Rethinking Power Sector Reform in the Developing World

Rethinking Power Sector Reform in the Developing World is a multiyear initiative that aims to refresh the policy debate, by presenting a comprehensive picture of developing country experience with power sector reform that distills the lessons learned over the last 25 years and reflects on how recent technological trends that are disrupting the sector may call for new thinking on reform strategies.

The program was made possible thanks to financial support from the World Bank’s Energy & Extractives Global Practice, the Energy Sector Management Assistance Program (ESMAP) and the Public�Private Infrastructure Advisory Facility (PPIAF).

During the 1990s, a new paradigm for power sector reform was put forward emphasizing the restructuring of utilities, the creation of regulators, the participation of the private sector, and the establishment of competitive power markets. Despite widespread efforts, only a handful of developing countries have fully implemented these Washington Consensus policies. Across the developing world, reforms were adopted rather selectively, resulting in a ‘hybrid model’ where elements of market-orientation coexist with continued state-dominance of the sector.

Key Findings

A nuanced picture emerges. While regulation has been widely adopted, practice often falls well short of theory; and cost recovery remains an elusive goal. The private sector has financed a substantial expansion of generation capacity. Yet, its contribution to power distribution has been much more limited, with efficiency levels that can sometimes be matched by well-governed public utilities. Restructuring and liberalization have been beneficial in a handful of larger middle-income nations; but have proved too complex for most countries to implement.

Based on these findings, the report points to three major policy implications:

First, reform efforts need to be shaped by the political and economic context of the host country. The 1990s reform model was most successful in countries that had reached certain minimum conditions of power sector development and offered a supportive political environment.

Second, reform efforts should be driven and tailored towards desired policy outcomes, and less preoccupied with following a predetermined process; particularly given that standard market-oriented reforms alone will not deliver on twenty-first century policy objectives.

Third, countries found alternative institutional pathways to achieving good power sector outcomes, making a case for greater pluralism going forward.

Background Papers

Knowledge reviews are organized by five major themes plus an overview paper:

Utility Governance and Restructuring | Assesses the overall approach to sector restructuring and governance, with a view to improving utility performance. To learn more, download the literature review.

Regulation | Examines performance of regulatory institutions and legal frameworks in terms of their ability to promote cost-recovery tariffs and good service quality. To learn more, download the literature review.

Cost Recovery | Focuses on pricing issues, including tariff setting and subsidy design, in the context of achieving financial viability of the power sector. To learn more, download the literature review and check back for the forthcoming global electricity tariff structure stock-taking paper.

Power Markets | Evaluates developing country experiences with design and operation of wholesale power markets and identifies the necessary preconditions for markets to function. To learn more, download the literature review, and look out for forthcoming power market cases for Colombia, India, Peru, and Philippines.

Political Economy | Examines the social and political dynamics that affect the adoption and implementation of power sector reform. To learn more, download the literature review.

Source: The World Bank