bureaucratic institutions of the power sector? Who would have dreamt of mega-mergers? Of market pressure? Of competition to achieve shareholder value? Of technocracy? Yet these are the very watchwords of the industry a mere 20 years later. To survive, the energy company of today must be strategic. Nimble. Innovative.
The global energy industry has clearly reached a turning point on the journey it began a decade ago when the movement to privatize or deregulate state-owned power providers ushered in an era of unimaginable change and growth. A profusion of transactions to acquire and develop power plants swept the globe. Just as precipitously, however, the era of expansion came to a halt, leading to an unprecedented move to divest energy investments and, in some cases, to exit certain markets altogether.
The heightened focus on business, accounting and financial management issues has prompted strong reactions from government, with resulting moves to reform accounting and regulatory practices as well as the introduction of environmental programmes.
This supplement addresses some of the leading issues facing energy market participants in these turbulent times. It covers a host of tax opportunities and concerns, including acquisitions, optimal financing structures, tax incentives and depreciation allowances, as well as the intricacies of indirect (or VAT) taxes. We address recent accounting pronouncements, as well as the importance of thorough due diligence, that is, the various financial steps that need to be considered in evaluating an investment - a topic that is especially critical now for investors wishing to purchase the assets in these uncertain times.
In response to the recent declines in the world's energy markets, we also look at the general global tax rules and planning points involving financial loss situations.
We also include an article that examines the new phenomenon of certificate trading in environmental commodities, recognizing the attempts being made to align environmental and public objectives with financial objectives.
No doubt the topics covered will lead to new questions and the uncertainties in the market will continue to challenge the energy sector in general. By addressing the present issues, however, we trust this business guide will help readers take advantage of existing opportunities and to anticipate those that are certain to arise in the future.
