Private Participation in Electricity : The Challenge of Achieving Commercial Viability and Improving Services

Private Participation in Electricity : The Challenge of Achieving Commercial Viability and Improving Services

This document is about the private participation in electricity. Private activity in electricity in developing countries has stabilized at a modest level since 2001. Private activity also became more evenly distributed between International Development Association (IDA) countries and non IDA countries. Private activity in electricity remained concentrated in a few countries. Investors generally prefer greenfield projects structured as enclave projects, protected from many sector risks. Electricity is not the only infrastructure sector where this type of private investment predominates. Similar arrangements have emerged in water and sanitation, where greenfield water and sewage treatment plants sell to a single customer through government-supported take or pay agreements. Distribution is inherently riskier for investors because it involves selling to thousands of customers who purchase at prices that are highly visible and politically contentious. To attract investment in distribution, a new guarantee mechanism has been adopted. In overview, these projects usually provide protection from major risks through long-term contracts and often come with government payment guarantees. If there is to be significant and sustained private investment beyond greenfield generation projects, it will need to be built on a platform of commercially viable electricity distribution entities. If private participation can establish such entities, it will create the best foundation for future upstream private investment in generation.

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Bibliographic Details
Main Authors: Tenenbaum, Bernard, Izaguirre, Ada Karina
Language:English
Published: World Bank, Washington, DC 2007-05
Subjects:ARBITRATION, AVERAGE TARIFF LEVELS, BALANCE, BANK GUARANTEE, BUYERS, CONSUMER, CONSUMER PRICE INDEX, CONSUMERS, CONTRIBUTIONS, COST RECOVERY, CREDIT ENHANCEMENTS, DEVELOPING COUNTRIES, DEVELOPING COUNTRY, DISTRIBUTION NETWORK, ELECTRICITY, ELECTRICITY DISTRIBUTION, ELECTRIFICATION, EMERGING MARKET, EMERGING MARKET FIRMS, ENTERPRISE OPERATIONS, ESCROW, ESCROW ACCOUNTS, FUTURE PRICES, GENERATION, INFRASTRUCTURE INVESTMENT, INTERNATIONAL DEVELOPMENT, LATIN AMERICAN, LEGAL RIGHTS, LETTERS OF CREDIT, LIQUIDITY, LIQUIDITY FACILITIES, LOCAL INVESTORS, NEW INVESTORS, PARTIAL RISK, PAYMENT GUARANTEES, POLITICAL ECONOMY, POWER, POWER PLANTS, POWER PURCHASE AGREEMENTS, POWER SECTOR, PRIVATE INFRASTRUCTURE, PRIVATE INVESTMENT, PRIVATE INVESTORS, PRIVATE SECTOR INVESTMENT, PUBLIC-PRIVATE PARTNERSHIP, PUBLIC-PRIVATE PARTNERSHIPS, REGULATORS, REGULATORY REGIME, REGULATORY REGIMES, REGULATORY SYSTEMS, RETURN, RISK EXPOSURE, SHARE OF INVESTMENT, SUB-SAHARAN AFRICA, SUSTAINABLE DEVELOPMENT, TARIFF LEVELS, TAX, TECHNICAL ASSISTANCE, TERM CONTRACTS, TERMINATIONS, URBAN DEVELOPMENT, UTILITIES, WEB SITE,
Online Access:http://documents.worldbank.org/curated/en/2007/05/8333675/private-participation-electricity-challenge-achieving-commercial-viability-improving-services
https://hdl.handle.net/10986/10686
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Summary:This document is about the private participation in electricity. Private activity in electricity in developing countries has stabilized at a modest level since 2001. Private activity also became more evenly distributed between International Development Association (IDA) countries and non IDA countries. Private activity in electricity remained concentrated in a few countries. Investors generally prefer greenfield projects structured as enclave projects, protected from many sector risks. Electricity is not the only infrastructure sector where this type of private investment predominates. Similar arrangements have emerged in water and sanitation, where greenfield water and sewage treatment plants sell to a single customer through government-supported take or pay agreements. Distribution is inherently riskier for investors because it involves selling to thousands of customers who purchase at prices that are highly visible and politically contentious. To attract investment in distribution, a new guarantee mechanism has been adopted. In overview, these projects usually provide protection from major risks through long-term contracts and often come with government payment guarantees. If there is to be significant and sustained private investment beyond greenfield generation projects, it will need to be built on a platform of commercially viable electricity distribution entities. If private participation can establish such entities, it will create the best foundation for future upstream private investment in generation.

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