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1 st Meeting of GCC Electricity Regulators 13 th of November 2007 “Regulation in the Environment of Privatization” A Regulatory Framework for State Owned.

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Presentation on theme: "1 st Meeting of GCC Electricity Regulators 13 th of November 2007 “Regulation in the Environment of Privatization” A Regulatory Framework for State Owned."— Presentation transcript:

1 1 st Meeting of GCC Electricity Regulators 13 th of November 2007 “Regulation in the Environment of Privatization” A Regulatory Framework for State Owned Enterprise Privatization with Emphasis on Electricity and Water Sector in The State Of Qatar By: A.Aziz Al-Zeyara

2 privatization is Not New  Privatization was first launched in the 1930s, but gained momentum in the late 1970s and early 1980s under Thatcher, Regan & Kohl.  Privatization is defined as the transfer of ownership from State structure to the private sector.  The rational for privatization has varied from country to country and from region to region.  In most developing countries, performance improvement, efficiency enhancement, budgetary relief, and private sector support where used as the main explanation for policy implementation of privatization programmes since the early 1980s.

3 Why privatization in the Middle East  In most MENA countries, the aim of privatization was to cut public deficit, cut public deficit, control corruption, control corruption, decrease budget imbalance, decrease budget imbalance, improve management performance improve management performance reduce cumulative loses. reduce cumulative loses. encouraging private initiatives. encouraging private initiatives.

4 Why privatization in the Middle East Continue..  SOEs in most Middle Eastern states were, and most still are, loss- making enterprises, thus forcing the state to borrow from local sources initially.  But continued financial support to public enterprises reduced the public funds available for social services, and led to crowding out private sector borrowing and stifled private sector development.  Large public sector and trade deficits eventually forced most states in the region to resort to international financial institutions for assistance, particularly to the International Monitory Fund (IMF) and World Bank.  It's been observed that at least 1/3 of all international borrowing by developing countries was to cover the public enterprises dept (Cook, Kirkapatrik 1988).

5 privatization Remains Largely Unsuccessful  Yet, despite large scale privatization, the available empirical evidence suggests that the outcome of privatization in most developing countries have so far been mixed.  Not only the pace, but also the quality of privatization has, in most cases, been particularly problematic.  Very slow, very difficult  In terms of quality, privatization has neither improved productivity, nor competition with negative impact on growth.

6 Key Lessons from privatization Experience  1 st, the reform program is generally based on a document or a set of documents that provide a coherent framework for the various reform steps.  2 nd, privatization is Part of An Overall Reform Package  3 rd, The role of the Single Buyer  4 th, The independence of the Regulator

7 Regulatory Systems Privatization Process Privatized Enterprises Private Sector The StateThe Society Control MonitorJudge Performance EfficiencyReforms Less Price Less Cost Better Quality Satisfaction

8 privatization in Qatar  privatization in Qatar has been promoted and personally supervised by the emir of the state of Qatar HH Shaikh Hamad Ben Khalifa Al Thani.  privatization in Qatar is aimed at promoting economic diversification, improving education and health, modernizing infrastructure, and increasing public saving.

9 privatization in Qatar Continues… The state of Qatar has become one of the prominent privatizors in the GCCs for the following rationales:  Crude Oil price fluctuation  The contentment for the important role of the private sector.  State income resources diversification  Develop the infrastructure for the Qatari economy and polarizing the advance technologies  Control the general budget expenditure  Performance and Commercial base operation  Abolishment of bureaucracy.  Support and develop the local private sector.  Wealth distribution among the nation.  Spare capital for the state to invest and develop

10 Investment to Promote Private Sector in Qatar Qatari government has taken concrete steps to strengthen the private sector & create an attractive business  For example: The protection of private property to ensure the freedom of economic activity. The protection of private property to ensure the freedom of economic activity. In 2000, a new foreign investment law was passed, and in 2002 a new company law was passed. In 2000, a new foreign investment law was passed, and in 2002 a new company law was passed. The foreign investment law allows foreign ownership The foreign investment law allows foreign ownership Incentives for investments in industrial projects Incentives for investments in industrial projects Exemptions Exemptions Raw Material subsidized prices Raw Material subsidized prices

11 Problems of privatization in Qatar While attempting to privatize, Qatari state officials have faced several difficulties.  Will privatization guarantee sufficient return to the state?  What is the acceptable level of alternatives returns the state can accept and find?  What will happen to the states' employees?  How can privatization ensure the continuation of their jobs?  The available empirical evidence suggest that changing ownership itself will not be sufficient, and may not be even necessary to elicit performance improvements.  Rather, competition and regulation policy will emerge as major determinants of the performance of the privatized enterprises and assumed benefits from privatization.

12 Evaluating Privatization in Qatar Evaluating the aimed objectives of privatized enterprises in Qatar is not easy for several reasons.  Absence of clear objectives  Lack of sufficient data on the whole process of privatization  Evaluation Making comparison

13  Ministry of Energy – Policy determination & role allocation -- moderate regulation  Private sector – all generation & desalination production  Qatar equity participation in all IWPP’s  Qatar General Electricity & Water Corporation (Kahramaa) Sole off-taker of all IWPP production Sole off-taker of all IWPP production National network owner & operator National network owner & operator Power & water systems operator Power & water systems operator Sales tariff setting & DSM Sales tariff setting & DSM Qatar Experience in the Electricity & Water Sector

14 IWPP Shareholders OwnerShareholders QEWC Govt 43%, public shareholders 57% Ras Laffan Power Co AES 55%, QEWC 25% QP 10%, GIC 10% QPower QEWC 55%, IP 40% Chubu 5% Mesaieed Power Co QEWC 40%, Marubeni 40% QP 20% Ras Laffan

15  Lack of formal regulatory system lead to in-direct cross subsidies which are difficult to recover through dominant Domestic Sector tariff  Strong economic growth will lead to 4 fold capacity growth by 2011 compared with 2001 in Qatar  Qatar does not invest directly in IWPP’s, but accepts responsibilities & risks  Short project lead-time reduces negotiating edge by the off-takers & leads to higher purchase tariffs Lessons learned & Conclusions


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