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 11: The social impact of privatization and the regulation of utilities in Peru

Máximo Torero and Alberto Pascó-Font


Máximo Torero and Alberto Pascó-Font 1. INTRODUCTION In August 1990, Peru embarked on a drastic stabilization and structural reform process comprising a vast programme of privatization of the main utilities: electricity, telephone and, to a lesser extent, water and sanitation. This research tries to assess the welfare impact of privatization on Peruvian urban households. The objective is, therefore, to assess the distributive effects of price changes brought about by privatization and to determine which households bear a greater portion of the burden or enjoy most of the benefits of reforms. To accomplish this objective, three complementary methodologies are followed in this chapter. The first consists of calculating concentration curves to show how services are distributed among the population. The second methodology, based on the study by Waddams Price and Hancock (1998), consists of measuring the changes in consumer welfare associated with changes in structure and price levels. Finally, under the third methodology, demand equations are estimated for the different utilities applying a two-stage Heckman procedure to correct for the probability of having access to the service. Using the elasticities estimated with this two-stage procedure, we calculate welfare changes associated with the consumption of the utilities. The depth of the reforms, particularly the extent of privatization, is uneven across sectors. Despite these differences, the improvements in service supply are very significant. However, there are still major problems which could explain why the welfare impact – according to our calculations – is not significant, and may...

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