Comparison Case Study: Two Neighbors in Contrast: The Restructuring of the Power Sectors of Argentina and Brazil

Transcription

1 Session 22 Comparison Case Study: Two Neighbors in Contrast: The Restructuring of the Power Sectors of Argentina and Brazil PURC/ARSESP Training Sao Paulo, S.P., Brazil October 22-26, 2012 Ashley Brown Executive Director, Harvard Electricity Policy Group John F. Kennedy School of Government Harvard University Of Counsel, Greenberg Traurig, LLP

2 Starting Points Brazil 65, 134 MW Installed Capacity (1998) 95+ % Hydro Need for Thermal Expansion National ownership of generation and transmission State owns distribution companies Nationalization completed in 1970 s 5 % Demand Growth (1999) Argentina 23, 740 MW Installed Capacity (1998) 70% Hydro, 30% Thermal Need for Thermal Expansion National Ownership of Generation and Transmission Provinces own distribution companies Nationalization completed in 1940 s and 50 s 5 % Demand Growth 2

3 Starting Points Continued Brazil Three Systems: South/South Central; Northeast; Isolated Systems Heaviest Load in South/South Central region Hydro Facilities located on only a few rivers Argentina Nationally interconnected system Buenos Aires is bulk of load 3

4 Starting Points Continued Brazil Many Hydro plants are multiple use: Electricity, Water/Irrigation, Navigation Generating resources far from load centers Procel Efficiency Program Argentina Generating resources far from load centers 4

5 Conditions Prior to Restructuring Brazil Generating and Transmission Sectors well planned and operated Deteriorated distribution networks High non technical losses Some vertical integration at state levels 45% Rural Electrification 1 Nuclear Unit- 2 others planned 1 Huge Binational Plant Argentina Thermal plants deteriorated Deteriorated distribution systems High non technical losses Little vertical integration at province level 70 % Rural Electrification 1 Nuclear Unit 2 Binational Plants 5

6 Sector Perspectives on Restructuring SECTOR BRAZIL ARGENTINA Labor Opposed Opposed Multi-Laterals Favored Favored Financial Sector Favored Favored Industrials Mixed Favored Consumer Groups Cynical Sympathetic 6

7 Socio/Economic Context Brazil Massive Government Debt Real Plan Inflation declining Pressing social needs Skewed demographic and geographic distribution of wealth Partly first world/partly third world Argentina Massive Government Debt Peso pegged to dollar Inflation attacked Pressing social needs Skewed demographic and geographic distribution of wealth Partly first world/ partly third world 7

8 Political Context of Restructuring Brazil Democratic center right government Weak left State debt to National Government National Government Supreme in Electricity Tradition of Protectionism/Economi c Nationalism Extensive state involvement in economy Argentina Democratic Peronist Government Weak left Financially weak provinces National Government Dominant in Electricity Tradition of Protectionism/Economi c Nationalism Extensive state involvement in economy 8

9 Institutional Responsibility for Restructuring/Privatization Brazil National Development Bank (Parastatal) Ministry of Mines and Energy coordinates sector only Argentina Ministry of Finance oversight Secretariat of Energy coordinates entire effort 9

10 Priorities of Process Brazil Maximize Revenues from Asset Sales Restructuring of market heavily influenced by promotion of asset sales Creation of regulatory authority institutions tertiary Argentina Restructure electricity market/market design/asset sale Market design heavily influenced asset sales Creation of Regulatory Institutions concurrent with Restructuring 10

11 Privatization Process Brazil: Assets to Be Privatized a. Nuclear Unit (s) b. Itaipu Binational Project c. Transmission Grid d. Isolated Generating Units 11

12 Privatization Process Brazil a. Began with Distribution Companies b. Set Minimum Price and Licenses Terms and Conditions c. Documentation for Due Diligence d. Bidders Identified e. Bids Submitted/Awarded 12

13 Privatization Process Brazil Continued a. National Development Bank Took Control of State Owned Distribution Companies Indebted to It b. States With Financially Viable Distribution Companies Made Their Own Decisions on Privatization 13

14 Privatization Process Brazil Continued a. Generation Assets b. States Made Own Decisions Regarding Generators they owned c. Four Generating Companies owned by National Government 1. Gerasul- 1 Generating Company, 1 Transmission Co. Privatized only after Distribution Companies Instructed to Sign Contracts 2. Furnas- 2 Generating Companies, 1 Transmission Co. Mired in Political Controversy 3. Chesf- 3 Generating Co., 1 Transmission Co. Problems with Multiple Use Hydro Facilities 4. Eletronorte- 1 Generating Co., 1 Transmission Co. Mired in Controversy 14

15 Privatization Process Brazil Continued New Entrants a. State Owned Companies Solicited Bids Before Privatization b. National Government Retained Determinative Planning Authority to Identify Needed Projects (Generation and Transmission c. Identified Projects Put out for Bid 15

16 Privatization Process Brazil Continued Initial Licenses a. Issued Prior to Regulatory Institutions Creation b. Considerable Investor Input to Terms (e.g. Rio Light) c. No Reference to Subsequent Regulation 16

17 Privatization Process Brazil Continued Coelba Case Examples 1. Rural Electrification Choices i. Statewide Monopoly Without Rural Electrification Obligation ii. Service Territory Monopoly with Competition for Rural Electrification 17

18 Privatization Process Brazil Continued Case Examples Rio Light 1. Cost Cutting vs. Productivity Gains 2. Quality of Service Issues 18

19 Brazilian Power Sector Privatization 19

20 Argentina and its Provinces 20

21 Argentina Privatization a. Began with Generation and Transmission b. Divided Assets into 38 Generation Companies and Transmission Company c. Set Target Prices d. Documentation for Due Diligence e. Bidders Defined f. New Entrants in Generation Encouraged 21

22 Argentina Privatization Continued a. Privatization of Distribution Companies Left to Owners b. Mostly Provincial Governments 22

23 Argentina Privatization (continued) a. Intial Licenses 1. Issued Concurrent with Creation of Regulatory Agency 2. Licenses Subject to Regulatory Agency Jurisdiction 23

24 Argentina Privatization Process Generation a. Split into 38 (now 44) companies b. Prohibition of Vertical Integration c. 88% = highest market share d. All generators must be in Pool e. Ease of Entry f. Market Governs/ No Planning 24

25 Argentina Privatization Process (continued) Transmission a. One High Voltage (500 kv) Licensee to Transport Between Regions b. Five Regional Licensees ( kv) to connect generators and distribution systems. c. 2 large users within region 25

26 Argentina Privatization Process Continued a. SEGBA (44% of Load) 1. Divided into 3 Companies for Privatization b. 60% of Distribution Land Privatized 26

27 Argentina Privatization Continued Distribution a. 95 Year Concessions (Large Buenos Aires Area Companies) b. Concessions subject to 10 year management periods c. Large Customers Have Direct Access to Grid d. Provinces Decide Own Terms 27

28 Regulatory Issues Brazil DNAE converted to ANEEL ANEEL may delegate some authority to states Many licenses preexist ANEEL Argentina ENRE created Provinces Regulate Distribution Licenses subject to regulatory oversight 28

29 Market Institutions Brazil ONS = System Operator MAE = Power Exchange Electrobras = Finance and Indicative Planning Argentina COMMESA = Power Pool/System Private Hedge Markets Secretariat of Energy =Market Monitoring. 29

30 Pricing Business Brazil Argentina Distribution RPI RPI- pegged to US rates (X Factor in Some places) Energy Purchases for Resale Transmission Generation Energy Sales Retail Access Prudent in Zone of Reasonableness Market Price Pass Through Still Being Debated Zone Based, Still Debated Contracts Still in Force Eventual Access for Large Customers Energy/Hedge Markets Open Access for Large Customers 30

31 Post Privatization Service Problems Brazil Blackout in Rio de Janeiro (Rio Light and CERJ) Cost Cutting in Large Part of Cause Fines Assessed by ANEEL Regulatory Jurisdiction Challenged Argentina Blackout in Buenos Aires (Edesur) Negligent Performance in Investment for Improvement Fines Assessed by ENRE No Challenge to Regulatory Jurisdiction 31

32 Post Privatization Service Issues Brazil Jurisdiction Concessions Re. State/ Federal Systemization of Regulatory Judgement (e.g. Prudence, Service Quality Market Power Cross Subsidies Argentina Transmission Pricing Systemization of Regulatory Judgement (e.g. Service Quality) 32

33 Post Privatization Prices Argentina Before After Generation ~41 (1992) *Spot Price Distribution 31.2 (1992) *Spot Price ~29 (1995) 20.9 (1995) 33

34 Post Privatization Prices Brazil Before After Distribution Original Cost Contracts with Distribution companies are pegged to purchase price Generation Original Cost Price Pegged to Purchase price Argentina and Brazil Pre- Privatization prices are distorted because of cross-subsidies 34

35 Tariffs (1995) Residential Industrial Argentina Brazil