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II. Privatization Process: Making Privatization Work - Key Issues & Approaches |
With all the factors discussed above in mind, certain specific steps have emerged as most likely to achieve success. This section discusses what these steps are, why they are taken, and how they are advanced.
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C. Order of Sale |
Generally speaking, distribution should be sold before generation (unless both are sold simultaneously). In some countries, e.g., Armenia and Ukraine, more than a 51% interest is needed to control a corporate entity. In practice, transmission has not yet been sold, although at least some countries (eg. Hungary) have indicated an intent to do so and Georgia will employ two private management contracts for transmission/dispatch and market operations. As a logical matter, nothing should prevent the sale of transmission assets and such assets are held by private entities elsewhere.
While transmission wires are often viewed as strategically important to a nation such importance should not foreclose transfer of ownership to an appropriate, regulated strategic investor.
The reason for this order of sale is simple. Typically, there is an immediate need to improve cash flow and collections from the consumer. Once distribution is privatized and the flow of funds from the consumer is stabilized and transparent, the generator is in a better position and has greater assurance of being paid. At that point -- after distribution is sold an improved -- the attractiveness of the generation assets is heightened; increasing the interest investors will have in them.
The experience in Kazakhstan is instructive. There, generation was sold first. Collection problems persisted thereafter. In countries without collection problems, the need to sell distribution first is not as acute. Given that the ultimate goal of privatization is to improve service, however, it can make sense as a general matter to start such improvements at the retail level.
In countries with critical electricity supply problems, it may be necessary to allow some cross-ownership. Distribution companies may want to own generation to assure supply to their customers is requires effective and consistent regulation.
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Source: |
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Table
of contents |
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I. Power Sector Privatization |
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II. Privatization Process |
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Conclusion |
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