Competition and Regulation Interface in Developing Countries: Realities from the Power Sector

1. Competition and Regulation Interface in Developing Countries: Realities from the Power Sector By Ama Asantewah Ahene* and Emmanuel A. Codjoe** *Institute of Statistical, Social and Economic Research (ISSER), Univ. of Ghana, Legon. **Department of Economics, university of Ghana, Legon.

2. Introduction • Growth of Power Generation in Developing Countries • Government’s Quest to Increase Citizen’s Access to Electricity (Power) • Instituting Reforms to Attract Private Participation in the Power Sector

3. Introduction (cont.) • Controversy of Private Participation in the Power Sector • World Bank’s Push for Reforms in the Power Sector • Review of Institutions and Reforms of the Power Sector in some African Countries

4. Power Sector Reforms • Implies Commercialisation, Privatisation, Restruction and Competition. • Implies an Alternative Source of Funding for Governments. • However, as at mid-1998 only 39% of Key Reform Steps had been carried out in Developing Countries (World Bank Survey).

5. Reform Processes • Unbundling – Assigning Existing Costs to Various Components and Developing Prices Based on the Costs • Commercialisation – Government Relinquishes Control to Autonomy and Profitability • Corportisation – Formal and Legal Move from Direct Legal Control to a Legal Corporation with Separate Management

6. Reform Processes • Competition – Introduction of Wholesale Competition and/or Retail Competition • Privatisation – Transfer of Assets to Private Ownership (This could be part or whole of assets)

7. Experiences of some Countries in Africa • Some African Countries Bid to Attract Investment in Indebted State-run Utilities • In Nigeria, NEPA is Separated into 18 Companies; Scheduled to be Privatized

8. Experiences (Cont.) • Government Estimated $1.4Billion investment in each Company for Reliability. • NEPA is Burdened with a debt of $3Billion, Making Privatisation Essential Source of Funding. • Privatisation Scheduled to be Completed by 2005.

9. Experiences (Cont.) • S.A Power Sector Constituting 43% of the Entire Continents is the Largest • The Sector is State-Owned (Eskom) and Generates most of the Country’s Electric Power • Eskom runs a Coal-Fired Power Plant, Nuclear Power Reactor and Hydroelectric power

10. Experiences (Cont.) • S.A Government is in the Final Stages of Passing Legislation on Power Sector Reform • 30% of Eskom is scheduled to be offered to Investors by 2006 • Government Plans to also Divest its Distribution Assets

11. Experiences (Cont.) • Egypt is the Second Largest After S.A • Government began Privatisation Processes in 1998 • Investors to Purchase up to 49% of Egyptian Electricity Holding Company • Also Encouraging Private Companies to Construct Electricity Generating Plants

12. Experiences (Cont.) • Zimbabwe has Begun the Process of its two Major Electric Power Generating Plants, Hwange and Kariba • Two S.A Firms were Chosen as Finalists to Oversee the Sale of the Two Facilities

13. Experiences (Cont.) • In Uganda, the Government has Estimated an Investment of at Least $450Million to Reach its Goal of Increasing Electricity Access. • The Country has began Privatisation in an Effort to Attract Foreign Investment in its Electric Power Sector.

14. Ghana’s Experience • The Power Sector was Institutionalised in the Early 1960s as the Electricity Department • VRA was Established to Supply Power in Ghana • The Akosombo Hydro-Electric and the Kpong Hydro-Electric Dams were Constructed

15. Continuation… • Electricity Corporation of Ghana in 1967 • Under the Provisions of the Statutory Corporations Act, 1993 (Act 461), ECG has since 1997 become a Limited Liability Company called Electricity Company of Ghana.

16. Regulatory Institutions • The Public Utilities Regulatory Commission (PURC) was established under Act 538 to make Regulations Concerning Utilities • The Energy Commission was also Set up under Act 541 to Work with PURC in Developing Performance Standards.

17. Power Sector Reforms • Due to Growing Demands and Constraints; Difficulties with Traditional Financing Sources in the Power Sector • World Bank’s Guiding Principles of Transparent Regulations, Commercialisation and Corporatisation, Commitment Lending and Private Investment

18. Reforms (cont.) • The need to Expand the Existing Capacity and to Attract both the World Bank and Private Investors Forced GOG to start the Sector Reforms. • Ghana would not have started the Reforms if the World Bank had Provided Needed Funds for a Thermal Plant without Insistence on the Reforms (Edjekumhene et al., 2001).

19. Policy Objectives • Enhancing Transparency • Effecting Structural Changes • Encouraging Private Sector Investment • Minimising GOG Sovereignty • Establishing a Regulatory Framework

20. Proposed Power Sector Structure • Allow Free Entry to both the Generation and Distribution Levels • Transmission System would be Opened to every Generator • An Economic Load Dispatch Centre would be Created • Generators would Supply Distributors at Regulated Price • Several Distributors would Exist and Compete

21. Conclusion • Although no Specific Time Frame has been Set by GOG to carry through with the Reforms towards Competition, Significant Inroads have been Made in Terms of Regulations • There are however Impediments that GOG has to Overcome for Smooth Implementation of its Power Sector Development Objectives.

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