Post-Privatization Renegotiation and Disputes in Chile

Over the last decade, Chile has undertaken remarkable reforms and transferred publicly owned utilities to the private sector either by selling the assets or through concession agreements. Because of the reforms the country has been able to attract private participation in the provision of public services like energy, transportation, telecommunications, potable water and sewage. In this paper, the authors analyze a series of post-privatization disputes and renegotiations that have taken place in Chile since the late 1980s in the electricity sector. This sector was chosen because the privatization process was, to a large extent, completed a decade ago, providing enough time to properly evaluate negotiations and disputes. The paper also assesses how lessons learned in the reform of electricity were internalized in the design of the regulatory framework for other concessions.Public Utilities, Electricity, Private Sector, IFM-116, electricity sector, dispute renegotiation, Chile, infrastructure, privatization

Regulatory governance and Chile's 1998-99 electricity shortage

In the early 1980s Chile reformed its electricity sector, introducing a regulatory framework that became influential worldwide. But in 1998 and 1999 La Ni?a brought one of the worst droughts on record, causing a price system collapse, random power outages, and three-hour rotating electricity cuts. The authors study the interaction between regulatory incentives and governance during the 1998-99 electricity shortage, showing that the supply restriction could have been managed without outages. The shortage can be blamed on a rigid price system, which was unable to respond to large supply shocks, and on deficient regulatory governance, which led to a weak regulator unable to make the system work. The authors also show that the regulator's weakness stemmed not from lack of formal powers but from vulnerability to lobbyists and a lack of independence. Moreover, the regulator seems not to have fully understood the incentives in the price system during supply restrictions. The authorsconclude that the Chilean shortage shows the limitations of a rigid price system requiring heavy regulatory intervention. This suggests that countries whose governance structures are ill suited to dealing with loopholes left by the law should rely as much as possible on market rules that clearly allocate property rights ex ante and leave the terms of contracts to be freely negotiated by private parties.Water Conservation,Environmental Economics&Policies,Economic Theory&Research,Markets and Market Access,Labor Policies,Environmental Economics&Policies,Markets and Market Access,Access to Markets,Economic Theory&Research,Montreal Protocol

Restructuring Russia's Electricity Sector: Towards Effective Competition or Faux Liberalisation?

Russia in 2003 embarked on the restructuring of its electricity sector. The reform is intended to introduce competition into electricity production and supply, leaving dispatch, transmission and distribution as regulated natural monopolies with non-discriminatory third-party access to the networks. The ultimate aim of the reform is to create conditions that will encourage both investment in new capacity and greater efficiency of both production and consumption. The overall approach embodied in the reform is promising. However, there remains a serious risk that its aims could be subverted by special-interest lobbying during the lengthy implementation phase. If the reform is to succeed, the marketised segments of the sector must be characterised by real competition based on economically meaningful prices. There are two dangers here. The first is that private-sector interests will secure strategic holdings that allow them to exercise market power or even local monopoly power. The second is that, even after the wholesale market is liberalised, the state will retain considerable capacity to hold down electricity prices, if it so chooses, and it could do so in ways that unduly distort the signals the market is sending and deter the very investment that the reform is meant to attract

Roasting the Pig to Burn Down the House: A Modest Proposal

This essay addresses the question whether one should support regulatory proposals that one believes are, standing alone, bad public policy in the hope that they will do such harm that they will ultimately produce (likely unintended) good results. For instance, one may regard a set of proposed regulations as foolish and likely to hobble the industry regulated, but perhaps desirable if one believes that we would be better off without that industry. I argue that television broadcasting is such an industry, and thus that we should support new regulations that will make broadcasting unprofitable, to hasten its demise. But it cannot be just any costly regulation: if a regulation would tend to entrench broadcasting\u27s place on the airwaves, then the regulation will not help to free up the spectrum and should be avoided. Ideal regulations for this purpose are probably those that are pure deadweight loss - regulations that cost broadcasters significant amounts of money but have no impact on their behavior. Am I serious in writing all this? Not entirely, but mostly. I do think that society would benefit if the wireless frequencies currently devoted to broadcast could be used for other services, and the first-best ways of achieving that goal may not be realistic. I am proposing a second-best - a fairly cynical second-best, but a second-best all the same. I would prefer not to go down this path, but if that is the only way to hasten the shriveling of television broadcasting\u27s spectrum usage, then it is probably a path worth taking

Electricity Reform in Chile: Lessons for Developing Countries

Chile was the first country in the world to implement a comprehensive reform of itselectricity sector in the recent period. Among developing countries only Argentina hashad a comparably comprehensive and successful reform. This paper traces the history ofthe Chilean reform, which began in 1982, and assesses its progress and its lessons. Weconclude that the reform has been very successful. We suggest lessons for the generation,transmission and distribution sectors, as well as the economic regulation of electricity andthe general institutional environment favourable to reform. We note that while the initialmarket structure and regulatory arrangements did give rise to certain problems, theoverall experience argues strongly for the private ownership and operation of theelectricity industry

Political Economy Reasons for Government Inertia: The Role of Interest Groups in the Case of Access to Medicines

The reluctant reaction of western governments to the AIDS crisis in developing countries is only one example for policy areas where we observe a lack of political action despite a public interest in policy change. The reasons for that lie in the two-stage structure of the political decision-making process: Interest groups influence both the policy choice and the subsequent decision on the level of policy implementation. The lobbies' interest in reform and the issue-specific chance for compromise determine the policy choice. The interest groups' failure to agree on political strategies creates reduced incentives to support policy implementation

Can we rehabilitate the guilds? A sceptical re-appraisal

This paper examines recent attempts to rehabilitate pre-modern craft guilds as efficient economic institutions. Contrary to rehabilitation views, craft guilds adversely affected quality, skills, and innovation. Guild rent-seeking imposed deadweight losses on the economy and generated no demonstrable positive externalities. Industry flourished where guilds decayed. Despite impairing efficiency, guilds persisted because they redistributed resources to powerful groups. The ‘rehabilitation’ view of guilds, it concludes, is theoretically contradictory and empirically untenable

Capital mobility, tax competition, and lobbying for redistributive capital taxation

This paper analyzes the impact of international capital mobility on redistributive capital taxation and on lobbying activities by interest groups. It employs a model where different capital endowments lead to a conflict between households concerning their most preferred capital tax rate. Three main results are derived: First, redistributive source based capital taxes or subsidies decline as international tax competition intensifies. Second, lobbying activities of certain interest groups may explain international differences in the capital tax rate. Third, capital mobility may lead to declining lobbying activities of interest groups and thus may be welfare increasing for all households.Tax competition,interest groups,redistribution