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Light and lightning at the end of the public tunnel : reform of the electricity sector in the Southern Cone

Author

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  • Estache, Antonio
  • Rodriguez-Pardina, Martin

Abstract

The authors provide an overview of recent privatization experiences in Argentina, Brazil, and Chile. They focus on both achievements and outstanding problems in the electricity sector. They pay special attention to the issue of whether regulators can enforce compliance and sustain the spirit of reform - bringing the forces of competition to the sector - despite the unavoidable adjustments and fine-tuning that effective regulation requires. Among the lessons: Competition, rather than privatization, is the key to transforming the sector. For competition to work, several conditions must be met: 1) The primary energy source must be competitive for competition in the wholesale market to work. (In Chile, the fact that most of the water rights have been allocated to the major generator company seriously limits efficiency in the sector.) 2) Monopolistic stages must be formally separate from other stages, with clear rules for third-party access. (Here, the structure adopted by Argentina seems superior to that adopted by Chile.) 3) New entry into the system is the ultimate test of competition. The main gain from competition in electricity generation comes from the decentralization of decisions about when, how much, and what type of generation has to be brought to the market, rather than from short-term gains from minimizing costs. Overall, vertical and horizontal separation in the sector increases rather than reduces the burden and complexity of regulation. In a disintegrated system, the issues that arose in a traditional monopoly situation (fair rate of return, asset base, tariff to final consumers, and so on) are significantly increased. New issues include third-party access, the promotion of competition, interconnection pricing, and consistency of regulations across stages of competitive development. Restructuring and privatization are still in their early stages so lessons drawn from experience must be considered tentative.

Suggested Citation

  • Estache, Antonio & Rodriguez-Pardina, Martin, 1999. "Light and lightning at the end of the public tunnel : reform of the electricity sector in the Southern Cone," Policy Research Working Paper Series 2074, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2074
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    Citations

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    Cited by:

    1. Paul L. Joskow, 2014. "Incentive Regulation in Theory and Practice: Electricity Distribution and Transmission Networks," NBER Chapters,in: Economic Regulation and Its Reform: What Have We Learned?, pages 291-344 National Bureau of Economic Research, Inc.
    2. Andres, Luis & Foster, Vivien & Guasch, Jose Luis, 2006. "The impact of privatization on the performance of the infrastructure sector : the case of electricity distribution in Latin American countries," Policy Research Working Paper Series 3936, The World Bank.
    3. Carlos Pombo & Manuel Ramirez, 2002. "Privatization in Colombia: a plant performance analysis," BORRADORES DE INVESTIGACIÓN 003377, UNIVERSIDAD DEL ROSARIO.
    4. Ian Alexander & Antonio Estache, 2000. "Industry restructuring and regulation: Building a base for sustainable growth - lessons from Latin America," Development Southern Africa, Taylor & Francis Journals, vol. 17(3), pages 307-337.
    5. Paul Joskow, 2003. "Electricity Sector Restructuring and Competition: Lessons Learned," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(121), pages 548-558.
    6. Pombo, Carlos & Taborda, Rodrigo, 2006. "Performance and efficiency in Colombia's power distribution system: Effects of the 1994 reform," Energy Economics, Elsevier, vol. 28(3), pages 339-369, May.
    7. Preetum Domah & Pollitt, M.G. & Jon Stern, 2002. "Modelling the Costs of Electricity Regulation: Evidence of Human Resource Constraints in Developing Countries," Cambridge Working Papers in Economics 0229, Faculty of Economics, University of Cambridge.
    8. Carlo Cambini & Laura Rondi, 2010. "Incentive regulation and investment: evidence from European energy utilities," Journal of Regulatory Economics, Springer, vol. 38(1), pages 1-26, August.
    9. Andres, Luis & Guasch, Jose Luis & Azumendi, Sebastian Lopez, 2008. "Regulatory governance and sector performance : methodology and evaluation for Electricity distribution in Latin America," Policy Research Working Paper Series 4494, The World Bank.
    10. Paul L. Joskow, 2006. "Incentive Regulation for Electricity Networks," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 4(2), pages 3-9, 07.

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