Evaluating electricity sector reforms in Argentina: lessons for developing countries?

Abstract

In Argentina, prior to the macroeconomic crisis of early 2002, power sector reforms had proven successful in delivering low electricity tariffs and increasing private investments. This had been achieved through the unbundling of electricity supply businesses and the introduction of competition, paying due attention to the lessons learned by forerunners in power sector reform, including neighbouring Chile. The reforms that had been implemented in Argentina were therefore deemed to have been a success. However, in the wake of the macroeconomic crisis and the devaluation of the peso, generators and gas suppliers found themselves in critical financial straights, which caused a halt to additional investment. The current challenge facing reforms in the Argentine power sector is to rebound from the financial ramifications of peso devaluation and to promote private investment. Given these basic facts, this paper traces the history of reforms in the Argentine electricity sector, assessing the progress that has been achieved and suggesting lessons for developing countries. It is often the case in developing countries that the unbundling of vertically integrated state-owned industries into privatised enterprises requires efforts to improve infrastructure as a prerequisite for the introduction of competitive practices. Bearing this in mind, this paper lays out measures that would be useful to consider for electricity sector reforms in developing countries from the following three perspectives: (1) Transition from a state-owned power companies to private enterprises; (2) Development of conditions required to promote infrastructure projects; and (3) Development of conditions for the establishment of a healthy and fair competitive environment, assuming that liberalisation is achieved once the conditions in (1) and (2) are met.