Privatizing the Electricity Sector Essay (Critical Writing)

Introduction

In the recent past, a number of countries have embarked on an ambitious program of privatizing the electricity sector. While some governments have sold part of their shares to the private sector, there are others who have sold all the shares to the private sector, leaving such governments with no power to control the actions taken by the new electricity company owners.

There are some people who perceive this as a bold move while others have a different opinion. Those who view this as a positive move argue that, most of the government owned organizations lack proper ways of carrying out their work because of the bureaucracy involved. Furthermore, most of these institutions have been perceived as havens of corruption, since most of the governments lacked the capacity to fight corruption.

Literature review

A remarkable number of scholars have had their input on this field, where a number of them seem to concur with each other while a substantial of them differ in a big way from their counterparts. This has therefore led to lack of consensus between the two camps since each perceive their arguments as the one holding water.

It is important to recall that the ideas of privatizing the government utilities was a condition set out by the International Monetary Fund (IMF) and the World Bank in the late 1980s, for any country that wished to have its loan application considered by the two bodies.

These reforms were referred to as the Structural Adjustment Programs (SAPs) and were aimed at minimizing the government expenditure on non performing utilities. The critics of this program claims that it was structured in a way that poor countries in Africa, South America, and Asia would continue depending on the developed countries for assistance.

Izaguirre (2000) claims that electricity privatization has helped eradicate the corruption involved while seeking for electricity connection. According to Cook (2007), in the developing countries for example, it used to take months for a person to have his house connected to electricity because the corrupt officials in the main office wanted kick backs for the whole process to start.

He observes that the public demanded accountability from their government and as a result measures were taken to privatize most of the government’s non performing utilities that included the electricity sector.

The above sentiments were echoed by Vivien (2008) who asserted that privatization has enhanced service delivery to the members of the public. According to her, the private sector is geared towards making profits. As a result of this, Paul (2002) has argued that the people owning this sector have to put in measures that ensure that the people, who are the main customers, have their needs addressed as fast as possible.

He observed that prior to privatization, other sectors owned by the governments regardless of the country suffered similar problems of slow service delivery and corruption riddled offices.

Furthermore, David (2003) has observed that privatization of electricity sector has helped eradicate matters of favoritism. According to him, some governments, especially in Africa and other developing countries in the world, had the tendency of allocating national resources, including electricity, to areas they perceived as having the support from the people.

According to Fereidoon (2006), such a move led to an imbalance in development because others who were seen to oppose the government were neglected and made to suffer for supporting the opposition.

Therefore, according to Gerard (2008), privatization has helped the distribution of electricity in all areas of a country regardless of the peoples’ support to the government. According to Mark (2006), private companies are capitalist in nature and therefore they would do all within their disposal to make sure that they make an extra coin from their investment.

In addition, Paredes (2007) has argued that privatization of the electricity sector is likely to reduce the cases of illegal connections that have been witnessed in the past, when the government was the only shareholder in the sector. According to Mert (2010), the government lacked adequate personnel to monitor how electricity was being distributed to the people and industries.

He says that since the private sector is wholly owned by individuals whose motive is making profit, they will make sure that there are no illegal connections that deny them revenue by employing a good number of people to patrol certain areas such as the ghetto, where these acts are common.

In Europe and other developed countries like Japan and United States of America, Czamanski (1999) points out that the number of companies offering electricity is more than one, hence eradicating the idea of monotony in the business.

Newbery (2001) has asserted that this has created a battle between such companies, a situation that has led to a decrease in the amount charged per kilowatt used by the people and the industries. He says that, just as is the case with mobile phone companies, the consumers are migrating to the service provider with high quality services and cheap rates as well.

According to Stiglitz (2000), the idea of privatizing the public sector has increased the government revenue through the taxes levied on these companies. He points out that, due to the inefficiencies of the former officials in charge the electricity distribution, companies in many countries used to record losses year in year out. He claims that since the new owners are profit minded, the government collection will be on the rise.

On the other hand, there other scholars as earlier stated who perceive privatization as a negative move that is by no means going to help the consumers. One of such scholars is Knight (2002), who claims that most of these private firms lack sufficient capital to boost their business.

The same ideas are shared by Paredes (2003) & Bernardo (2004) who point out that the amount of money required to be injected in such a project are beyond reach to most of these companies. Therefore, they argue that unless they get financial assistance from banks and other financial institutions such companies may never realize any meaningful growth in their first years of operations.

As a result, Zaccour (1998) recommends that the government should continue running such institutions until when a well financed company comes along and wins the tender to manage and supply electricity on behalf of the government.

According to Kilick (2004) privatization of the electricity sector can lead to the exploitation of the consumers by the electricity suppliers. He notes that since the government does not have any significant control in such a company, the management might keep on adjusting their charges upward, making the consumers the victim of privatization.

To add on that, Jordana (2008) points out that the main objective of adjusting the tariffs on the higher side is to make the company be in a position to finance their new investments. In the long run, Scott (2006) asserts that, the rate of inflation is likely to go up because the costs of producing basic commodities in the industries will go up, making such a commodity be beyond reach of many people.

The issue of job security has also been cited as the main reason why privatization should be opposed by all means. This is according to Baldwin (1999) who claims that the new owners of the company have to restructure the company so that they can reduce their expenses incurred, particularly in paying of wages.

According to Bacon (2008), majority of employees in the junior positions are usually the main victims, while only a few in the management level are affected. Therefore, in his opinion, the government should have the interests of its people first before it can think of privatizing such companies.

Critique of the work

From the above discussion it is quite clear that the private sector is likely to improve the service delivery to the people. However, Fantini (2003) points out that this has not always been the case because even when the new company starts its own operation independent of the government, the people at the helm are the same who were in charge of the privatized company.

Therefore, these people might carry along with them their old ways and as a result make the company be unable to fulfill its objectives of bettering its services compared to the government. This therefore calls for more research to be carried out to identify whether all privatized companies perform as expected of them by the government and the people at large.

In addition, Shuttleworth (2002) has observed that privatization of the electricity sector does not always lead to improved service delivery to the people. He claims that privatization has led to many people having access to illegal connection because the company lacks the power to prohibit people from making illegal connections.

According to Parker (1997), the illegal connections are in many instances conducted by the current or former employees who want to make extra money from what they are paid at the end of the month.

From the above point he has noted that the government revenue might not be realized because as claimed earlier in the discussion, these electricity companies may continue making losses as their predecessor used to do.

Furthermore, Cowan (2004) has pointed out that there are some governments that have been regulating the amount levied on the consumers to prevent cases of exploitation by the private companies. Therefore it would be necessary to try and analyze the various actions taken by the government after relinquishing their claims on such public utilities because the writer may have looked at a certain country and left others.

The major hurdle affecting these companies is the continued interference from the government, even after acquiring the majority of the shares in that company. Such actions are the ones that have contributed to the slow implementation of reforms needed to revitalize the electricity sector.

As a result, the company remains in a stagnant position because the government won’t let any meaningful project be undertaken without its consent, despite the fact that it is a minor shareholder.

The strength and the weakness of the past scholars

The scholars who have carried out this research should be credited for bringing out some of the issues that are of benefit when a government utility has been privatized as well as the short comings associated with such a move. However, the same group of scholars can be blamed for not carrying out a comprehensive research that would have eradicated the critique provided earlier.

Most of these scholars seem to agree that although privatization has its own shortcomings, it is the best solution to the majority of the government institutions and organization because in most cases sanity is restored.

That is, most of these organizations are dens of corruption but when they are privatized most of them are seen to start operating as required of them. However, the same scholars seem not to be reading from the same scripts on matters pertaining to the privatization and the exploitation of consumers.

Whereas some see this move as resulting to exploitation of consumers, others see the government’s hand in it to prevent such an eventuality.

Conclusion

Privatization seems to provide the solution to many government projects that are non-performing. As a result, every government should try and let the private sectors run some of these utilities with close monitoring to ensure the people benefit from such a move.

Reference list

Bacon, C., 2008. Generating Efficiency in the Public and Private Sectors. Paris: OECD.

Baldwin, R., 1999. Understanding Regulation: Theory, Strategy and Practice. Oxford: Oxford University Press.

Bernardo, B., 2004.The challenges of privatization: an international analysis. Oxford: Oxford University Press.

Cook, P., 2007. Regulation, markets, and poverty. Massachusetts: Edward Elgar Publishing, Inc.

Cowan, M., 2004. Regulatory Reforms. Cambridge: MIT Press.

Czamanski, D., 1999. Privatization and restructuring of electricity provision. Westport: Greenwood Publishing Group.

David, P., 2003. International handbook on privatization. Massachusetts: Edward Elgar Publishing, Inc.

Fantini, B., 2003. Regulation and Privatization: The Case of Electricity. Milan: FEEM.

Fereidoon, P. S., 2006. Electricity market reform: an international perspective. Amsterdam: Elseiver Ltd.

Gerard, R., 2008. Privatization: successes and failures. New York: Columbia University Press.

Izaguirre, A. K., 2000. Private Participation in Energy. Washington, D.C: World Bank

Jordana, J., 2008. The politics of Regulation: Institutions and Regulatory Reforms for the Age of Governance. Cheltnham: Edward Elgar.

Kilick, P., 2004. Privatization and Utility Regulation in Developing Nations. Chichester: Wiley.

Knight, F., 2002. Risk, Uncertainity and Profit. Washington: Beard Books.

Mark, S., 2006. Energy Regulation in the 21st century. London: Routledge.

Mert, Y. K., 2010. Privatization and Liberalization of the Electricity Sector in Turkey. Istanbul: Sabanci Center.

Newbery, D., 2001. Privatization, restructuring, and regulation of network utilities. Massachusetts: MIT Press.

Paredes, J., 2003. Redistributive Impact of Privatization and Regulation of Utilities in Chile. Melbourne: Australian Scholarly Publishing.

Paredes, J., 2007. International experience in the Restructuring of Electricity. Melbourne: Australian Scholarly Publishing.

Parker, D., 1997. The Impact of Privatization: Ownership and Corporate Performance in the UK. London: Routledge.

Paul, S., 2002. Structural adjustment in the transition. Washington: World Bank.

Scott, T., 2006. Impacts of energy privatization. Philadelphia: McGraw Hill.

Shuttleworth, S., 2002. Competition and Choice in Electricity. Chichester: Wiley.

Stiglitz, J., 2000. Economics of the Public Sector. New York: W. W. Norton & Company.

Vivien, F., 2008. The impact of private sector participation in infrastructure: lights, shadows and the road ahead. Washington: World Bank.

Zaccour, G., 1998. Deregulation of Electric Utilities. Boston: Kluwer Academic Publishers.

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