Policy alternatives in reforming energy utilities in developing countries

This paper examines the policy alternatives faced by developing countries in their endeavor to preserve and develop their electricity and gas systems, two service-oriented industries which—along with oil—provide the bulk of energy supply both in developed and in developing countries. Even in very poor countries, industrially generated energy is indispensable for carrying out most economic activities. Therefore, governments traditionally recognize that the supply of gas and electricity entails a fundamental public service dimension. The Introduction presents the case for reforming of energy utilities, discusses in general terms the pros and cons of privatization, and attempts to locate the reforms in a broader historical framework in which developing countries’ governments faced characterized by increasing financial hardship. Section 2 constitutes the core of the paper. It reviews the main features of gas and power sector reforms in the developing world and analyzes specifically the cases of five semi-industrialized countries in Latin America and Asia. Section 3 (Concluding remarks) briefly evaluates the country experiences reviewed above and indicates a few policy lessons which can be learnt from them. The main conclusion is that, in a long-run development perspective, full-scale privatization of gas and power sectors in developing countries entails significant risks, and therefore a flexible policy approach is preferable to a rigid commitment to extensive liberalization.