Institutional Change and Industrial Development in Central and Eastern Europe by Anne Lorentzen Brigitta Widmaier Mihály Laki

Author:Anne Lorentzen, Brigitta Widmaier, Mihály Laki [Anne Lorentzen, Brigitta Widmaier, Mihály Laki]
Language: eng
Format: epub
Tags: Nonfiction, Social & Cultural Studies, Social Science, Sociology
ISBN: 9780429854231
Publisher: Taylor and Francis
Published: 2018-12-21T05:00:00+00:00

The Development of Electricity Regulation in the Transition Economies

Table 6.3 shows the differing degrees (and proliferation) of regulatory structures and mechanisms in the transition economies. The most contentious issues regarding the effective regulation and privatisation of electricity utilities in CEE and the former Soviet Union concern: (i) the appropriate ownership of the utilities; (ii) the nature of the regulatory structure, in particular whether regulation should be conducted by an independent agency, a branch of the Ministry of Economy, Finance or Transport, or the enterprise itself; (iii) the desirability of allowing entry and competition; and (iv) how to choose procedures for the control and setting of prices. The main elements of the regulatory structures and bodies in the CEEs and the former Soviet Union are presented in Table 6.3.

As previously noted, Hungary has developed the most extensive and established regulatory framework of the CEE, Thus the following will describe the regulatory mechanism as set out in legal documents and with reference to the practical experience gained in three different countries at different stages of developing the necessary regulatory framework: Hungary, the Czech Republic and Latvia.

In Hungary, the most important pieces of legislation as regards regulation of the energy sector are the Act on Gas Supply and the Act on the Generation and Distribution of Electrical Energy (Acts Nos. XLI and XLVIII of 1994), whose scope includes not only regulation of the transmission, supply and sale of gas and electricity, and the obligation to meet reasonable demand for a supply, but also safety provisions and provision for environmental and consumer protection. The Gas Act also makes provision for establishing the Hungarian Energy Office (MEH), a government agency under the supervision of the Ministry of Industry and Trade, and defines its regulatory functions, which include the issue of licences, e.g. for the supply of gas.6 MEH also has the power (both under the Act and in the terms of the operating licences) to inspect installations (including consumer appliances) and their operation and maintenance, and may require licensed supply companies to seek authorisation in the case of certain commercial decisions which could affect their ability to supply (e.g. mergers, demergers, reduction of equity and 'sale of a significant stake') (Canning and Hare, 1996).

The regulatory system in Hungary is undoubtedly still in its infancy, and analysts are quick to point to actual or potential shortcomings. While legal loopholes may present problems of interpretation, however, and it may yet be some time before the institutions monitoring the operations of the regulated utilities develop the mechanisms for smooth and clear communication between the various groups whose interests they are designed to protect, such problems do not necessarily represent an insurmountable risk to investors in the utilities, while consumers in Hungary and other CEEs have yet to develop adequate representative mechanisms. A far more important question, certainly as far as the investors (and the companies themselves) are concerned, is the credibility of the government's commitment to maintaining an Aarm's-length' relationship with the regulatory framework it has put in place.

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