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2. Lessons From the Chilean Experience. 3. Institutional Regulatory Reform ... Principles for Reform. Promotion of Market or Yardstick competition. 2. Independence ... – PowerPoint PPT presentation

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Title: Presentacin de PowerPoint


1
REGULATORYAND COMPETION POLICY ISSUES IN THE
PRIVATIZATION OF PUBLIC UTILITIES THE CHILEAN
EXPERIENCE    
2
SUMMARY OF PRESENTATION 1. The Regulatory
Framework 2. Lessons From the Chilean Experience
3. Institutional Regulatory Reform
3
1. The Regulatory Framework
4
Chile opted for a system of incentive based
regulation
  • Innovative use of benchmark regulation through
    the
  • development of the efficient firm model.
  • Non exclusive concessions
  • Mandatory interconnection
  • Cross subsidies have been replaced for direct
    subsidies and
  • prices were rebalanced prior to
    privatization.
  • Universal service obligation for network
    monopolies
  • Each sector has its own regulatory authority
    appointed by the
  • government operating within government
    ministries
  •  

5
Electricity Regulation
  • Regulatory framework assumes competition in
    power generation and in supplying large
    customers.
  • Assumes that electrical transmission and
    distribution are natural monopolies
  • Prices for small customers are regulated. The
    regulated price is the sum of the node price and
    distribution charges.
  • The Economic Load Dispatch Center coordinates
    short term operation dispatching with short term
    marginal cost .
  • Distribution charges are set to provide a
    return on assets for an efficient firm.
  • Regulation has been changed only once to
    establish mandatory compensation in case of
    rationing to regulated customers (even in an
    extremely dry year).

6
  • Telecommunications regulation
  • Active regulation and deregulation to promote
    competition
  • The Antimonopoly Comission forced separation of
    CTC and Entel.
  • Long distance legal monopoly abolished in 1994
  • Only local phone rates are regulated
  • Regulation of access tolls in 1993
  • Cellular phone prices are freely determined
  • Cable TV companies are allowed to provide local
    phone services and Internet connection.

7
  2. Lessons from the Chilean experience
8
The privatization and regulation of public
utilities has worked well in two respects
  • A. It has promoted important increases in the
    internal efficiency of firms
  •  
  • In electricity
  •  
  • Energy losses in electrical distribution
    companies were
  • reduced from 30 to 6.
  •  
  • The number of clients per worker doubled from
    300 to 600
  •  
  • GWH generation per worker doubled from 4,5 to 9.
  •  
  • In telecom
  • The number of phone lines per worker rose from
    around 70
  • to 250.

9
B. In general it has promoted investment and
increased coverage
In electricity
  • Electricity coverage increased from 92 to 98.
  • Significant private investment in power
  • generation
  •  The quality of electricity distribution service
  • has not improved significantly

10
In telecommunications
  • Fixed telephone lines rose from 600,000 to
    3,500,000 in
  • 10 years, 30 penetration, the highest in
    Latin America
  • Outgoing international traffic increased from
    20 million minutes to 200 million minutes.
  • Mobile phones approaching 4 million, exceeding
    the number of fixed lines (10 of local service
    traffic)
  • The local phone network, fully digital in 1993
  •  Chile has the highest penetration of Internet
    9 in Latin America, and currently combined
    services of cable TV, Internet access and
    telephone are available.
  • Waiting list have been almost eliminated in
    fixed phone services
  •   Choice of providers are available in many
    places
  •  

11
Poor performance regarding
  • A. Above normal rates of return particularly in
    regulated segment
  • of the sectors

RATES OF RETURN ON EQUITY
Electricity Distribution Electricity
Generation (1995)
30 15
Basic Telephony (1996) Long Distance
1992 1995
19
43 8.4
12
B. Prices significantly above efficient level
particularly in regulated segment
Average Household Bill
International Call (Chile-USA)
Basic Telephone
US per minute (Ch
) 1989 1998
1992 1996
2850 3810
2.40 0.70
Node
Price of electricity
US per kWh
1987 1997
1999 2001
0,082
0,132 0,089
0,10
13
  • Unnecessary entry delays with associated welfare
    losses
  • Years of interconnection-to the network-related
    lawsuit in basic telephone and electrical
    distribution and transmission
  • Lengthy and costly resolution of conflicts
  • No new entry since privatization of electricity
    generation
  • High barrier to entry into local phone services
    until 1999

14
Conclusions A. Regarding Promotion of Competition
  • Consumers have benefited from the increased
    efficiency with
  • reduction in prices and better quality of
    services only in cases
  • where competition has emerged
  • The restructuring of utilities prior to
    privatization was
  • insufficient
  • Privatization processes should be implemented
    focusing in
  • promoting competition whenever possible.

15
B. Regarding the regulation of monopolistic
segments
  • Significant information asymmetries
  • Lack of technical capacity of regulators vis a
    vis
  • the companies being regulated
  •  Sheer economic and political power of utilities
  • has led to regulatory capture
  •  

16
  • Turnover rate of regulatory professional to the
  • private sector has been considerable
  • Unresolved overlapping jurisdiction across
  • agencies particularly antitrust regulators
    and
  • environmental agency.
  • Failure of regulation during electricity
    shortage.
  • Signals of short-term political influence in the
  • regulatory process

17
  3. Institutional Regulatory Reform
18
Basis for the Restructuring of Regulatory
Institutions
Principles for Reform
  • Promotion of Market or Yardstick competition
  • 2. Independence
  • In order to shield regulation from political
    interference and reducing
  • risk of political capture
  • The selection process should involve both the
    executive and the
  • legislative, branches.
  •  
  • The creation of independent regulators also
    reduces the problem of
  • lack of commitment by political principals.

19
Independence also has some problems
  • Sector-specific independent regulators can reduce
    political will for real reform that encourages
    competition
  • Sector specific independent professional
    regulators are
  • vulnerable to capture by the very industry
    they regulate.
  • Independence can reduce democratic
    accountability.

How to increase Accountability while maintaining
independence
Highly complex regulation can be monitored and
kept politically accountable only by a
combination of control instruments Legislative
and executive oversight, strict procedural
requirements, public participation and
substantive judicial review Scott Jacobs OECD
20
  • 3. Autonomy
  • Agencies have to have access to their own funding
    sources
  • Flexibility in hiring qualify staff with market
    salaries and specialized external
    consultants.
  • 4. Check and Balances and Separation
  • The introduction of different agencies having
    specific oversight functions regarding the
    utility with well established procedures
    improves commitments and reduces the risk of
    capture.

21
  • Interaction between the firm and the
    independent regulator,
  • the independent antimonopoly commission, the
    government
  • Ministry, the Environmental Agency
  • Appealing to specialized economic courts within
    the
  • judiciary

5. Regulatory Commissions versus Individual
regulators
  • With members overlapping over time reduces the
    risk of capture.

22
6. Multi sector versus sector Regulators
  • Bundling utilities with natural monopoly
    characteristics into a
  • single commission network
  • Allows taking advantage of economies of scale
    regarding
  • technical regulatory capacity
  • Keep overlapping responsibilities with other
    agencies
  • Reduce regulation induced asymmetries in
    pricing
  •  
  • Lost yardstick competition among sector
    regulators
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