Reforming Power Markets: Lessons from Five Developing Countries presented at: World Forum on Energy Regulation Rome, 6 October 2003

Transcription

1 Reforming Power Markets: Lessons from Five Developing Countries presented at: World Forum on Energy Regulation Rome, 6 October 2003 David G. Victor Program on Energy and Sustainable Development Stanford University

2 From State-Centered to Market-Centered Organization Unbundling; fragmentation Ownership Privatization, IPPs Financing Market finance replaces soft budgets Governance and Accounting External shareholder accountability Oversight From the state to independent regulators

3 Five Critical Developing Countries Gas (0%) Coal (93%) m South Africa Gas (18%) Oil (47%) m Mexico Gas (6%) Coal (75%) m India Gas (0.4%) Coal (78%) m China Gas (0.2%) Hydro (88%) m Brazil New Fuel Dominant Fuel Gen. Capacity (Gw) Power Supply (Twh) GDP (billion US$) Income (GDP/cap $, PPP) Populat n Country

4 Reform Strategies Country Brazil China Strategy Privatization for investors. Sell distribution companies then generation companies Reform at the margins (IPPs) then corporatization India Mexico South Africa Reform at margins (IPPs, state power corp) then restructure markets then privatize distribution Reform at the margins (IPPs) then (hopefully) full competition Social benefits of electrification then corporatization then (maybe) privatization Slide 10

5 Main Results 1. No textbook restructuring 2. Creation of hybrid markets Partially state-controlled Financing; tariffs Equity squeeze for IPPs in slack markets Partially market Project and concession bidding Brief market experiments Orissa; wet hydro in Brazil 3. Regulators: replacement for government

6 Why No Textbook Restructuring? (1) Key Reform Driver: Need for New Capacity Tight systems; bad context for true markets How to attract investors Markets, or stability? Brazil s experience Fast reformers focus on IPPs China, India, Mexico, Brazil Slower reformers have excess capacity South Africa Contrast w/ OECD: efficiency driven reforms

7 Electric Power Restructuring: Financing Options Self-financing through retained earnings Financing through the state Need new capacity Financing at margin (e.g., IPPs) PPAs (local & FDI Financing through restructuring Unbundling SOEs, new governance, independent regulators, market rules, etc.

8 Time for a Change? CFE s slow expansion in Mexico 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% CFE Chapala Impulsora Mexicana

9 IPPs in Mexico: Visions for the Future Close to 60 billion dollars will be required during the next 10 years in the power sector. Only 47% of the investment is expected to come from the Federal Budget. 38,195 IPP and FP Federal Budget 51,468 39% 48,946 41% (Billion pesos of 2002) 54,244 53,064 49% 48% 61,723 53% 66,401 66,352 59% 58.0% 71,191 59% 74,334 58% % % 59% 51% 52% 47% 41% 42% 41% 42% 39% Source: Energy Ministry with CFE and LyFC data.

10 Value and Number of Financial Closings of Greenfield Electricity Projects in East Asia and the Pacific Value of investment Value in US$ millions Number of financial closings Year

11 Why No Textbook Restructuring? (2) Interlocking Reforms Required Factor Markets Labor; fuels Judicial Mexico; India Corporate Governance and accounting China; Brazil; Mexico Finance China Contrast w/ OECD reform with market-base and rule of law systems already in place

12 Hybrid Markets Fragmented Ownership and Control Isolated pockets of profitability: listed corporations Pervasive under-performing: retained by the state Hybrid financing Hard debt; equity squeeze; soft loans; pervasive state safety nets Hybrid governance JV model survives Constant pressure to socialize the downside and privatize the upside Policy implications: tunneling strategies? APDRP in India Policy implications: large effect of transparency reforms Corporate governance and accounting

13 Conclusion: Implications for Regulation Regulators overseeing hybrid markets, not markets Key issues: governance, transparency, IPP tenders Lesser issues: market power, congestion Interplay with other reforms Regulators as replacement for the State Example of tariff control Especially in democratic countries?

14 Total Electric Subsidies in Mexico

15 Expected Future Costs of Power Delivery in South Africa Regulated Current Cost Accounting Regulated Historical Cost Accounting Competitive Scenario Wholesale Price (2001 c/kwh)

16 India: Present and Future Cost of Supply Present (est.) Generator TransCo DistCo Consumer Future (hypothetical) 2.31* Rs/kWh Tr Operating Costs + Profit (Returns) Transmission losses (Tr) Tr 8% 8%? 10% C T C T C T (no separate cost) Operating Costs + Profit (Returns) C D 25% Distribution losses (D) + Theft C D 2.20 Rs/kWh 2.63 Rs/kWh 3.74 Rs/kWh? 3.50 Rs/kWh C D Unbundling forces profitability raising costs D Theft D Theft 10% 12% 7% 5%

17 Power Consumption in China Power Consumption Structure TWh Residential Tertiary Industry Agriculture

18 Power Consumption and Tariffs in India Outside 1% Railway 2% Others 10% Domestic 21% Consumption 315 Billion kwh Commercial 5% Industry 31% Source: Planning Commission Agricultural 30% Prices ps/kwh (Average) 5.00 /kwh