Power-sector Rethink

This exercise’s main conclusions, as stated in the book, are that even though regulation has been widely adopted in most developing countries, practices often fell short of theory and cost recovery goals remained largely elusive. The private sector did finance a substantial portion of new generation capacities, but its contribution to network parts of the industry remained much more limited, with efficiency levels that barely matched with those of well-governed public utilities. Restructuring and liberalizing, though they have been beneficial in a few of the larger and comparatively better-off countries have also proved too complex for most of them to implement.

The key findings emerging out of the study are: (i) uptake of power sector reform did not follow the prescribed model; (ii) reforms gained traction only if they were compatible with the country’s political and ideological settings; (iii) the private sector’s contribution was restricted to the generation part only; (iv) wholesale power markets helped improve efficiency in a few countries only; (v) good corporate and institutional practices contributed to achieving better performance; (vi) private sector participation in T&D delivered good outcomes; (vii) regulatory frameworks were widely adopted, but fell short on effective implementation; (viii) cost recovery proved difficult to achieve and sustain; (ix) the outcomes were heavily influenced by the starting conditions; and (x) good outcomes were achieved by adopting a variety of institutional patterns, and not by any single rigid setup.

The book also draws a number of useful policy implications from the afore-stated lessons: (i) design of power sector reforms should be informed by the enabling conditions on ground; (ii) reforms must be grounded in the local realities; (iii) greater emphasis should be placed on building institutional capacity; (iv) generation should be procured through a transparent and competitive process; (v) unbundling shouldn’t be the highest priority if governance and institutions are weak; (vi) wholesale competition is viable only for countries that can provide sound foundation; (vii) efforts should focus on strengthening corporate governance and management of the local utilities; (viii) regulatory framework must reflect the institutional context and accommodate emerging technological trends; (ix) privatization of distribution should be aimed only when enabling conditions are met; and (x) agenda of universal access and decarbonizing calls for additional reforms must be targeted explicitly at these objectives.

Based on the findings of the survey, assessment of their policy implications and putting both of them in the future perspective, the authors of the report make a 3-point prescription that they recommend should guide any future reforms in the power sector in a developing country.

First, for any future reform effort to succeed, it must be tailored to the local political, economic, and institutional realities of the country in which it is to be applied. A more thoughtful and structured approach should be used to assess the compatibility of the intended reform model with the existing conditions, and tailoring it accordingly, to enhance its assimilation and effectiveness.

Second, unlike process-oriented reforms of the past, the developing countries should seek outcome-oriented reforms. The previous model focused primarily on institutional reforms, which was thought to lead to better overall sector performance. In the future, reform packages need to be designed by identifying the most critical outcomes desired by defining key obstacles that can prevent their achievement and taking requisite measures to clear them.

Third, instead of a rigid and inflexible model, as has been the case in the past, future efforts should be open and flexible to a combination of models that can effectively deliver the target objectives, recognizing that there can be more than one route to success.

Over all, it is a very useful survey of what has succeeded in the past and what has not and how to do it better in the future. This review barely scratches the surface of the treasure of highly-practical and useful information, findings and recommendations that the report contains. As such, it is a must-read for both the students and practitioners of electric utility organizations, regulations and managements. It will also be a useful desk-reference for regulators of developing countries as well as for the energy and power sector leaders and ministerial staff whom they can consult on need basis to avoid the pitfalls of poorly designed reform schemes and seek guidance on how to do it better in the future.