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.

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

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

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

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

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

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

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

Experiences (Cont.) S.A Power Sector Constituting 43% of the Entire Continents is the Largest 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 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 Eskom runs a Coal-Fired Power Plant, Nuclear Power Reactor and Hydroelectric power

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

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

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

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

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

Continuation… Electricity Corporation of Ghana in 1967 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. 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.

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

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

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. 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). 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).

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

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

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

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