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POLICY DIALOGUE ON CORPORATE GOVERNANCE IN CHINA

POLICY DIALOGUE ON CORPORATE GOVERNANCE IN CHINA. Presentation by Patricia Leahy, Director , UK National Audit Office February 2004. Privatisation, competition and regulation. Some potential privatisation benefits. Economy Improved budget and debt position More competitive economy

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POLICY DIALOGUE ON CORPORATE GOVERNANCE IN CHINA

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  1. POLICY DIALOGUE ON CORPORATE GOVERNANCE IN CHINA Presentation by Patricia Leahy, Director ,UK National Audit Office February 2004 Privatisation, competition and regulation

  2. Some potential privatisation benefits Economy • Improved budget and debt position • More competitive economy • Boost to domestic capital markets The business • Improved efficiency • Increased flexibility to deal with change • Greater access to capital markets Other stakeholders • Lower prices • Improved quality of service

  3. Achieving maximum benefits • Corporatisation alone achieves benefits • Privatisation can double the benefits • Competition and liberalisation necessary to achieve maximum benefits • Regulation needed to allow fair distribution of benefits

  4. UK experience – competition • BT – privatised intact, duopoly policy, now full competition • British Gas - privatised intact, now regulated Transco and commercial businesses • Electricity – restructured then privatised, initially limited competition, now fully competitive market

  5. Electricity privatisation in England and Wales Comparison of structure pre and post privatisation Post privatisation Pre privatisation National Power PowerGen Nuclear Electric CEGB Pool run by National Grid 12 Supply Boards 12 Regional Electricity Companies Customers Customers

  6. Electricity privatisation in England and Wales Pros and Cons of initial privatisation structure • New competitive markets created in generation and supply • Provision at privatisation for supply competition to be extended gradually to all customers • Capacity payments meant considerable security of supply • Pool prices kept artificially high

  7. Electricity privatisation in England and Wales Subsequent market changes • 1996 - privatisation of nuclear generation – British Energy • 1998-99 - domestic customers able to choose their electricity supplier - National Power/PowerGen forced to sell off generation and allowed to buy Supply Companies • 2001 - new market based arrangements for trading introduced • Future - single UK market to be achieved

  8. Electricity privatisation in England and Wales Current structure of the market • More generators (some 40 major ones) • More suppliers (some 20 licensed) • Vertical and horizontal integration of many utility companies • Large transparent wholesale market

  9. Electricity privatisation in England and Wales UK Electricity arrangements since 2001 Distribution Company Transmission Transmission Charges 25% Transmission Charges 75% Distribution Charge Generation (Contracted) Contract Price Customer Supply Company Tariff Imbalance Payments Generation (Available) Balancing Market Un-contracted generation receives no revenue Flow of Electricity Flow of Payments

  10. Economic regulation • Only needed if effective competition lacking • Crucial that independent of Government • General principles - Transparency - Consistency - Predictability - Accountability • Regulatory risk

  11. Privatisation, competition, regulation – impact on stakeholders in the UK • Management • Shareholders • Customers • Employees

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