HomeBusiness DigestDeregulation no solution to consumers' woes

Deregulation no solution to consumers’ woes

By Kuthula Matshazi

PRIVATE SECTOR intervention and being the “fixers” of all problems in the economy is a partially skewed reality.

Helvetica, sans-serif”>Based on experience and information, the private sector participation in electricity provision has had mixed results.

First, businesses are in business to make profits. Period.

Financial institutions and investment houses get profits from an enlarged private energy sector. And a deregulated electricity market contributes to the economy and could alleviate the huge unemployment in Zimbabwe.

But at what cost to the majority of people?

California is a stark reality of the electricity deregulation consequences.

The United States Enron Corp and other energy players formed a cartel to rip off consumers by as much as 10 times the supposedly correct market price while subjecting them to frequent power shortages.

Businesses had threatened the states with relocation if they did not deregulate the market.

According to Ken Malloy, chief executive of the Centre for the Advancement of Energy Markets, a United States think-tank that advocates the deregulation of energy markets, the states adopted deregulation on the promise of turning an inefficient, tightly-regulated market over to the laws of a free market, in turn bringing down power prices through competition.

“It was intellectually dishonest to assume deregulation would cut power prices, but that’s how it was sold to the public. There was no recognition prices would rise when demand for power is higher and fuel costs are up,” said Malloy.

More subdued but also a landmark example is Ontario, Canada’s largest province. The Ontario government put up the province’s electricity corporation, Hydro One for privatisation but was thwarted by a class action suit.

The sector was deregulated and the electricity prices were suddenly rising forcing many residents to fail paying their bills.

Price manipulation by electricity providers was evident – the reason leading to the reversal of the deregulation after the prices rocketed.

The government has shelved its privatisation plans, capped prices and is in the process of refunding consumers, the differentials to the capped prices. Electricity, among a host of other social services is now subsidised.

Enthusiasm by businesses in the electricity counters on the stock markets suddenly waned after that decision as a result of diminishing potential lucrative returns on their investment in a capped prices environment.

In the United Kingdom the private sector is driving the sector and about 30 000 people die annually from hypothermia as a result of their cutting back on heating fuels.

Electricity rates are volatile and binding contracts often oppressive.

Companies are ruthless with defaulters and are taking swift legal action against those living in poverty.

The Consumers’ Association notes that the difference between the percentages of income spent on fuel has risen since the 1980s with the lowest earners spending 9% of their income on energy, compared to 2% for the wealthiest.

Germany is said to have competitive electricity markets of 900 players, of which 80% of electricity generation is still controlled by only four large companies known as “supra-regional companies”.

These companies are accused of mainly lack of price transparency, itself a bad practice by the private sector across the globe.

The electricity players create artificial electricity shortages so as to justify pushing prices up.

It would be interesting for Sukoluhle Nyathi (Businessdigest, May 2) to give a cost curve for any country that has successfully deregulated or privatised. How interesting that she mentions Malaysia.

Was it not for predicted high electricity costs to the Zimbabwean consumers that the beleaguered Zesa boards refused to hand over the parastatal to a Malaysian company?

While the case for electricity deregulation and privatisation is sold to people in a smart way, the devil is in the details.

What will stop energy companies from making more profits to satisfy their expectant shareholders, for instance?

Considering the high capital outlays required for beginning and maintaining the highly ad-vanced technological equipment where will themoney to undertake this task of providing electricity “efficiently” without compromising their bottom line come fromby not charging higher or “competitive” rates?

How are car-tels going to be contained? How would theproblem of price manipulation be dealt with, by far a difficult, untransparent and sophiscated practice common in the industry worldwide?

With Zimbabwe’s electricity bills already unsustainably high and considering the profit motive, what would be the effect of wholesale privatisation or deregulation to electricity prices? Would they start from the current, lower or higher level?

The Confederation of Zimbabwe Industries has an energy task force that deals with the deregulation of the energy sector and they produced a report, which unfortunately I was unable to read. It would be worth publicising so that the public can debate it.

With the Kyoto Protocol within us, we are supposed to be seeing new investments to comply with the protocol’s requirements, but given the extensive resistance from business that has been recorded in some countries one wonders whether the private sector has the public interest at heart.

The environment accord has profound consequences with dollars attached to it, challenging current business practices, including the electricity sector. Canadian Prime Minister Jean Chretien must be commended for being steadfast in approving the ratification of the protocol albeit stiff resistance from businesses in Canada and across from the US.

Businesses’ huge influence and power must not be disproportiona-tely applied. It’s because of such power – power for profits at any costs – that we get such lobbying.

One of the several alternative scenarios for her suggestion of dealing with the electricity problem, would be for the government to continue being involved in a greater role as cooperative partner and leading agency in partnership with the private sector.

Besides regulating, the role of the government would be to cushion consumers from steep prices.

I think we need a strong policy, which will balance business interests with those of the public, strong leadership, the will to implement that policy and off course, as she rightly puts it, the conducive environment.

Kuthula Matshazi is a Canada-based writer.

Recent Posts

Stories you will enjoy

Recommended reading