Electricity-sector Reforms in the MENA Region by Leila Benali

Author:Leila Benali
Language: eng
Format: epub
ISBN: 9783319962689
Publisher: Springer International Publishing

The reform of the electricity sector coincided with a period of economic prosperity in Saudi Arabia (budget surpluses and a new dynamic of government’s investments)

The second conclusion from this feasibility evaluation is that the more rigid the industrial structure is, the longer the reform will be. Time is a critical factor as it increases the probability for the reform to be distorted, reversed or frozen, sometimes because of external factors (e.g. global recession). However, this statement is mitigated by transaction costs which will be higher in countries with a rigid industrial structure. In other words, in these cases, it is more difficult to reverse or to freeze a reform when it has reached an advanced stage.

In a region where world-class oil and gas reserves are concentrated, a feasibility analysis would not have been complete if it did not look at how the resource endowment of a country affects the feasibility of a reform, and its process. Most theoretical and empirical studies on the reform of electricity sector and network industries seek to establish a relationship between political, ownership/institutional indicators (as explanatory variables) on the one hand and the reform process, the system’s efficiency, the quality of supply, reliability, performance and investment incentives (as results)10 on the other hand.

The rest of this section complement these analyses by investigating whether specific features of the country, like the resource endowment which influences the fuel mix, would have an impact on the reform process and results.

When the electricity fuel mix is dominated by a few power plants with high degree of interdependence, reform becomes more difficult. In general, the “indivisibility of capital-intensive assets” (nuclear reactors, hydropower dams) makes privatization and divestment difficult (Newbery 2002; Finon 2001), particularly if the size of the individual plants is large enough to dominate the market.11 Actually, it is generally accepted that the “competitive paradigm” emerged because of the development of small-scale, highly-efficient power plants, and moeusually equipped with CCGTs.

Nuclear power in particular has a “special status” given operational, performance and waste management risks. For example, the French nuclear industry received preferential treatment and government aid to develop. And the preferential treatment could be extended even under competitive market conditions. A recent example occurred in 2003 in the UK where low wholesale prices obliged several thermal IPP companies to go bankrupt while British Energy received state aid and survived.

As the fuel mix appears to have a direct impact on the feasibility of a reform, the resource endowment of a country, which directly impacts its fuel mix, could influence the reform process and outcome. Once again, the case of Saudi Arabia is particularly interesting for three main reasons:Saudi Arabia has the world’s largest reserves of oil (264 billion barrels, 25% of global proven reserves) and 7570 BCM reserves of gas.

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