Utility Reforms

In "Utility Reforms," Vivien Foster, Erwin Tiongson, and Caterina Ruggeri Laderchi examine reforms in utility services: water, electricity, gas, and telecommunications. These services have been grouped together since they present common economic and political issues. The note characterizes the main types of utility reforms - public sector reform, private sector participation, regulatory reform, utility restructuring, and market liberalization.

There are different rationales for utility reforms, which may sometimes conflict: for instance from a macroeconomic perspective, utility reform may represent a means to improve public finances, while from a microeconomic perspective, reform may be a means to enhance utility performance. For the first, the objective of maximizing fiscal flows can generate pressure to reduce competition, keep regulation light, and minimize investment obligations. For the second, the central aim to improve efficiency requires a much stronger focus on restructuring, regulatory reform, and market liberalization.

The various types of utility reform have important distributional implications. These key dimensions are employment and wages, service prices, service quality, service access, fiscal flows, asset ownership, and entry conditions. The note summarizes the extent to which each of the components can have impacts along these channels.

The authors identify the critical stakeholders in utility reform, including workers, consumers (current or potential, legitimate or clandestine, urban or rural, and residential or nonresidential), owners, competitors, and the state. The balancing of interests among the stakeholder groups is ultimately a political choice and depends both on the design of the reform and on its subsequent implementation. Mitigating measures that can be adopted to attenuate negative impacts of reform on any of these stakeholder groups are described.

The appendices to the note provide a comprehensive overview of the literature on these impacts. They cover 50 country studies and 13 cross-country studies. They indicate which of the channels of impact are covered in each of the studies and summarize the methodology employed. They demonstrate the difficulty of making generalizations about the magnitude and direction of the impacts of any particular type of reform.

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