Private Enterprise and Financial Markets > Infrastructure and Financial Markets
Profiles of Power Sector Reform in Selected Latin American and Caribbean Countries
By SDS/ENV (09/99, En)
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Introduction
Since the 1960s, the power sectors of the region have been able to meet increasing local demand by substantially expanding electricity coverage. However, that pattern of development was not based on an economically, financially, and environmentally sustainable model. The debt crisis at the beginning of the 1980s led to the exhaustion of traditional sources of financing and exacerbated a trend of declining energy rates and prices as governments were keen on keeping inflation under control. The impact of this situation coupled with the dearth of incentives for efficiency and the burden of ongoing construction, planned to meet a business as usual demand growth, precipitated a financial crisis in the electricity sectors of most countries. In addition, distortions in energy prices and the tendency to seek self-sufficiency (which restricted interregional trade) were factors that exacerbated the crisis by limiting options and encouraging waste. As with many other casualties of the 'lost decade" this crisis demonstrated that the traditional model of supply based on State owned monopolies and indiscriminate consumer subsidies had run its course.
In response to the crisis Latin American Energy markets experienced an unprecedented transformation during the last decade through one of the world's more drastic liberalization and privatization processes ever. Following the pioneering experiences of Chile, and later of the U.K., several countries restructured their electricity markets to make them more competitive and more attractive to private sector participation, and many more are in the process of doing so. While challenges are big and there are still many unsolved problems, not the least those related with the environmental, social and political sustainability, Latin America already has laid the foundations for the development of its power sector. In the process, it has also set examples at the global scale. In fact, in recent years the region has become a real test case for energy sector reform that are being followed with interest by those countries considering to join the bandwagon.
During the early stages of the elaboration of the Bank's Energy Strategy we though of interest to write a profile for each borrowing country in the region summarizing key information about the power sector and the progress of reform. With the support of consultants we prepared profiles for 17 countries and distributed them among the Bank's energy professionals by the end of 1997. This information proved to be a useful tool for our diagnostic and in supporting Bank's operations in the sector. Nevertheless, the speed of the change is so high that trying to present an updated picture of the progress of reform may be task comparable to that of Sisifo's. In fact, no longer have we completed editing the group of profiles many of them have become obsolete so we kept postponing the publication date that would allow us to reach a wider public. For that reason, we have decided to make available in the Internet as many country profiles as we have updated today, with the compromise to include others as they become available. Also, we will post summary tables that compare important features among countries, and other analysis of interest on power sector reform in LAC been conducted in different sections of the Bank.
The profiles must be considered work in progress; we are very interested in obtaining your feedback on the quality, quantity and usefulness of the information provided as well as on suggestions to improve the profiles.
Information Included in the Profiles
The profiles are organized into eight majors sections. Section I. contains a summary of the key points defining the status of sector reform. It starts with an overview of the countries' power systems, continues with brief descriptions of the status of sector structure, competition, role of the State, regulatory institutions and private sector participation, to conclude with a list of major outstanding issues. Section II. presents a more detailed account of the Legal & Regulatory Framework. It identifies and briefly describes the major pieces of legislation, comments on the role of the State and expands the description of the regulatory entities and their jurisdiction, to end with the scope and jurisdiction of sector planning activities. Section III. presents a more detailed description of the sector's structure, identifies the main participants, degree of private sector participation, targets for privatization and new investments requirements. Section IV. describes the various segments of the electricity market and discusses the degree and scope for competition. Section V. describes the Load Dispatching and Power Pool operation arrangements. Section VI. is devoted to electricity pricing and subsidies. Section VII. discusses sector problems and priorities classifying them into framework and other issues, operating needs and rural electrification and end-use energy efficiency policies and programs. Finally, section VIII. collects a selected list of sources and links to Internet pages.
Acknowledgments
These profiles were prepared by Jaime Millán, Principal Energy Economist at the Environment Division of the Sustainable Development Department at the IDB. During the drafting of the first edition of the profiles, the consultants Suzanne Maia and Alexandra Planas provided valuable assistance doing the legwork and elaborating firsts drafts. The consultant Patricia Mejía assisted in the updating of the profiles and the elaboration of comparative analysis of the reform that will be posted in the near future. The profiles in their various versions were distributed for comments and suggestions to interested professionals in the different operational departments of the Bank. To the extent possible, their contributions were included in the present drafts; they substantially improved the accuracy of the information. Of course, errors and omissions are the sole responsibility of the main author. Special thanks are due to Gonzalo Arroyo and Carlos Trujillo from region II, Jaime Sujoy from Region I and Roberto Manrique from Region III.
Last updated: 02/26/07
