Resistance and Alternatives to Energy Privatisation

PSIRU University of Greenwich

Resistance and alternatives to energy privatisation

by

David Hall, Steve Thomas, and Kate Bayliss

PSIRU, University of Greenwich

; ;

December 2002

This report was commissioned by Public Services International (PSI)

1Introduction

1.1Electricity privatisation/liberalisation and its problems

1.2Reforms – and alternative reforms

2Resistance

2.1Composition and techniques of resistance

2.2Range of countries

3Alternatives

3.1The Prayas critiques and the alternative TAP approach

3.1.1TAP in practice – participative democracy

3.1.2TAP and trade unions - proposed reforms for MSEB

3.2WRI approach: global sustainable and social development of energy

3.3The monopoly electricity supply model

3.3.1Private ownership improves efficiency

3.3.2Government interference

3.3.3Corruption

3.3.4Financing investment needs

3.3.5Inefficient pricing

3.3.6Summary

3.3.7What other issues does the privatised model of electricity supply industry raise?

4Cases

4.1Australia

4.2South Korea

4.3Canada

4.4USA

4.5India

4.5.1Withdrawal of AES from Orissa

4.6South Africa

4.6.1Eskom and the successful extension of rural electrification

4.6.2Trade union development of alternatives through education

4.7Mexico

4.7.1The Mexican electricity industry

4.7.2The privatisation of the electricity industry

4.7.3Assessment

4.8Brazil

4.8.1The Brazilian electricity industry

4.8.2The privatisation of the Brazilian electricity

4.8.3Assessment

4.8.4Consumer prices

4.8.5Conclusions

4.9Senegal

4.10Botswana

4.11Namibia

1Introduction[1]

1.1Electricity privatisation/liberalisation and its problems

The privatisation and liberalisation of electricity has been happening in many countries for over a decade.

There are three key elements, which may be combined in various ways:

• Privatisation – effective ending of public (state, municipal, regional) ownership
• Deregulation – weakening of public authority powers to control prices, service levels
• Liberalisation – opening market to public/private companies to sell electricity as a commodity

This global trend has been implemented in various ways in different countries. For example: deregulation laws (USA); unbundling public monopolies and liberalisation (EU directive); privatisation of state-owned operations (UK, Spain, Hungary, Brazil, Georgia, Dominican Republic); licensing of IPPs (Thailand, Indonesia, Pakistan, India etc).

Governmentshave been heavily influenced in adopting these policies by three important international forces:

The expansion of multinational energy companies into new markets

The conditionalities of the IFIs eg World Bank privatisation as a condition of WB loans

International trading rules, including the EU trading rules, the free trade provisions in NAFTA, the Energy Charter Treaty, the GATS provisions of the WTO

The multinationals have grown from bases in both Europe and the USA. In Europe, ownership of energy companies has become rapidly concentrated in the hands of three major companies, EdF, RWE and E.on, and a few smaller ones – Tractebel (Suez), Vattenfall, Endesa, and Enel. In the USA, two of the most active MNCs, Enron and AES, did not start as electricity companies, but gas companies. Enron has now collapsed, and AES is in major difficulties. Other USA companies have expanded abroad, and subsequently sold their operations and retreated to the USA: these companies include Mirant (Southern), Reliant, GPU, Entergy, TXU, and others.

Privatised and liberalised electricity systems have encountered many problems in many countries. These include the creation of private monopolies or oligopolies (eg Germany, EU) , wholesale price hikes and power shortages (eg California), higher retail prices (eg Georgia), governments carrying risks (eg India). These have been presented in other PSIRU papers, notably on IPPs [2], distribution companies[3] , California[4] , Africa[5] , Enron[6] , AES (forthcoming) , a series of papers on the Uk experience[7], the EU in general and central and eastern Europe [8] . This paper refers to these problems but does not repeat a comprehensive assessment of them

1.2Reforms – and alternative reforms

Developments in electricity are often presented in a simple moral fashion - the liberalisers advocate a ‘reform’ process, while their critics are ‘resisting’ this reform. This kind of presentation assumes that liberalisation and privatisation are the only possible solution to all the issues facing the industry, whatever they are. A more realistic approach is to ask simply, what are the public policy objectives of the electricity system, and how can they best be met? This allows for a range of possible answers, which may or may not involve changing the ownership or governance structures, may or may not involve private finance, and so on.

So the rest of this paper looks at a range of examples of how reforms based on liberalisation and privatisation have been resisted, and the range of alternatives that have been proposed. It looks at the countries where there has been resistance, the types of campaigns – and at what has happened where privatisation programmes have been abandoned or collapsed. In all cases the process has been a political one, in which various groups are engaged, both from the country in question and internationally. There are very few examples of successful resistance or alternatives without engaging political allies.

In some cases, these alternatives have consisted of simply defending the existing system – which, depending on the objectives and the actual performance of the system, may be a reasonable option. For example, where a new IPP is proposed, which may cause environmental damage and for which there may be no demand, the best alternative may be simply no new power station at all. But in many cases, the alternatives being explicitly or implicitly advanced include changes – but different changes from the liberalisers.

It also looks at alternative policies for running electricity system, because there are very definitely alternatives to privatisation, liberalisation, IPPs etc. The electricity systems of nearly all countries have been developed historically by a model based on public ownership and cross-subsidy, implemented in a range of ways. By contrast, the neo-liberal political programmes which brought in these policies are less than 20 years old, and still owe more to theory than practice. Different policy concerns have also been raised more recently, notably for environmental issues – pollution, nuclear risk, the desirability of renewables – and for greater transparency, openness and public participation. So privatisation and liberalisation are not the only solution – and their concerns are not the only agenda.

Privatisation and liberalisation are supposed to address a number of issues, including:

investment in new (or modernized) generating capacity needed to meet demand

dealing with inefficiency: eg reducing costs (diagnosed as too high), improving administration eg of billing; sounder pricing policies (diagnosed as distorted by political factors)

These issues of investment and inefficiency need to be addressed , regardless of the solution proposed. There may be disagreement about the diagnoses, however: for example, evidence does not support the claim that private energy companies are more efficient than public ones; the forecast demand for electricity may fail to take account of the possibilities of energy-saving efficiencies, and, if tied to a long-term power purchase agreement, may make it impossible to take advantage of future technical advances.

And there are other issues, not usually addressed by the pro-liberalisers, which are seen as important by many people. These include:

Social and development issues

• Extension of the network to connect the unconnected
• Affordable and sustainable prices for energy
• Employment levels and conditions

Environmental issues

• Pollution and emissions in generation (coal etc)
• Problems of nuclear power
• Renewable sources of energy
• Energy efficiency – scope for reducing consumption of energy

Democratic issues

• Public accountability - of policies, delivery, prices, reliability
• Transparency
• Public participation

This democratic dimension is of particular importance. The neo-liberals usually identify ‘political interference’ as one of the problems with electricity systems, and usually point to examples of politicians imposing tariff policies to maintain their electoral popularity rather than to improve the public electricity system.

2Resistance

2.1Composition and techniques of resistance

Resistance to energy privatisation has come from a wide range of civil society groups, including: trade unions, community organisations, environmentalists, consumer organisations, and political parties. In some cases there have been widespread public protests by people as consumers or citizens.

The issues involved include: prices, reliability, jobs, local impact of IPPs, environmental policy, public accountability, national control, corruption.

The techniques used have included: strikes, community mobilisation, demonstrations, electoral campaigns, court cases, research, publicity, international pressure.

2.2Range of countries

Resistance has taken place in many countries, both developed and developing. The examples shown in the table include campaigns for alternatives to privatisation which could be described as successful in terms of their own objectives. In some cases these were local issues, concerning one power station – eg the Cogentrix campaign in southern India - or a single city’s utility, such as the Emcali campaign in Colombia; in other cases they covered a whole country, such as the campaigns in Mexico. They include cases where existing systems have been successfully defended so far, while developing and extending services, such as South Africa. And they include cases where privatisations have failed to take place or rolled back, such as Senegal.

Country / Year / Location / Issue / Techniques / Actors
Australia / 1999 / NSW / Corporatise not privatize state utility / Electoral activity, publicity / Unions, political parties, NGOs
Brazil / Ongoing / National and local / Oppose privatization of utilities, generators / Electoral activity, publicity, strikes / Unions, political parties, NGOs, consumers
Canada / 2002 / Ontario / Court rules against privatization of utility Ontario Hydro / Court action, publicity / Union, NGOs
Colombia / 1997-date / Cali / Oppose privatization of municipal utility Emcali / International publicity, strike action / Unions, community NGOs, international NGOs,
France / Ongoing / National / Keep unified state company EdF / Publicity, electoral activity, / Unions, political parties
India / 1996-date / Maharashtra / Oppose Dabhol IPP (Enron) / International publicity, research, demonstrations, strikes / Community NGOs, environmentalists, energy NGO
India / Ongoing / Maharashtra / Democratisation not privatization of state utility MSEB / Research, publicity, public hearings / Energy NGO, community NGOs, unions,
India / 2000 / Karnataka / Opposition to Cogentrix IPP plan / Research, publicity, demonstration etc / Environmentalists, community NGOs
Indonesia / Ongoing / National / Prosecution of IPPs for corruption / Negotiation, publicity, court cases / Public authorities, unions, international
Mexico / Ongoing / National / Oppose privatization of electrical utility / Strikes, research, publicity, demonstration, international publicity / Unions, political parties, NGOs, international
Pakistan / Ongoing / National / Prosecution of IPPs for corruption / Strikes, research, publicity / Unions, political parties, NGOs, international
Senegal / 2001 / National / Termination/collapse of privatization plans / Negotiation, Strike action / Political party, unions
South Africa / Ongoing / National / Keep unified public utility Eskom / Strikes, demonstrations / Community NGOs, unions,
USA / 2000 / California / Los Angeles utility avoids power crisis / Electoral activity, publicity / Political parties, consumers, unions,

3Alternatives

3.1The Prayas critiques and the alternative TAP approach

An extremely interesting critique and alternative approach has been developed by the Indian energy group Prayas, whose reports can be seen at .

Prayas agrees that there is a crisis in the power sector in India, but identifies it differently.[9] Firstly, they assess the achievements of the existing model, based on state ownership, self-sufficiency, and cross-subsidy to agriculture and households. In 50 years, capacity has increased 55 fold, with 78 million customers, and

half a million villages connected. There are however limits to these achievements, and real problems in the sector: half the population is still unconnected, and there are power shortages, weak accounting and metering, and huge financial losses.

Prayas criticises the WB policies introduced in India for a number of reasons: . their preoccupation with the financial crisis, and sole emphasis on "State-Control" & "Public Ownership" as the root causes; its susceptibility to ‘capture’ by economic interests; its negative impact on development, by treating electricity simply as a commodity; taking energy out of the sphere of democratic debate.

Prayas sees a threefold crisis: a financial crisis , a crisis of performance, and a crisis of governance – with vested interests controlling decision-making, and a breakdown of mechanisms for transparency,

accountability, and participation (TAP). Prayas reinforces the importance of TAP in its lessons from the Enron debacle (which hit Maharashtra through the Dabhol power plant):

“This leaves us no choice but to give centrality to the public-friendly TAP provisions in

our efforts to reform and restructure the Indian power sector. This is necessary to

permanently stem out the possibility of take-over of the sector by the unholy alliances.

This, in turn, would require that all the governance functions and governance agencies

are made amenable, on mandatory basis, to full transparency to the public, direct

accountability to public, and meaningful participation of public. This task of democratizing the sector through public-friendly TAP - which, prima-facie, appears to be a Herculean task - needs to be handled in a systematic manner. The three major governance agencies - the state, the utilities, and the regulatory commissions - could be TAPed in a variety of ways. However, the space and capabilities of civil society institutions will be the important determinants of successful TAPing of these agencies. Improving on both these counts in a rapid manner is the main challenge facing the civil society in this country. Another challenge before the civil society in this country is to resist the attempts by the vested interests to urgently bulldoze major and irreversible changes in the structure and frameworks (including the ownership patterns) in the sector.”[10]

Prayas’s alternative sets out a ‘Desirable Path’ , with the key elements of :

• TAP (complete Transparency, direct Accountability to public, and meaningful public Participation)
• Effective, Public-Controlled, Sabotage-Safe, Regulation
• Energy as a developmental input, not a commodity
• State-Support
• Capacity to deal with fundamental issues (such as environmental sustainability, price-stability, technological upgrading, sectoral efficiency

3.1.1TAP in practice – participative democracy

Prayas has been involved in actively creating participative policy-making processes, firstly through the engagement with the Maharashtra public debate over price rise proposals in 2000.

The Maharashtra Electricity Regulatory Commission (MERC) followed the TAP principle to facilitate a hike in the electricity tariff during 1999-2000. The MERC published a gist of the proposal for tariff hike in scores of newspapers all over the State. In response, it got a total of 468 objections, in the form of affidavits or plain letters. This is the stage at which the Commission made a vital move. Instead of internally processing these objections, it launched a process of public hearings all over Maharashtra - five hearings at divisional headquarters and three in Mumbai.

Prayas and other groups, like the Mumbai Grahak Panchayat, got intensely involved in providing information and pushing for rigorous transparency. Thus the open-to-public proceedings produced a wealth of detailed information which compelled the MSEB to admit the errors in its own data, projections and analysis. Over a period of six months the MERC, the MSEB and the public virtually worked together to formulate a tariff hike of 6.5 per cent, instead of the original MSEB proposal for 18 percent. Apart from this direct monetary benefit to the consumers, there are other vital gains from this exercise. According to Shantanu Dixit, this process showed how the MSEB had for years maintained that there was a 17 per cent loss in transmission and distribution, but the public process compelled the MSEB to accept that these losses are actually around 30 per cent. These variances were so great that eventually the MSEB had to go back to the drawing board and formulate a whole new proposal. Even this revised tariff hike proposal was thrown open to public scrutiny and only then approved in May 2000.

Shirish Deshpande, of the Mumbai Grahak Panchayat, is confident that this process has established valuable precedents for TAP to become a way of life in Maharashtra and in other States. But, he is quick to point out, the picture is not entirely rosy. There could be attempts by narrow vested interests to dilute the autonomy of bodies like MERC. These dangers can be warded off only by vigorous and systematic intervention of citizens. [11]

3.1.2TAP and trade unions - proposed reforms for MSEB

In 2002, Prayas developed an alternative plan for the restructuring of MSEB, along with the trade unions[12]. The plan outlined a new ‘Public Control Model’ for the MSEB, involving 3 key parties – the State Government, MSEB itself, and the unions and a set of agreed elements:

• Concrete & Quantitative Targets for Performance Improvement (bill recovery, reduction in transmission and distribution losses, availability etc)
• Operational & Procedural Measures (TAP Participatory Process, regulation)
• Commitments about Duties & Obligations (government to pay subsidy on time)
• Disincentives and Penalties.

3.2WRI approach: global sustainable and social development of energy

A report from the World Resources Institute in 2002 looked at the recent experience of six countries – Argentina, Bulgaria, Ghana, India, Indonesia and South Africa. The report examined how the process of reforming the electricity sector can support rather than hinder promotion of sustainable development, and achieving social and environmental goals.[13]

It identified major problems with the goals and processes of electricity reform in nearly all the countries which they studied: “By focusing on financial health, reforms in the electricity sector have excluded a range of broader concerns also relevant to the public interest. In this study, we have examined the social and environmental concerns at stake in these reforms. We have found that not only are they inadequately addressed, but that socially and environmentally undesirable trajectories can be locked-in through technological, institutional, and financial decisions that constrain future choices.” The report put forward four clear recommendations for what it calls “aprogressive politics of electricity sector reform”:

“1. Frame reforms around the goals to be achieved in the sector. A narrow focus on institutional restructuring driven by financial concerns is too restrictive to accommodate a public benefits agenda. To build a framework that includes such an agenda requires an articulation of the services that a reformed sector is intended to provide and the means by which it should do so. While donor agencies often play a central role in initiating reform, they must step back during the process of defining goals to allow a nationally-driven vision of reform to emerge.