ECONOMY: Electricity Restructuring Snubbed Poor, Planet – Report

By Jim Lobe Reprint | | Print |

Jim Lobe

WASHINGTON, Jun 27 2002 (IPS) - Reforms promoted over the past decade by major donors to make the electricity sector in developing nations more competitive largely failed to take account of the needs of the poor and of environmental protection, said a report released here Thursday by a major think tank.

Despite the investment of hundreds of millions of dollars in restructuring the sector, the rural poor, in particular, still largely lack access to electricity, while little effort was made by policymakers to integrate environmental factors, such as global warming, into their planning, according to World Resources Institute (WRI), which published the report.

“Electricity reforms need to be changed if social and environmental benefits are not to be swept aside in the global rush toward a market-driven vision of the electric power sector,” said Navros Dubash, main author of the 175-page report, ‘Power Politics: Equity and Environment in Electricity Reform.’

He stressed that if designed and implemented more carefully, “electricity reform is an opportunity to re-direct billions of dollars toward a sustainable and equitable energy future.”

The report comes in the wake of violent protests in Peru against government plans to sell two state-owned electricity companies to private companies, the latest expression of rising popular opposition to the kind of market-oriented reforms that have been promoted by the international financial institutions (IFIs) and major donor countries throughout the developing world since the late 1980s.

Many analysts, most notably the World Bank’s former chief economist, Joseph Stiglitz, now agree that many of these reforms were implemented too quickly and without enough regulation.

The WRI report, which is based on case studies of the electricity sector in six developing countries that have undergone market-oriented reforms, also concludes that strong regulatory systems that take into account a range of social and environmental factors must be solidly in place if the public purpose is to be served.

“If we haven’t demonstrated that we can adequately regulate electricity markets in the U.S., then we should be very cautious about implementing similar markets in countries with less regulatory capacity,” said Dubash.

Reform of the electricity sector in developing countries – often as a result of pressure from donor governments and multilateral agencies like the International Monetary Fund (IMF) and the World Bank – has been very widespread over the last 12 years. About one-third of all developing countries had passed new electricity laws, while 40 percent had allowed the entry of privately owned independent power producers (IPPs) into their markets as a result of statutory changes by 1998, according to a recent Bank study.

These changes were “part of a broader thrust toward the promotion of markets, a growing role for private capital, and global economic integration,” the WRI report said.

The six countries covered by the report included Argentina, Bulgaria, Ghana, India, Indonesia, and South Africa. Of the six, according to the report, only South Africa designed and implemented reforms in order to promote social equity, as well as greater financial efficiency.

In the others, electricity restructuring was driven exclusively by economic factors, such as ensuring continued access to donor assistance and the urgent need to attract foreign capital, according to the report. “However, efforts to attract capital, particularly through IPPs, have caused more problems than they have solved,” it said, citing in particular India, Indonesia, and Argentina.

Moreover, the reforms themselves were to a large extent “designed by government bureaucrats and their consultants in the energy and finance ministries, to the exclusion of other voices,” such as social, rural development, or environment ministries, or non-governmental organisations (NGOs) with an interest in the issue.

As a result, the interests of their constituencies were largely ignored in the initial planning and implementation of reforms. To the extent that they have been heeded, social and environmental concerns were grafted onto reforms only at a later stage in reforms.

In some cases, however, that was too late. In India and Indonesia, for example, IPPs effectively locked the governments into large-generation plants that undermined efforts at energy efficiency and committed utilities to buy electricity at uncompetitive prices.

In other cases, electricity reform has been directed only at changing the existing system, rather than extending electricity to those who do not have it. In Ghana, for example, only 17 percent of the rural population has access to electricity. In India, the percentage is only 33 percent.

“Reform won’t do anything for those who don’t have it,” said Dubash. “There’s a need at the outset to step back and figure out what the goals are. In these cases, (policymakers) missed an opportunity to re-align incentives for investment to directing services toward rural areas.”

The same reasoning applies to environmental considerations. India and Indonesia, for example, could have offered incentives for the use of renewable energy sources in their reforms, but opted instead for big power plants that not only have much higher operating costs, but also contribute to global warming, according the report.

“Electricity restructuring is an example of how financial globalization has fueled development paths based on narrow economic considerations,” according to Dubash. “The public interest depends on whether policy-makers are sufficiently far-sighted to steer globalisation toward positive social and environmental outcomes.”