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Source: Small Island Developing States

10 September 2019: The World Bank has published a report that provides an overview of power sector reforms in developing countries since the 1990s, and underscores the importance of rethinking reforms in the sector going forward, based on 21st century policy objectives.

The publication titled, ‘Rethinking Power Sector Reform in the Developing World,’ explains why some countries have made significant progress in providing reliable, affordable and sustainable electricity, while others have not fared so well. It notes that, since 1990, many countries have undertaken market-oriented power sector reforms, including establishing independent regulators, privatizing parts of the power industry, restructuring utilities and introducing competition. However, it states, only a few countries, mainly larger middle-income ones with minimum levels of power sector development and supportive political environments, have been able to fully implement these reforms. More often, countries selectively adopted some of the reforms, leading to a situation where market orientation coexisted with strong state participation in the power sector.

The report explains that the “goal posts have moved” since the 1990s, when achieving energy security and fiscal sustainability was sufficient. However, it notes, more recently, countries have set their sights on more ambitious goals that involve social and environmental components such as achieving universal energy access and decarbonizing the electricity supply in line with SDG 7 (affordable and clean energy) and the Paris Agreement on climate change, necessitating both market reforms and complementary policy measures to incentivize investments.

Recent technological disruptions, the report argues, are leading to a more decentralized model, and innovation is transforming the sector’s landscape through renewable energy, battery storage and digitalized networks.

The report describes three significant policy implications based on the study’s findings, namely: reform efforts must be shaped by the political and economic context of individual countries; reform efforts should be tailored towards achieving desired policy outcomes; and countries must be able to pursue multiple institutional pathways to achieve the desired outcomes.

The report also finds that, inter alia:

  • while the private sector has financed a substantial expansion of generation capacity, its contribution to power distribution has been more limited, and efficiency levels can sometimes be matched by well-governed public utilities;
  • good corporate practices, particularly with respect to human resources and financial discipline, are associated with better utility performance and are more prevalent among private utilities; and
  • cost recovery has been difficult to achieve and sustain, and any progress has been more the result of efficiency improvements rather than tariff hikes.

The report looks at case studies from Colombia, the Dominican Republic, Egypt, Kenya, Morocco, Pakistan, Peru, the Philippines, Uganda, Ukraine and Viet Nam. The project was supported by the World Bank’s Energy and Extractives Global Practice, the Energy Sector Management Assistance Program (ESMAP) and the Public-Private Infrastructure Advisory Facility (PPIAF). [Publication: Rethinking Power Sector Reform in the Developing World] [Publication Landing Page] [Report Overview] [World Bank Brief Summary of Report] [World Bank Press Release] [ESMAP Website for Publication]

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