Trade Policy Note Final-rev08 - Development

How to ensure universal access?
Governments of developing countries are seeking private sector participation to
obtain the necessary capital and technology. The dilemma often faced by governments
is how to obtain foreign investment to increase capacity and efficiency, whilst
simultaneously keeping the price of electricity, in particular, at levels accessible to the
poor. In the energy sector, conditions for entry and performance requirements are
essential tools for ensuring tha t liberalization attains the ultimate objective of
universal coverage. Such conditions may include price undertakings (as liberalization
tends to result in increased prices if not controlled), universal service obligations and
transfer of technology requirements. On the other hand, governments may need to
subsidize investors in isolated regions, particularly those involved in renewable
energy production (e.g. solar or wind energy). Fair and transparent rules governing
TPA and cross subsidization can also encourage investors. The energy sector can be a
source of employment for youth, providing higher paying jobs, both at home and
abroad through MNP. In addition, it may be necessary to retain energy subsidies, but
with more focus on the poor. Such requirements should be stipulated in GATS
commitments or in FTA “reservations”.
The scope of WTO negotiations on energy extends beyond the services sector. Energy
importing countries are seeking to expand the rules on subsides to restrict “dual
pricing” practices under which energy producing countries maintain prices for
domestic consumers at levels below those prevailing on the world market. There are
also initiatives to eliminate exports taxes, as a policy tool frequently used in the
energy sector.
Box 24: Energy Services Liberalization in Latin America
Country-case studies carried out in Latin America in 2001 show that energy market
liberalization has, on balance, been beneficial to countries that have implemented it. Both
energy availability and the quality of the service have been enhanced, mostly through (too
broad in its sweep) rapid transfer of technology and systems, and more efficient modern
management. However, energy accessibility and affordability, although better overall, has not
improved for marginal populations. In general, market liberalization has tended to reduce
employment in the sector as public monopoly enterprises tended to be over -staffed.
Reductions in personnel in privatized companies have been accompanied, however, by
increases in the number of jobs in contracting companies as a result of the increasing
outsourcing of many activities. 148 Within the context of heavy reliance on services companies,
there is still a great variety in the degree to which energy companies vertically integrate
backwards or outsource services to external providers.
148 World Energy Council (2001), Energy Markets in Transition: The Latin American and Caribbean
Experience, London.
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