New WRI report urges changes in restructuring of electricity sector


WASHINGTON, June 27, 2002 — A new WRI report released recently urges that the way electricity sectors are being restructured throughout the world should be changed.

Otherwise, social benefits and environmental considerations could be easily discounted as rich and poor countries focus on making their power markets more competitive.

“Electricity reforms need to be changed if social and environmental benefits are not to be swept aside in the global rush toward a market-driven vision of the electric power sector,” said Dr. Navroz Dubash, lead author of the new study, Power Politics: Equity and Environment in Electricity Reform. “If appropriately done, electricity reform is an opportunity to re-direct billions of dollars toward a sustainable and equitable energy future.”

Currently less than half the people living in rural areas have access to electricity. Generating electricity accounts for 38 percent of the global carbon dioxide emissions, thus driving global climate change. It also contributes significantly to local and regional pollution.

The report examines the electricity sector restructuring in six countries: Argentina, Bulgaria, Ghana, India, Indonesia, and South Africa. In these countries, profit alone did not provide enough incentive to reach rural customers and the urban poor. The reforms, often targeted at reducing subsidies and increasing tariffs, have also triggered social hardships and political opposition.

“Decisions made now about how these reforms are conducted will shape development patterns for decades to come. They need not follow a single prescription,” said Agus Sari, director of the Indonesian think-tank Pelangi and a contributor to the report. “Electricity sector restructuring should support, rather than hinder sustainable development throughout the world.”

The report cites a World Bank study stating that by 1998, 33 percent of developing countries had passed new electricity laws, 29 percent had established an independent regulator, and 40 percent had allowed the entry of privately owned power producers.

“The World Bank and other donor agencies could do more to ensure that the environmental implications of restructuring are considered, and that domestic environmental constituencies have a seat at the table,” said Frances Seymour, director of WRI’s Institutions and Governance Program and a contributor to the report. “Their modest efforts in this direction have been constrained by past reputation and a perception that they favor private interests.”

The report finds that electricity reforms were overwhelmingly driven by narrow financial considerations. In order to change the current reform process for the electricity sector, the authors recommend the following:

* Frame reforms to accommodate social and environmental benefits. A narrow focus on financial concerns is too restrictive. Donors such as the World Bank must allow a nationally-driven vision of reform to emerge.
* Structure finance around reform goals, rather than reform goals around finance. Reform processes have catered to a need to attract private capital, but a broader vision and public support could reduce the risks to investors.
* Support reform processes with a system of sound governance. An open, transparent process of reform will make for more politically sustainable results.
* Build political strategies to support attention to a public benefits agenda. Linking the social and the environmental agendas will be a more useful political approach to reform.

“Electricity restructuring is an example of how financial globalization has fueled development paths based on narrow economic considerations,” said Dr. Dubash. “The public interest depends on whether policy-makers are sufficiently far-sighted to steer globalization toward positive social and environmental outcomes.”

The World Resources Institute (http://www.wri.org) is an environmental think tank that goes beyond research to create practical ways to protect the Earth and improve people’s lives.

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