comparison case study: two neighbors in contrast … · • 70% hydro, 30% thermal ... design/asset...
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Comparison Case Study: Two Neighbors in Contrast
The Restructuring of the Power Sectors of Argentina and Brazil
Presentation of Ashley C. BrownExecutive Director, Harvard Electricity Policy Group
John F. Kennedy School of GovernmentHarvard University
Of Counsel, LeBoeuf, Lamb, Greene and MacRae
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Starting PointsArgentina
• 23, 740 MW Installed Capacity (1998)
• 70% Hydro, 30% Thermal• Need for Thermal Expansion• National Ownership of
Generation and Transmission• Provinces own distribution
companies• Nationalization completed in
1940’s and 50’s• 5 % Demand Growth
Brazil• 65, 134 MW Installed Capacity
(1998) • 95+ % Hydro• Need for Thermal Expansion• National ownership of
generation and transmission• State owns distribution
companies• Nationalization completed in
1970’s• 5 % Demand Growth (1999)
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Starting Points Continued
Argentina• Nationally interconnected
system• Buenos Aires is bulk of
load
Brazil• Three Systems:
South/South Central; Northeast; Isolated Systems
• Heaviest Load in South/South Central region
• Hydro Facilities located on only a few rivers
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Starting Points Continued
Argentina• Generating resources far
from load centers
Brazil• Many Hydro plants are
multiple use: Electricity, Water/Irrigation, Navigation
• Generating resources far from load centers
• Procel Efficiency Program
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Conditions Prior to RestructuringBrazil
• Generating and Transmission Sectors well planned and operated
• Deteriorated distribution networks
• High non technical losses• Some vertical integration
at state levels• 45% Rural Electrification• 1 Nuclear Unit- 2 others
planned• 1 Huge Binational Plant
Argentina• Thermal plants
deteriorated• Deteriorated distribution
systems• High non technical losses• Little vertical integration
at province level• 70 % Rural Electrification• 1 Nuclear Unit• 2 Binational Plants
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Sector Perspectives on Restructuring
SympatheticCynicalConsumer Groups
FavoredMixedIndustrials
FavoredFavoredFinancial Sector
FavoredFavoredMulti-Laterals
OpposedOpposedLabor
ARGENTINABRAZILSECTOR
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Socio/Economic ContextBrazil
• Massive Government Debt• Real Plan• Inflation declining• Pressing social needs• Skewed demographic and
geographic distribution of wealth
• Partly first world/partly third world
Argentina• Massive Government Debt• Peso pegged to dollar• Inflation attacked• Pressing social needs• Skewed demographic and
geographic distribution of wealth
• Partly first world/ partly third world
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Political Context of RestructuringBrazil
• Democratic center right government
• Weak left• State debt to National
Government• National Government
Supreme in Electricity• Tradition of
Protectionism/Economic Nationalism
• Extensive state involvement in economy
Argentina• Democratic Peronist
Government• Weak left• Financially weak
provinces• National Government
Dominant in Electricity• Tradition of
Protectionism/Economic Nationalism
• Extensive state involvement in economy
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Institutional Responsibility for Restructuring/Privatization
Argentina• Ministry of Finance
oversight• Secretariat of Energy
coordinates entire effort
Brazil • National Development
Bank (Parastatal)• Ministry of Mines and
Energy coordinates sector only
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Priorities of Process
Argentina• Restructure electricity
market/market design/asset sale
• Market design heavily influenced asset sales
• Creation of Regulatory Institutions concurrent with Restructuring
Brazil• Maximize Revenues from
Asset Sales• Restructuring of market
heavily influenced by promotion of asset sales
• Creation of regulatory authority institutions tertiary
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Privatization ProcessBrazil
Assets to Be Privatized
• Nuclear Unit (s) • Itaipu Binational Project• Transmission Grid• Isolated Generating Units
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Privatization ProcessBrazil
• Began with Distribution Companies• Set Minimum Price and Licenses Terms and
Conditions• Documentation for Due Diligence• Bidders Identified• Bids Submitted/Awarded
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Privatization ProcessBrazil Continued
• National Development Bank Took Control of State Owned Distribution Companies Indebted to It
• States With Financially Viable Distribution Companies Made Their Own Decisions on Privatization
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Privatization ProcessBrazil Continued
Generation Assets• States Made Own Decisions Regarding Generators
they owned• Four Generating Companies owned by National
Government– Gerasul- 1 Generating Company, 1 Transmission Co.
– Privatized only after Distribution Companies Instructed to Sign Contracts
– Furnas- 2 Generating Companies, 1 Transmission Co. – Mired in Political Controversy
– Chesf- 3 Generating Co., 1 Transmission Co. – Problems with Multiple Use Hydro Facilities
– Eletronorte- 1 Generating Co., 1 Transmission Co. – Mired in Controversy
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Privatization ProcessBrazil Continued
New Entrants• State Owned Companies Solicited Bids
Before Privatization• National Government Retained
Determinative Planning Authority to Identify Needed Projects (Generation and Transmission
• Identified Projects Put out for Bid
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Privatization ProcessBrazil Continued
Initial Licenses• Issued Prior to Regulatory Institutions’
Creation• Considerable Investor Input to Terms (e.g.
Rio Light) • No Reference to Subsequent Regulation
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Privatization ProcessBrazil Continued
Case ExamplesCoelba
– Rural Electrification Choices• Statewide Monopoly Without Rural Electrification
Obligation• Service Territory Monopoly with Competition for
Rural Electrification
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Privatization ProcessBrazil Continued
Case ExamplesRio Light
– Cost Cutting vs. Productivity Gains– Quality of Service Issues
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Argentina Privatization
• Began with Generation and Transmission• Divided Assets into 38 Generation
Companies and Transmission Company• Set Target Prices• Documentation for Due Diligence• Bidders Defined• New Entrants in Generation Encouraged
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Argentina Privatization Continued
• Privatization of Distribution Companies Left to Owners
• Mostly Provincial Governments
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Argentina Privatization (continued)
• Intial Licenses– Issued Concurrent with Creation of Regulatory
Agency– Licenses Subject to Regulatory Agency
Jurisdiction
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ArgentinaPrivatization Process
Generation• Split into 38 (now 44) companies• Prohibition of Vertical Integration• 88% = highest market share• All generators must be in Pool• Ease of Entry• Market Governs/ No Planning
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ArgentinaPrivatization Process (continued)
Transmission• One High Voltage (500 kv) Licensee to
Transport Between Regions• Five Regional Licensees (132-220 kv) to
connect generators and distribution systems. • 2 large users within region
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ArgentinaPrivatization Process Continued
• SEGBA (44% of Load) – Divided into 3 Companies for Privatization
• 60% of Distribution Land Privatized
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Argentina Privatization Continued
Distribution• 95 Year Concessions (Large Buenos Aires
Area Companies) • Concessions subject to 10 year management
periods• Large Customers Have Direct Access to
Grid• Provinces Decide Own Terms
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Regulatory Issues
Argentina• ENRE created• Provinces Regulate
Distribution• Licenses subject to
regulatory oversight
Brazil• DNAE converted to
ANEEL• ANEEL may delegate
some authority to states
• Many licenses preexist ANEEL
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Market Institutions
Argentina• COMMESA = Power
Pool/System• Private Hedge Markets• Secretariat of Energy
=Market Monitoring.
Brazil• ONS = System
Operator• MAE = Power
Exchange• Electrobras = Finance
and Indicative Planning
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Pricing
Energy/Hedge Markets
Contracts Still in Force
Generation
Open Access for Large Customers
Eventual Access for Large Customers
Energy SalesRetail Access
Zone Based, Still Debated
Still Being DebatedTransmission
Market Price Pass Through
Prudent in Zone of Reasonableness
Energy Purchases for Resale
RPI- pegged to US rates (X Factor in Some places)
RPIDistribution
ArgentinaBrazilBusiness
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Post PrivatizationService Problems
Brazil• Blackout in Rio de Janeiro
(Rio Light and CERJ)• Cost Cutting in Large Part
of Cause• Fines Assessed by
ANEEL• Regulatory Jurisdiction
Challenged
Argentina• Blackout in Buenos Aires
(Edesur)• Negligent Performance in
Investment for Improvement
• Fines Assessed by ENRE• No Challenge to
Regulatory Jurisdiction
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Post PrivatizationService Issues
Argentina• Transmission Pricing• Systemization of
Regulatory Judgement (e.g. Service Quality)
Brazil • Jurisdiction
– Concessions– Re. State/ Federal
• Systemization of Regulatory Judgement (e.g. Prudence, Service Quality
• Market Power• Cross Subsidies
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Post Privatization PricesArgentina
20.9(1995)
31.2 (1992)
Distribution
~29(1995)
*Spot Price
~41(1992)
*Spot Price
Generation
AfterBefore
Argentina and Brazil Pre-Privatization prices are distorted
because of cross-subsidies
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Post Privatization PricesBrazil
Price Pegged to Purchase price
Original CostGeneration
Contracts with Distribution companies are pegged to purchase price
Original CostDistribution
AfterBefore