Utility Privatization and Regulation
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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.
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Chapter 4: Consumer participation and pro-poor regulation in Latin America

Cecilia Ugaz

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4. Consumer participation and propoor regulation in Latin America Cecilia Ugaz 1. INTRODUCTION In spite of not being ‘public goods’ in the strict sense of the term, public provision has been a common way of supplying utilities services around the world. Among the major reasons underlying the dominant position of the public sector as the provider of infrastructure are the recognition of the economic and political importance of infrastructure for development, and the faith that government provision could offset market failures characterizing the utilities market. However, under public provision, universal access to the services remained elusive, with large sectors of the population being excluded. At the same time, the financing of services became a heavy burden on government budgets. As documented elsewhere in this book, a major move towards privatization started in Latin America in the 1980s and early 1990s following the pioneering experiences of Chile’s and the UK’s infrastructure reform. Prior to privatization, the utilities sector in most Latin American countries was characterized by direct governmental intervention in pricing and investment decisions, and by non-transparent, non-independent regulatory systems. As a result, tariffs associated with infrastructure services were twisted to obey political considerations, notably, average tariffs were set below long-run average costs. The results were disastrous for the financial viability of the enterprises, causing underinvestment and declining quality. Lack of investment capacity seriously undermined network expansion needed to serve the increasing number of poor migrants coming to cities seeking opportunities for a better life. As a consequence,...

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