World Bank Document
Total Page：16
File Type：pdf, Size：1020Kb
Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized In the Dark SOUTH ASIA DEVELOPMENT FORUM In the Dark How Much Do Power Sector Distortions Cost South Asia? FAN ZHANG © 2019 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 21 20 19 18 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. Rights and Permissions This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) http:// creativecommons.org/licenses/by/3.0/igo. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions: Attribution—Please cite the work as follows: Zhang, Fan. 2019. In the Dark: How Much Do Power Sector Distortions Cost South Asia? South Asia Development Forum. Washington, DC: World Bank. doi:10.1596/978-1-4648-1154-8. License: Creative Commons Attribution CC BY 3.0 IGO Translations—If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. Adaptations—If you create an adaptation of this work, please add the following disclaimer along with the attribution: This is an adaptation of an original work by The World Bank. Views and opinions expressed in the adaptation are the sole responsibility of the author or authors of the adaptation and are not endorsed by The World Bank. Third-party content—The World Bank does not necessarily own each component of the content contained within the work. The World Bank therefore does not warrant that the use of any third-party-owned individual component or part contained in the work will not infringe on the rights of those third parties. The risk of claims resulting from such infringement rests solely with you. If you wish to re-use a component of the work, it is your responsibility to determine whether permission is needed for that re-use and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; e-mail: [email protected]. ISBN (paper): 978-1-4648-1154-8 ISBN (electronic): 978-1-4648-1289-7 DOI: 10.1596/978-1-4648-1154-8 Cover design: Bill Pragluski, Critical Stages. Library of Congress Cataloging-in-Publication Data has been requested. South Asia Development Forum ome to a fifth of mankind, and to almost half of the people living in poverty, HSouth Asia is also a region of marked contrasts: from conflict-affected areas to vibrant democracies, from demographic bulges to aging societies, from energy crises to global companies. This series explores the challenges faced by a region whose fate is critical to the success of global development in the early 21st century, and that can also make a difference for global peace. The volumes in it organize in an acces- sible way findings from recent research and lessons of experience, across a range of development topics. The series is intended to present new ideas and to stimulate debate among practitioners, researchers, and all those interested in public policies. In doing so, it exposes the options faced by decision makers in the region and highlights the enor- mous potential of this fast-changing part of the world. v Contents Foreword xvii Acknowledgments xix About the Author xxi Abbreviations xxiii Overview .......................................... 1 What This Study Adds ............................................4 Beyond Fiscal Costs ..........................................5 Beyond the Core: Upstream and Downstream .....................6 Massive Electricity Shortages .......................................7 Low Access and Low Quality of Supply ...........................7 Dire Environmental and Health Concerns .........................8 Three Types of Distortions ........................................10 Institutional: No Market ......................................10 Regulatory: Market but Distorted. .13 Social: Market but with Externalities ............................18 Conclusion ....................................................22 Policy Recommendations .....................................22 Outline of the Report ........................................25 References ....................................................25 1. What Are the Distortions? .............................. 29 Institutional Distortions ..........................................30 Upstream: Unproductive Mines, Leaking Pipelines, and Privileged Access ......................................31 Core: Inefficient Generation, High Losses, and Favoritism in Dispatch .............................................33 Downstream: Lower Living Standards and Slower Business Growth ....37 vii viii l CONTENTS Regulatory Distortions ...........................................39 Upstream: Underpriced Coal and Gas ...........................40 Core: Underpriced Electricity and Inefficient Transmission Pricing .....42 Downstream: Cross-Subsidies Penalizing Competitiveness ...........44 Social Distortions ...............................................45 Upstream: Unpriced Externalities of Fossil Fuel Combustion and Coal Mining ...........................................45 Core: Groundwater Depletion .................................47 Downstream: Dependence on Kerosene Lamps and Inefficient Captive Generators ......................................48 References ....................................................50 2. Assessing the Cost of Distortions ........................ 55 Decomposing the Cost of Distortions ...............................56 Institutional Cost ............................................59 Regulatory Cost ............................................60 Social Cost ................................................61 Estimating the Cost of Distortions ..................................62 Estimating Supply and Demand ................................63 Constructing a Production Possibility Frontier .....................64 Simulating the Increase in Output ..............................64 Estimating the Welfare Effects on Households and Firms 65 Partial Equilibrium Analysis .......................................66 Data on Utilities, Households, Firms, and More .......................66 Utilities ..................................................67 Households ................................................67 Firms .....................................................68 Other Data ................................................69 References ....................................................69 3. Bangladesh ......................................... 71 Upstream .....................................................73 Institutional: Rental Power Plants Favored in Gas Allocation ..........75 Regulatory: Underpriced Gas .................................79 Social: Emissions from the Use of Gas and Oil .....................84 Core .........................................................85 Institutional: Inefficient Government-Owned Power Plants ...........86 Institutional: Dispatch Not Based on Merit Order ..................94 Regulatory: Underpriced Electricity .............................96 Social: Gas Waste Leading to Pollution from Oil Use ................98 Downstream ...................................................99 Institutional: Welfare Loss for Households ........................99 Institutional: Productivity Loss for Firms .........................103 Social: Emissions from Kerosene Lighting and Self-Generation .......106 CONTENTS l ix Summarizing the Costs .........................................106 References ...................................................108 4. India ............................................ 111 Upstream ....................................................113 Institutional: Unproductive Mining and Privileged Access ...........115 Regulatory: Underpriced Coal for Power Generation ..............121 Regulatory: Coal Shortages from Mispriced Rail Freight ............125 Social: Emissions, Disease, and Accidents from Coal ...............129 Core ........................................................132 Institutional: Inefficient State Government–Owned Power Plants .....132 Institutional: Underinvestment in Transmission ...................140 Institutional: High Losses of Distribution Utilities ..................141 Regulatory: Underpriced