Taking Stock of the Impact of Power Utility Reform in Developing Countries: A Literature Review

Abstract

This paper reviews recent literature on the impacts of various components of power sector reform on the performance of electric utilities in developing countries. Recent literature is heavily focused on statistical testing of the significance of the links between four components of sector reform (unbundling, private sector participation, regulation, and competition) and various performance indicators (relating to utility performance, user outcomes, and broader economic development). Some studies exhibit methodological shortcomings in failing to account for interactions between reforms or degrees of reform; however, others appear to be robust. The strongest result is that the introduction of private sector participation is linked to a significant improvement in labor productivity and distribution losses. Moreover, unbundling reforms in isolation is found to have hardly any significant impact on utility performance. The introduction of an independent regulator or competition is not generally significant across studies. A notable feature of all of the studies is very limited testing of the effects of policy introduction on performance indicators, such as bill collection and the duration and frequency of outages. Poor performance on these indicators of state-owned power companies is well documented and bill collection has been identified as a major hidden cost of unreformed power sectors. The materiality of the impact of private sector participation, on the various performance indictors found to be significant, is calculated for studies that provide sufficient information to do so. The size of the impact of private sector participation on utility performance is substantial in a couple of studies, although much more modest in others.