asian electricy reform

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Asian Electricity Reform in

Historical PerspectiveJames H. Williams and Navroz K. Dubash

Electricity and the Asian Developmental State

T

he institutions of Asian electricity are in the midst of an uncertaintransition. For decades, the technical and administrative features ofAsian power sectors closely reflected state-centred approaches to

nation building and development aid. Starting in the 1990s, Asiangovernments began to transform these arrangements along neoliberal lines,consistent with trends in the global economy and the worldwide electricityindustry. After an initial burst of market-oriented changes, in many countrieselectricity reform has slowed or diverged substantially from its earlier course.From origins to outcomes, the trajectory of electricity reform in Asiancountries has reflected the interaction of international and domestic politicaleconomy. The domestic side of this interaction is explored in detail in thecase studies of China, India, South Korea and Thailand in this volume. Thepresent historical overview considers the broad regional context of Asianelectricity, with emphasis on the international forces that have shaped thesectors evolution. It starts with a historical sketch of the electricity industryin Asia during the Cold War, followed by a discussion of the origins ofelectricity reform as a global phenomenon. It then describes the course ofelectricity reform within Asia, with particular attention to the role ofinternational actors such as foreign investors and the World Bank, andcatalytic events such as the Asian financial crisis and the California electricitycrisis. Finally, the case study findings and the international story aresynthesized to arrive at some overarching reflections on the political economyof electricity reform in Asia.

The Commanding Heights

Prior to electricity reform, from roughly 1950 to 1990, electricity provisionin Asian developing countries was an activity dominated by the state.Electricitys central role in industrialization and modern living standardsmade electrification an urgent priority of every national government, while

the technical challenge of meeting the vast potential demand rendered it aheroic undertaking. In most countries, regardless of political system,government was seen as the appropriate vehicle for the construction and


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Pacific Affairs: Volume 77, No. 3 Fall 2004

supported the state-led approach, as did the World Bank and other multi-lateral agencies. In Asia as elsewhere, governments were considered thelikeliest representatives of the broad public interest in making fundamentalsectoral decisions, ranging from rural electrification and technology selectionto tariff-setting and cross-subsidies.

A core feature of the state-led approach in Asia was the establishment ofstate-owned utilities (SOUs) as the basic institutions of the sector. SOUs wereusually organized as vertically integrated monopolies controlling all fourstages of electricity supplygeneration, transmission, distribution and retailservicewithin a given geographical area. SOUs aside, there were importantdifferences among Asian electricity sectors. Some reflected the vastly differentphysical challenges faced by different countries. Differences in population,geography, resource endowment, national income and pre-existinginfrastructure led to wide variations in fuel and technology selection, scaleand location of generating plants, and plans for the expansion andinterconnection of local grids over time. Other distinctions were politicaland institutional in their origins. Differences in Cold War loyalties, economicsystem, development strategy and inherited technical capacity led to widevariations in sector finance, bureaucratic organization, relations with fuelsupply industries, access to private capital and foreign aid, relative prioritiesamong regions and between urban and rural areas, and the engineeringculture of the industry. Most Asian countries had national energy ministriesto conduct central planning and set tariffs, but the locus of power betweencentre and locality, and between ministry and SOU, differed among countries,and within countries over time.

Electricity and National Ideology

Electricity in Asia was more than a practical necessity of industrialization.It also played an important role in national ideology, symbolizing a new typeof social compact between state and citizen. For post-colonial developing

countries, electricity represented the good lifewell-illuminated homes andworkplaces, modern factories and transportation, escape from the drudgeryof manual labourthat had been denied the majority of people in the firsthalf of the twentieth century. In propaganda and popular consciousnessalike, images of a society with universal and affordable electricity becameimportant tropes of state-led development; the conjoining of the electri-fication enterprise to the majesty of the state can be seen in the expressionof Thai peasantsfay luang, the kings electricity. The promise of anelectrified future served governments as a justification for social sacrifice in

the present; for some, electricity was the vehicle carrying an entire packageof industrial policies (see Byrne et al., this volume). Electrification projectsi l i i bli i t t d l b bili ti ( h th


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Asian Electricity Reform in Historical Perspective

completion, symbols of development promises kept; for Nehru, dams werethe temples of modern India.1As one scholar has remarked, power projectswere the spectacular facades upon which the nation watched expectantlyas the image of its future was projected.2Yet the implicit social compact wasdouble-edged, insofar as the definition of electricity as a public goodrepresented a long-term claim of citizens on the state for provision ofelectricity, and a potential source of discontent should this aspiration gounrealized. For better or worse, what were notmain features of the ideologicaldiscourse of Asian electricity until recent years were economic concerns suchas competition and profitability, environmental and social constraints, andgovernance issues such as transparency, accountability and publicparticipation.

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Figure 1. Images of Electrification in Asia

Left:A Chinese propaganda poster of the 1960s, entitled Pointing to the Future,shows Chinas youth guided by a Party cadre and framed by two powerful symbols.

On the hill in the right background is a high voltage electricity transmission tower,symbolizing modernization. On the corresponding hill in the left background is a

white monument to the Maoist shrine Yanan, symbolizing Communist Partyleadership. Source: the IISH Stefan R. Landsberger Collection, available at the Website of the International Institute of Social History, at , last accessed 1 November 2004.

Right:Multi-ethnic team of workers in Malaysia installs switchgear during nationalelectrification. Source: Muzaffar Tate, Power Builds the Nation: the National ElectricityBoard of the States of Malaya and its Predecessors(Kuala Lumpur: National Electricity

Board, 1989).


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The Role of the Superpowers

The history of electricity in Asia is deeply intertwined with the agendas ofthe Cold War superpowers. Asian developing countries in the postwar, post-

colonial period looked to the electricity industries in the US and the SovietUnion for standards of technology and service, and for models of industryorganization and rapid national electrification. But superpower influencewent beyond ideal types. Cold War competition shaped US and Sovietpriorities for their relations with Asia, and the expression of these prioritiesled to direct involvement in Asian electricity sectors through bilateral,commercial and multilateral channels. These influences were, of course,refracted through local circumstances and the agendas of national elites.Nevertheless, what the US and the Soviet Union represented, provided and

demanded with regard to Asian electricity profoundly shaped the sectorstrajectory.American support for state-led electrification grew in part from the US

experience. Although private firms historically played a larger role in USelectricity than in most other countries, the public sector role was alsofundamental.3Half a century of political struggles over the industry fromthe 1880s to the 1930s resulted in an institutional patchwork that reflected abalance between domains of private and public dominance.4Privately-ownedcompanies dominated the supply of technology and fuels, and private

investor-owned utilities (IOUs) controlled most urban electricity markets.In return for monopoly status within their service areas, IOUs were subjectto federal and state regulation. State-level public utility commissionsdetermined electricity tariffs and oversaw planning decisions, while federalagencies constrained utility financial arrangements and political activities.In a significant number of urban areas the utility franchise belonged not toIOUs but to publicly-owned municipal utilities. Rural electrification in theUS resulted largely from the partnership of federal power projects and non-profit rural electric cooperatives.5Finally, it was the federal government that

undertook the great basin-wide hydroelectric projectsthe Tennessee ValleyAuthority (TVA) and Bonneville Power Authority (BPA)that were not onlymajor sources of electricity, but also the cornerstones of federally initiatedeconomic development in poor regions of the country.6The stable utilityconsensus that reigned from the New Deal to the Reagan era was grounded

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3 Thomas P. Hughes, Networks of Power: Electrification in Western Society, 1880-1930(Baltimore:Johns Hopkins University Press, 1983). The private sector was also dominant in Germany and Japan.

4 David E. Nye,Electrifying America: Social Meanings of a New Technology, 1880-1940(Cambridge,MA: MIT Press, 1990); Richard Rudolph and Scott Ridley, Power Struggle: The Hundred-Year War OverElectricity(New York: Harper and Row, 1986).


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in these pluralistic institutional arrangements.7These arrangements wereimplicit in the US model that was widely admired and exported abroad inthe postwar years, though few developing countries had the capacity toduplicate the public-private checks and balances inherent in the Americansystem.

US government involvement in Asian electricity grew out of postwarreconstruction. The rebuilding of war-damaged electrical grids in Europereflected the prevailing Keynesian consensus that government should directinvestment in essential infrastructure. France and Britain nationalized theirelectricity industries in 1946 and 1948, respectively, and Western Europe,with Marshall Plan assistance from the US, soon surpassed prewarproduction.8The success of the state-led approach in European recoveryshaped American thinking as it turned toward promoting economicdevelopment in the former colonial world as a bulwark against communism.Electricity sector assistance to national governments in Asia was a centralfeature of both American bilateral aid programmes and those of theAmerican-dominated Breton Woods international financial institutions.9Fordecades, the largest single activity of the World Bank was power sector lendingto developing country governments.10 Indeed, as historian Hugh Collierobserved, [b]ecause electric power was one of the most important areas oflending from the start of World Bank operations, many of the Banks basicpolicies arose out its experience in this field.11The first World Bank devel-oping country loan, to Chile in 1948, was for hydroelectric dam construction;the first power loan in Asia was to India in 1950, for the Damodar damproject; the first loan to Japan, in 1953, was also for power plant construction(see table 2).12By 1980, South and East Asia had accounted for 40 percentof all power sector lending, with India and Thailand being two of the top sixrecipients worldwide.13In the 1980s, Indonesia was the largest single powersector recipient.14

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7 Richard Hirsh, Power Loss: The Origins of Deregulation and Restructuring in the American ElectricUtilities System(Cambridge, MA: MIT Press, 1999), p. 11-31.

8 Michael J. Hogan, The Marshall Plan: America, Britain, and the Reconstruction of Western Europe,1947-1952 (Cambridge, UK: Cambridge University Press, 1987); Leslie Hannah, Electricity beforeNationalisation: A Study of the Development of the Electricity Supply Industry in Britain to 1948(Baltimore,MD: Johns Hopkins University Press, 1979), p. 329ff.

9 Daniel Yergin and Joseph Stanislaw, Commanding Heights: The Battle for the World Economy(NewYork: Simon & Schuster, 1998), p. 79-80.

10 Hugh Collier,Developing Electric Power: Thirty Years of World Bank Experience(Baltimore: JohnsHopkins University Press, 1984), p. 19.

11 Collier,Developing Electric Power, p. 5.12 World Bank, World Bank Group Historical Chronology, available at the World Bank Web site, at

, lastaccessed 30 August 2004.

13 Collier Developing Electric Power p 19


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The logic of development aid combined with domestic political logic todetermine the essential features of electrification in many Asian countries.In addition to an institutional structure based on central planning and SOUs,most countries sought to construct a physical infrastructure characterizedby a centralized grid and large central-station power plants. In countrieswith hydroelectric resources, large hydro projects often became thecenterpieces of development strategy. The TVA model of hydro-leddevelopment was extremely influential, and American engineers andadministratorsepitomized by David Lilienthal, the liberal visionary whoheaded the TVA and later the Atomic Energy Commissionwere deeplyinvolved in the planning and construction of electricity systems in Asia, fromAfghanistan to Korea, in river basins from the Yangtze to the Mekong to theIndus.15 The legacy of American influence starting in the 1940s remainsprofound to the present day, in engineering culture as well as physical patternsof development. For example, the first serious planning studies of ChinasThree Gorges Project were led by American engineer John Savage, chiefdesigner of the Hoover Dam, in the mid-1940s under Nationalist auspices.16

Chinese engineers trained in the US during this period became the backboneof the project in Communist China.

US involvement in Asian electricity reflected the liberal idealism of theNew Deal and the Marshall Plan, but also served more narrow agendas,including counter-insurgency and the commercial benefit of Americancompanies. Asian developing countries were important business frontiersfor manufacturers of power system equipment such as General Electric andWestinghouse (which had begun selling generators in Asia in the 1880s),and engineering and construction firms such as Bechtel and MorrisonKnudsen. The Export-Import Bank aggressively supported US businesseswith large loan guarantees, notably for nuclear reactor sales to South Koreaand Taiwan.17Aid and commerce were entangled with Cold War strategies;US bilateral aid to South Koreas power sector was a direct consequence ofits front-line position. Sector organizations that were socially progressive inthe US domestic contextfor example, the National Rural ElectricCooperative Association (NRECA)sometimes became instruments of anti-communist foreign policy. The TVA model was described by ArthurSchlesinger as a weapon, that properly employed, might outbid all thesocial ruthlessness of the Communists for the support of the peoples of Asia.18

Electricity assistance through NRECA and USAID was not only driven by______________________

15 Nick Cullather, Damming Afghanistan: Modernization in a Buffer State,Journal of AmericanHistory89 (Sept. 2002), p. 512-537.

16 William C. Kirby, Technocratic Organization and Technological Development in China: TheNationalist Experience and Legacy, 1928-1953, in Denis Simon and Merle Goldman, eds., Science andTechnology in Post-Mao China (Cambridge MA: Harvard University Press 1989)


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anti-communism in an abstract sense, but by very specific counter-insurgencydemands that dictated the characteristics of rural electrification in suchcountries as Thailand, Indonesia and the Philippines.19

The Soviet model of centrally planned electrification also had a significantinfluence on Asian electricity. The State Commission for the Electrificationof Russia (GOELRO) was the first planning body in the Soviet Union,established in 1920. Lenins famous equation Communism is Soviet powerplus the electrification of the whole country placed the highest priority onelectrification, forging a lasting bond between engineering modernizers andthe Party.20The completion in 1932 of the Dnieprostroi hydroelectric project,Europes largest at the time, was widely considered to be the greatestachievement of the First Five Year Plan under Stalin.21 Under planning,exploitation of hydroelectric and fossil fuel resources proceeded rapidly, sothat by the 1950s the USSR was second in the world in electrical capacityand production.22 The challenge of electrical transmission over longdistancesa necessity given the vastness of Soviet territoryled to innovation(for example, Russia still operates the worlds highest-voltage AC transmissionlines) and a robust technical capacity in power engineering. During the ColdWar, electricity was a vital strategic resource; excess generating capacity inthe Urals region enabled the Soviets to conduct electricity-intensiveenrichment and separation of uranium and plutonium needed for nuclearweapons. This lesson was not lost on China, which located its facilities nearYellow River dams.23

The Soviet Unions role in postwar Asian electricity was, like that of theUS, motivated by Cold War competition for friends in the region. The Sovietspromoted state-led development with an emphasis on large infrastructureprojects, and provided an institutional model, power system equipment andtechnical assistance in return for strategic and trade benefits.24Close alliesChina and North Korea replicated many elements of the Soviet model, suchas state-owned utilities, central planning, large labour mobilizations, and anemphasis on engineering education. Soviet engineers and administratorswere involved in electricity system planning and the construction of damsand power plants in many socialist and non-aligned countries, such as India.The USSR had a strong influence on engineering culture in Asia, through______________________

19 Walden Bello et al., Nuclear Power in the Philippines, Review of Radical Political Economics,vol. 15, no. 5 (1983), p. 59.

20 Jonathan Coopersmith, The Electrification of Russia, 1880-1926(Ithaca: Cornell University Press,1992), pp. 151-257.

21 Anne Rassweiler, The Generation of Power: The History of Dneprostroi(Oxford: Oxford UniversityPress, 1988).

22 United Nations, World Energy Supplies in Selected Years, 1929-1950(New York: UN, 1952).23 John Wilson Lewis and Xue Litai, China Builds the Bomb(Stanford: Stanford University Press,

1988) p 125 In the US these processes were conducted at the Oak Ridge and Hanford nuclear facilities


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its technical assistance programmes and education of engineering studentsfrom abroad. Among the Chinese power engineers educated in the SovietUnion were several members of Chinas top leadership, including formerpremier Li Peng. The abrupt collapse of the North Korean electricity sectorfollowing the dissolution of the Soviet Union attests to the importance ofSoviet assistance there.25

Asian Electricity in the Postwar Period

In 1950, Asia accounted for only seven percent of world electricityproduction, and of that more than three-quarters was Japanese (see table1). Excluding Japan, Asian per capita consumption was less than 10 kilowatt-hours per year, one two-hundredth that of the US. Commercial electricity

had begun in Japan in the 1880s, and by 1900 electric lighting companieshad been established in Tokyo and other Japanese cities plus Hong Kong,Shanghai, Manila, Bangkok, Calcutta, Bombay, Madras and Colombo.26Forthe first half of the twentieth century, electrification remained a phenomenonof urban areas, plus certain industries such as mining. Utility franchises weregranted to private companies, both domestic and international, with patternsreflecting colonial relationships.

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Table 1. Growth in Electricity Generation 1929-1990, Selected Countries

Generation Population1929 1950 1990 annual annual

generation generation generation growth rate, growth rate,Country (billion kWh)a (billion kWh)a (billion kWh)b 1950-1990 1950-1990

China 2.1 4.3 590 13% 1.8%India 1.2 5.1 276 10% 2.1%Korea 1.5 0.4 100 15% 1.8%Thailand 0.0 0.1 44 16% 2.6%Japan 13.3 44.9 822 8% 1.0%

Malaysia 0.2 0.9 24 9% 2.6%Indonesia 0.2 0.4 47 13% 2.0%Philippines 0.1 0.6 24 10% 2.7%Taiwan 0.2 1.0 83 12% 2.4%Asia 18.9 59 2172 9% 1.9%US 92 329 3024 6% 1.2%World 249 872 11326 7% 1.8%

Sources:a United Nations, World Energy Supplies in Selected Years, 1929-1950(New York: UN, 1952).b Energy Information Agency, International Energy Annual(Washington, DC: US

Department of Energy, 2002).


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In the postwar period, with a few exceptionsnotably Japan, Hong Kongand Manilaprivate utilities were nationalized and consolidated into large,vertically integrated SOUs (see table 2). In conformity with internationalthinking at the time, these SOUs followed a steady trajectory of expansion

Table 2. Asian Electricity Industry Pre-Reform Characteristics

Year First Worldestablished/ Sector Bank power Structural

Country Main utility nationalized ownership sector loan features

China Provincial 1950 Public 1984, Central govern-electricity Lubuge ment runs largeministries Dam generating plants;

provinces operategrids

India State 1948 Public 1950, Central govern-electricity Damodar ment runs largeboards Dam generating plants;

states operategrids

Korea KEPCO 1961 Public 1981 Vertically inte-grated monopoly

Thailand EGAT 1968 Public 1957, EGAT generationYanhee monopoly; PEADam and MEA distri-

bution monopoly

Japan Nine 1951 Private 1953, Nine regionalregional Kansai vertically companies power integrated

project monopolies

Malaysia TNB 1963 Public 1958, Three regionalCameron vertically

Highland integratedDam monopolies

Indonesia PLN 1950 Public 1969, Vertically Jakarta integrateddistribution monopoly

Philippines NPC 1960 Public and 1957, Binga NPC large genera-private Dam tion; Meralco

private distribu-tion monopoly

Taiwan Taipower 1945 Public 1968 Taipower

monopoly ongeneration and

i i


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in generating capacity and electricity access. Under state leadership, by 1990Asian electricity production had grown by a factor of 40, reaching 20 percentof the world total.

Neoliberalism and Electricity Reform

The origins of electricity reform lie in the oil shocks and economic malaiseof the 1970s, and the neoliberal revolution that followed. In a decade,criticism of Keynesian policies and championing of free markets movedrapidly from a few academic citadels and conservative think tanks into con-crete policy under the Reagan and Thatcher administrations. Deregulation,privatization, free trade and unrestricted capital movement moved into themainstream of political thought, embraced by Democrats and Labour as

well as their conservative opponents. Departing drastically from establishedNew Deal and social democratic traditions, these neoliberal policies becamethe framework of the new globalized economy that arose at the end of theCold War.

The New Global Economy

In the 1980s, the developing world was battered by the collapse of thepetrodollar-driven lending boom of the previous decade. The consequent

debt crisis was met by demands from industrialized country creditors foreconomic policy reform.27Public international financial institutions such asthe World Bank and the IMF, once champions of state-led development,came to advocate and enforce a neoliberal solution that focused on shrinkingthe state and unleashing market forces. Economy-wide liberalization wascoordinated through the vehicle of structural adjustment loans (SALs). Suchloan-linked policy persuasion exploded over the course of the 1980s, fromseven percent of World Bank lending during 1980-82, to about 25 percentbetween 1984 and 1992.28By 1990, the policy agenda associated with SALs

had converged to a short list: sound macroeconomic management; removalof barriers to foreign investment; privatization of state enterprises; andderegulation to promote competition. This list was dubbed the WashingtonConsensus, reflecting both the ultimate origins of the agenda and thehomogeneity of the policy prescriptions being offered to developingcountries.29

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27 Stephan Haggard and Robert R. Kaufman, The Politics of Economic Adjustment: International

Constraints, Distributive Conflicts, and the State(Princeton: Princeton University Press, 1992).28 Devesh Kapur, John P. Lewis and Richard Webb, The World Bank: Its First Half Century,vol. 1

(Washington, DC: Brooking Institution Press, 1997), p. 520. Adjustment lending peaked at over 50


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The Washington Consensus approach aroused strident criticism andopposition. Civil society groups, NGOs and even United Nations organi-zations challenged it as a cookie-cutter application of economic orthodoxy,with little regard for the human and environmental consequences.30

Moreover, adjustment lending was accused of undermining democracy byshifting government accountability from domestic constituents in the globalSouth to donors and creditors in the industrialized North. Perhaps notsurprisingly, the controversy surrounding SALs came to absorb adisproportionate amount of time and nervous energy of the World Bankssenior management.31

Neoliberal Experiments in Electricity

The electricity sector was not among the early targets for neoliberal reform,since acceptance of the public utility approach was widespread. However,developments in the US, the UK and Chile led to a global revolution in theindustry. As a result, by the early 1990s, policy prescriptions for Third Worldelectricity sectors were well aligned with the Washington Consensusmainstream.

The first dramatic changes occurred in the US. The mid-century Americanelectricity modelregulated monopolies with tariffs based on cost ofservicebegan to unravel in the 1970s. Oil price shocks, the problems of

nuclear power, and the emergence of the environmental movement resultedin public distrust of utilities and fractured the longstanding utility consen-sus.32The passage of the Public Utilities Regulatory Policies Act (PURPA) in1978, which required utilities to purchase privately generated electricity fromfacilities they did not own, signalled the beginning of the end of the oldmodel. PURPA was intended to spur development of renewable energy re-sources and encourage energy efficiency.33But by creating a proto-marketin wholesale power and spawning an industry of independent powerproducers, PURPA undermined a key economic argument for the traditional

modelnamely, that electricity utilities are natural monopolies.34

By the late1980s, following deregulation in airlines, banking, telecommunications andnatural gas, a potent political convergence in favour of electricity deregulationdeveloped between large industrial consumers (who wanted cheaper powerthan nuclear-indebted utilities could provide) and merchant generators (whocould produce inexpensive power from natural gas turbines and wanted to

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30 Giovanni Andrea Cornia, Richard Jolly and Frances Stewart, Adjustment with a Human Face

(Oxford: Oxford University Press, 1988); Paul Mosely, Jane Harrigan and John Toye, Aid and Power:The World Bank and Policy-Based Lending(London: Routledge, 1995).

31 Kapur et al.,First Half Century, p. 517.


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sell it). Attuned to the new thinking, economists produced blueprints forcompetitive electricity markets.35Under these influences, the Energy PolicyAct of 1992 was passed, enabling the creation of wholesale power markets.The question of whether and how to deregulate was left to individual statesto decide.

It was Chile and the UK, however, that provided the first global models ofelectricity reform. Driven partly by ideology and partly by a desire to reducestate expenditures, Pinochets Chile (advised by University of Chicagoeconomists) corporatized its state-owned electric utility in 1981, restructuredthe industry in 1982, and sold most of it to private investors starting in 1985.36

In 1990, the UK took an unprecedented step toward full wholesalecompetition.37Instead of the traditional method of dispatchbringing powerplants on line in order of increasing cost of productionthe UK establisheda power pool in which generators made bids into the market.38The resultwas an astonishingly complex system that attempted to balance competitionwith reliability and consumer protection. Despite experiencing problemsfrom the outset, for several years the UK power pool was the most widelyemulated global model of competitive wholesale market reform. Both Chileand the UK also introduced a form of retail competition known as directaccess, in which large consumers were permitted to purchase electricitydirectly from a generator.

The Chile and UK experiments were radical. Before these countriesinitiated their reforms, there was near unanimity in the electric power worldthat transaction costs and technical requirements made competitionunfeasible. UK reformers admit that even as they promoted competition,they had no clear idea of how competitive structures should be established.39

Instead, in both countries, reforms were driven by an ideological commitmentto private enterprise, amplified in the case of the UK by Prime MinisterThatchers desire to make changes in the industry that would break thepower of the British coal miners union.40

Electricity Reform and Developing Countries

The decade of the 1990s saw a global stampede toward neoliberalelectricity reform. Country after country experimented with variouspermutations of privatization and competitive markets. In 1998, the World

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35 Paul Joskow and Richard Schmalensee, Markets for Power: An Analysis of Electric Utility Deregulation(Cambridge: MIT Press, 1985).

36 Tooraj Jamasb, Reform and Regulation of the Electricity Sectors in Developing Countries,

DAE Working Paper WP 0226 (Cambridge, UK: Cambridge University, August 2002), p. 60.37 Patterson, Transforming Electricity, p. 78.38 R.W. Bacon, Privatization and Reform in the Global Electricity Supply Industry, Annual Review


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Bank produced a scorecard that described the rapid movement toward

market reforms in developing country power sectors (table 3).Why did the model forged in the UK and Chile spread so rapidly to the

developing world? Industrial countries such as the UK already had viablestate-run electricity systems, but hoped the rigours of competition wouldwring out additional efficiency gains to make the country more economicallycompetitive. In Chile, the power sector was also functional, and privatizationwas seen as a solution to public debt. In much of the developing world,however, both the conditions and the needs were different. In the 1980s,developing country electricity sectors faced an international environmentmarked by high fuel prices, high inflation and high interest rates. Utilitiesfrequently suffered from high transmission and distribution losses, lowefficiency and plant availability, intermittent service and poor power quality.Poor financial performance was also common, as measured by low rates ofreturn and self-financing ratios. Electricity tariffs often remained constantor fell, while fuel and other costs grew, putting utilities into a downwardfinancial spiral.41

Yet sector performance, and the nature of the problems faced, variedwidely by country and region, as indicated by table 4. In East and SoutheastAsia, the challenge was often for capacity to keep pace with economic growth.In South Asia, electricity systems were dysfunctional in many ways, and calledout for sound administration. In South Asia and Africa, vast portions of thepopulation did not have access to even an ill-functioning electricity system.Neoliberal electricity reform was never designed specifically to deal withthese problems, except as a matter of faith that the invisible hand wouldsolve them. That the model ascended to the status of a new orthodoxy withina decade had less to do with the model itself than with the struggle forfinancial resources in developing countries, and the array of forces thatsupported the new approach.

Table 3. Developing Countries Taking Key Reform Stepsin the Power Subsector, 1998 (sample of 115)

Pass a new Independent

electricity Establish power Privatize PrivatizeCorporatize law regulator producers Restructure generation distribution

51 38 33 46 40 24 21

(44%) (33%) (29%) (40%) (35%) (21%) (18%)

Source: Energy Sector Management Assistance Program (ESMAP), Global Energy SectorReform in Developing Countries: A Scorecard, ESMAP report 219/99 (Washington, DC:World Bank, 1999).


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International development banks and the IMF played a major role instrategizing, legitimizing and even compelling the electricity reform wave.By the early 1990s, development banks sent strong signals that they wouldno longer be able to provide the financing to expand electricity capacity indeveloping countries at projected rates. To meet its electricity needs, the

Third World would have to turn to the private sector. The banks becameextremely reluctant to provide loans for electricity systems with a poorfinancial record, or to improve the performance of public utilities. In 1993,the World Bank put in place a new power sector lending policy that formalizedthis reluctance, making electricity loans subject to conditions that wouldlead them down the path of Chile and the UK. To obtain World Bank money,countries would now have to establish regulatory regimes; commercializeand corporatize the electricity sector; permit foreign ownership; andencourage private investment.42This policy shift was echoed by the Asian

Development Bank in 1994.43Development bank prodding alone likely would not have produced such

a stampede effect, however, had it not intersected with other elements ofthe great economic boom that Joseph Stiglitz has dubbed The RoaringNineties: new commercial interests, aggressive persuasion by Northerngovernments, and unprecedented capital flows.44All of these elements had

Table 4. Electricity Sector Performance Indicators,Selected Asian Countries, 1987

Generation Total system Consumers Rate of

Country per capita (kWh) losses (%) per employee return (%)Korea 1,906 6 292 15Malaysia 983 16 84 10Thailand 567 10 92 11China 465 9 118 6Philippines 408 17 n/a 10India 273 24 n/a 4Pakistan 227 25 38 12Sri Lanka 165 16 51 8

Bangladesh 56 37 39 2Source:Jose R. Escay, Summary Data Sheet of 1987 Power and Commercial Energy Statistics for100 Developing Countries(Washington, DC: World Bank, March 1990).

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42 World Bank, The World Banks Role, pp. 55-76.

43 Asian Development Bank, Bank Policy Initiatives for the Energy Sector(Manila, Philippines: AsianDevelopment Bank, 1994).44 Joseph Stiglitz, The Roaring Nineties: A New History of the Worlds Most Prosperous Decade(New


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specific manifestations in the electricity sphere. US deregulation ledestablished utilities, merchant generators and oil and gas companies to lookfor power sector opportunities overseas; liberalization in Europe and Australiafurther swelled the ranks of transnational electricity corporations. Thisresulted in an international rush for electricity market share, accompaniedby a burst of corporate mergers and buyouts.45Electricity transnationals sawgreat opportunities in developing countries, where rapid projected growthin electricity capacity contrasted favourably with flattening demand growthin the industrialized world, and high rates of return beckoned.46The majorobstacles to exploiting these markets were public monopoly ownership ofelectricity and electricity laws that maintained the sector in public hands.Government agencies such as USAID, the Treasury Department, and theExport-Import Bank joined the development banks and the IMF inencouraging developing country governments to revise their legalframeworks to open the electricity sector to foreign investment andownership.47

Domestic forces were also important. Privatization appealed togovernments needing quick infusions of capital to address fiscal crises.48Inmany countriesKorea, Thailand, Taiwan, Argentinathe process ofdemocratization replaced statist military leaders with new liberal businesselites who not only believed in markets but saw reform as a way of breakingdown old patronage networks. But the ultimate engine of The RoaringNineties was vast capital flows, often short-term and speculative in nature,that had been liberated by new trade laws and financial market deregulation.49

Once open to these flows, developing country electricity sectors experiencedboth the rapid rise and sudden fall of the new global bubble economy. Asfigure 2 shows, private investment flows to electricity grew from negligibleamounts in the 1980s to tens of billions of dollars per year by the mid-1990s.Asiaespecially East Asia, and to a lesser extent South Asiareceived asizeable portion of these flows (for example, 52 percent in 1995 and 33percent in 1997). By the peak in 1997, private investment flows to developingcountry electricity sectors were over US$40 billion annually, rivalling all publicmultilateral finance for all sectors combined.

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45 EIA, Privatization and the Genesis of the Multinational Power Company, in Privatization andthe Globalization of Energy Markets(Washington, DC: U.S. Department of Energy, 1996), pp. 37-55.

46 EIA, Multinational Power Company, p. 37.47 Greg Palast,Democracy and Regulation(London: Pluto Press, 2003), pp. 162-183; Brendan Martin,

In the Public Interest?: Privatization and Public Sector Reform(London: Zed Books, 1992), pp. 57-83; Stiglitz,

The Roaring Nineties, pp. 202-268.48 Alfred Schipke, Why Do Governments Divest?: The Macroeconomics of Privatization(New York:Springer-Verlag, 2001), pp. 1-7.


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After 1997, the flood receded rapidly. In the years that followed, investmentdeclined nearly to pre-1990 levels. The course of electricity reform in Asia isclosely tied to this narrative of boom and bust.

Electricity Reform in Asia

Electricity reform in Asian countries has varied widely in the timing, scopeand sequence of changes (see table 5). In the region as a whole, reform has

undergone three stages, which have followed three important developments:the widespread introduction of independent power producers (IPPs) in themid-1990s, the Asian financial crisis of 1997-98, and the California electricitycrisis of 2000-2001. Investment conditions in the industry and the course ofreform itself were profoundly affected by these events.

The IPP Fiasco

In the early 1990s, Asian governments worried that power shortages wouldsooner or later undermine economic growth. Unfortunately, this concernwas usually framed in terms of whether state utilities could build sufficientgenerating capacity; more complete analysis might have revealed that much

Figure 2. Private Investment in Developing World (Non-OECD)Electricity Sectors

Source:World Bank, Private Participation in Infrastructure Database, available online at theWorld Bank Web site. at http://ppi.worldbank.org/; data in this table accessed 1 July 2004.


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in a context of decaying infrastructure and mismanagement of thedistribution end of the industry (see Kale, this volume).

Rising concern with generating capacity coincided with warnings fromthe development banks that countries must turn to private sources of capitalfor their power sector needs. Aware of phenomenal economic growth rates

in Asia, capital was quite willing to oblige, as figure 2 indicates. As soon asAsian countries completed their enabling legislation, IPPs rushed to bid on

Table 5. Reform Chronology, Selected Countries

Country Key reforms Year

China Electricity law 1995State Power Corporation (SPC) created 1997IPP law 1997SPC breakup into 5 GENCOs, 2 GRIDCOs 2002Independent regulator (SERC) created 2002

India Electricity Act (1948) Amendment 1991IPP law 1992Independent regulator law 1998Orissa distribution privatization 1998Electricity Act (2003) 2003

South Korea KEPCO privatization plan (IMF agreement) 1998Restructuring and privatization plan 2000KEPCO breakup into 6 GENCOs 2001Privatization postponed 2002Privatization halted 2004

Thailand Electricity law amendment 1992Privatized subsidiary (EGCO) 1994IPP law 1996EGAT privatization plan (IMF agreement) 1998

Power pool and restructuring plan 2000Power pool abandoned 2003National Champion model 2003Privatization postponed 2004

Malaysia Electricity law 1990TNB corporatization 1990TNB partial privatization 1992IPP law 1994Power pool and restructuring plan 1997

Power pool abandoned 2001Sources:Case studies, this volume; Jamasb, "Reform and Regulation of the ElectricitySector";Jaafar,"Greener Energy Solutions."


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example, long-term power purchase obligations simply entered the utilitiesbooks as long-term debt. By further weakening the finances of public utilities,the IPP experiment hastened the advent of the full neoliberal reform model,featuring privatization and competitive power markets.

After the Asian crisis, high levels of public debtwhether a function ofunfavourable PPAs or simply accumulated through years of operating lossesand reckless borrowing (in the case of South Korea for nuclear power)made electric utilities prime targets for restructuring. Power sectorrestructuring and use of privatization sales to buy down debt became acondition of IMF and World Bank adjustment lending programmes; thisprocess is described for Thailand and South Korea in this volume.52In manysmaller countries, a hurried-up restructuring process was facilitated by rapidlyundertaken studies conducted by highly paid international consultants,including the Enron-tainted Arthur Andersen.

In China and India, whose economies were less affected by the Asiancrisis, reform was a more complex process. India and China were able toexercise greater latitude vis--visIPPs than their smaller neighbours. TheMaharashtra state government, backed by the national government, voidedthe Dabhol contract. In China, which had a power surplus for several yearsafter the Asian crisis dampened demand, take-or-pay IPP contracts were oftennot honoured, to the consternation of investors.53When they turned to sector-wide reforms, the Asian giants debated and enacted reforms at the nationallevel, but as a consequence of their size and federal systems, they conductedexperiments primarily at the sub-national level. In India, unbundling of thepublic utility and privatization of distribution was initiated in one state,Orissa, as part of a larger World Bank economic restructuring programme.In China, limited wholesale competition in generation was attempted in fiveprovinces and the city of Shanghai. The results of these initial experimentswere not promising.

The period following the Asian crisis was one of currents and counter-currents. On the surface, commitment to the neoliberal orthodoxy ofprivatization and markets became as pervasive as commitment to the state-led model had once been. Developmental goals that had characterized thepost-colonial period, such as universal access, became incidental to the goalof operating electricity as a commercial enterprise. But countervailingforces were also at work, not least a precipitous decline in foreign investment,and growing labour and public opposition to various features of the reformpackage.

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52 Government of Thailand, Letter of Intent to IMF, (14 August 1997), available at the IMFWeb site, at , last accessed 1 September 2004.

53 Phili A d S d d St h D R f f Chi El t i P I d t


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The California Electricity Crisis

In 2000-2001, manipulation of Californias newly deregulated electricitymarket resulted in blackouts, skyrocketing prices and utility bankruptcies,

bringing an economic superpower to its knees.54

The California crisis shockedthe world and halted the momentum of electricity reform in many locales.In 1996, California had taken bold steps toward a fully competitive electricitymarket, requiring its former utility monopolies to divest most of theirgenerating capacity and purchase power through a pool in which priceswere based on bidding. These arrangements proved highly vulnerable tomarket manipulation. Taking advantage of already tight electricity suppliesin the fall of 2000, Enron and other suppliers created artificial scarcity inorder to force up spot market prices.55Physical withholding of generation,

strategic bidding and the creation of phony congestion on transmission linesled to rotating outages and drove wholesale prices to ten times the averageprice of previous years, with peaks over one hundred times the previousaverage.56By January 2001, Californias largest utility was bankrupt, and thesecond largest averted bankruptcy only by a state bailout. Soon the powerpool was disbanded, electricity rates to consumers were raised, and the statetook over buying power on behalf of its utilities, purchasing long-term supplycontracts at exorbitant prices.

For Asian governments, the California crisis offered harsh lessons in the

political economy of electricity reform. One was that regardless of thetechnical and financial resources available to create well-functioning markets,the political power of vested interests could produce fatal distortions.Economists have argued that Californias crisis originated in a flawed design,with inadequate forward contracting and retail price caps being principalculprits.57However, flawed market design was itself a consequence of politicalcompromise among the key playerslarge industrial consumers, merchantgenerators and utility companieswithout which deregulation would nothave happened. For example, Californias politically powerful utilities refused

to support deregulation until a mechanism was provided for them to recoverUS$20-30 billion in stranded costsinvestments that would be uncom-petitive in the new market.58The deal struck fixed retail rates and allowedutilities to pocket the difference between the retail rate and wholesale prices,which were expected to decline under deregulation. This turned out to be a

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54 An excellent account is Timothy P. Duane, Regulations Rationale: Learning from theCalifornia Energy Crisis, Yale Journal on Regulation, vol. 19, no. 2 (summer 2002), pp. 471-540.

55 New Tapes Reveal More Evidence of Power Scheming by Enron, Los Angeles Times, 15 June

2004, C2.56 Paul Joskow, Californias Electricity Crisis, Regulatory Policy Program Working Paper RPP-

2002-05, p. 1. Spot market prices peaked at US$3800 per megawatt-hour; see Duane, Regulations


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fatal assumption. Wholesale prices instead spiked and utilities were forcedto absorb losses rather than pass the costs on to consumers.

Another lesson was the potential of deregulated electricity markets formanipulation by hostile political forces, with devastating politicalconsequences. With spot markets out of control and utility debt mounting,Californias Democratic governor appealed to the Republican Bush admin-istration to intervene with the Federal Energy Regulatory Commission (FERC)to impose regional wholesale price caps. The administration steadfastlyrefused. Only the threat of pending legislation in Congress brought admin-istration action; FERC finally issued regional price caps in June 2001,returning wholesale prices to pre-crisis levels.59 By that time, irreparabledamage had already been done. California taxpayers and ratepayers facedmore than US$30 billion in overcharges, bailouts and overpriced long-termcontracts.60Though he had not presided over deregulation and receivedlittle help from Washington, Governor Gray Davis paid a severe politicalprice. His handling of the electricity crisis has been repeatedly cited as themain argument for his unprecedented removal from office by recall electionin October 2003; the other commonly cited argument, his stewardship overa US$15 billion budget deficit, was at least partly a fiscal consequence of thecrisis.61

Electricity Reform After California

For proponents of the neoliberal model, Californias problems demon-strated the need for staying the course and hewing more closely to reformprescriptions. A World Bank report warned developing countries that eventsin California should not be taken as an excuse to back away from a substantialand basic reform of the sector that almost always requires restructuringand privatization, even while acknowledging the need for caution inimplementing electricity markets.62Subsequent events were to reinforce themessage of caution emanating from California. In the wake of California,

the US electricity industry went into a severe financial tailspin, experiencinga precipitous fall in stock values and credit ratings.63 In the fall of 2001,Enron, the worlds leading corporate promoter of electricity deregulation,collapsed in an accounting scandal. Many other top electricity firms declared

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59 Duane, Regulations Rationale, pp. 532-533.60 State of California, Attorney Generals Energy White Paper: A Law Enforcement Perspective On The

California Energy Crisis(Sacramento, CA: State of California, April 2004), p. 6; Foundation for Taxpayerand Consumer Rights, How Deregulation Let the Power Industry Steal $71 Billion From California(Santa

Monica, CA: FTCR, 17 January 2002), p. 2.61 Phillip Matier and Andrew Ross, Energy crisis pulled plug on Davis, San Francisco Chronicle,

27 July 2003, A19.


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bankruptcy, sold assets, fired executives or were criminally indicted.64Atpresent, industry financial strategies have returned to a more conservative,pre-Enron model.65Further deregulation remains in limbo at the federallevel, and in the majority of states.

Electricity liberalization in other advanced economies produced mixedresults. Several high-profile competitive experimentsincluding Norway andthe provinces of Ontario and Albertarequired government imposition ofprice caps and other measures to stabilize prices and curb market power.66

In 2001 the vaunted UK power pool that served as the worlds most frequentlycopied model for wholesale markets was abandoned in favour of a bilateraltrading scheme. Even in locales that claimed efficiency improvements underderegulationPennsylvania and New England in the US, and parts ofAustralia and Western Europeit remained unclear whether marketmechanisms would produce the necessary long-run investment in reservemargins and transmission capacity to ensure reliability; this concern washighlighted by major blackouts in North America and Europe in the latterhalf of 2003.67By 2004, reform experience had demonstrated a variety ofconditions that do not favour satisfactory competitive outcomes, includingsmall geographical area, fragmented markets, rapid demand growth, pre-existing capacity constraints, limited sites for new generation, lumpycapacity, hydroelectric dominated systems and inadequate regulation.68Manydeveloping countries share one or more of these characteristics.

In Asia after the California crisis, these developments, in combinationwith rising domestic opposition, undermined the neoliberal model and itsfocus on competition and privatization. By late 2001, plans for power poolswere being abandoned as too risky in Thailand, Malaysia and China; in theunderstated comment of one Malaysian scholar, recent unpleasant eventsin economies that have adopted the electricity pool mechanism have causedthe Government to shelve its earlier plans . 69A more recent casualty hasbeen privatization, postponed in Korea, Thailand and Taiwan in 2004; labouropposition has been a key factor (see this volume). Without wholesale com-petition and privatization, the rationale for industry restructuring hasdiminished; some countries that have divided their state utility into separate

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64 Mitchell Benson, Energy Traders: Worst is Over? Wall Street Journal, 29 May 2002, A6.65 Julie Creswell, Power Failure,Fortune, 9 December 2002, p. 187.66 Chi-Keung Woo, Debra Lloyd and Asher Tishler, Electricity Market Reform Failures: UK,

Norway, Alberta and California,Energy Policy, vol. 31, issue 11 (September 2003), pp. 1103-1115.67 John Casazza and George Loehr, eds., The Evolution of Electric Power Transmission under

Deregulation: Selected Readings(Piscataway, NJ: IEEE, 2000); Eric Lerner, Whats Wrong with the Electric

Grid, The Industrial Physicist, vol. 9, issue 5 (October/November 2003), pp. 8-13.68 Maurice Huneault, Electricity Deregulation: Doubts Brought On by the California Debacle,

IEEE Canadian Review(Spring 2001), p. 26.


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companies, such as Korea, may eventually rebundle.70In much of Asia, thecurrent trend appears to be toward managed markets with regulated tariffs,in a sector that is operated commercially but remains state-led.

In an internal review completed in 2003, the World Bank determinedthat the empirical results of private sector-led electricity reforms were poor.71

Asia as a whole performed particularly badly: investors had fled South Asia,and East and Southeast Asia were left with a legacy of financial and politicalrisk. The review concluded that there is no universal blueprint for theelectricity sector. An emerging international consensus has de-emphasizedthe Washington Consensus focus on privatization, competition and capacityinvestment in favour of such general goals as improvements in service,regulation, and management of the distribution sector, and a more pluralisticapproach toward the policies to achieve these goals. But in Asia, the keydevelopment is that the foreign investment that drove earlier reforms is nolonger present. State utilities are off the auction block, governmentschastened by the IPP experience of the 1990s offer less generous deals, andthere is little investor interest in the messy, low-margin business of electricitydistribution. While the language of neoliberal reform remains pervasivenotably in the Indian Electricity Law of 2003it appears that for the moment,the evolution of the sector will be more responsive to local capital and localconcerns.

Conclusions

International capital and ideology have played a dominant role in definingthe institutional arrangements of Asian electricity since the colonial period.The transition from a state-led development model to one emphasizingprivate ownership and competitive markets was less a targeted response tospecific conditions in any Asian countrys power sector than a reflection ofthe Washington Consensus belief that the private sector should be primaryand the state secondary in all areas of the economy. To be sure, Asian

countries were not passive participants in the rapid embrace of neoliberalreforms and their subsequent fate. Worried by national fiscal crises and debt-burdened state utilities, and prompted by multilateral donors, Asiangovernments initiated tectonic changes in sector laws and institutions in thepursuit of international capital. Susceptibility to international pressure hasbeen in part a function of a countrys place in the international order, asillustrated by the case studies in this volume. The Asian giants India andChina have had more latitude to withstand the prodding of donors andmultinational corporations, and to conduct reform experiments at the______________________

70 Poten and Partners, LNG in World Markets(June 2004).


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subnational level, than have Thailand and South Korea.At present, the orthodox neoliberal model of the 1990s has lost its

momentum, due less to political opposition than to failings on its owneconomic terms. Foreign investment has been reduced to a trickle and con-fidence has been bruised by experiences in Asia (the IPP fiasco, resentmentof IMF and World Bank conditions) and internationally (California and otherworrisome reform outcomes). Competitive electricity markets have recededto the distant horizon. Yet the old state utility model is also gone; laws,institutions, financial arrangements and public expectations have all changedtoo much in the last decade to permit reversion to pre-1990 conditions. Formuch of Asia today, the situation is a hybrid featuring managed markets,regulated tariffs, and commercially oriented, partially privatized regionalutility monopolies. For better or worse, it continues to be the state, not themarket, that holds the sectors commanding heights.

Differences in the domestic political economies of Asian countries haveproduced quite different reform trajectories. Many countries were internallysplit among neoliberals and defenders of the state model, each motivatedvariously by ideology, constituency politics and financial gain. Greacen andGreacens study of Thailand illustrates how this struggle has led to an explicitrejection of neoliberal reform in favour of something that might better becalled neo-nationalist reform. Byrne et al. inform us that South Korea, failingto find solutions to its energy conundrums in the neoliberal model, has putits reforms on indefinite hold. Kale describes how India has passed a sweepingneoliberal electricity law at the national level (albeit with implementationpolitically deadlocked), despite having, in many ways, the least salutaryexperience with reform to date. Where all this leads in the future will be upto individual Indian states to decide. As the study by Yeh and Lewis indicates,China, of all countries in Asia, appears to have suffered least from externalpressure to adopt a cookie-cutter style reform, and instead to have fashionedpolicies reflecting the state and the Partys attempt to reconcile their manycompeting interests in the sector. If these policies reflect a Western form buta Chinese essence, that at least is a time-honored approach in China.

The case studies illustrate two serious dilemmas in the political economyof Asian electricity reform. In Asias poorer countries there is a continuinglinkage between the problem of increasing utility revenues to sustainablelevels and the problem of improving access and service; the public will notlong tolerate having cost recovery performed on their backs without acommensurate improvement of service. The problem of electricity subsidiesin India and the significant role these played in Indias 2004 elections, inwhich the ruling party was unexpectedly removed from office, underscoresthis point. In the richer and faster growing countries, a worrisomedevelopment is the blurring of public and private interests, quite opposite


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concentrated control in very few hands, and those hands are often quiteclose to the levers of political power, as in the case of Chinas Li Xiaopeng.Thai Prime Minister Thaksins semi-privatized national champion modelfor EGAT raises the prospect of a firm that wears a private hat while engagingin speculative business abroad, knowing that by wearing its public hat it canpass potential losses along to captive ratepayers at home. Such arrangementsalso threaten to extend domestic inequalities to the regional level. BothEGAT and Chinas new power corporations are looking to finance or builda series of large dams in the Mekong region that would mainly benefitconsumers and shareholders in Bangkok and urban China, while the ruralpoor living in the reservoir areas in Vietnam, Laos, Cambodia, Burma andChinas interior would suffer the consequences of displacement andenvironmental damage.

In most Asian countries electricity reform has neither prioritized nordelivered improvements in environment or social equity, reflecting thepredominant focus on finance. For such public benefits to be consistentlyincorporated in policy will likely require an openness to public input, and ademocratization of sector decision making, that has not been seen to date.To the extent that the public has been a partner in the reform process, it hasdone so at its own invitation, in the form of protest movements like thosesurrounding Enron/Dabhol in India and the Prachuab Kirikhan IPP projectsin Thailand, and the anti-nuclear movement in South Korea. Whether thesemovements remain ad hoc success stories of issue-based interventions, orbecome the foundations of democratic institution building in electricitypolicy, is an open question. In a related vein, regulatory arrangements thatallow the public to hold all utilitieswhether publicly or privately ownedto high standards of transparency and accountability are scarce. Given theweaknesses in the supporting environment that effective regulationrequiresnot only formal legal foundations but an adversarial tradition thatincludes competent and empowered public advocatesthis may remain anAchilles heel of reform for years to come. The involvement of organizedpublic interest groups in the regulatory process in the Indian state ofMaharashtra is a hopeful development in this regard.

As hopes of a neoliberal miracle cure fade, the challenges facing Asianelectricity sectors remain enormous. Where will trillions of dollars ofinvestment to meet future demand come from? How will more than a billionpeople escape energy poverty? How can demand be met without vastlyincreasing greenhouse gas emissions? Since the 1980s, the neoliberalresponse to all these questions has revolved around sending the correctmarket signals by getting the prices right. This accords with the faith ofeconomists, but the experience in Asia to date demonstrates the difficultiesthat arise when this faith is used too literally as a guide to policy. Naively


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dubious entanglements of public and private interests, and failed by oversightand design to promote the general welfare. Despite being aimed at attractinginvestors, they have not gained investor confidence. Harnessing market forcesmay be one of the tools used to improve the functioning of Asian electricitysectors, but this is likely to be sustainable in the long run only with parallelimprovements in social and state capacity. One glimmer of hope at presentis the absence of hegemonic models. With the public power model a fadingmemory, and the neoliberal model withering on the vine, Asian countriestoday face both fewer certainties and more possibilities regarding theinstitutional arrangements of electricity than existed in the past. To the extentthat the greater array of choices leads to more open contestation over thisvital sectors future, this may itself help to create the basis for more sustainableand accountable reforms, in electricity and elsewhere in Asian societies.

University of California, Berkeley, U.S.A.,and the National Institute of Public Finance and Policy,New Delhi, India, September 2004


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asian electricy reform

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