All Hands on Deck
All Hands on Deck
In the decade to 2003, energy sector reform - as a component of the broader process of economic liberalisation and integration prescribed by the International Monetary Fund and the World Bank -
The case studies of this edition describe how reform is varying the governance, finance, consumer price, function, quality, reach and accountability of domestic power services in Asia. By so doing, reforms review or renew past commitments to technology and fuels, be they principally of finite, renewable, domestic or imported sources. Together, these decisions augur the sector's contribution to public debt, rural development and livelihoods, natural resource consumption and the trajectory of Asia's
For years, the virtues and pitfalls of market-reform have been the subject of debate among international financial institutions and their alternative-seeking critics. Within many reforming countries, however, the public response has been comparatively restricted to one or another aspect of reform even though it affects the daily life of frontline mining and power project-affected communities, every power user or would-be user and a vast number of employees. Experience so far shows that reform raises governance and development issues that require much greater attention from in-country corruption, corporate, and multilateral development bank watchdog organisations; with the support of international environmental NGOs, development co-operation organisations and advocates of renewable energy; climate protection and sustainable development. In lieu of having an impartial umpire, objective oversight without public scrutiny is scarcely a credible goal and 'market objectivity' is a contradiction in terms. Especially in countries yet to begin or cement reforms, civil society collaboration for greater transparency, accountability, participation (1) and independent regulation is a must for the protection of public interests and sustainable development in Asia.
Costing Power and Reform
Rhetorically at least, market reform leads to cheaper power because efficiency results from the competition introduced when power generation and supply functions are split to operate as businesses with profit targets. Thus unshackled, according to the World Bank, "the private sector offers... power at lower cost, especially to consumers with low levels of demand". (2) The charm of the theory gave way to disappointment in Asia where, contrarily in such
'Sweetheart' IPP deals - which first gained currency in the late-1980s and early 1990s -
While private-power became more abundant and more expensive, consumer subsidy reform often maintained or even amplified inequalities in prices and services. The newly revised Indonesian tariff
Rigging the Competition
In Asia, reform has typically aimed for competition among private power generators but even in this very limited form, it has proved elusive. Against all the rules, Orissa's generation and distribution came to be dominated by just two companies. One company dominates the Luzon area of Philippines where three-quarters of power demand resides. In Andhra Pradesh, private producers constrain the freedom of transmission and distribution companies and in those spheres are "moving towards [the] replacement of public sector monopoly [with] private sector monopoly". (12) The Thai system is set to prevent newcomers entering the market and private participation in diverse and smaller-scale power projects in South Korea is unlikely to transpire. (13)
The reverse of competition resulted in Malaysia where privatisation is regarded as "a useful process... to transfer state assets into Party assets and to reward friends, relatives and supporters". (14) Indonesia hopes competition between power generators can rescue its ailing system but will surely be disappointed since privatisation without regulation has so far only compounded opportunities for corruption and inefficiency.
"The IPP experience in Asia offers a good example of ... institutional lock-in", with regulators, advised solely by international consultants who "influence how level the playing field is for different technologies... [and tend] to favour large generating plants. (15)
As a consequence, most three-quarters of the US$93 billion of private investments in Asia last decade went into constructing 286 fossil-fuelled power plants, while the rest went into existing
In the decade that energy has been reformed in the image of 'competitive markets', the world paid well over US$2 trillion in fossil fuel subsidies. (18) Harder to
A Waste of Energy?
New utilities will improve efficiency, the people of Orissa were told a decade ago, but today almost half of the States' power is still wasted. From generation to end-use, ten years after it embarked on reform, Indonesia wastes around a third of the power it generates at a likely cost this year of 31 trillion Rupiah, or around US$3 billion. Even in the face of looming power shortages, rather than tapping this vast resource, Indonesia is encouraged by the World Bank and the ADB to shelve its' efficiency policies in pursuit of US$1 billion in foreign investment annually in bulk new private power plants. Despite initial praise for Thailand's energy-saving programme, the IMF and the World Bank effected its closure via loan conditions that insisted on privatisation and, in effect, the construction of new generation capacity, which drowned the modest options out of the market. South Korean reform is similarly focussed on supply-side restructuring and large-scale privatisation, and so is geared to forfeit
While the costliness of waste has not been a major concern of reforms to date, the cost of labour certainly is. In South Korea, 7000 workers were laid off just to prepare for competition, and a further 30 percent-cut is anticipated with the imminent transfer of ownership of generation companies. (22) Similar, if not higher figures are likely to apply in Indonesia as reforms are resumed. The spectre of job cuts has drawn government assurances, for example, in Sri Lanka and Malaysia, that workers will be retained by the new owners or, failing that, by the state. But neither mass job losses, nor the artificial retention of labour would seem very stable arrangements, and both involve the transfer of substantial financial and social costs to the public sector. Where job cuts really do need to happen, coherent adjustment plans could surely deliver solutions of greater sustainability.
If the purpose of reform were to raise overall, as opposed to selective, efficiency, the need for new power capacity - and hence new private investment, public debt and risk - would be more objectively assessed and much reduced. If every power plant world-wide ran as efficiently as the best technology allows, US$80 billion per year would be saved and there would be "no need to design, finance, build and operate any additional capacity". (23) Asia's new and planned power plants aren't being designed to this level of efficiency, but even prudent management of older models would substantially reduce the need for new ones. Indonesia, for example, currently generates just 40 percent of the electricity its' existing plants are capable of yielding. Had Korea opted for further increasing efficiency and reducing energy intensity, it could feasibly spend "about $8 billion less building and operating new power plants" than it will under current plans. (24) As well as
The 'Trickle-up Effect'
South Korean observers apprehend "a possible leak of national wealth" (25) and they may be right to worry. Orissa owes four times what it did prior to reform
A further drain on the domestic resources of several countries may prove to be the commitments they're making to import fuel for electricity. Thailand for instance, opted to import coal for the consumption of three of it's seven IPPs and Indonesia will begin to run out of coal and oil two decades before its' new and planned power plants will expire. In just ten years, the country will be a net oil-importer, and in twenty, a total oil-importer. From then on it must either pay US$11 billion every year for oil imports" (27) or, if the plants must be closed down early, billions in one-off compensation payments. Korea, if it opted out of plans for new coal power plants in favour of
Power to Adapt
Research abounds on the probable causes and impacts of climate change on human health and livelihood. (30) Though the problem is attributable to the world's heaviest fossil-fuel users - generally OECD countries - the indications are that it will affect people everywhere. World-wide, economic losses due to natural disasters are doubling by the decade and approaching an annual $150 billion. (31) Droughts have already increased in frequency and
Fuelling Climate Change
The prevailing wisdom is that greenhouse gas emissions must be cut 60 to 80 percent from 1990 levels in order to avoid dangerous climate change but still, "with current trends... fossil fuels will supply 90 percent of demand" by 2030. (33) Electricity - the fastest growing use of energy - already accounts for 38 percent of carbon dioxide emissions and virtually all the projected growth in coal consumption world-wide. (34) Asia emits just one tonne of carbon dioxide to North America's nine (35) but its' emissions will almost triple to 2020, assuming current plans prevail (36) for new generation capacity from coal in India, South Korea, Taiwan, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam. Apart from the problems of price, technology concentration, national debt and rural-urban inequality these are likely to entail, they will further commit the region to high outputs of local air and climate pollutants. What's more, the World Bank has applied pressure to remove scarce environmental protections for new mining and exploration in, for example, Ecuador and Indonesia. This exposes communities to the more immediate impacts of land acquisition, subsidence, mine wastes and gas flaring, as well as the plant emissions, of sulphur, nitrogen oxides, particulates, mercury and methane.
By default, power sector reform in Asia is contributing to the problem of climate change
Indonesia's reform programme, which is being aggressively revived following the financial crisis is a case point. With several large coal-fired plants verging completion, emissions from electricity are set to grow despite the availability of cheaper, climate friendlier options that could benefit those not currently served by the established grid. These extra emissions are not the inevitable by-product of economic development, or even the necessity of resources being too scarce for cleaner growth. On the contrary, this development path is the brainchild of years collaboration between government and World Bank technocrats who "worked... to pursue a long-term agenda of investment and reform to... expand capacity based on coal and hydropower... with no effort at assessing available supply options and their full costs". (38)
Korea too has numerous reform choices before it. Increasing efficiency nation-wide would conserve capital and reduce reliance on imported fuel while reducing carbon dioxide and sulphur output by 21 and 25 percent respectively. Or, if restructuring entailed the levelling of taxes, a shift to natural gas from coal could decrease carbon dioxide emissions 9 percent. But if reform favours new power generation fuelled with imported coal, carbon dioxide output would double to 51 million tonnes in 2015. (39)
A decade of international negotiations under the Framework Convention on Climate Change hasn't come close to limiting carbon emissions to levels thought to be safe, but this parallel process of reform has done a great deal to ensure future emissions growth. What's more, the pressure for this particular brand of reform originates from the same OECD countries and international agencies that in more
Spending on carbon sequestration and storage methods is a concession-of-sorts to the seriousness of the climate change problem, but probably represents good money after bad since the
For Public Interests' Sake
According to the World Bank, just 30 percent of all reforming developing countries achieved a reasonable level of regulation. (40) At least according to the World Bank reform 'template', borrowing countries are to establish adequate regulatory processes prior to reform but this prerequisite is sidelined in practice by lender and investor pressure for speedy privatisation. It is clear from Asia's experiences that privatisation without regulation is fraught with problems but, based on the experience of other regions, regulation is unlikely ever to be sufficient under the current model of reform. In Orissa - where a recent review concluded that no benefits from five-years and billions of rupees invested in privatisation-based reform (41) - the
Where it failed even by its' own standards, the shortcomings of reform in Asia so far must be evaluated and understood but World Bank reviews "appear to be based on the sole criteria of achieving financial closure or bringing down... barriers to investment". (44) Power sector reform in the Philippines "is a resounding success in terms of meeting the ADB and World Bank's bottom line [of]... private sector participation, but it is a dismal failure in terms of serving the interest of the public". (45)
The verdict may be yet to be formed in South Korea, Lao PDR, Cambodia, Vietnam, East Timor and the Indian State of Karnataka where promisingly, "the early indications are that some improvement in transparency may be established. (46) But where public funds and public interest are so heavily committed and where corruption has plagued earlier-reformers, transparency is hardly something to hope for - it ought to be assured. Asia's IPP debacle demonstrates that the private sector, like government is prone to inefficiency and corruption when sheltered from public scrutiny, independent regulation and monitoring. It seems evident that merely super-imposing market logic onto established power sectors can't reasonably be expected to solve their inherited crises, let alone to make a success of new rural energy provision, subsidy reform or least-cost planning - for these, real reforms are needed.
As the authors in this edition point out, power touches all walks of life, but public engagement within reforming countries has been wanting. In Karnataka, even the price hikes got by an otherwise alert and vocal civil society. (47) Responses were somewhat livelier in Andhra Pradesh, where price-hikes had opposition parties on one side, the ruling party on the other, farmers' organisations bristling at the implications for irrigation and researchers and campaigners chiming in either as paid protagonists or voluntary antagonists. With the help of a peoples' movement, the price of power had become "a major issue in all elections". South Korean initiatives to unite otherwise disparate groups along the common lines of better policy processes and governance are promising. Orissa's went so far as to actually review power sector reform, with the input of concerned citizens, consumer and employee associations, industry forums and the World Bank. But still, the debate in Asia has mostly stuck to price issues and post-mortems.
The novelty of power sector reforms in some countries and its' opacity in others partly explains the deficiency of public engagement. The implications of reform for ordinary people are often at first not fully appreciated and the exposure of publics to the similar trials of their counterparts abroad is limited or non-existent. Energy issues, at the best of times, are painted and perceived as being too technical for the public to have credible opinions on. The absence of strong consumers' organisations in many countries means "the returns to an individual... from participating in regulatory processes are very small compared to the returns to electricity suppliers". (48)
Striking a reasonable balance of interests through reform and energy planning will require the tapping of in-country expertise to support civil society to engage in planning, monitor implementation and tackle problems through regulatory bodies. Where institutional information disclosure standards are slack, they must be raised and where it is lacking, public know-how must be cultivated - in-country, as well as regionally - since key policy-drivers like the ADB are themselves regional in organisation. Exchange with independent organisations in Africa, Eastern Europe and Latin America can provide valuable comparisons of the problems and applicability of alternatives. NGOs in donor countries can challenge their governments for supporting and financing reforms deficient in accountability or efficiency. International development organisations will need to gauge the compatibility of reforms with development and poverty alleviation objectives and help narrow the discrepancies.
No doubt, the scope and need for international NGO collaboration is great, but the essential basis for appropriate reform remains in-country where only a societal response can effect the change to more rational and sustainable energy systems that better reflect the public interest. Without that, the reform process will continue to be too easily obscured and captured by only the best-resourced and most attentive lobbyists. As the Orissa Review Committee put it so well, "what has taken place in the
1. Prayas Energy Group www.prayas-pune.org