Abstract
Electricity-sector reforms started in the mid-1990s in the region, following the “second” global wave of electric reforms. Oman and Morocco led the way in the early 1990s, and they were followed by Abu Dhabi and the majority of other MENA countries. It is conventionally admitted that, in the region, oil prices are an important factor influencing economic reforms. This was probably true during the last two decades of the last century but not afterwards. The need to build consensus among decision-makers guided electricity reforms, particularly in gulf countries. In other countries where interests are concentrated but not mutualised (North Africa), a general suspicion towards anything related to the introduction of the private sector would hamper the process of reform or privatization. The productivity of most vertically integrated monopolies in the region is comparable to that of a western vertically-integrated monopoly. However, the limited financial capability of some could be problematic and would require sovereign guarantee.
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- 1.
Boos schemes [Build-Own-Operate (BOO), Build-Operate-Transfer (BOT), Build-Own-Operate-Transfer (BOOT)].
- 2.
“With two decades of anemic growth following the collapse in oil prices in the mid-1980, most of the economies in MENA had initiated some program of reform to transition to more open, private-sector oriented growth. Resource poor economies like Egypt, Jordan, Morocco, and Tunisia embarked on reform earlier (beginning in the mid-1980s), but the sustained lack of growth inspired almost all countries in MENA to, at least notionally, embrace the need for reform by 2000. Thus, the present oil boom occurs in a markedly different environment than the previous oil booms. This oil boom happens in the midst of an economic transition”. Arab Strategy Forum, talking points of session: Will the New Oil Boom Kill the Reform? December 2006.
- 3.
Source: SAMA.
- 4.
Mohamed A. El Erian, President and CEO of the Harvard Management Company, at a Luncheon Keynote Speech, ABANA (Arab Bankers Association) Annual Conference, Middle East capital markets, 25 April 2006. New York.
- 5.
In November 1997, OPEC decided in its meeting in Jakarta to increase production by 10%. Prices collapsed in 1998, in the wake of the Asian economic downturn. In 1998, oil prices went down from $20 to $10 per barrel.
- 6.
For a more complete analysis of the context and framework for understanding the unprecedented rise in oil prices since 2001, see “Recession shock: the impact of the economic and financial crisis on the oil market”, a special report by Cambridge Energy Research Associates to The UK Department of Energy and Climate Change and the Ministry of Petroleum and Mineral Resources of Saudi Arabia. The report was part of the briefing for the London Energy Meeting on December 19, 2008. It explains why economic growth was not derailed sooner.
- 7.
The Hirschmann dialectic describes this oscillation between the market and the government and the intellectual delusion vis-à-vis Keynesianism that it produced.
- 8.
Béatrice Hibou (dir.), La privatisation des Etats, Paris, Karthala, 1999.
- 9.
For more details on MENA’s defense budgets, refer to Appendix E.
- 10.
See Barrett and Benali (2007).
- 11.
Between 2004 and 2008, there were five major blackouts reported in the region: in Jordan (the whole country in August 2004), in Kuwait (the whole country in November 2004 and summer 2006), in Bahrain (the whole country in August 2004) and in Dubai (the whole emirate in June 2005). Of course, Iraq has been experiencing recurrent power shortages.
- 12.
After the lifting of sanctions on Libya in 2003, the government embarked in a program of national reform. This program was meant to ineluctably impact the electricity for two main reasons. First, the development of this sector is a prerequisite for the development of any other sector, which in itself in an incentive to seek a higher level of performance. Second, the authorities are increasingly concerned about the high level of subsidies injected in the sector, which would decrease if there is a better performance, and about the inability of the sector to finance its operations and invest in new projects. For more details on this period of Libya’s economic history, see the National Economy Strategy report developed by Monitor and CERA.
- 13.
Israel targets to have 20% of power needs covered by IPPs in 2020, up from less than 5% today.
- 14.
The rather unusual agreement will only apply to producers who secure financing over the following 30 months. It does not derogate the IEC’s obligation to make payments approved by the Public Utilities Authority.
- 15.
Tariffs to private generators of 8%/kWh were agreed in November 2008 by the previous government.
- 16.
In Aujourd’hui le Maroc (4 January 2008), a Moroccan economic daily, the Director General of the Moroccan National utility ONE stated that the financial situation of ONE in 2007, even if improving in comparison to 2006, remained fragile. The difficult international energy context and the freeze of electricity tariffs contributed to its financial difficulties. Increases in fuel costs are reportedly bore exclusively by ONE (neither by IPPs nor by distribution companies). ONE takes care of the public service (rural electrification, security reserves), has an important debt and some distribution companies still accrue liabilities.
- 17.
In June 2003, Ernst & Young were hired as consultants to advise on the privatization program.
- 18.
ALBA was established in 1968. It is 77% government owned (77% Bahrain Mumtalakat Holding, 20% SABIC and 3% Breton investments).
- 19.
See S.L. SHIRK, The Political logic of economic reform in China, University of California Press, Berkeley, 1993.
- 20.
Allen Conroy, Deputy Managing Director of Abu Dhabi’s Umm al Nar Power Company.
- 21.
For example, 2.7 million inhabitants in Oman, and 1.6 million in Qatar, including expatriates.
- 22.
See for example Keefer, P. (2002), “the political economy of corruption in Indonesia”, World Bank, Washington, DC.
- 23.
Similar trends occurred in other parts of the world. For example, “surveys show that a substantial share of the Honduran population does not see privatization warmly … this is partly explained by the suspicion that questionable deals were entered into” Walker and Benavides (2002).
- 24.
The European Bank for Reconstruction and Development defined the levels of sector transition according to more complex criteria: level 1: Power sector operated as a government department; political interference in running the industry; few commercial freedoms or pressures; average prices below costs, with external and implicit subsidy and cross subsidy; very little institutional reform, with monolithic structure with no separation of different parts of the business. Level 2: Power company distanced from government, e.g. joint-stock company, although still political interference; some attempts to harden budget constraint but management incentives for efficient performance weak; some degree of subsidy and cross subsidy; little institutional reform; monolithic structure with no separation of different parts of the business; minimal, if any, private-sector investment. Level 3: Law passed accounting for full-scale restructuring of the industry, including vertical unbundling through accounting separation, setting up a regulator; some tariff reform and improvements in revenue collection; some private involvement. Level 4: Law for industry restructuring passed with unbundling of the industry and regulator set up with rules for cost effective tariff-setting formulated and implemented; arrangements for network access (negotiated access, single-buyer model) developed; substantial private sector involvement in distribution and/or generation. Level 4+: Business vertically unbundled; independent regulator with full power to set cost-reflective effective tariffs; large-scale private-sector involvement; institutional development covering arrangements for network access and full competition in generation.
- 25.
like freeing interest rates, free transfer of funds, unification of exchange rates, full convertibility of the Syrian Pound, independence of Central Bank, revision of income tax, revision of trade laws, modification of custom tariffs, setting up of a Stock Exchange.
- 26.
The USA PATRIOT Act (the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act) of 2001 and the Syria Accountability Act of 2003.
- 27.
Syria oil production has been in constant decline since its peak of 640,000 barrels per day in 1996, due to technical deficiency, low investments and steady depletion. Crude production was estimated at 400,000 barrels per day in 2005.
- 28.
In order to try to minimize production costs and encourage the sale of electric power by IPPs, the Minister of National Infrastructures enacted the Electricity Sector (Conventional Independent Producer) Regulations-5765–2004. These regulations determined a mechanism where an IPP could require IEC to purchase available production capacity for a payment equal to 80% of the normative cost of the production unit (an objective cost to be determined by the Electricity Authority) for each MW of available supply capacity that it provides IEC and 100% of the fixed operating and maintenance costs for each MW of available capacity. This mechanism serves as a sort of “safety net” to guarantee full payment of the debt in case the producer does not sell the station’s full capacity. The regulations add that where the producer provides available production capacity to IEC, the producer may be obligated to provide electricity to the national grid at a fixed rate to be determined by the Electricity Authority (may reflect the production cost). The regulations also provides for the stability of production components or normative costs in IPP transactions, except for the regular updates as determined by the Electricity Authority.
- 29.
The Generation Management companies maintain and operate the 53 state-owned thermal power plants of the country. In addition to these thermal power plants, the country accounts 17 hydroelectric power plants.
- 30.
Development of thermal power plants—through local or foreign contractors—is the main duty of MAPNA.
- 31.
The ongoing US economic sanctions against Iran prohibits US companies or banks from participating in Iranian IPP projects.
- 32.
In 2006, Khatam al Anbiaa was awarded the contracts for the development of phases 15–16 of South Pars without competitive bidding. It was also awarded the strategic IGAT-7 gas line (Assayuleh—gas from South Pars 9–10- to Iranshahr). IGAT-7 is particularly important because it is the cornerstone of NIGC plans to extend gas infrastructure to the border with Pakistan anticipating future gas exports.
- 33.
Iran’s Revolutionary Guards was not listed on one of the latest Foreign Terrorist Organizations (FTO) list dated April 2008. However, since October 2007, the organization is on the list of “entities of proliferation concerns and support for terrorism concern” under E.O. 13382. At the time of writing the fate of the sanctions regime, including the Joint Comprehensive Plan of Action (JCPOA) adopted in October 2015, was uncertain.
- 34.
“Regional cooperation, regionalism and regionalization in the Middle East are usually considered to be weak and rather ceremonial. However, since September 11, 2001, a new regional order is emerging and the impact of geostrategic changes in the international environment has yet to be satisfactorily studied. With older regional organizations suffering from weaknesses, new forms appear to be developing and flourishing, due either to European support or growing sub-regional identities”. Harders and Legrenzi (2008) tackle the critical question of why the Middle East—unlike most other regions—has failed to develop robust institutions to promote regional security and development, and explore “the limits and opportunities of cooperation in a troubled region”.
- 35.
The Arab Fund for Economic and Social Development (AFESD) is an autonomous regional Pan-Arab development finance organization. Its membership consists of all States who are members of the League of Arab States. The Agreement establishing the Fund was adopted by the Economic and Social Council of the League of Arab States on 16 May 1968. The General Secretariat of the League of Arab States declared the Agreement effective as of 18 December 1971. The first meeting of the Board of Governors was convened on 6 February 1972, and the Fund commenced operations in early 1974. Its function is to assist the economic and social development of Arab countries through (1) financing development projects, with preference given to overall Arab development and to joint Arab projects; (2) encouraging the investment of private and public funds in Arab projects; and (3) providing technical assistance services for Arab economic and social development.
- 36.
The analysis was based on a projected annual demand growth rate of 6.6% between 1995 and 2000, and 6% until 2010.
- 37.
Treaties were required as the GCC is not a legal entity.
- 38.
Several hours of emergency power a few times per year for each country, to be paid back in kind, quantity for quantity, with penalties imposed if this does not occur within a certain time frame.
- 39.
Initial studies in 1991 estimated that 5 GW could be saved by interconnecting the six GCC countries over a period of 15 years.
- 40.
“We started as a domestic power company and in about 8 months we went from that to being present in ten countries and having 2000 employees. The whole idea is to take the diverging corporate cultures because we are integrating BP’s culture, CMS Generation’s culture and Northrup’s culture into one company, and we want to develop the TAQA way of doing business. This revolves around operational excellence, performance excellence, environmental excellence and, indeed, employee development excellence.” Peter Barker Homek, CEO of TAQA, 2007.
- 41.
TAQA’s CEO Peter Barker Homek, February 2009.
- 42.
Abu Dhabi’s third investment vehicle in energy assets is International Petroleum Investment Co (IPIC). The three companies to not compete with each other.
- 43.
Acwa won its first IWPP at Shuaiba in 2002. Sadaf executed the country’s first ever IPP in 2004 in Jubail.
- 44.
Other examples include Venezuela, Russia and Ecuador. For more background on resource nationalism, refer to Johnson (2007) and Stark (2007), for instance.
- 45.
In Algeria, the 2005 hydrocarbons law was hailed at the time as a major step toward full liberalization of the hydrocarbons sector. The law clarified the state’s role in the oil and gas sector as policymaker and regulator through a set of new, independent agencies. It also sought to allow free competition through the elimination of monopolies. It established the framework of a liberalized operating environment that aims to guarantee fair and equitable treatment of all operators, whether public or private, domestic or foreign. In the 2005 version, Sonatrach’s “right” to a 50% equity stake in any project is replaced by an “option” to take 20–30% interest in case of discovery. In July 2006, a presidential decision partly reversed the law’s liberalization trend by instituting a windfall profits tax and by giving back to Sonatrach a mandatory 51% interest in any future E&P contracts as well as in pipeline projects. In Libya, the EPSA bid round of 2006 offers a contrasting approach, in comparison to the unilateral approach of other countries. In accordance with the standard Exploration and Production Sharing Agreement, Libya invited bidders to stipulate the share of production they would accept. The result was offers in the range from 7.8 to 13.5% with one offer accepted at 18% but reduced in subsequent negotiations to 12%. This is very low compared with previous rounds and contracts. Other criteria on which bids were evaluated included parallel investment proposals (particularly social or training investments) and additional advantages such as the increase of local content.
References
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Walker I, Benavides JM (2002) Sustainability of power sector reform in Latin America. In: The reform in honduras. Working Paper. Inter-American Development Bank, Washington
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Benali, L. (2019). Three Main Drivers of Electricity-Sector Reforms. In: Electricity-sector Reforms in the MENA Region. Perspectives on Development in the Middle East and North Africa (MENA) Region. Springer, Cham. https://doi.org/10.1007/978-3-319-96268-9_3
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