Competition and Competition and Regulation Interface in Regulation Interface in Developing Countries: Developing Countries:

Realities from the Power Realities from the Power SectorSector

ByByAma Asantewah AheneAma Asantewah Ahene** and and

Emmanuel A. CodjoeEmmanuel A. Codjoe****

*Institute of Statistical, Social and Economic Research (ISSER), Univ. of Ghana, Legon.**Department of Economics, university of Ghana, Legon.

IntroductionIntroduction

Growth of Power Generation in Growth of Power Generation in Developing CountriesDeveloping Countries

Government’s Quest to Increase Government’s Quest to Increase Citizen’s Access to Electricity (Power)Citizen’s Access to Electricity (Power)

Instituting Reforms to Attract Private Instituting Reforms to Attract Private Participation in the Power SectorParticipation in the Power Sector

Introduction (cont.)Introduction (cont.)

Controversy of Private Participation in Controversy of Private Participation in the Power Sectorthe Power Sector

World Bank’s Push for Reforms in the World Bank’s Push for Reforms in the Power SectorPower Sector

Review of Institutions and Reforms of Review of Institutions and Reforms of the Power Sector in some African the Power Sector in some African CountriesCountries

Power Sector ReformsPower Sector Reforms

Implies Commercialisation, Privatisation, Implies Commercialisation, Privatisation, Restruction and Competition.Restruction and Competition.

Implies an Alternative Source of Funding Implies an Alternative Source of Funding for Governments.for Governments.

However, as at mid-1998 only 39% of However, as at mid-1998 only 39% of Key Reform Steps had been carried out Key Reform Steps had been carried out in Developing Countries (World Bank in Developing Countries (World Bank Survey). Survey).

Reform ProcessesReform Processes

Unbundling – Assigning Existing Costs Unbundling – Assigning Existing Costs to Various Components and Developing to Various Components and Developing Prices Based on the CostsPrices Based on the Costs

Commercialisation – Government Commercialisation – Government Relinquishes Control to Autonomy and Relinquishes Control to Autonomy and Profitability Profitability

Corportisation – Formal and Legal Move Corportisation – Formal and Legal Move from Direct Legal Control to a Legal from Direct Legal Control to a Legal Corporation with Separate ManagementCorporation with Separate Management

Reform ProcessesReform Processes

Competition – Introduction of Competition – Introduction of Wholesale Competition and/or Wholesale Competition and/or Retail CompetitionRetail Competition

Privatisation – Transfer of Assets Privatisation – Transfer of Assets to Private Ownership (This could to Private Ownership (This could be part or whole of assets)be part or whole of assets)

Experiences of some Experiences of some Countries in AfricaCountries in Africa Some African Countries Bid to Some African Countries Bid to

Attract Investment in Indebted Attract Investment in Indebted State-run UtilitiesState-run Utilities

In Nigeria, NEPA is Separated into In Nigeria, NEPA is Separated into 18 Companies; Scheduled to be 18 Companies; Scheduled to be PrivatizedPrivatized

Experiences (Cont.)Experiences (Cont.)

Government Estimated $1.4Billion Government Estimated $1.4Billion investment in each Company for investment in each Company for Reliability.Reliability.

NEPA is Burdened with a debt of NEPA is Burdened with a debt of $3Billion, Making Privatisation $3Billion, Making Privatisation Essential Source of Funding.Essential Source of Funding.

Privatisation Scheduled to be Privatisation Scheduled to be

Completed by 2005.Completed by 2005.

Experiences (Cont.)Experiences (Cont.)

S.A Power Sector Constituting 43% of S.A Power Sector Constituting 43% of the Entire Continents is the Largest the Entire Continents is the Largest

The Sector is State-Owned (Eskom) The Sector is State-Owned (Eskom) and Generates most of the Country’s and Generates most of the Country’s Electric PowerElectric Power

Eskom runs a Coal-Fired Power Plant, Eskom runs a Coal-Fired Power Plant, Nuclear Power Reactor and Nuclear Power Reactor and Hydroelectric powerHydroelectric power

Experiences (Cont.)Experiences (Cont.)

S.A Government is in the Final Stages of S.A Government is in the Final Stages of Passing Legislation on Power Sector Passing Legislation on Power Sector ReformReform

30% of Eskom is scheduled to be 30% of Eskom is scheduled to be offered to Investors by 2006offered to Investors by 2006

Government Plans to also Divest its Government Plans to also Divest its Distribution AssetsDistribution Assets

Experiences (Cont.)Experiences (Cont.)

Egypt is the Second Largest After S.AEgypt is the Second Largest After S.A

Government began Privatisation Government began Privatisation Processes in 1998Processes in 1998

Investors to Purchase up to 49% of Investors to Purchase up to 49% of Egyptian Electricity Holding CompanyEgyptian Electricity Holding Company

Also Encouraging Private Companies to Also Encouraging Private Companies to Construct Electricity Generating PlantsConstruct Electricity Generating Plants

Experiences (Cont.)Experiences (Cont.)

Zimbabwe has Begun the Process Zimbabwe has Begun the Process of its two Major Electric Power of its two Major Electric Power Generating Plants, Hwange and Generating Plants, Hwange and KaribaKariba

Two S.A Firms were Chosen as Two S.A Firms were Chosen as Finalists to Oversee the Sale of Finalists to Oversee the Sale of the Two Facilitiesthe Two Facilities

Experiences (Cont.)Experiences (Cont.)

In Uganda, the Government has In Uganda, the Government has Estimated an Investment of at Estimated an Investment of at Least $450Million to Reach its Goal Least $450Million to Reach its Goal of Increasing Electricity Access.of Increasing Electricity Access.

The Country has began The Country has began Privatisation in an Effort to Attract Privatisation in an Effort to Attract Foreign Investment in its Electric Foreign Investment in its Electric Power Sector.Power Sector.

Ghana’s ExperienceGhana’s Experience

The Power Sector was Institutionalised The Power Sector was Institutionalised in the Early 1960s as the Electricity in the Early 1960s as the Electricity DepartmentDepartment

VRA was Established to Supply Power VRA was Established to Supply Power in Ghanain Ghana

The Akosombo Hydro-Electric and the The Akosombo Hydro-Electric and the Kpong Hydro-Electric Dams were Kpong Hydro-Electric Dams were ConstructedConstructed

Continuation…Continuation…

Electricity Corporation of Ghana Electricity Corporation of Ghana in 1967in 1967

Under the Provisions of the Under the Provisions of the Statutory Corporations Act, 1993 Statutory Corporations Act, 1993 (Act 461), ECG has since 1997 (Act 461), ECG has since 1997 become a Limited Liability become a Limited Liability Company called Electricity Company called Electricity Company of Ghana.Company of Ghana.

Regulatory InstitutionsRegulatory Institutions

The Public Utilities Regulatory The Public Utilities Regulatory Commission (PURC) was Commission (PURC) was established under Act 538 to make established under Act 538 to make Regulations Concerning UtilitiesRegulations Concerning Utilities

The Energy Commission was also The Energy Commission was also Set up under Act 541 to Work with Set up under Act 541 to Work with PURC in Developing Performance PURC in Developing Performance Standards.Standards.

Power Sector ReformsPower Sector Reforms

Due to Growing Demands and Due to Growing Demands and Constraints; Difficulties with Traditional Constraints; Difficulties with Traditional Financing Sources in the Power SectorFinancing Sources in the Power Sector

World Bank’s Guiding Principles of World Bank’s Guiding Principles of Transparent Regulations, Transparent Regulations, Commercialisation and Commercialisation and Corporatisation, Commitment Lending Corporatisation, Commitment Lending and Private Investmentand Private Investment

Reforms (cont.)Reforms (cont.)

The need to Expand the Existing The need to Expand the Existing Capacity and to Attract both the World Capacity and to Attract both the World Bank and Private Investors Forced Bank and Private Investors Forced GOG to start the Sector Reforms.GOG to start the Sector Reforms.

Ghana would not have started the Ghana would not have started the Reforms if the World Bank had Reforms if the World Bank had Provided Needed Funds for a Thermal Provided Needed Funds for a Thermal Plant without Insistence on the Plant without Insistence on the Reforms (Edjekumhene et al., 2001).Reforms (Edjekumhene et al., 2001).

Policy ObjectivesPolicy Objectives

Enhancing TransparencyEnhancing Transparency

Effecting Structural ChangesEffecting Structural Changes

Encouraging Private Sector InvestmentEncouraging Private Sector Investment

Minimising GOG SovereigntyMinimising GOG Sovereignty

Establishing a Regulatory FrameworkEstablishing a Regulatory Framework

Proposed Power Sector Proposed Power Sector StructureStructure

Allow Free Entry to both the Allow Free Entry to both the Generation and Distribution LevelsGeneration and Distribution Levels

Transmission System would be Opened Transmission System would be Opened to every Generatorto every Generator

An Economic Load Dispatch Centre An Economic Load Dispatch Centre would be Createdwould be Created

Generators would Supply Distributors Generators would Supply Distributors at Regulated Priceat Regulated Price

Several Distributors would Exist and Several Distributors would Exist and CompeteCompete

ConclusionConclusion

Although no Specific Time Frame has Although no Specific Time Frame has been Set by GOG to carry through with been Set by GOG to carry through with the Reforms towards Competition, the Reforms towards Competition, Significant Inroads have been Made in Significant Inroads have been Made in Terms of RegulationsTerms of Regulations

There are however Impediments that There are however Impediments that GOG has to Overcome for Smooth GOG has to Overcome for Smooth Implementation of its Power Sector Implementation of its Power Sector Development Objectives. Development Objectives.

THANK YOUTHANK YOU