Electricity, multinationals and development

1. Electricity, multinationals and development By David Hall d.j.hall@gre.ac.uk Public Services International Research Unit (PSIRU) University of Greenwich, UK, www.psiru.org On behalf of Public Services International April 2009

2. Multinationals • De-regulation, liberalisation and privatisation • Electricity and development • Other issues • PSI strategy

3. Multinationals • USA and EU electricity companies expand 1990s • USA companies expand into UK, rest of Europe, Latin America, Asia • Most active are Enron & AES, but also TXU, PPL, etc • EU companies expand into USA, Latin America, Asia • Most active:EDF & Spanish companies: Endesa, Iberdrola, Union Fenosa • Most withdraw after 2000 • 1. inadequate profits 2. public and political resistance, uncertainty • USA companies exit UK and Europe, USA and EU try to exit Latin America, but few buyers • Remaining multinational activity in 2009 • EU companies in N. America • mixed picture in developing countries: • some remaining MNCs, some private equity, some renationalised • EU companies have European Works Councils with union representation • Can leverage this for international benefit e.g. EdF

4. EU electricity companies operating in USA 2009

5. EU: problems with liberalisation and privatisation • EU directive liberalises electricity/gas since 1998 • wholesale/retail deregulation, unbundling of public monopolies • Compulsory in all countries and cities • “It is highly questionable that gas and electricity prices are the result of a truly competitive process rather than being the direct result of decision of companies with market power. … London Economics study states that these prices "are significantly higher than would be expected on perfectly competitive markets" ...” (EU Commission 2007) • No evidence of benefits from privatisation or liberalisation • no consumer gains, consumer satisfaction higher under public ownership, similar for gas and telecoms (Florio et al, Univ Milan) • Retail consumers reluctant to switch • Vertical integration of generation and retail continues

6. USA: deregulation and price of electricity 1991-2007 • Deregulated state prices were 35% higher, now 56% higher • Consumers do not switch from utilities • 26 states do not deregulate • 7 defer deregulation • 8/17 deregulated states debate changes e.g. end retail choice, allow vertical reintegration • also bad experience with wholesale deregulation: California 2000 cartel, price spikes, bankrupt distributors, blackouts (except Los Angeles with vertically integrated municipal utility) • Marilyn Showalter: Price Trends For Industrial Electricity. 2007 www.ppinet.org .

7. Electricity and development - the need for electric light and power

8. Problems with multinationals in developing countries • Multinationals: • Corruption e.g. IPP power plants in Indonesia, Pakistan, India • Casualisation of workers e.g. Argentina • evidence shows that private sector is not more efficient than public sector • no investments because not profitable, withdraw and/or claim compensation • Note problems of prices, exits e.g. AES • Uganda • distributor privatised to Eskom (South Africa) + Globeleq (UK govt) • price increases, under-investment, only 10% connected • generation relies on IPPs (Eskom+), & diesel generators (Aggreko) • Nicaragua • Distributors privatised to Union Fenosa (Spain) • blackouts, arbitrary bills, partial renationalisation • Thailand • Strong union campaign against power privatisation, part of movement against corrupt president Thaksin

9. Public finance for investment in systems • Electricity (and roads) key for development • Economic, social and markets (for electrical goods) • 50% of all efficiency gains in USA economy 1920s-1970s due to (mainly public) investment in electricity & roads • Government investment needed for extension of system • Private sector funds little • Brazil: central government funding: ‘Luz para todos’ (Light for All) • South Africa funds rural electrification through tax and cross-subsidy • Aid: • IMF, World Bank, USA, EU donors: lend on condition of privatisation and liberalisation • China is now alternative source of aid, without policy conditions

10. PSI strategic approach

11. Other issues • Energy sources • Renewables: greater concerns re global warming • energy security: EU concerns re Russia, • nuclear power: expansion and promotion • Economic crisis • Lower demand for electricity • Difficulty of refinancing debts • Infrastructure spending to counter recession e.g. on transmission lines, new green energy sources • General problem:wages share falling, profits share rising • Reversal key to boost demand

13. Public confidence in free market and unions: September 2007 Financial Times survey

14. More about PSI and PSIRU • Information about PSI affiliates and campaigns are published on the website at www.world-psi.org • PSIRU reports are published on the unit’s website www.psiru.org Thank you