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 10: Redistributive impact of privatization and the regulation of utilities in Chile

Ricardo Paredes M.

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


Ricardo Paredes M. 1. INTRODUCTION Privatization has been one of the primary factors generating changes in the economy over the last decade. Western countries with some privatization experience have, on an overall basis, evaluated the process favourably. However, privatization has faced major difficulties in most countries because serious political opposition has limited its extent. In part, the opposition reflects the uncertainty faced by workers and consumers regarding the impact privatization will have on employment and prices. There is no doubt that these fears are closely related with the regulatory framework and the effect that this framework has on final prices. In Chile, the regulation of natural monopolies was introduced before privatization, which makes it possible to distinguish between the privatization and deregulation eras. Discussion has focused on the theory that the cost of inadequate and unsuitable regulation could have been extremely high.1 In the case of Chile, this concern can be summarized in three related factors. First, regulations (laws and administrative decrees) were not sufficiently clear and several aspects were not properly dealt with. Second, before privatization was actually implemented, insufficient consideration was given to the specific mechanisms required to regulate private monopolies adequately. Third, some privatized firms have retained certain powers which would have been more appropriate in respect of state-owned enterprises. Together, these elements have hindered the development of an appropriate degree of competition in the market and have pervasively affected consumers, particularly the poorest sector. Despite the importance of the...

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