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Doubts strengthen on private power provision

24 July 2002

Two new briefings have been published outlining problems with power privatisation. At the same time the World Bank has recognised that international private investors have become increasingly wary of getting involved in power projects in developing countries. Energy companies such as El Paso and ABB are pulling back from poor countries amid debt concerns at home and losses on investments in Argentina and other nations. In Peru, the sale of four regional electricity-distribution companies had to be postponed in May, after no company could match the minimum bid. The Enron and Worldcom scandals have also caused concerns about the viability of many companies.

In response to this situation the Bank is likely to triple its funding of power projects to as much as $2.8 billion in the coming year, according to Jamal Saghir, director of the World Bank’s energy department. The Bank organised two conferences in June aimed at rekindling private sector interest in power projects, but acknowledged that this will be a hard task.

It will not be made any easier by continued civil society concerns, as expressed in new briefings from the Transnational Institute (TNI) and World Resources Institute (WRI). Lights Off from TNI complains that governments are often forced into privatisation through loan conditionalities of the multilateral banks and the IMF. It aims to debunk six myths of power liberalisation starting with the assumption that private energy suppliers are more efficient. They cite a study which found no significant difference in efficiency of energy production between the state and the private sector. They concede that electricity has become cheaper on average after liberalisation but that it has tended to result in a relative increase in prices for domestic consumers but a reduction for business consumers. The report flags case studies in India, Colombia, South Africa, the USA and Europe where power liberalisation has damaged the environment, been fundamentally undemocratic and had a detrimental effect on the poor.

Power Politics from WRI discusses electricity reform from the perspective of sustainable development and the needs of the 1.7 billion people without access to electricity. It argues that there is an opportunity to align investor incentives toward a clean energy future with reduced greenhouse gases emissions and better support for poorer peoples’ livelihoods.

Drawing on a detailed analysis of the political economy of electricity reform in Argentina, Bulgaria, Ghana, India, Indonesia, and South Africa, the WRI authors also find that financial concerns and donor conditions have driven electricity reform, not concerns about sustainability and extending services to poorer people. Managed by “closed political processes and dominated by technocrats and donor consultants”, social and environmental considerations have played a very limited role in electricity sector reform.

Power Politics: Equity and Environment in Electricity Reform, WRI

Lights Off!, Transnational Institute