Restructuring and privatizing electricity industries in the commonwealth of independent states

Abstract

This paper discusses the problems of restructuring electric power sectors in the countries of the commonwealth of independent states (CIS), and examines in detail electric utility privatization in Armenia. Privatization of electric power is expected to provide needed foreign investment, increase efficiency, and rationalize resource allocation. Progress in utility commercialization, and industry and market restructuring in the CIS is compared with that in Central and Eastern Europe. This paper presents the argument that throughout the CIS, little progress has been made because the investment needs of the electricity industry are not great compared with the strategic and political benefits that can be had by not privatizing, and because the political and strategic dimensions of electrical power in the region create large risks for potential investors. Risk of investment is amplified by the large amount of spare generating capacity and continuing operation of significant government-operated capacity. Armenia is found to provide a striking example of conditions and trends in the CIS countries. Prospects for the future of restructuring are considered and specific measures that could be taken to improve those prospects are suggested.