Newsletter. The Asia-Europe Business Forum (AEBF) organised by Confindustria and BusinessEurope, Diplomazia Economica Italiana

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1 Ministero degli Affari Esteri e della Cooperazione Internazionale INDICE Newsletter Diplomazia Economica Italiana dossier 10/14 Anno X 14 October 2014 Asia and Europe meet in Milan to focus on Business Asia and Europe meet in Milan to focus on Business... p 1 Diplomacy and business for the future of two continents... p 2 Task Force Trade and Investiment Multilateral agreements must be defended... p 4 Joerg Wuttke: China s new role... p 5 Task Force Infrastructure and Connectivity Attracting more private capitals is key... p 8 Stefano Poli: the challenge of the ASEAN Economic Community... p 9 Masterplan on Asean Connectivity...p 12 Task Force Energy A strategic role for Central Asia...p 13 Reserves, production and consumption...p 14 Task Force Food and Water Security The winning approach: technology and integrated projects...p 18 Giuliano Pisapia: Milan s commitment to a sustainable planet...p 19 Diana Bracco: an international event open to businesses...p 21 Main business federations of Asia-Pacific ASEM partner countries... p 23 Main European businesses federations... p 25 The Asia-Europe Business Forum (AEBF) organised by Confindustria and BusinessEurope, representative of the main European business federations, brings together in Milan 300 of the ASEM countries business leaders. It promotes the articulate exchange of views on the main challenges to economic and financial cooperation and provides a platform for communicating the demands of the private sector to the European and Asian political leaders participating in the ASEM summit. The overall theme of this year s Forum is the promotion of business relations between Europe and Asia, particularly with reference to four priority topics: trade and investment, food security, energy and green technologies, infrastructures. Four task forces composed of European and Asian entrepreneurs addressed these topics and will present their reports with specific recommendations at the Forum. These will be included in the Final Declaration conveyed to political leaders on occasion of the Forum s concluding session.

2 Diplomacy and business for the future of two continents I t is with great pleasure that I introduce this special issue of the newsletter of Italian Economic Diplomacy dedicated to the fourteenth edition of the AEBF - Asia- Europe Business Forum. The event is organised back-to-back with the tenth ASEM summit, the main event of the Italian EU Council Presidency and only a few months before the opening of Expo Andrea Meloni As you all know, the chosen theme for this year is Enhancing business relations to foster economic integration between Europe and Asia, with a focus on four sectors of absolute priority for both European and Asian countries: trade and investment, food security, energy and green technology, infrastructures. Four task forces composed of European and Asian entrepreneurs will be in charge of producing a report for each of these areas and provide specific recommendations. These will be appended to the Final Declaration and presented to European and Asian political leaders in the concluding sessions of the Forum. This exchange with the political summit is the distinguishing feature of the event, a forum where highlevel Asian and European business representatives meet and debate and have the opportunity to present their proposals to the leading political authorities. The Ministry of Foreign Affairs worked alongside Confindustria and BusinessEurope on the organisation of the Business Forum, facilitating exchanges with the institutional parties involved and contributing through its diplomatic-consular network to identifying the business leaders to participate in the summit. This special issue of Italian Economic Diplomacy, featuring important information and interviews with sector experts, provides additional support to AEBF organisers and participants contributing to the debate on the four topics focus of the Forum. I wish all Forum participants and regular readers of this newsletter all the best in their work, with a view to further strengthening the already close ties between the business communities of Europe and Asia. Andrea Meloni Director General for the Country Promotion of the Ministry of Foreign Affairs and International Cooperation 2

3 ASEM Summit in Milan (16-17 October 2014) The Asia-Europe Meeting (ASEM) is a forum bringing together EU member states and the European countries of Switzerland, Norway, and Russia, with the thirteen members of the Association of South- East Asian Nations (ASEAN) and the Asia-Pacific countries of China, India, Pakistan, Bangladesh, Australia and Mongolia. The Organisation s objective is to promote cooperation and dialogue between Asia and Europe on economic, political and cultural issues. ASEM s distinctive aspect is to be found in the deliberately informal characteristics of its Ministrylevel meetings on themes related to foreign policy, economics, culture, the environment. This allows participating Institutions greater freedom of debate. Every two years, ASEM organises a Summit with the member countries Heads of State, alternatively in Europe and Asia. This year s meeting takes place in Milan on 16 and 17 October. Asia-Pacific ASEM member states and organisations Australia, Bangladesh, Brunei, Cambodia, China, India, Indonesia, Japan, Korea, Lao PDR, Malaysia, Myanmar, Mongolia, New Zealand, Pakistan, Philippines, Singapore, Thailand, Vietnam, ASEAN (Association of Southeast Asian Nations). European ASEM member states and organisations Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Iceland, Italy, Latvia, Lithuania, Luxembourg, Malta, Norway, Netherlands, Poland, Portugal, Romania, Russian Federation, Slovakia, Slovenia, Spain, Switzerland, United Kingdom, European Union. Countries pending membership Croatia, Kazakhstan. 3

4 1 - Task Force Trade and Investiment Multilateral agreements must be defended T he session on Trade and Investment identified two main lines of discussion: - the fight against the different forms of non-tariff barriers that still exist in several countries; - ways of avoiding that a growing number of bilateral or regional free trade agreements be detrimental to the World Trade Organisation (WTO) s multilateral system of rules and related dispute settlement system. Several countries all over the world have reintroduced protectionist measures in response to the recent financial crisis. The emergence of new economic powers such as China, further, has not always been accompanied by a corresponding commitment to the defence and development of the multilateral system. Lastly, lack of progress in the Doha Round negotiations gave an impetus to the finalisation of bilateral and plurilateral trade agreements. Prominent examples of this are the Transatlantic Trade and Investment Partnership (TTIP) between the United States and Europe, the Trans-Pacific Partnership (TPP) between various American and Asian countries, and the plurilateral TiSA agreement (Trade in Services Agreement). Such initiatives can have a positive impact as intermediate steps in the development of a stronger multilateral system. But they also risk going in the opposite direction, towards the geographical fragmentation of trade and investment flows and of global supply chains in general. In this context, alongside the general support of WTO action and a commitment to overcoming the different forms of protectionism, the ASEM group on Trade and Investment proposes the following specific recommendations: - the effective implementation of the Trade Facilitation Agreement as established on occasion of the WTO Ministerial Conference in Bali in December 2013; - the conclusion of the Doha Round with ambitious objectives; - the definition of a WTO work programme that includes new generation topics such as investment, competition, export restrictions, subsidies, energy, raw materials; - the encouragement of all ASEM countries to join the WTO GPA (Government Procurement Agreement) and take on related commitments pointing to ambitious objectives; - the strengthening of cooperation with international organisations other than the WTO such as the International Monetary Fund, Organisation for Security and Cooperation in Europe, World Bank, International Labour Organisation; - a commitment on the part of ASEM countries to further liberalising their respective economies according to their competitiveness levels and economic weight; - a commitment to guaranteeing coherence between bilateral and plurilateral trade agreements; - the adoption of global standards to avoid regulatory divergences; - the efficient protection of intellectual property rights; - the facilitation of technological exchange carried out voluntarily, without favouring local investment or a restricted selection of partners; - the strengthening of communication between the private sector, governments and multilateral institutions with a view to enhancing trade and investment and guaranteeing transparency and the rule of law to prevent corruption. 4

5 Interviews Joerg Wuttke: China s new role O ver the past few years, China has come to play a central role in global trade. Its approach however has at times met with the disagreement of other European and Asian countries. The European Chamber of Commerce in China (EUCC) plays an important advocacy role for the interests and views of European businesses in the country. We interview its President Joerg Wuttke. Is China s ascent over the past 14 years an unprecedented phenomenon in the history of world commerce? The starting point was China s entry in the WTO in 2001, an event that had great significance at the global level. It is worth remembering that at the time, the Central Government faced great resistance and had to convince its country that the Chinese economy would greatly benefit from this without risking to be overpowered by Western countries. The following events prove it was a winning choice: today China controls 15% of world exports. Before 2001, this statistic was below 3%. Is this change an accomplished fact? That is not entirely correct. I personally think the Beijing Government should enter a new phase, repeating this passage inside the country. Today we can not speak of China as of a really integrated market. Individual Province administrations, with dimensions similar to European states, often use different instruments to protect their markets and their businesses and so-called local champions. To be sure, the Central Government and the Party leadership are extremely powerful and they can impose severe dispositions. But then, in such a big and diversified country, a lot depends on the effective application of these rules. Local protectionism intervenes at this level, often resting on informal power relations - similarly to what happens in other countries. China does not just have local champions. Are national champions also granted special treatment? Things get more complicated here. There are certain strategic sectors such as the defence or energy industries in which the protection of national rights is understandable. But in other sectors this can not be justified. Many big state-owned companies in sectors such as banking, telecommunications, the metallurgical and petrochemical industries and others, have acquired a strong awareness of their weight and try to use this to further their interests. This creates obstacles to both local private companies and foreign competitors who would in fact add efficiency to the system. Was there not mention in the latest Party plenum of the market s decisive role in normalising the Chinese economy? Yes and this was a point we highlighted also in the recent issue of the yearly European Chamber Position Paper. It remains to be assessed whether this attitude is effectively free from preconditions or whether on the other hand the market is here intended as a sports match in which the referee openly 5

6 Interviews plays for the home team. The Party s considerations certainly help to overcome the internal protectionisms I mentioned above that hinder the country s competitiveness. I am not sure they would be as effective in terms of foreign competitors as they are for private Chinese companies however, because in this case, competition is thought of as a stimulus, not as a principle to be protected as such. It would seem that Chinese political culture is little inclined to protecting regulatory principles, particularly in economics. The recent financial crisis destroyed the conviction of the greater effectiveness of the Western model, especially when compared with the unquestionable success of the Chinese model. This is a change we have to take into consideration when we highlight the presence of numerous obstacles to competition even though we know they are ultimately detrimental to the quality of Chinese growth itself. How to respond? We try to adopt a concrete approach. We need rules to establish economic and business relations based on mutual advantage. Let us not forget that China and Chinese companies are also looking outwards. They aim to directly enter new markets. To acquire companies, market shares, and technologies. And they frequently meet with resistance. In this sense, the promotion of a level playing field valid for everyone is in China s interest too. There are sectors that share this approach, both within the Chinese Government, particularly the Ministry of Trade, and in the new Chinese managerial class. We can rely on these sectors to persuade China of the importance of respecting the rules and the principle of neutrality of intervention also at home. A work of this kind requires presence, information, dialogue. And an action that the European Chamber of Commerce in China is determined to see through to completion. There is widespread diffidence in Europe as to China s approach to many foreign markets, where it comes with all-inclusive packages including finance, trade, investment, and a patent disregard for ethical and political aspects. There are different sides to this process. A first aspect is undoubtedly positive: many countries have a new interlocutor and a new client on which they can rely on for supporting their development. As to other aspects of its approach, it s open confrontation. These countries have a public opinion. If Europe thinks its model is more careful to the values of democracy, sustainability, and consensus building in the medium to long term, then it will likely come out on top. But it must believe in itself and act accordingly. China is aiming to increase its influence on multilateral organisations such as the WTO and IMF but at the same time is multiplying its 6

7 Interviews bilateral free trade and payment regulation agreements with individual countries or areas. The problem of a twin track is not exclusive to China, and is one of the topics that will be discussed at the Milan Convention. But China is not always on the winning side. For example, the great Trans-Pacific Partnership currently under discussion explicitly excludes China. These signs should convince everyone of the importance of shared principles in the common interest. China currently seems uninterested in participating in many international initiatives, such as OECD, that have real significance. This does not mean it will always be like that. A controversial issue is the use of big deals and trade relations as a way of applying political pressure on countries that are not aligned with Beijing s positions. I would not give these episodes too much importance. They are limited to a few cases. China is perfectly aware of its economic and commercial weight. So of course it tries to use this to obtain the most favourable conditions, just as anyone else would. It looks at quality, price and convenience. This is what we must insist upon: there are sectors such as health and hospital activities as well as banks and services in general in which European companies have a lot to give. But the country s diverse administrative divisions, most of all the individual Provinces, still have an attitude of closure. There was a recent case of foreign car manufacturers being fined millions of dollars for violation of competition rules. Is this a warning signal to discourage foreign producers such as Volkswagen or General Motors who currently dominate the Chinese market? This is a case of what you Italians call dietrologia. There is the impression that these measures are directed only to foreign companies. As a response, the European Chamber calls for greater transparency in these decisions. What are the facts and considerations they are based on? The role of the authorities is not to issue fines that force companies to lower their prices, but rather through their judgements to set the standards of behaviour which further healthy competition. Competition alone will then impose price moderation. China has the biggest car market in the world. This was confirmed in 2013: last year, the Asian country resumed its double-digit growth, bringing the numbers of vehicles sold on the Chinese market back to record levels. According to data from the Association of Automobile Manufacturers (CAAM), in % more vehicles were sold in China than in The total amount was of 21,993,343,000 of vehicles, of which 17,927,997 were cars and 4,065,346 commercial vehicle. 7

8 2 - Task Force Infrastructure and Connectivity Attracting more private capitals is key T he availability of infrastructure plays a fundamental role in promoting economic development (trade and investment) both within countries and across different countries and areas. The need for infrastructures is set to grow in the next few decades, driven by several factors: economic growth, urbanisation and growing traffic congestion, supply chain globalisation. The changing context will also have to take into consideration environmental challenges, the growing mobility of people, the development of services and more in general of interactions at the levels of culture and information. Within this scenario, several issues still need to be resolved: many parts of infrastructure systems, also in Europe, are now obsolete, public finances are becoming increasingly limited and the launch of new initiatives appears increasingly complex. Greater involvement of private capital is needed. But most of all it is important to develop coordinated action: infrastructures are complex systems which are more than the sum of individual sectors and separate initiatives. The main topics the Milan Forum is called upon to address in this context are: - More specifically, the identification of specific actions capable of strengthening the institutional, organisational and financial aspects of this cooperation. - The identification of best practices with an eye particularly to cross-border infrastructures. In particular, the Infrastructures, Connectivity Networks and Space Technology group proposes the following specific recommendations: - the strengthening of the different countries financial markets and their contextual coordination with international financial institutions; - the strengthening of the different countries institutional capacity to predisposing adequately structured projects with a precise identification of the different aspects involved (definition of responsibilities and powers of all subjects involved, pricing of services); - the training of technicians and experts and the exchange of knowledge and methodologies to address the interdisciplinary and evaluation aspects of the various projects; - the identification and finalising of bankable projects, i.e. suited to being subject to bank financing; - the introduction of regulations aimed at accelerating approval procedures, favour new forms of participation to the different projects, introduce greater competition in procurement policies, guarantee the adoption of adequate technologies; - adequate long-term programming of requirements and interventions. - The definition of a strategy of cooperation between Europe and Asia to tackle these challenges that require growing coordination at the regional and global levels. The Siduhe Bridge (or Sidu River Bridge) is a 1,222 metre (4,009 ft) long suspension bridge crossing the valley of the Sidu River near Yesanguan in Badong County of the Hubei Province of the People s Repubic of China. The bridge spans a 500 metre (1,600 ft) deep valley and is the highest bridge in the world 8

9 Interviews Stefano Poli: the challenge of the ASEAN Economic Community A SEAN: 10 countries, over 610 million inhabitants, a regional integration plan (AEC: ASEAN Economic Community) in many ways inspired by the European Union. The objective is to form a real Economic Union starting from an already existing free trade area. Infrastructure plays a strategic role in this picture. Stefano Poli, President of the Singapore European Chamber of Commerce and member and past chairman of the EU ASEAN Business Council Board of Directors, explains this in the following interview. Why do most economists see the ASEAN region as an area with great potential? On the whole, the Region s economies are reaching GDP growth rates similar to pre-crisis levels. Predictions for the next three years are in the range of 5.4% yearly. The main challenge now is to reduce the inequalities existing within these economies. By means of example, the average per-capita income in Singapore, which is equal to 38 thousand dollars a year, is 58 times greater that of Myanmar which is of 658 dollars. But inequality is not just between states. Inequalities within states are just as significant. These do not solely concern income levels, but also and most of all different aspects of society: human resources, institutions and services. These differences naturally slow down ASEAN s project of achieving real economic integration that would favour the growth of the business sector. In this context, the availability of adequate infrastructures has a fundamental role. It is evident for example that there can be no productive integration and development of areas without adequate transport infrastructure. For this reason, one of the strategic commitments of the ASEAN community is the so-called Masterplan on ASEAN Connectivity (see article below) which covers both physical infrastructure and economic regulations, as well as the mobility of human resources and capitals. ASEF Deputy Executive Director Amb Nguyen Quoc Khanh, with President of the Singapore European Chamber of Commerce Stefano Poli Let s start with the physical infrastructures. Top priorities are transport and energy. This alone will cover 80% of the required investments in the next few years, which are estimated at 480 billion dollars. How can these be financed? The adequate availability of capital is one of the great challenges. Unfortunately, we are still far from the great levels of private investment in infrastructure which before the 1997 Asian crisis had reached over of 23 billion dollars. Today these are down to little more than 15 billion and they cover only 20% of the total amount. 9

10 Interviews The majority of this, i.e. 70% is covered by public investments which however are not sufficient. The data shows that the share of public budget dedicated to infrastructure in ASEAN countries has gone down on average from 6 to 4 percent. In other words it was reduced by a third. And direct aid from Western and Asian countries such as South Korea, Japan or China certainly will not make up for the deficit. What are the reasons for this decrease in private and public investment? It is likely that regulations in the Nineties were not as concerned with environmental and social aspects and thus allowed for extremely high margins. Now governments are more aware of these issues but they still have not found the right balance. Simultaneously, regional integration plans entail an increased demand for capital and many governments are still working to find the necessary funds to dedicate to this project. This is also because they are very focused on national social aspects, more than on interregional ones. What can be done? There is shared consensus that the main tool to bridge the gap is effective forms of Public Private Partnership. The theme is also one of the discussion topics in the Milan Forum. Do many countries already have legislation on this matter? Yes, but the solutions proposed are in many cases unsuitable. There remains a widespread problem of transparency in legislative provisions and decisionmaking processes. With the consequence that investors do not have the certainty of achieving the predicted cash flows and being able to repatriate their profits. There is also the need for sufficiently structured financial markets to allow for the potential liquidation of the position undertaken. Are you pessimistic? Quite the opposite. But we need to work with governments and institutions to identify so-called best practices. There is no lack of examples. Can international financial institutions contribute to this process? They certainly can, they are in fact very important. Two years ago the ASEAN Infrastructure Fund was launched with an investment capacity of around 232 billion a year, co-financed by the Asian Development Bank (ADB). It has already started operating with several projects involving power networks in Indonesia and Vietnam. This is definitely a case of best practice. It is important also to intervene in the phase of identification and structuring of projects suitable for PPP. This is the task undertaken by another fund, also set up by the ADB with International Enterprise, an organisation of the Singapore Government. Lastly, ADB has launched a system of credit guarantee for private investors (CGIF Credit Investment & Guarantee Facility) with the participation of ASEAN, China, Japan and South Korea. The role of these institutions is however 10

11 Interviews not all-encompassing: their presence in individual operations acts as a form of guarantee for attracting additional investors. They thus activate financial leverage. But on their own they certainly do not dispose of sufficient resources for satisfying the demand for funds. What about financial markets? Things are moving also in that direction. An important initiative for example is the ASEAN Trade Link, an agreement between the Stock Exchanges of Singapore, Malaysia, Thailand, Philippines and Vietnam establishing the interconnection of the different stock markets and a shared clearing system. On the whole, this market capitalises over 1,500 billion dollars. It took several years to achieve this agreement but it is now a reality. This could provide an efficient platform for channelling savings and investment towards infrastructural projects. Savings are significant in these countries and this attracts real interest on the part of international investors external to the area. It is a matter of channelling these funds in the right direction. Have banks in the region also grown in strength? Yes, and in certain business sectors they are very active. They could do a lot more in the infrastructure sector however. Some institutions have started to evaluate the opportunity. For example the investment portfolio of Bank Central Asia - the main Indonesian private investment bank - amounts to 1.5 billion dollars. Infrastructures are a business opportunity also for European constructors and manufacturers, however they do not seem to adequately take this into consideration. We need to make a distinction here. In terms of construction, the companies working alongside the big local groups are mainly Korean, Japanese and Chinese. This is also because apart from a few big companies, French ones in particular, few European companies have the necessary structure, size and financial resources required to take on the role of prime contractor in Asia. There remains however significant space for the supply of services (planning in particular) and more specific specialised activities: tunnelling, subsoil technologies, complex artefacts, sustainable construction. This requires a real presence on the ground, often with the establishment of partnerships with local groups. This is one of the objectives that the European Chambers in Asia and in particular the EU-ASEAN Business Council intend to promote. There are also great opportunities in terms of infrastructure engineering activities: power plants and networks, railways, etc. European countries have unrivalled technological expertise in some specific areas, and their presence is stronger in these sectors. EU ASEAN Business Council The EU-ASEAN Business Council is an institution representing and protecting the interests of European businesses operating in the Southeast Asian region in their relations with local authorities, the ASEAN secretariat, the Brussels Commission. It provides important support to European businesses working in the region. It organises missions, conferences, high level meetings with representatives of the Ministries and local authorities, including a yearly summit with the participation of the Ministers of ASEAN and EU member states. The EU-ASEAN Business Council supports the EU Commission in promoting the rapid and efficient conclusion of negotiations undertaken for the establishment of free trade agreements with ASEAN and with individual member stats. It encourages the exchange of experiences and information between companies. EU-ASEAN Business Council website 11

12 Strategic projects Masterplan on Asean Connectivity T he Masterplan on ASEAN Connectivity (MPAC) is an ambitious project the general guidelines of which were first adopted on occasion of the 2010 ASEAN summit in Hanoi and subsequently updated. It envisages a large number of interventions in the field of physical infrastructure as well as in custom procedures, technical regulations, services and the mobility of people, with the aim of accelerating regional integration. In particular, it identifies numerous interregional initiatives with strategic value in the transport sector (motorways, railways, ports, river and sea navigation, airports), the energy sector (gas and oil pipelines, electrical networks) and the information sector (broadband networks). These projects often build on already existing structures in the different countries - motorways, railways, pipelines, power networks - but they aim to coordinate and complete interventions enabling interconnection of these systems at the regional level. A relevant example in the transport sector is the construction of the SKRL: Singapore Kuming Rail Link - a railway axis that goes from Kunming in Western China across the entire peninsula towards Vietnam, Cambodia, Thailand, Malaysia and into Singapore, spanning over 7 thousand kilometres, with a branch going into Lao PDR and a connecting half-ring across Thailand in the direction of Myanmar. Over 4 thousand kilometres of track are still missing or require rehabilitation to complete the project. Another important example, in the field of roadworks, is the completion of the ASEAN Highway Network (AHN) which spans over 38 thousand kilometres of route of which at least 5,500 kilometres require improvement and modernisation and another 2,500 kilometres of new links are to be built in areas with high volumes of traffic. As regards maritime transportation, the plan is to make over 50 thousand kilometres of inland waterways navigable and 47 ports fully efficient. In the energy field, there are projects to extend Text by the MPAC the ASEAN Power Grid connecting also the networks of Indonesia, the Philippines, Myanmar, and strengthening interconnection with Lao PDR and Vietnam. In the gas sector, there are plans to add 2,200 kilometres of interregional gas pipelines to the existing 2,300 kilometres, creating a grid connecting all countries except, for the time being, Vietnam and Lao PDR.. 12

13 3 - Task Force Energy A strategic role for Central Asia D emographic and economic growth entail constantly increasing levels of energy consumption. 1.3 billion people in the world today still lack access to electricity. It is estimated that by 2030, overall energy demand will surpass current consumption by 27%. The International Energy Agency predicts a cumulative global investment bill of around 48 trillion dollars by 2035, of which 40 trillion will be required to guarantee energy production and additional supply and the remaining 8 trillion to increase energy infrastructure efficiency. Whilst renewable energies will have an increasingly important role, fossil fuels will continue to be the major source of energy. In substance, all possible energy sources will have to be mobilised. In the face of the uneven distribution of available resources, worldwide energy exchanges are extremely important. Both Europe and the Asia-Pacific region are net energy importers whilst Russia, the Middle East and the Caspian Region are importers as well as exporters to the world market. Europe imports a significant amount of oil and condensates and 45% of the natural gas it consumes. This quota is set to rise to 60% by 2025, with the decline in local production. The Asia- Pacific region depends on the outside for 70% of its oil and condensates and such dependency is set to grow by an estimated 50% by 2040, concomitantly with the growth in consumption. For similar reasons, natural gas imports are also set to grow from the current 15% to 35% of the total requirement, with a strong increase in liquefied natural gas (LNG). This is an extremely important challenge which must be addressed through constant intergovernmental dialogue and with a non-discriminatory approach. The working group s recommendations focus in particular on energy policies aimed at attracting significant private investment, limiting government action to regulation and monitoring functions thus allowing investors to make reliable predictions. Recommendations further suggest that objectives be set always with a view to environmental protection and to the development of renewable energy. This should be done in such a way as not to threaten security of supply or negatively impact on competitiveness between different countries. In particular, they insist on the gradual phasing out of subsidies to well-established sources of renewable energy and low levels of emissions and call for the adoption of neutral policies which would allow for market forces to determine the most competitive energy sources based on tariffs reflecting actual production costs. The financial incentives thus freed could be invested in research into and development of new technologies. The group refers to the negative example of the five major European countries where the total amount of incentives to renewable energy sources amounts to 48 billion euros, exponentially surpassing the funds dedicated to research and development (315 million). A long list of strategic research and investment areas is outlined. As well as renewable sources, these include smart grids, energy storage, nuclear fusion and modular nuclear plants, shale gas and oil, carbon monoxide capture technology and emission reduction, energy efficiency technology in industrial processes, construction and transport. In this regard there are multiple potential areas of cooperation between Europe and Asia particularly in terms of Research Institutes, Universities and cofinanced programmes. 13

14 Reserves, production and consumption Oil and Natural Gas Country Reserves in million barrels Compound average growth rate Venezuela 297, % Saudi Arabia 267, % Canada 173, % Iran 154, % Iraq 141, % Kuwait 104, % United Arab Emirates 97, % Russia 80, % Libya 48, % Nigeria 37, % WORLD TOP 10 1,401, % Rest of the world 249, % WORLD TOTAL 1,650, % (Source: Oil& Gas Review 2013) The table shows the classification of the top ten countries in the world in terms of proven oil reserves. Together, these countries control 84% of the world total oil reserves. The only ASEM member amongst them is Russia. Comparing data on production with data on demand, and excluding from the picture the Russian Federation, some significant observations emerge. Asia-Pacific and Europe figure respectively as the first and third countries for oil consumption and they occupy respectively the penultimate and last positions in terms of production. On the whole, they are net oil importers for a quota equal to 37% of the world total. The quota is set to grow the years ahead to the double phenomenon of the steady increase in Asian consumption and the decline in production particularly in Europe. Europe covers 25% of its energy requirements through its own resources whilst in Asia this is slightly higher at 28%. The Russian Federation and Central Asia are both exceptions as they have a strategic role for both markets with a coverage equal to 3.4 times the requirements of the Russian Federation. In the case of Azerbaijan, production exceeds demand by 10.7 times and for Kazakhstan the value is of 4.3 times. Up to now, these countries have mainly exported to Europe, but thanks to the new oil pipelines from Kazakhstan and West Siberia towards China, they now aim to operate in the direction of the Far East. Middle Eastern countries however remain the main suppliers for both the European and Asia-Pacific regions. Region Production in million barrels per year Consumption in million barrels per year Compound annual growth rate in consumption Europe 3,706 15, % Asia-Pacific 8,280 29, % Russia and Central Asia 13,588 4, % Middle East 28,082 7, % Africa 9,996 3, % North America 12,918 21, % Latin America 10,325 9, % WORLD TOTAL 86,895 89, % (Source: Oil& Gas Review 2013) 14

15 Reserves, production and consumption The imbalance of reserves, production and consumption is replicated, albeit with different characteristics, in the natural gas sector. In Europe, this makes up for over 28% of the primary energy sources and has a strong prevalence in the electricity sector, whereas in Asia natural gas is still third after oil and coal with a quota of only 11%. The difference with oil is given by the fact that the great majority of natural gas exports takes place through gas pipelines that involve massive investment on top of the investments necessary for extraction and for the establishment of multi-year supply/purchase agreements between producer countries and consumer countries. In this picture, Russia and the Central Asian states supplying Europe have a crucial role. These countries have already launched a series of projects to extend their export gas pipelines into China and the Indian subcontinent. At the same time, to bridge the gap between consumption and production, the supply chain of liquefied natural gas exported via ship transport is growing, allowing importing countries Asian ones in particular to access supplies from a more extensive geographical area, with a view particularly to the Middle East. Reserves (billion m3) Production (billion m3) Consumption (billion m3) Europe 5, Asia-Pacific 16, Russia and Central Asia 63, Middle East 79, Africa 14, North America 11, Latin America 7, WORLD TOTAL 200,741 3, , (Source: Oil& Gas Review 2013) 15

16 In the current situation, renewable energies still play a marginal role. In 2013, European consumption excluding Russia and Central Asia where production of renewable energy is irrelevant amounted to million tonnes of oil equivalent out of a total primary energy consumption of billion barrels. Production was concentrated to a limited number of countries. In first place was Germany with 29.7 million tonnes of mainly wind energy, followed by Spain (16.8) and Italy (13) with a strong component of solar energy, and the UK (10.9). In the Asia-Pacific region on the other hand, production was of 782 million tonnes of oil equivalent of which 429 in China mainly from wind farms and 117 in India. Reserves, production and consumption Renewable energy Coal In Europe coal still has a significant though decreasing role with million tonnes of oil equivalent. The situation is similar in Russia and Central Asia with million tonnes. In Asia on the other hand, coal is still second only to oil with million tonnes of which in China, where it remains the primary source of energy. 16

17 Reserves, production and consumption Hydroelectric energy In Europe, hydroelectric sources are already for the most part exploited and they cover a total of million tonnes of oil equivalent. In Russia and Central Asia, they cover 62.2 million and in Asia million of which in India alone. Nuclear energy This remains the primary source of energy in France with a production of 95.9 million tonnes of oil equivalent out of a European total of million. Russia and Ukraine maintain a significant role with 57.9 million. In the Asia-Pacific region, South Korea and China dominate the sector with a production of 31.4 and 25 million respectively, out of a total of 77.8 million. 17

18 4 - Task force Food and Water Security The winning approach: technology and integrated projects F ood security intended as the sufficient availability of food and the adequate access to water supplies are some of the great concerns of the twenty-first century. These issues can be addressed through the use of efficient irrigation systems, the provision of adequate equipment for tillage and initial product processing, and the reduction of the massive losses due to product deterioration as a consequence of the lack of reliable systems of storage and transport. These are issues that individual agricultures cannot resolve by themselves. They require capital and infrastructure, programmes of agricultural enhancement, technical knowledge, demonstrative experiences, rules aimed at opening up markets and making them more efficient, and inclusive policies able to involve small and medium agricultural entrepreneurs. The involvement of the private sector in addition to public administrations is crucial to meeting these needs. This complex challenge is also at the heart of the Universal Exposition taking place in Milan in 2015 with the title: Feeding the Planet. Energies for Life. The AEBF task-force proposals on this theme are the following: - the establishment of a regulatory framework able to favour the development of the necessary infrastructure and incentivise private sector involvement. This includes adequate policies for the pricing of services and for opening up the product market and the creation of investment funds and dedicated financing channels; - a better use of water resources through the adoption of appropriate technologies and management systems based also on the indications of the World Economic Forum s Water Resource Group; - the re-opening and conclusion of the Doha Round; - the coordination of the different interventions with an integrated approach dealing with the whole value chain: from storage and transport to distribution and the efficient use of resources. 18

19 Interviews Giuliano Pisapia: Milan s commitment to a sustainable planet I taly s financial capital of Milan is preparing to host Expo 2015, which will be dedicated to the themes of food security and global nutritional resources. We interview the city s mayor Giuliano Pisapia. Food and Water Safety and Security are the two most important themes of Expo Why did an industrial city such as Milan choose these themes? Milan is the economic and financial capital of Italy, it has innovation and creativity in its DNA. But Milan is also the country s second agricultural city, with its farmhouses and agri-food sector. It is a city of water, with its Navigli - even Leonardo da Vinci worked on the city s hydraulic system - and its Darsena, the ancient port which on occasion of Expo 2015 will once again become a point of reference in one of the city s most ancient parts. It is also an international city in the heart of Europe, connected with the entire world and perhaps most importantly with the other metropolises committed to building sustainable development. For all these reasons it was awarded Expo 2015 with the theme Feeding the Planet. Energy for Life. Differently to the past, the challenge of food security has become a global issue and as such it requires global responses. Expo Milano will thus be a strategic step in what has effectively become a race against time. With a twofold objective: the exchange of research and innovation between businesses to provide answers that are as concrete as possible, and the necessary greater coordination of Food policy at the global level. What initiatives are you taking to involve participating countries in these themes? I hope that a Global agreement on the right to healthy and secure nutrition will be undersigned by most - if not all - of the over 140 participating countries. This should be the greatest legacy of Expo Milano The Italian Government is also working towards this goal in collaboration with other countries and the main international organisations, among them the European Union and the United Nations. For its part, Milan is working online with 50 other world metropolises to finalise the Urban Food Policy Pact, a project that I launched in quality of Mayor of Milan last year in Johannesburg, on occasion of the summit of the C40 the network of metropolises working to fight climate change and to build the Smart Cities of the future. We will produce a protocol on urban policy for sustainable food which will be signed by the Mayors of the greatest possible number of world cities during a big international event in October 2015, at the closing of Expo Milano. Food safety entails the use of adequate procedures and technologies. Do you believe Milan and Europe in general have the experience and innovative skills required? Milan, Italy and Europe will be the protagonists of Expo 2015 in this field. Constant innovation in agriculture, the high quality food chain, some of the most advanced regulations in the world in terms of controls and security, are some of the cards they can play on the world level. The numerous Italian and European best practices and the interactions between the research and business sectors will be confronted with other world leaders in agriculture. First of all the United States, who will put the best of their technology and in- 19

20 Interviews novation on show with their Food 2.0 pavilion and that in any case just as much as many other countries from Asia to Latin America do look to Europe and Italy as models of a healthy diet and a sustainable food supply chain. Millions of people all over the world still die each year of hunger or malnutrition. But today, as diets across the world are becoming more homogenised, more and more people suffer also the effects of an unhealthy or excessive nutrition: obesity, with its important social and economic costs, is now a plague affecting the global North as well as the global South. Europe and Italy have a lot to say on this. Food security implies the development of sustainable agricultural models. Do you think Milan and the Lombardia region have experiences and best practices to share? For the city of Milan, there is a significant legacy of Expo 2015 that I want to highlight on this point. In line with the theme of the Universal Exposition, rethinking the entire urban food supply chain has been central to the city s agenda for some time. This is a significant step in the construction of the Smart City we are working towards. The smart and sustainable city we envisage will guarantee a better quality of life to its citizens and will be competitive in the global world. This is a fundamental challenge for Milan. It is a challenge which is not just made of km 0 food or suburban agriculture, or of a model based on small businesses and cooperatives. It is most of all about the creation of a new and positive relation between producers, distributors and those who deal directly with the consumers. This is what we are working on in collaboration with the best research institutions and the businesses and organisations active in this field. With particular attention to fighting food wastage: this will be one of the main themes of the Expo and one on which the city of Milan is working in connection with other important European cities. Expo Milano will not be a simple display of products and technology, but rather a display of ideas and exchange of best practices for the right to a safe and healthy nutrition for all, for a sustainable development for the future of the Planet. 20



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