Institutional Reform 1 Yvesalbouy Financialreform 6 Felixmartin

Public Disclosure Authorized Public Disclosure Authorized 21rg 3e m L . ES Ed Lb Ia I K Public Disclosure Authorized Public Disclosure Authorized 666 LC96L .. .. ....... mo I ...... .. ... M---amp W Mg 1OUR .. .. .. ... ... ... ........... .... ........ ........... ... ......... .. ..... ..... .. ....... ..... ...................... .,Nflig' jM mmumn . .......... .... ...... Mv, . ......... ... .... ..... .......... ............ ........ ...... R M ....... ... .. .. .... .. .... ..... .... ........ ... .... .......... .... .... ...... ..... ..... ... ............... ........ ............. ml ....... ...... 'g 'T V . .. ... ...... ......... H oll ..... .... OWN This Report was edited by Eugene McCarthy and Felix Martin. The Energy, Mining, and Telecommunications Sector Board served as the steering committee. The editors are very grateful to the following external contributors for their insightful sug- gestions and rich contributions: Carlos Suarez, Anthony Churchill, Franqois Ailleret, Bernard Montfort, Lee Schipper, Mike Bess, Mishiro Masaaki, Youba Sokona, Gerry Leach, and Alain Streicher and Jean-Louis Poirier of PHB Hagler Bailly, Inc. Within the World Bank Group, the editors would like to thank the following people for their generous help: Yves Albouy, Shane Streifel, Karl Georg Jechoutek, Laszlo Lovei, Denis Clarke, Nelson De Franco, Kyran O'Sullivan, Mangesh Hoskote, Ranjit Lamech, Anil Malhotra, Mark Tomlinson, Dominique Lallement, Henri Bretaudeau, and George Bouza. Copyright (© 1999 The World Bank 1818, H St., NW, Washington, DC 20433 USA Energyand DevelopmentReport 1999 EnergyAfter the FinancialCrises Tableof Contents Foreword JamesBond I. TakingStock of Progress:the EnergySector in DevelopingCountries Institutional Reform 1 YvesAlbouy FinancialReform 6 FelixMartin II. EnergyAfter the FinancialCrises The Crises'Impact The AsianCrisis and Structural Changein EnergyMarkets 19 MichaelKlein The Impact of the FinancialCrises on the PowerSector of Transition Countries 24 John Besant-Jones Oil Prices:Recent Trends and Forecasts 30 ShaneStreifel A View from EastAsia 34 PiyasvastiAmranand ReformAfter the Crises Privatizationand Competition in the British Electricity Industry,with Implicationsfor DevelopingCountries 41 StephenLittlechild Commentary- The British Reform Experience:a DevelopingCountry Perspective 47 ManuelDussan A Scorecardfor EnergySector Reformin DevelopingCountries 50 RobertBacon Empoweringthe End-User:Market ReformLessons from IEACountries 56 Jean-MarieBourdaire Reflectionson the Politicsof Reform 60 AlfonsoCristobal Revollo Energyand the Environment AddressingPollution Problemsin Developing Regions:an Updateon Options 65 DennisAnderson GlobalWarming Post-Kyoto:Continuing Impasseor Prospectsfor Progress? 69 ThomasJohansson and SusanMcDade ExpandingAccess A View from Africa 75 StephenKarekezi Accessto EnergyServices: a Brighter Future? 79 Mark Tomlinson Appendices 1.World BankGroup Financingfor the EnergySector 84 11.Who's Who in Energyat the World Bank Group 88 Glossary 89 FOREWORD JamesBond Director,Energy, Mining, and Telecommunications Department TheWorld Bank The purpose of the energy sector is to contribute to development by providing energy services to as many people as possible, as cleanly as possible, and as cheaply as possible. Fulfilling this purpose represents a formida- ble challenge - as much in developed countries as in developing ones. The Energy, Mining, and Telecommunications Department of the World Bank and the Energy Sector Management Assistance Program (ESMAP) are launching this new, annual Report as part of their joint effort to disseminate current thinking on how developing countries can best meet this challenge. In the majority of developing country energy sectors, this challenge has essentially three interdependent parts: to expand access to modern energy, to mitigate the impact of energy use on the environment, and to make the supply of energy services more efficient. Chapter I contains two survey essays. The first of these takes stock of the progress and current issues in institutional reform - how best to organize and regulate the sector to meet these challenges. The second reviews the trends in the financing of developing country energy sectors and the changes in sector financial structure that have been brought about by institutional reform. These two discussions set the context for the twelve essays that make up Chapter II. These essays, contributed by leading thinkers on energy from inside and outside the World Bank Group, and from developing and developed countries, are the core of this Report: they represent a variety of views on the future of institutional and financial reform of developing country energy sectors, and reward critical reading. This year, the essays take as their theme the implications of the impact of the recent financial crises in East Asia, Russia, and Latin America for the future institutional and financial structure of the sector. The Report has no pretensions to be definitive on either of these fronts - but important lessons of experience are emerging on both. It is natural to ask how this Report relates to the World Bank Group's own involvement in energy. The princi- ples which frame the Bank Group's strategy in the energy sector are set out in three publications: The World Bank's Role in the Electric Power Sector, Etnergy Efficiency and Conservation in the Developinig WVorld,and Rural Enzergy and Developmenit: Improving Enzergy Supplies for Two Billion People. This year. we will publish another important strategy paper: Fuel for Thought: a New Environmental Strategy for the Energy Sector. Together, these papers outline how the Bank Group has re-oriented its energy sector assistance to its client countries in sympathy with their changing needs. A greater emphasis is now laid on promoting institutional reforms which help to develop energy markets that expand access to modern energy for the poor and reflect the environmental costs of energy use. Hand in hand with this re-orientation of goals, there has been a shift in the pre- ferred instruments used, from direct financing, which has become less of a need in many countries due to the enormous expansion in private flows, to technical and policy assistance. This re-orientation has taken place in the context of the evolution of the Bank Group's corporate strategy, which has increasingly reflected the fact that development is not simply an economic imperative, the challenge of which is technical. Today, the Bank Group's comprehensive development framework targets structural, human, and physical needs; it emphasizes partnerships, synergistic aid programs, and increased local participation in programmatic decisions; and it lays stress on maximizing development impact rather than output. This broader strategy to promote sustainable development and to alleviate poverty is the guiding light of the Bank Group's involvement in the energy sector. If there is any one message that emerges from this inaugural Energy and Development Report, it is that despite encouraging trends in many developing country energy sectors, none of us - energy industry, financiers, NGOs, or policy-makers - have yet got the institutional and financial formula right. The crises exposed this fact stark- ly. I hope that this and subsequent issues of the Energy and Development Report will help us all in our common quest to provide cheap, clean energy to as many people as possible. CHAPTERONE TAKING STOCKOF PROGRESS:--, THE ENERGYSECTOR IN DEVELOPINGCOULNTR"ES Energysector reform hastwo main ele- rXents:the reshapingof sectorpolicy, reg- Wation,industrial organization, and mar- k-t structure institutional reform - and .e -estructuring of the waythe sectoris fiRanc__WdfinSncial reform. The essaysin ,apte I .ich form the core of the .- J ~Rprt,tra~number of sp. if tpc 64eOft'Ai~to~hrgy sector refor~ ff -the Ih~~t1~efeentfinancialcr 04 w- ~~~~~~~svrveyessaysin this cat~$ i 4s o, ~~~~~~~~~~~~~~~~~~ a~~~~~~~~~~~~~~~~~~~~~~~~~~~~4 Qj~~;/>~~~~ InstitutionalReform Yves Albouy* Introduction Thegoal of institutionalreform of the energysector in developingcountries is to organizeenergy policy, legislation, regulatory framework,and market structure, in the waythat bestenables the energysector to fulfil its rolein development.Over the pasttwo decades,there have been important changes in generaldevelopment paradigms; and the perceptionof the energysector's role in developmenthas changed to reflectthese. The principal changes in developmentparadigms have essentially involved an increas- ing acknowledgmentof the importancein developmentof environmentaland social considerations (Box 1). As a result,theimpor- tancefor developmentof organizingthe energysector to minimizeits impacton the environmentis nowwidely understood. By contrast,awareness of the potentialof energysector reform to helpalleviate poverty is still lagging.But promoting both environmentaland socialobjectives are nowacknowledged to be animportant part of the energysector's contribution to development, andthe successor failureof energysector institutions in doing thisis centralto any measureof the sector'soverall performance. Thischapter arranges a reviewof the progressto datein the institutionalreform of the energysector around the threefunctions whichare the sector'scritical contributions to development: * improvementof operationalefficiency, including the eliminationof wastefuland poorlytargeted subsidies * expansionof accessto modernenergy for the poor * mitigationof the impactof energyuse

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