More Related Content Similar to Introducing the PetroTrust (20) More from ChrisJCook (20) 1. Introducing the PetroTrust A New Approach to Energy Investment Chris Cook – International Oil Refining Conference Teheran October 2008 3. … .some say, “the end of the financial system as we know it” 4. If the global system of credit creation is indeed in terminal decline…… 5. … .might the solution lie in a new approach to investment? 9. … and the “Trust” approach could allow Iran to lead the creation of a viable alternative…. 10. … .to the “Western” model of financial capital. 12. A Bank is a Credit Intermediary – or “Middleman” £ £ Bank Borrower Depositor 16. Now, if you think about it, a bank’s true economic function…. 17. … is to guarantee that the borrowers’ credit is good… 21. ..and a profit to Investors normally results Interest Interest Costs Investors Bank Borrowers Depositors 22. So Banks create a Pyramid of Credit, on a base of Equity Bank Credit Bank Equity 24. … .that Banks began to “outsource” their guarantee to rid themselves of risk. 25. … and thus allow Equity to support more credit creation 27. … temporarily – with “Credit Derivatives” (a time-limited guarantee)…. 28. … and partially – using credit insurance from insurers such as AIG 29. The Result is a bigger Credit Pyramid than Banks alone could sustain… Investor Equity Credit Bank Equity 30. … and an opaque “shadow banking system” of Investors holding “sliced and diced” risk… Investor Equity Credit Bank Equity 32. … and servicing this credit finally exceeded the financial capacity of the US population. 33. In August 2007, the Bubble started to deflate and attention turned at last to defaults … 34. ..but by now no-one knew where the Risk lay… Investor Equity Credit Bank Equity 37. The problem is not shortage of money - liquidity – Central Banks can handle that…. 38. … ..it is shortage of Equity - a Solvency problem – which Central Banks cannot handle….. 46. … .and drain money out of the system in a “deflationary spiral”.... 50. So we will take a new approach to “Equity” investment instead. 52. Ownership by a Corporation is what makes the “Private Sector” Private 57. Income Trust Income Trust Corporation Gross Revenues Unit Investors % % Units Costs Dividends? 59. … who consider investment less risky if they access corporate revenues… 61. We are also seeing new asset classes such as Exchange Traded Funds (“ETF’s”)…. 65. In 2001 the UK introduced the Limited Liability Partnership (“LLP”) – not in fact, a “Partnership” 66. … but simply an infinitely flexible corporate form – an “Open” Corporate 68. … Investors put in Financial Capital in money, or “money’s worth”… Assets Investors Ownership Financial Capital Custodian 69. … Managers put in Human Capital of time, expertise and experience.... Assets Investors Managers Ownership Human Capital Financial Capital Custodian 70. … and Users pay for the use of this Capital… Assets Investors Users Payment Managers % % Use Custodian 71. … the result is a “Capital Partnership” Assets Investors Users Managers Custodian 73. (a) Equity Share Units - proportional (%age) ”n’ths” such as billionths..... 74. … ..which may be bought and sold, but never redeemed, because there must always be 100% 77. Such Units have a value in exchange, but carry no rights to production or income over time… 78. They hold their value because they are asset-based on value provided by the issuer … 79. … .rather than being deficit-based upon a claim over value issued by a Bank 80. Let’s have a look at how a Capital Partnership might work as a “PetroTrust”. 82. We create a Refinery Trust Custodian Units % of Units % of Units Refinery Investors Oil Suppliers Managers 83. For as long as they supply oil or management services members receive a %age of production 85. Contractors may invest equipment & materials but must invest their agreed profit margin 88. We create a Gas Trust Liquefaction Plant Custodian Units % of Units Units Investors Gas Pool Managers 94. … and the financial effect is that Units of production may be sold at a fixed price.… 97. ..if prices fall, Iran is protected, but Investors lose – but even so, gain by lower energy costs 98. The outcome is to raise finance by Unitising future production, simply and flexibly… 99. … through new forms of “Co-ownership” Equity within a Capital Partnership framework… 100. … and the Pyramid of Risk is very different…. Management Equity Investor Units National Equity 103. Iran already uses cross-border frameworks .eg NICO based in Jersey, operates in Switzerland.. 106. eg Iranian Oil Company (UK) Ltd is a signatory to the North Sea MasterDeed framework…. 107. … .which is based on Trust, not partnership, law and is costly, complex and cumbersome 108. But a Caspian Master Partnership…. Assets and Infrastructure Caspian Nations Managers Custodian Units % of Units Units Investors 109. … .creates a simple new framework for Caspian “Pools” of oil and gas production… 110. … .which may be “Unitised” to enable necessary Caspian investment for all Caspian nations. 112. ..rather than a market in value-less Units of CO2 emissions, imposed by governments … 114. A trader’s metaphor illustrates the fundamental uselessness of a deficit-based carbon currency… 115. “ If you want to keep a cow healthy, you don’t regulate what comes out of it…… 117. I believe that conditions are now right for a Carbon Currency, and “Clearing Union” 121. I recommend that Iran….identifies and removes any domestic obstacles to “Unitisation” 123. … .and initiates a global dialogue towards a new global financial settlement – “Bretton Woods II”.
