The aim of this study is to revisit, refresh, and update thinking on power sector reform in developing countries in the light of historical evidence and future trends.
Relying on a rich new evidence base, the study looks back over 25 years of experience with power sector reform across the developing world.
At the same time, the study looks ahead to the technological disruptions sweeping the power sector, developments that are challenging conventional wisdom about sector organization and structure.
The study suggests that future reforms should be shaped by context, driven by outcomes, and informed by alternatives.
- Uptake of power sector reform in the developing world did not evolve according to the textbook model.
- Power sector reforms were more likely to gain traction if they were consistent with the country’s political system and ideology and led by champions enjoying broad stakeholder support.
- The private sector made an important contribution to expanding power generation capacity in the developing world, albeit with significant challenges along the way.
- Wholesale power markets helped improve efficiency in the minority of countries that was ready for them; many others found themselves stuck in transition.
- Good corporate practices, particularly with respect to human resources and financial discipline, were associated with better utility performance; these were more prevalent among privatized utilities.
- Private sector participation in power transmission and distribution delivered good outcomes in favorable settings; elsewhere, it was susceptible to reversal.
- Regulatory frameworks have been widely adopted, but implementation has often fallen far short of design, particularly when utilities remained under state ownership.
- Cost recovery has proved remarkably difficult to achieve and sustain; the limited progress made owes more to efficiency improvements than to tariff hikes.
- The outcomes of power sector reform were heavily influenced by the starting conditions in each country.
- Good sector outcomes were achieved by countries adopting a variety of different institutional patterns of organization for the sector.
- The design of power sector reforms should be informed by the enabling conditions of each country and oriented primarily toward achieving better sector outcomes.
- The design of power sector reform needs to be thoroughly grounded in the political realities of each country.
- Greater emphasis should be placed on building institutional capacity for power sector planning and associated implementation.
- Generation plants should be procured through a transparent and competitive process, with as much contractual flexibility as the context allows.
- Unbundling should not be the highest priority where more fundamental financial and governance challenges persist; it should be undertaken primarily to facilitate deeper reforms.
- Wholesale power markets remain a viable option for countries that have put in place all the foundational measures; others may derive greater benefit from regional trade.
- Greater efforts should be made to strengthen the corporate governance and managerial practices of state-owned utilities.
- The regulatory framework needs to be adapted to reflect the institutional context and to accommodate emerging technological trends.
- Private sector participation in distribution should be considered only when enabling conditions are met.
- Delivering on the twenty-first century agenda of universal access and decarbonization calls for additional reform measures targeted explicitly at these objectives.