Introduction

After 15 years of energy sector reform in OIDC it is now time to assess developing countries' record based on the established guiding principles of energy pricing, regulation, commercialization/corporatization and privatization and private investment1 and address the question: whither energy market transition in developing countries?

This chapter first presents the overall status of energy sector reform in developing countries. This is followed by discussions on the progress to date of four specific reform elements of pricing, regulation, commercialization/privatization and financial reform and private investment in energy. Detailed discussions of selected case studies from East Asia, South Asia, Africa, the Middle East and Latin America to identify issues and lessons to be learned will be undertaken in Chapter 5.

Overall status of energy sector reform in developing countries

As of 2005, over 85 developing countries made energy policy announcements that they have launched energy sector reforms. However, at the global level it is not clear what elements of the four reform components are addressed, what steps have been taken to liberalize energy prices, to regulate energy monopoly segments, to commercialize energy operations and finally to attract private investment to increase access to energy supplies for development.

15 years after the beginning of energy sector reform in more than 85 developing countries, the picture is mixed. In the 1990s, at the top of the reform ladder were a few countries like Argentina, Jordan, China, Malaysia, Philippines and Thailand seriously committed to the reform process.

Introduction

In the 1990s many developing countries faced with the inefficiencies of public sector energy enterprises and the adverse impact of increasing energy subsidies on their budget, embarked upon an extensive program of energy sector reform within the framework of macroeconomic reform and liberalization. Developing countries expected that the reforming of the energy sector by reversing the pre-1990s command and control strategy of monopoly of public energy enterprises would promote competition, improve energy enterprise efficiency and attract private investment to increase energy supplies for development. While the number of countries on the reform path increased in the 1990s, not all of them were equally successful. At one end of the reform spectrum, countries such as China and Argentina were considered to be successful reformers. Democratic Argentina, embracing a US style free market was considered (until the economic crisis that started in 2001) to have successfully completed its energy sector reform and was put forward as a model and the best practice to other developing countries embarking on a similar reform process in the 1990s. Other countries in East Asia seemed to be succeeding until before the 1998 crisis and are now trying to get back into the reform process. Many other countries at the other end of the spectrum in SSA burdened by economic and political difficulties continue to struggle along with little success.

As discussed in Chapter 4, the review of energy sector reform and liberalization in developing countries shows mixed performances with interregional and inter-energy sub-sector variations.

This chapter synthesizes the lessons from the review of experience with energy sector reform in developing countries. The lessons discussed below enable greater understanding of challenges of energy for development at the global and national levels in the twenty-first century. They are examined later in this chapter.

Energy sector reform: 1990–2005: Lessons

Chapters 4–6 and the country studies from Asia, Latin America, the Middle East and SSA show that each area of energy policy reform—pricing, regulation, commercialization and privatization/private investment is complex as they are interlinked within energy sector and between energy and other sectors and macroeconomic fundamentals. Nonetheless, three cross-cutting lessons emerge.

First, energy sector reforms produced mixed and modest gains. Second. experience from case study situations shows the importance of effective institutions as the key to reform implementation.

And third, the expectations of various energy stakeholders in the energy market about risk-reward trade-off play a crucial role in the success or failure of reforms and the future course of the reform path.

LESSON 1: Energy sector reforms produced mixed and modest gains

Energy sector reform and liberalization was launched in the 1990s to improve sector performance and to attract investment to increase efficient energy for development in developing countries. The conventional wisdom was that moving to market pricing of energy, setting up regulatory institutions to create an environment for competition and private investment and restructuring of energy enterprises by privatization/private investment would improve efficiency and increase access to energy supply in developing countries.

Oil price increases of the 1970s, the debt problems of the 1980s, the globalization wave of the 1990s and the associated changing global energy industry have had profound effects on reforming and financing investment in the energy sector in developing countries.

This chapter examines the changing patterns of financing energy in developing countries in the pre and post 1990s. The chapter discusses the steps developing countries were required to take to reform and liberalize their energy sectors to integrate with 1990s globalization and attract finance for energy for development.

Energy financing in the pre-1990s period

In the pre-1990s period governments traditionally intervened heavily in the energy sector often through ownership of energy companies. During the 1960s and the early 1970s, external capital financed only a small share of total energy investment in developing oil importing countries. As a result the government budget and government sponsored borrowing were often the main sources of financing for energy investment, especially for coal, natural gas and electricity projects. With rising oil prices in the 1970s, two major shifts in international capital impacting financing energy have occurred. First is the shift from equity to debt and the second is from official to private finance.

Rising debt burden

The growth of borrowing since 1973 produced a corresponding rise in external debt. Between 1970 and 1984 the outstanding medium and long-term debt of developing countries as recorded in the WB Debtor Reporting System (DRS) increased from US $68 billion to US $686 billion, an average increase of 16.7 per cent a year.

This book studies the increase of access to affordable, efficient and reliable energy for development in the twenty-first century with special reference to non-OPEC developing countries. In doing so the book evaluates energy sector reform and liberalization experience since the 1990s in non-OPEC developing countries and the impact of events since 2001 (including the spiking of crude oil prices to US $60 barrel in June 2005).

Over 85 net Oil Importing Developing Countries (OIDC) began to reform their economies in some form or other in the 1990s. The guiding principles of energy sector reform in developing countries were part of the overall 1990s globalization framework of market transition for developing countries widely known as the ‘Washington Consensus’. It called for trade and financial liberalization, privatization, deregulation, openness to Foreign Direct Investment (FDI), a competitive exchange rate, fiscal discipline, lower taxes and smaller government.

In spite of the 1990s wave of globalization that prompted developing countries to liberalize and privatize their energy industry to finance the required investment for generating energy supplies for development, it is now clear that only a handful of developing countries were able to attract capital and grow rapidly. Also, in the initial years of the twenty-first century energy black-outs due to shortages of energy supplies for fuel development persist.

Zimbabwe's Communal Areas Management Programme for Indigenous Resources (CAMPFIRE) is based on the idea that resource management problems are the result of the absence of both institutional capacity and incentives to manage resources sustainably. In 1989, the government introduced CAMPFIRE, a new system that assigns group ownership rights to communities and provides institutions for resource management for the benefit of these communities (Martin 1986). This was implemented through an amendment to the Parks and Wildlife Act of 1975 that enables the government to delegate ‘appropriate authority’ over wildlife to ‘communal representatives’.

The chapter explores whether CAMPFIRE has succeeded in devolving ownership over wildlife to communities and in generating benefits for these communities. I begin by evaluating the extent to which CAMPFIRE has achieved resource tenure reform by assigning clear and unambiguous rights to communities. I then seek to establish the extent to which benefits from wildlife management have become integrated into household livelihood strategies.

Communal Tenure

The CAMPFIRE programme is designed principally for the communal lands of Zimbabwe and aims to strengthen communal tenure regimes. Communal lands, formerly known as Reserves and later as Tribal Trust Lands, are areas that were designated for the African population of the country during the colonial era, alongside the expropriation of lands for the white settler community and subsequent policies aimed at creating labour reserves and undermining African agricultural livelihoods (Phimister 1986). There is considerable debate concerning the nature of the tenure system in the communal areas today.

Introduction

Scientists believe with high certainty that the impacts of current greenhouse gas emissions have started but may not be completely felt for 100 years or more. The long-term nature of the climate problem requires fundamental, long-term changes in how economies produce goods and services. One of the most likely policies to encourage the transition to reduced use of fossilfuel energy is a system of overlapping national and international emissions permits (Victor et al. 2005; Hultman 2004). The Kyoto Protocol set up one international trading system, but even if this Protocol ultimately fails, the movement towards a global emissions market is likely to continue for several reasons. First, most major polluting countries have endorsed the aims and the mechanisms of Kyoto. Second, the European Union has already implemented a broad coverage emissions-trading system parallel to Kyoto's. Third, many large industrial and energy corporations — including the major European energy oil companies — have endorsed the mechanisms of the Kyoto Protocol, and some have initiated their own emissions trading systems.

The world therefore is likely see the emergence of multiple linked markets for greenhouse gas emissions permits over the next five to ten years. These systems, implemented soundly, should help reduce humanity's impact on the global climate by internalizing some of the costs of climate change. At the same time, these permits will be assets that have an economic value and provide economic benefits.