Transcript Regulation in the Environment of Privatization “A

1st Meeting of GCC Electricity
Regulators
13th of November 2007
“Regulation in the Environment of
Privatization”
A Regulatory Framework for State Owned Enterprise Privatization with Emphasis
on Electricity and Water Sector in The State Of Qatar
By:
A.Aziz Al-Zeyara
privatization is Not New
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Privatization was first launched in the 1930s, but gained
momentum in the late 1970s and early 1980s under
Thatcher, Regan & Kohl.
Privatization is defined as the transfer of ownership from
State structure to the private sector.
The rational for privatization has varied from country to
country and from region to region.
In most developing countries, performance improvement,
efficiency enhancement, budgetary relief, and private
sector support where used as the main explanation for
policy implementation of privatization programmes since
the early 1980s.
Why privatization in the Middle East
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In most MENA countries, the aim of privatization was to
 cut public deficit,
 control corruption,
 decrease budget imbalance,
 improve management performance
 reduce cumulative loses.
 encouraging private initiatives.
Why privatization in the Middle East
Continue..
SOEs in most Middle Eastern states were, and most still are, lossmaking enterprises, thus forcing the state to borrow from local
sources initially.
But continued financial support to public enterprises reduced the
public funds available for social services, and led to crowding out
private sector borrowing and stifled private sector development.
Large public sector and trade deficits eventually forced most
states in the region to resort to international financial institutions
for assistance, particularly to the International Monitory Fund (IMF)
and World Bank.
It's been observed that at least 1/3 of all international borrowing by
developing countries was to cover the public enterprises dept
(Cook, Kirkapatrik 1988).
privatization Remains Largely Unsuccessful
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Yet, despite large scale privatization, the available
empirical evidence suggests that the outcome of
privatization in most developing countries have so far
been mixed.
Not only the pace, but also the quality of privatization
has, in most cases, been particularly problematic.
Very slow, very difficult
In terms of quality, privatization has neither improved
productivity, nor competition with negative impact on
growth.
Key Lessons from privatization Experience
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1st, the reform program is generally based on a
document or a set of documents that provide a
coherent framework for the various reform steps.
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2nd, privatization is Part of An Overall Reform
Package
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3rd, The role of the Single Buyer
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4th, The independence of the Regulator
Regulatory Systems
Control
Monitor
Judge
Privatization Process
Performance
Reforms
Efficiency
Privatized Enterprises
Less
Price
Private Sector
Better
Quality
The State
Satisfaction
Less
Cost
The Society
privatization in Qatar
 privatization
in Qatar has been promoted
and personally supervised by the emir of
the state of Qatar HH Shaikh Hamad Ben
Khalifa Al Thani.
 privatization in Qatar is aimed at promoting
economic diversification, improving
education and health, modernizing
infrastructure, and increasing public
saving.
privatization in Qatar Continues…
The state of Qatar has become one of the prominent
privatizors in the GCCs for the following rationales:
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Crude Oil price fluctuation
The contentment for the important role of the private sector.
State income resources diversification
Develop the infrastructure for the Qatari economy and polarizing the
advance technologies
Control the general budget expenditure
Performance and Commercial base operation
Abolishment of bureaucracy.
Support and develop the local private sector.
Wealth distribution among the nation.
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Spare capital for the state to invest and develop
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Investment to Promote Private Sector in
Qatar
Qatari government has taken concrete steps to
strengthen the private sector & create an
attractive business
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The protection of private property to ensure the
freedom of economic activity.
In 2000, a new foreign investment law was passed,
and in 2002 a new company law was passed.
The foreign investment law allows foreign
ownership
Incentives for investments in industrial projects
 Exemptions
 Raw Material subsidized prices
Problems of privatization in Qatar
While attempting to privatize, Qatari state officials have
faced several difficulties.
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Will privatization guarantee sufficient return to the state?
What is the acceptable level of alternatives returns the state
can accept and find?
What will happen to the states' employees?
How can privatization ensure the continuation of their jobs?
The available empirical evidence suggest that changing
ownership itself will not be sufficient, and may not be even
necessary to elicit performance improvements.
Rather, competition and regulation policy will emerge as
major determinants of the performance of the privatized
enterprises and assumed benefits from privatization.
Evaluating Privatization in Qatar
Evaluating the aimed objectives of privatized
enterprises in Qatar is not easy for several
reasons.
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Absence of clear objectives
 Lack of sufficient data on the whole process of
privatization
 Evaluation Making comparison
Qatar Experience in the Electricity &
Water Sector
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Ministry of Energy – Policy determination & role
allocation -- moderate regulation
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Private sector – all generation & desalination
production
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Qatar equity participation in all IWPP’s
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Qatar General Electricity & Water Corporation
(Kahramaa)
 Sole off-taker of all IWPP production
 National network owner & operator
 Power & water systems operator
 Sales tariff setting & DSM
IWPP Shareholders
Ras Laffan
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Owner
Shareholders
QEWC
Govt 43%, public shareholders
57%
Ras Laffan Power
Co
AES 55%, QEWC 25%
QP 10%,
GIC 10%
QPower
QEWC 55%, IP 40%
Chubu 5%
Mesaieed Power
Co
QEWC 40%, Marubeni 40%
QP 20%
Lessons learned & Conclusions
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Lack of formal regulatory system lead to in-direct
cross subsidies which are difficult to recover through
dominant Domestic Sector tariff
Strong economic growth will lead to 4 fold capacity
growth by 2011 compared with 2001 in Qatar
Qatar does not invest directly in IWPP’s, but accepts
responsibilities & risks
Short project lead-time reduces negotiating edge by
the off-takers & leads to higher purchase tariffs