Utility Privatization and Regulation

Utility Privatization and Regulation

A Fair Deal for Consumers?

Edited by Cecilia Ugaz

The authors address the question of infrastructure reforms in a novel way by focusing on the impact which they can have on consumers through the prices paid by different groups and on their access to the networks. They analyse original material from four Latin American countries – Argentina, Bolivia, Chile, Peru – and two European countries – Spain and the UK. Access is especially relevant when considering immature systems which have not yet extended to cover the majority of the population, as is the case in many Latin American countries. The authors also address the widespread impact of privatization on the economy (via macroeconomic influences) and the more general issues of subsidies and regulation which are endemic to these industries. The book focuses on the reform of four sectors: telecommunications, electricity, gas, and water and sanitation.

Chapter 4: Consumer participation and pro-poor regulation in Latin America

Cecilia Ugaz

Subjects: development studies, development economics, economics and finance, development economics, public sector economics


81 water and sanitation, and so on. Further motivation underlying the privatization drive was the willingness to attract private financing in order to alleviate the burden of public services on the budget. In addition, increased liberalization of services worldwide made it possible to attract substantive inflows of capital to these sectors, strengthening the foreign exchange position of the recipient countries. However, service access (coverage) is the outcome of supply and demand factors. The supply side represents the possibility of physically connecting to the network. The demand side is related to the household decision to connect. Besides the possibility of physically connecting to the network, a household’s decision to connect is influenced by four factors: affordability, quality, relevance and fit.1 Change in ownership (from public to private) per se is not the solution for all the problems associated with access to services. We will argue in this chapter that the main problem so far is that the features characterizing public utility provision – absence of competition and lack of transparency in regulatory procedures – still characterize utility provision after nearly a decade of privatization. 1.1. Access and Affordability: can Regulation be the Answer? Private provision is the model chosen by governments in Latin America to solve the limitations of the public utility model. Given the nature of utility markets, regulatory mechanisms needed to be put in place. Utilities exhibit sunk costs, and sizeable investments are required to enter the market. Regulation in Latin America was primarily conceived to protect...

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