1

Workshop on Electricity Governance in Asia

World Resources Institute and Thailand Environment Institute

Bangkok, Thailand

3rd and 4th December 2003

2

EXECUTIVE SUMMARY On December 3-4, 2003, the World Resources Institute (WRI) partnered with The Thailand Environment Institute (TEI) to convene the first workshop of a new initiative to assess good governance in Asia’s electricity sector. The workshop brought together electricity sector experts and advocates from Thailand, India, Indonesia and the Philippines, as well as individuals with first-hand experience applying The Access Initiative methodology to assess national environmental governance. The workshop responds to the absence of a strong, systemic understanding of what constitutes “good process” in the technically complex electricity sector. Participants sought to begin developing a framework for assessing good governance in Asia’s electricity sector. By taking the lead in developing a framework and common language to conceptualize good governance in the sector, civil society will be in a better position to ensure greater participation in decision-making, and to demand accountability. The main objectives of the workshop were to:

• Establish the need for an electricity governance framework in Asia • Identify the critical governance issues that need to be addressed • Identify research strategies to address these issues • Plan work to be carried forward to develop a toolkit to assess governance in Asia’s

electricity sector THE VALUE OF CONDUCTING ASSESSMENTS OF GOOD GOVERNANCE Dr. Somrudee Nicro of the Thailand Environment Institute (TEI) reflected on experiences with The Access Initiative. The Access Initiative (TAI) is a global coalition of NGOs working to promote and strengthen national-level access to information, participation, and justice in environmental decision-making, using an adaptable set of over 150 detailed indicators to assess relevant laws as well as actual governmental practice. In 2002 TEI coordinated a pilot assessment of environmental governance in Thailand using several case studies from the electricity sector. It found that very limited information was accessible to the public, due in great part to the use of technical English language in plans and documentation. Workshop participants noted that in order to encourage the institutionalization of stronger electricity governance, it is critical to understand the interests of the electricity sector actors, and identify common interests. Without finding common ground in these agendas, participation will remain a mere checklist of things to overcome without actually improving the sustainability of projects and policies. KEY ELECTRICITY GOVERNANCE ISSUES IN THAILAND, THE PHILIPPINES AND INDIA To set the context for the rationale for this project, electricity experts from Thailand, the Philippines and India made brief presentations on the key governance issues confronting the electricity sector based on their national experiences. In Thailand, the lack of an independent regulator was identified as the critical governance issue for the sector. The evolution of the Electricity Generating Authority of Thailand (EGAT) into a partially privatized and self-regulated Thai monopoly was discussed, noting that public stock offerings are no substitute for broad public engagement. In the Philippines, the Electric Power Industry Reform Act (EPIRA) now frames the operation of the electricity sector. There has been a grave lack of transparency in the privatization process, which has favored big industry concerns over those of national consumers. In India, processes such as the indiscriminate issuing of memorandums of understanding to Independent Power Producers and the halting of the Enron-Dhabol project demonstrate grave inadequacies in sector governance. Root causes of governance failures were

3

suggested, such as the limitations of elections as a means of public control of the sector; the weak, inadequate and non-mandatory nature of transparency, accountability and participation provisions; and the ability of coalitions of vested interests to capture the sector. A framework to assess electricity governance should focus on key institutions (governments, regulatory commissions, utilities, unions), processes (policy, legislation, administrative rules), and decisions (setting objectives, demand forecast, capacity addition, power purchase, project development, tariff revisions, reforms). CRITICAL GOVERNANCE ISSUES IN ASIA’S ELECTRICITY SECTOR The workshop group split in to country-specific working groups to discuss the critical institutions, processes and decisions for each country’s electricity sector. Each of the groups identified the five leading governance issues in their country’s electricity sector, and began to conceptualize how these issues could be captured by the TAI framework. The national priorities are summarized in Table 1 (below), and clearly indicated overarching issues of common importance throughout the region.

Table 1: Top 5 Issues in Electricity Governance identified by the national working groups The priorities of the national working groups revealed the following critical issues as regional priorities for Electricity Sector Governance:

• Legislation • Privatisation: Reform, and Restructuring • Implementation of legislation • Tariffs • Government and civil society capacity and authority • Access to documents and the government process. • Defining the mandate and authority of regulatory bodies

A FRAMEWORK TO ASSESSS GOOD GOVERNANCE IN THE ELECTRICITY SECTOR Shantanu Dixit of the Indian research NGO Prayas-Pune made a presentation on his work assessing transparency, participation and capacity in India’s State Electricity Regulatory Commissions. The presentation illustrated the practical aspects of conducting an assessment of governance in the technically complex electricity sector, by analyzing an institution integral to decision making. This suggests the use and impact of undertaking an assessment, and presents a model to be incorporated. Crescencia Maurer and Navroz Dubash presented two preliminary approaches to applying the TAI methodology to the electricity sector: (1) A framework using the chain of decision making processes (setting objectives, demand forecasting, capacity addition, power purchases, project development, tariff revisions, reforms)

THAILAND INDIA PHILIPPINES INDONESIA - EGAT monopoly - Grid Access - Control of media - Policy

development - ASEAN Grid - Privatization

- Policy Guidelines - Rules & Regulations - Reform/Restructuring - Tariff Revision - 2003 National Electricity

Act (NAC)

- Pricing - IPPs and asset

management (PSALM) - Licensing - National Grid (and

WESM) - Privatization (EPIRA)

- Privatization - Legislation - Legislative processes - Defining new

institutions - Multilateral agencies

4

in the electricity sector as basis for conceptualizing the electricity sector and capturing the key governance issues (2) Analyzing the electricity sector through its key institutions such as regulators, operators (generators and distributors), legislature, and ministries. The latter methodology might be less comprehensive for capturing cross-cutting processes in the sector, but more useful for research and advocacy. Workshop participants stressed that the framework should capture international institutions such as financial institutions and investors, and international norms to which national governments may be committed. Participants also found that key aspects of electricity sector governance could be captured quite well by the TAI methodology, although its accuracy would hinge on the selection of case studies for evaluation. The workshop then split into issue specific working groups to explore the viability of the electricity sector decision chain as a framework to assessing good governance. Using a sub-set of the matrix presented in Table 2 (below), the groups applied general TAI categories of information, participation, justice, and capacity issues to the identified points on the decision chain.

KEY ISSUES IPPs Tariffs Privatization Competition Project

Development Access to Electricity

Reform

Legislation

Policy design

Implementing Regulations

Operation & Regulation

Table 2: A Decision based framework to assess electricity sector governance

Workshop participants reported that the exercise of applying the framework was useful for thinking through the governance issues, capturing regional differences and perspectives, and allowing assessment of multiple processes. However, the matrix was not necessarily intuitive without a technical background: additional research would be necessary to determine the most effective application of the proposed framework. NEXT STEPS AND FOLLOW UP The primary next steps for the electricity governance initiative include: (1) develop electricity governance indicators based on the potential frameworks identified during the workshop; (2) review of the draft indicators; (3) apply the indicators through national assessments; and (4) prepare advocacy strategies based on the results of the national assessments. Based on individual expertise and organizational capacity and interest, workshop participants preliminarily indicated the stages in which they would be most interested in contributing. Using this input, WRI will begin developing an indicator framework in partnership with other organizations from the region. By May 2004, WRI will convene a second workshop to review a draft framework of indicators. Following agreement on the proposed draft indicators, national coalitions of NGOs will be able conduct pilot assessments in the Philippines, Indonesia, India and Thailand, and prepare advocacy strategies based on the results.

5

ELECTRICITY GOVERNANCE IN ASIA International Financial Flows and the Environment Project and the Access Initiative Project of the World Resources Institute in partnership with the Thailand Environment Institute convened a workshop to discuss the development of a framework to assess governance in Asia’s Electricity sector on December 3rd and 4th 2003 in Bangkok Thailand. The workshop was attended by representatives from research organizations with electricity expertise, organizations involved with advocacy around governance and environmental issues, and experts on the electricity sector and good governance practices, from Thailand, India, Indonesia and the Philippines. The importance of a sound electricity sector to economic growth and development is well recognized, and indeed the profitable operation of electricity utilities can be an important contribution to a national economy. However, the electricity sector also has immense social and environmental impacts on ordinary people in developing countries, and therefore a healthy electricity sector is a key factor on the path to “sustainable development.” Too often, social and environmental issues are neglected in the operation of the electricity sector and the development of policies to govern it. At present there is little systemic understanding of what constitutes “good process” in the technically complex electricity sector. But by taking the lead in developing a framework and language to conceptualize good governance in the electricity sector, civil society will be better placed both to ensure greater participation in decision-making, and also to demand accountability. The main objectives of the workshop were to:

• Establish the need for an electricity governance framework in Asia • Identify the critical governance issues that need to be addressed • Identify research strategies to address these issues • Plan work to be carried forward to develop a toolkit to assess governance in Asia’s

electricity sector SETTING THE CONTEXT: KEY ELECTRICITY SECTOR GOVERNANCE ISSUES IN THAILAND, THE PHILIPPINES AND INDIA In order to set the context for the rationale for this project, electricity experts from Thailand, the Philippines and India made brief presentations on the key governance issues confronting the electricity sector based on their national experiences. Chris Greacen and Chuenchom Sangarasri Greacen of the Thai NGO Palang Thai discussed governance in Thailand’s electricity sector, using the case studies of the Bo Nok and Hin Krud coal-fired independent power plants. The fact that NGOs were able to successfully halt these intrinsically unsustainable projects from coming to fruition provides insight into the nature of governance challenges in the Thai electricity sector: whereas in the past NGO campaigns against projects such as large scale hydro-electric dams were fought on environmental and social grounds, the Bo Nok and Hin Krud campaigns were based on technical understanding of the inadequacies of these projects. The presentation also discussed the governance challenges presented by the evolution of the Electricity Generating Authority of Thailand (EGAT) into a partially privatized and self-regulated Thai monopoly. EGAT has the capital to invest abroad in

6

competition with other regional investors, and would be likely to serve as the hub of a regional grid for the Association of South East Asian Nations. The privatization of EGAT has taken place in an expedited and non-transparent manner, with limited public hearing processes. The limited public stock offering process for EGAT cannot credibly be described as a means of broad public engagement because at the end of the day only a miniscule proportion (0.003%) of the Thai population have participated. EGAT therefore has the ability to assume both private and public identities as convenient for its current agendas. It has been claimed that listing EGAT in the stock market will lead to good governance, but this applies only to narrow accounting criteria and financial management standards rather than the overarching sectoral issues. The presentation identified the need for an independent regulator in Thailand as the critical governance issue for the sector. Without such a body the ongoing processes of privatization are completely non transparent, and not accountable to the public. Zarah Marie Pilapil, presented a brief overview of the Philippine experience, outlining the impact of the Electric Power Industry Reform Act (EPIRA) on governance. The presentation emphasized the grave lack of transparency in the privatization process, and the fact that the majority of consumer and advocacy groups in the Philippines opposed the passing for EPIRA because it favored big industries over consumers, would imply an increase in electricity rates, and the perception of foreign ownership of utilities as a form of neo-colonialism. The privatization process was also ridden by allegations of corruption and scandal, and some legislators admitted to having received payoffs for passing the act. The proposition of further increases in electricity tariffs is particularly contentious given that 50% of people do not have access to electricity despite a supposed overcapacity for electricity generation. Rates are being unbundled in order to be reflective of the true costs of service, but the costs of former power purchase adjustments are retained in these charges. The criteria for rates unbundling are not available to the public, and decisions to review contracts with Independent Power Producers remain behind closed doors without clear guidelines. The President of the Philippines has announced a 10 point plan to address issues of transparency, accountability, power cost reduction, efficiency, pricing and market competition, but the sector remains rife with problematic governance issues. Shantanu Dixit, of the Indian research NGO Prayas-Pune used case studies to demonstrate governance failures in India’s electricity sector, and then analyzed the root causes of these governance failures. The Enron Dhabol project was initiated in 1992, and was shut down in May 2001, because it was found to be both inappropriate and unaffordable, overcharging by around $200 million per year. In 1992, independent power providers were invited to participate in electricity generation. Memorandums of understanding for over 90,000 MW (more than the entire previously installed generation capacity of India) were signed in the first three years after the law was passed, paying little attention to economy, efficiency, environmental or social concerns. The presentation also discussed the issue of electricity theft: agricultural consumption is mostly un-metered, and, as a result, utilities have to “estimate” these sales as well as transportation and distribution losses. Losses have typically been under-estimated. In 2000, the estimation parameters were re-evaluated, and the revised estimates revealed that there had been massive ongoing electricity thefts that had been covered up by sector officials. Governance failures can be attributed to a variety of issues including the limitations of public control on sector activities through elections; the weak, inadequate and non-mandatory nature of

7

transparency, accountability and participation provisions; the ability of coalitions of vested interests to capture the sector. It is critical to distinguish between the sorts of transparency, accountability and participation provisions that are required by civil society and the public, as opposed to the sorts of provisions needed by investors. Investors seek sector independence from excessive government involvement, clear rules and predictability. Governance provisions for civil society and the public must be prioritized, and these include: complete, mandatory, public oriented, user friendly, transparency measures that are supported by well operating systems; direct accountability to the public, and institutions that are autonomous, authoritative, and subject to multiple checks and balances; and meaningful and complete participation. Understanding of good governance requires attention to: key institutions (governments, regulatory commissions, utilities, unions); processes (policy, legislation, administrative rules); and decisions (setting objectives, demand forecast, capacity addition, power purchase, project development, tariff revisions, reforms). THE VALUE OF CONDUCTING ASSESSMENTS OF GOOD GOVERNANCE: EXPERIENCES WITH THE ACCESS INITIATIVE The presentations on electricity sector governance in Thailand, the Philippines and India illuminated several areas where governance mechanisms are weak. Also, the presentations provided some illustrations of how stronger governance mechanisms could ultimately lead to outcomes that better support the public interest and sustainability. Building on the need for a framework to conceptualize governance in this sector, Dr. Somrudee Nicro of the Thailand Environment Institute reflected on her experiences assessing governance of the environment in general and cases from the power sector in particular using the Access Initiative methodology. The Access Initiative (TAI) is a global coalition of NGOs working to promote and strengthen national-level access to information, participation, and justice in environmental decision-making. The TAI methodology consists of a flexible and adaptable set of over 150 detailed indicators which assess both relevant laws as well as actual governmental practice. The Thai assessment found that there was very limited information (particularly regarding electricity sector case studies) accessible to the public, in great part due to the technical language used in the plans as well as the use of English language terms. There was also very limited public participation in decision making processes. It was noted that although the government has been receptive to the Access Initiative findings, building on the commitment to participatory approaches endorsed in the 1997 Thai Constitution, and particularly since the recent passing of the Public Information Act. However, many government agencies continue to hold fast by the confidentiality of their documents and prevent public access. There is a reluctance to change practice among government officials, and changing these attitudes is difficult. Dr. Wiwiek Awiati of the Indonesian Centre for Environmental Law, Dr Randeep Saini of the Idma foundation for Sustainable Development (formerly a research for TAI partner organisation, PRIA) also reflected on their experiences with pilot applications of the Access Initiative methodology in Indonesia and India. Dr. Saini noted that when legislation was not enforced, governments often responded that the failure in practice was due to the incompetence of individual offices or officials, rather than acknowledging a real problem with the practical enforcement. Dr. Awiati noted that ongoing reform processes had made governments keen to be

8

perceived as transparent and participatory, and this often created an opportunity to engage governments in constructive dialogues about ways to move forward. Workshop participants noted that officials are, of course, averse to losing their institutional power. Officials and project developers tend to perceive public participation as an obstacle to be overcome, and inconvenient delay to project execution. Civil society must speak the language of electricity sector officials, on a knowledgeable and technical level. It is critical to understand the interests of project proponents and find common interests in order to get them to listen. Without finding a common ground and overlapping agendas, participation will remain a mere checklist of things to overcome, without actually improving the sustainability of projects and policies. CRITICAL GOVERNANCE ISSUES IN THE ELECTRICITY SECTOR In order to capture the national nuances of electricity governance issues, the workshop group split in to country specific working groups to discuss the critical institutions, processes and decisions for each country’s electricity sector. Each of the groups worked to identify the five leading governance issues that needed to be addressed in their country’s electricity sector, and began to conceptualize where the key governance issues could be captured by the components of the Access Initiative framework. The national priorities are summarized in Table 1 (below), and clearly indicated overarching issues of common importance throughout the region.

Table 1: Top 5 Issues in Electricity Governance identified by the national working groups Thailand The Thai working group identified the key process confronting the electricity sector as bring privatisation, and the critical institution identified was the Electricity Generating Authority of Thailand (EGAT). EGAT is responsible for production, transmission and regulation, and this monopolistic centralised structure presents a problematic conflict of interest situation, as described in Chris and Chuencom Greacen’s presentation. Decision making processes in EGAT were expected to remain restricted to a very small circle even after the privatisation process. Post privatisation, EGAT would have exclusive control over the Thai transmission grid, which could preclude potential consumer benefits from market competition in the sector. Decisions might be more likely to be made in favour of EGATs profitability, rather than in favour of national and public priorities. The key rationale for privatization has been to increase Thai GDP and EGAT profitability. The group also identified government control of the media as a major obstacle to

THAILAND INDIA PHILIPPINES INDONESIA - EGAT monopoly - Grid Access - Control of media - Policy development - ASEAN Grid - Privatization

- Policy Guidelines - Rules & Regulations - Reform/Restructuring - Tariff Revision - 2003 National Electricity Act (NAC)

- Pricing - IPPs and asset management (PSALM) - Licensing - National Grid (and WESM) - Privatization (EPIRA)

- Privatization - Legislation. - Legislative processes. - Defining new institutions - Multilateral agencies.

9

access to information, particularly since the media seldom reported any news on electricity sector developments. The prospect of the ASEAN grid, whose hub would very likely be in Thailand through EGAT was identified as a particularly contentious governance concern, as the decision making would then be outside of the Thai national institutional framework. This was identified as an obstacle that could potentially make national assessments a less useful tool if electricity sector decision making powers lay outside of national authority. India The National Electricity Act of 2003 is the overarching policy framework that now governs the Indian electricity sector. The thrust of the act is toward a substantial reduction of government restrictions and oversight over various dimensions of electricity in order to encourage a greater private sector role. Information, participation, and the capacity of those applying and enforcing the act (particularly the standing committee) is a key area of concern. The policy processes enabling such legislation have involved little public engagement, and there is a real need to build capacity among non-state actors so that they can influence these processes. There is limited understanding of the guidelines and regulations governing the sector, which can be principally attributed to a lack of timely and accessible information. While India now has independent regulatory commissions, it is necessary to build their capacity so that they have institutional coherence and financial autonomy. The operation of regulatory institutions also requires formal processes to allow public participation. The overall health of the electricity sector to some extent contingent on tariff setting and revision processes. The lack of access to quality information about these processes and of public participation in technical validation of revised tariffs is problematic. Tariff revision processes are also lack accountability as there is limited response to comments, process to remedy or appeal reset tariffs, and few procedures to ensure compliance with orders. Privatization, reform and restructuring are also overarching processes framing governance issues in the sector. The lack of public access to these processes, the influence of international financial institutions and the lack of accountability are major concerns. Philippines As Zarky Pilapil’s presentation made clear, electricity sector issues in the Philippines are framed by the Electric Power Industry Reform Act (EPIRA). Since the provisions of this legislation cannot be revisited for the next five years, however, this cannot be the focus of a framework. Electricity pricing and the processes of rate unbundling are critical to popular access to electricity. In addition purchasing power adjustments (PPA) that finance contracts with IPPs are perceived as overpriced, and increase tariffs disproportionately for the poor. Electricity tariffs in the Philippines are already the second highest in Asia, yet there is talk of a need for further increases to avoid blackouts. Licensing is very important for sector governance, and from a sustainability standpoint the issuance of certificates of compliance and environmental compliance certificates is a major issue. In addition, it is difficult to construct a national grid in the Philippines on account of its geography (a group of islands), therefore also making it difficult to expand access to electricity. Options for connecting island groups involve difficult trade-offs in environmental and social terms. In the interim, however, existing transmission systems need to be upgraded and made more reliable. Independent Power Producers are the principal generators of electricity, but must operate in ways that meet national needs and priorities. Power Sector Assets and Liabilities Management Act is a critical piece of legislation in these respects. The intent to create Wholesale Energy Spot Markets is also a cause for concern in that it may allow

10

powerful multinational corporate entities to manipulate the sector for their own profit at the cost of national priorities. Indonesia Electricity sector reform processes including policy, implementation, sequence and timing was a critical concern in Indonesia. While the aim of reform is ostensibly to establish a multi-buyer and multi-seller market, there is limited understanding of what this will actually imply in practice. Public concerns about the ongoing changes, such as continuously rising electricity tariffs in the midst of prolonged economic crisis and accompanied by unsatisfactory performance of the state electricity company, have not been adequately addressed. As such, the new electricity law that was promulgated in 2002 is now being challenged in the judicial review process at the Constitutional Court. There is insufficient legislative structure for the sector and the processes of drafting and implementing regulations have involved only selected groups of civil society. Although draft regulations are being posted on the web, there are no means for public participation in reshaping the drafts. It is still difficult for the general public to be involved in the process. New institutions have emerged from the privatization process, but their roles are yet to be defined and there must be accountability in the appointing on new sector officials as well as to assess their performances. In addition, the highly influential role of multilateral agencies in decision making in the sector was a major cause for concern as it often served to expedite processes without adequate consideration of local needs. The priorities of the national working groups revealed the following critical issues as regional priorities for Electricity Sector Governance:

§ Legislation § Privatisation: Reform, and Restructuring § Implementation of legislation; formulation of rules and regulations § Tariffs § Government and civil society capacity and authority § Access to documents and the government process. § Defining the mandate and authority of regulatory bodies

Other issues to be addressed by a framework § Capture of political processes by vested interests such as business or other powerful constituencies § Government capacity to coordinate and manage the sector § Training and technical knowledge for both government organizations overseeing the sector as well as for civil society. The technical capacity of civil society is particularly important in order for their engagement on these issues to have any impact. § Accountability of decision makers § Well functioning institutions with a clear mandate and organization to meet the mandate § Role of corporations and private entities and the need to keep them accountable, raising the issue of perhaps needing to include corporate governance in the framework. § Potential trade-offs and conflicts that may arise between creating an environment of investor

confidence versus operating the sector in the public interest § Needs for additional laws and legislations to adequately address the governance issues § Issues of cost effectiveness and economic accountability within a sector that powers national economies

11

§ Limits of national institutional checks and safeguards on transnational issues that are emerging in Asia’s electricity sector

DEVELOPING A FRAMEWORK TO ASSESSS GOOD GOVERNANCE IN THE ELECTRICITY SECTOR Prayas- Pune’s work assessing transparency, participation and capacity in India’s State Electricity Regulatory Commissions presents the practical dimensions of conducting an assessment of governance in a technically complex sector such as electricity. The study used a survey of state regulators to examine regulatory functioning along a variety of dimensions, including reglatory capacity, financial adequacy, staffing and personnel, operating procedures and so on. By doing so, the study shed light on one crucial, and new, institution that is charged with governing the sector on a day to day basis. The work suggested the use and impact that undertaking an assessment exercise can have, and was a model to be incorporated. Building on this practical experience, Crescencia Maurer (Senior Associate for the World Resource Institute) and Navroz Dubash (Senior Fellow, National Institute of Public Finance and Policy, India and former Senior Associate, WRI) presented a first attempt to apply the Access Initiative Methodology to the Electricity sector, and suggested a framework to capture the governance issues in the sector as a whole. The first step was to map the sector, and part of this task is to develop a common language to communicate and advocate the positions of civil society to decision makers. The ultimate goal of conducting assessments of governance would be to institutionalize good governance, and thereby pre-empt the present challenges of having to contest developments in the electricity sector that are contrary to the public interest on a case-by-case basis. The decision-making chain for the electricity sector presented one way to map the sector. Another way would be to analyze the sector through thematic “hot button issues” or national priorities. But the latter approach would be ad-hoc and very country specific, and there fore unsuitable for a strategic regional framework. It is, however, crucial that a framework capture these “hot issues.” A third approach to a sector map might be to analyze it through its key institutions such as regulators, legislature, ministries, consumer groups, industry associations, media, and NGOs. This approach would perhaps be less comprehensive for capturing cross cutting processes in the sector, but might prove more useful from a research and advocacy standpoint after assessments had been conducted. In considering which framework approach would prove most effective, participants raised the following key questions for further consideration:

1. Does the stage of reform in a country matter to the structure of the indicators? 2. How can we capture variations across states and provinces in a federal system? 3. Are generation, transmission, and distribution addressed by all the approaches? 4. How take into consideration the fundamental differences public vs. private ownership of

key components of the electricity sector? Public vs. Private ownership of key components of the electricity sector may be a defining issue: in a public ownership system, the key institutions will be government institutions, whereas in a

12

Political decision to reform

Framing strategic direction of reform

Enabling/framework legislation

Supporting policy and regulation

Creation of new institutions

Operation of reformed electricity sector:

• Set Standards • Set Prices • Address Complaints • Licensing • Enforce Contracts

Revisit or introduce new reforms

transition country the decision-chain model may makes the most sense as it would allow emphasis on legislation and implementing regulations. Privatization might also be a separate issue to focus on. Workshop participants also stressed that the framework should capture international institutions such as financial institutions, investors, and international norms to which national governments may be committed. In addition, it must address the extent to which institutions continue the work of previous institutions, as opposed to being completely new. It would also be important to try and capture new legislative initiatives even if the changes they bring about are in effect quite narrow. The appointment of officers and authorities must be included as well as this is a key issue under a broader theme of transparency and accountability. Figure1: The Electricity Sector Decision Chain Based on the presentations and experiences shared by TAI Partners, workshop participants found that key aspects of electricity sector governance could be captured quite well by the TAI methodology. While participants underlined that the accuracy of the TAI methodology would likely hinge on the selection of case studies for evaluation, participants also agreed that the TAI methodology presents a sound framework to capture regional and sectoral nuances of electricity governance. Indicators would, however, have to be designed to capture the specifics of various stages of the decision chain and processes. In order to explore in greater detail the viability of the proposed frameworks for governance assessment, workshop participants split into issue-specific working groups to explore the components of the electricity sector decision chain. Participants formed three working groups to address the following six priority issues: (1) independent power producers (IPPs), (2) tariffs, (3) privatization, (4) competition, (5) project development (both siting and environment assessment), and (6) access to electricity. For each issue, the working groups selected the part of the decision chain they found to be most relevant to their issue. Using a sub-set of the matrix presented in Table 2 (above), the working groups then applied the general TAI categories of information,

13

DE

CIS

ION

CH

AIN

participation, justice, and capacity issues to the identified points on the decision chain. An example of a completed exercise (prepared by the group as a whole) is provided in Table 3 (Following Page).

KEY ISSUES

IPPs Tariffs Privatization Competition Project Development

Access to Electricity

Reform

Legislation

Policy design

Develop implementing regulations

Operation & Regulation

Table 2: A Decision based framework to assess electricity sector governance CONCLUSIONS AND REFLECTIONS Individual groups then met to attempt to apply this framework to the other issue areas. For the most part, the groups found the exercise to be useful in thinking through the governance issues, and in capturing regional differences and perspectives. The advantage of the decision chain was it allowed for assessment of governance through processes. It was noted that it would probably be necessary to create additional steps in the chain in order to fully capture particular processes in their countries. The structure was not necessarily intuitive, however, and it was difficult to identify issues across all the pillars, and there was also often repetition. “Quality” of information is always important, but it might mean something different in each step of the decision chain and for each theme. It was clear that a substantial amount of technical background and additional research would be necessary. NEXT STEPS AND FOLLOW UP The primary next steps for the electricity governance initiative include: (1) develop electricity governance indicators based on the potential frameworks identified during the workshop; (2) review of the draft indicators; (3) apply the indicators through national assessments; and (4) prepare advocacy strategies based on the results of the national assessments. Based on individual expertise and organizational capacity and interest, workshop participants shared preliminary indications of which of the four upcoming stages of the electricity governance work they would be most interested in contributing to.

14

Table 3: Applying the Decision Based Framework to Assess Governance: Group Exercise • WRI committed to begin work on developing an indicator framework in partnership with

other organizations from the region. This will include finding organizing principles, and then developing actual indicators to capture the spectrum of governance issues facing the sector. Prayas- Pune has already expressed a keen interest in taking on a major role in contributing to this process. Navroz Dubash will also continue to advise the indicator development process and provide guidance to the project.

• Fabby Tumiwa of Indonesia’s Working Group on Power Restructuring noted that governance issues are very important for Indonesia right now, and an assessment would be a good opportunity to share ideas and impact on the power sector. He expressed interest in being involved at the assessment stages.

• Wiwiek Awiati of the Indonesian Center for Environmental Law stated that while it doesn’t have the resources to coordinate work on electricity governance, it would be keen to support the initiative and an assessment.

• Dr. Asclepias Indriyanto noted that the workshop had been very helpful in clarifying thinking on electricity governance issues, and the Foundation for Indonesian Institute for Energy Economics would be very interested in staying involved with the project.

• Dr. Randeep Saini of the Idma Foundation for Sustainable Development noted that he would like to review the indicator framework, as participating in a national assessment in India.

PRIVATIZATION: REFORM Information • IFI conditions/loans; objectives; options analysis done – private and viable public option

• Approaches – how assets AND liabilities managed • Valuation of assets – by whom and how? • Who is invited to participate such as Unions, marginalized communities, end users, potentially affected

communities? • Accessible and translated information on reform process from a variety of stakeholder perspectives;

available on internet • Consultant budgets, terms of reference, and names; finances and track records of bidders for

privatization; bidding process Participation • Decision making authority – independent committee or internal process?

• Inter-ministerial consultation and involvement • Space for participation of full/wide spectrum of interests • Reporting on how take into account consultation process • Access for publicly minded technically sophisticated resources persons • Stage at which Civil Society gets access to process

Capacity • Engineers/economists/finance at civil society organizations • Availability of training institutions for state/non-state actors • Financial analysts in government • Guidelines on how public can be involved; governments. ability to supervise consultants

Justice • Precedence for court decisions on legal challenges on sector-wide legislation for public interest • PIL on election issues • Challenges asset valuation • Grounds/precedent to challenge prior to enactment on procedural and substantive grounds • Nature of remedies available • Judicial enforcement of FOIA

15

• Lizette Fernandez of the Manila Observatory stated that she would like to comment and review the indicator framework. Manila Observatory would also be interested in supporting the application of the indicators, depending on the resources available.

• Maitet Diokno noted that Prayas-Pune’s work on electricity regulators in India had demonstrated the real usefulness of such an exercise, and she would be interested in being involved with an assessment.

• Ramon Jun Sales noted that while the workshop had been helpful, the real focus of the Philippines movement for Rural Reconstruction has been on grass roots renewable energy issues, and electricity governance issues are a relatively recent issue that the group has taken up. PRRM would be interested in helping with test applications of an indicator framework.

• The Philippines organizations proposed organizing an event in the coming months to inform other groups working on electricity and governance issues about this initiative. This may identify other organizations that would be in a position to contribute to the framework review and application.

• Dr. Vorasun Buranakarn noted that it had been useful to hear the experiences of other countries in the region, and encouraged the group to think of ways to explicitly address renewable energy and clean energy issues in an indicator framework.

• Dr. Nicro reiterated this, and expressed the willingness of the Thailand Environment Institute to be involved in all stages of the project, and to coordinating with other Thai organizations. She also emphasized the importance of strategizing outreach and advocacy opportunities.

• Liam Salter, Asia regional coordinator on energy and climate issues for the Worldwide Fund for Nature, expressed that WWF sees an electricity sector governance assessment as a valuable tool for campaigning work. In all 4 WWF countries representing, the governance issue is a major lever for creating change in the power sector. While the WWF offices would not be in a position to contribute to indicator development, they would be keen to be involved with conducting assessments and in using the product of these assessments in advocacy campaigns.

• Ellen Dragotto reiterated USAID’s continued support for this project; Dr. Davida Wood stressed that at present there is a window of opportunity to work on electricity governance issues as there has been little work done as yet, and there is donor support for such initiatives. USAID would be interested in helping disseminate the results as well as getting more agencies on board.

Using the input from this workshop, WRI will begin work to start developing an indicator framework in partnership with other organizations from the region. By May 2004, WRI expects to have draft indicators prepared, and will convene a second workshop to review the draft indicators. Following agreement on the proposed draft indicators, national coalitions of NGOs would then able conduct pilot assessments in the Philippines, Indonesia, India and Thailand, and prepare advocacy strategies based on the results.