Case study findings

The six case studies suggest that, with the exception of South Africa, there has been little political commitment to promoting sustainable development through electricity sector reforms.

Argentina: Reforms in Argentina were stimulated by a severe macroeconomic crisis in the late 1980s. Facing hyperinflation, a heavy debt burden, and declining quality of public services, Argentina's reform program was intended to reduce the government's role in providing key services, including electricity. The reforms were designed by a small group of politically powerful bureaucrats - supported by multilateral agencies such as the World Bank - with little scope for broader debate. The reforms did lead to improved quality of service in urban areas and increases in system efficiency. However, they also undermined incentives to increase energy efficiency, limited expansion of electricity to isolated rural populations, placed a disproportionate burden on low-income consumers, and failed to effectively manage expansion of the transmission system. A second generation of reforms in the late 1990s has attempted to address some of these concerns.

India: In India, concerns over the financial state of the sector dominated reform design. In 1991, the government provided incentives for electricity generation to stave off a balance-of-payments crisis. The effort to attract private capital not only failed to increase capacity as planned, but also locked the sector into adverse financial and institutional arrangements. The World Bank played a central role in initiating a second stage of state-level reforms beginning in 1996 to address the fundamental problem of inadequate revenue flow in the sector.

State-level reforms have produced mixed results at best. Privatization efforts have been fraught with difficulty. Where utilities have been privatized, the change has not produced expected gains. Efforts at promoting public benefits -such as energy efficiency at the state level and incentives for renewable energy sources -have been relatively few and have suffered from a lack of political commitment.

Indonesia: Early efforts at attracting private capital for electricity generation in Indonesia in the mid-1990s occurred under a shadow of corruption. These efforts also invited World Bank disapproval, reversing long-standing donor support for Indonesia 's power sector. The result was the construction of costly excess generation capacity, which colored future reform efforts. The 1997 Asian financial crisis spurred an attempt at broader reform as part of an IMF-led economic adjustment strategy. The post-crisis reform effort was accompanied by a consultation process personally led by the Minister of Energy and Mines. This process was stalled by political upheavals, unresolved issues with IPPs, and the political challenge of raising tariffs. Social equity -in particular concerns over tariffs - have been at the forefront of reform debates, while environmental concerns have scarcely influenced reform design.

Bulgaria: Reforms in Bulgaria were initiated by an IMF stabilization program in 1997 following a period of financial crisis, but the reform program was shaped by national political currents. Government-led reforms have been driven in large part by a determination to become an energy exporter, despite evidence that this is not a viable strategy -a position that was only reversed with a change in government in 2001. Despite Bulgaria's environmental obligations under the Kyoto Protocol and its candidacy for European Union membership, environmental concerns did not play a role in shaping reforms. After an initial focus on financial issues and prices, donors have actively promoted attention to the considerable gains to be achieved from encouraging energy efficiency in the economy as part of a reform strategy. Under a new government, a shift in political focus has improved the prospects for this approach.

Ghana: Reforms in Ghana were driven by a shortage of financing for much-needed capacity expansion in 1995; sector reform was a condition of World Bank lending for new capacity. But the Ghanaian government set aside the Bank's recommendation for limited reforms and took the initiative to develop a more extensive design. An important political actor in this process was the large and powerful Volta River Authority, which initially feared its position in the sector would be threatened by reforms. Although expansion of access to electricity is a significant issue in Ghana, the government failed to integrate existing electrification efforts with institutional reforms. While there was little explicit focus on environmental issues in the course of reform design, measures to promote energy efficiency and provide incentives to renewable energy sources were added to reform efforts.

South Africa: Reforms in South Africa are driven by a broader national agenda to restructure state-owned enterprises, initiated in the mid-1990s. Reform in the electricity sector began in earnest in the late 1990s. While financial considerations are important in South Africa, reforms have not been spurred by an immediate short-term financial crisis, either in the sector or in the economy at large. As a result, the national government has exercised considerable control over reforms, and has framed them around social issues such as access to energy and black economic empowerment. The existing public utility, Eskom, has been an important political actor in discussions about whether this agenda is better served by the existing system or by a restructured sector. In addition, reforms in South Africa have provided scope for broader consultation and debate, a process in which donor agencies have played a restricted, information-provision role.

A comparison across the case studies suggests several common themes:

Electricity reforms are driven by economic and financial concerns, and by donor conditionalities.

Reforms in Argentina, Indonesia, and Bulgaria were undertaken in an environment of macroeconomic crisis. In India, Indonesia, Bulgaria, and Ghana, donor conditions were the immediate reason for undertaking reforms. As a consequence, reform design was often driven by an immediate need to attract capital -a trend reinforced by donor agencies. However, efforts to attract capital, particularly through IPPs, have caused more problems than they have solved. In India and Indonesia, IPP entry has been accompanied by allegations of corruption and undermined the financial and institutional health of the sector. In Argentina, the urgent need for capital led to privatization at reduced prices. While reforming countries are criticized for not providing sufficient incentives to attract foreign capital, it is not clear whether such incentives are politically viable and socially desirable. Structuring reforms mainly to attract finance may not be a sustainable long-term strategy for the sector. Moreover, the focus on financial issues crowds out attention to public benefits.