Energy for Development: Twenty-first Century Challenges of Reform and Liberalization in Developing Countries - Hardcover

Vedavalli, Rangaswamy

Hardcover

ISBN 10: 1843312239 ISBN 13: 9781843312239

Publisher: Anthem Press, 2007

Synopsis

This comprehensive text offers a rare and insightful investigation into the energy sector of the developing world. ‘Energy for Development’ provides comparative case studies of countries going through the reform process, evaluates reform experience, discusses the lessons that can be learned and identifies challenges faced by these countries at the national and global level. A topical and timely book which seeks to explore the anxieties and insecurities of the global energy sector since 2001.

About this title

About the Author

Rangaswamy Vedavalli is the former World Bank Principal Economist and Manager of Energy Operations.

From the Back Cover

'An important book for the energy community worldwide. Essential reading for everyone involved in global energy issues, particularly those pertaining to developing countries.' Dr Hisham Khatib, Honorary Vice Chairman, World Energy Council, Past Minister of Energy and Planning (Jordan) 'A timely, lucid and comprehensive review of energy needs in non-OPEC developing countries, with focus on accessible, affordable and reliable energy for development.' Dr Yaga Venugopal Reddy, Governor of the Reserve Bank of India 'A book that should be mandatory reading for all government, industry and other stakeholder interests in global energy policy development and implementation.' Jack Siegel, Former Acting Assistant Secretary for Fossil Energy, U.S. Department of Energy and Chair, Fossil Fuel Working Party, International Energy Agency This comprehensive text offers a rare and insightful investigation into the energy sector of the developing world. Energy for Development provides comparative case studies of countries going through the reform process, evaluates reform experience, discusses the lessons that can be learned and identifies challenges faced by these countries at the national and global level. A topical and timely book which seeks to explore the anxieties and insecurities of the global energy sector since 2001. Rangaswamy Vedavalli is the former World Bank Principal Economist and Manager of Energy Operations. Dr Vedavalli represented the World Bank at the World Energy Council (WEC) and is the former Director of WEC's Energy Facilitation Programme. Dr Vedavalli obtained a Ph.D. from the Delhi School of Economics and a Post Doctoral Distinction at the London School of Economics.

Excerpt. © Reprinted by permission. All rights reserved.

Energy for Development

Twenty-first Century Challenges of Reform and Liberalization in Developing Countries

By Rangaswamy Vedavalli

Wimbledon Publishing Company

Copyright © 2007 Rangaswamy Vedavalli
All rights reserved.

ISBN: 978-1-84331-223-9

Contents

Abbreviations, xi, 
List of Tables, xv, 
List of Boxes, xvii, 
Preface, xix, 
1. The challenge of increasing access to energy for development, 1, 
2. Changing global energy industry: implications for developing countries, 19, 
3. Energy financing in developing countries in the pre- and post-1990s: towards energy sector reform and liberalization, 41, 
4. Whither energy sector reform and liberalization in developing countries? A reality check, 77, 
5. Energy sector reform and liberalization: case studies, 127, 
6. Energy sector reform and liberalization and energy for the poor, 341, 
7. Energy sector liberalization in developing countries: lessons and twenty-first century challenges, 369, 
8. The way forward, 437, 
Bibliography, 475, 
Index, 483, 

CHAPTER 1

THE CHALLENGE OF INCREASING ACCESS TO ENERGY FOR DEVELOPMENT

This book studies the increase of access to affordable, efficient and reliable energy for development in the twenty-first century with special reference to non-OPEC developing countries. In doing so the book evaluates energy sector reform and liberalization experience since the 1990s in non-OPEC developing countries and the impact of events since 2001 (including the spiking of crude oil prices to US $60 barrel in June 2005).

Over 85 net Oil Importing Developing Countries (OIDC) began to reform their economies in some form or other in the 1990s. The guiding principles of energy sector reform in developing countries were part of the overall 1990s globalization framework of market transition for developing countries widely known as the 'Washington Consensus'. It called for trade and financial liberalization, privatization, deregulation, openness to Foreign Direct Investment (FDI), a competitive exchange rate, fiscal discipline, lower taxes and smaller government.

In spite of the 1990s wave of globalization that prompted developing countries to liberalize and privatize their energy industry to finance the required investment for generating energy supplies for development, it is now clear that only a handful of developing countries were able to attract capital and grow rapidly. Also, in the initial years of the twenty-first century energy black-outs due to shortages of energy supplies for fuel development persist. While the total number of people without electricity has fallen by less than 500 million since 1990, over 1.6 billion people in the developing world (accounting for over 40 per cent of the population in Africa and South Asia in 2004) still have no access to electricity. In 2004, over 2 billion people in developing countries continued to use traditional biomass for cooking and heating.

Even with slower rates of population growth the world's population will increase from 6 billion in 2000 to 8 billion in 2030. The share of population living in developing regions will increase from 77 per cent today to 85 per cent in 2030 and to 90 per cent in 2050. The number of people lacking access to commercial energy will continue to grow in the developing world.

The twenty-first century began with an important series of events: the California energy crisis, economic slowdown in the USA after 9/11, the great black-out in the USA in 2003, the cancellation of the annual World Bank (WB) and International Monetary Fund (IMF) meetings, protest demonstrations against globalization and policies of the WB-IMF, Enron's debacle, Argentina's collapse, India's 2004 election outcome, the post Iraq war violence and lack of security in the oil rich region of the Middle East, terrorist attacks on an oil workers' compound in Saudi Arabia and the spiking of oil prices at a 'terrorist premium' since May 2004. Despite the OPEC's decision in June 2004 to increase its production by 8.5 per cent, the continuance of surging demand, shrinkage of excess capacity and terrorist threats were expected to affect the stability of the oil market.

The price spikes in oil markets have exacerbated concerns over the security of oil supplies. They have also added to the nervousness of governments and have raised questions on energy policies with continued dependence on oil. Access to energy has emerged as the overriding imperative of the twenty-first century. It has become the guiding geopolitical principle for all energy importing countries. The events in the initial years of the twenty-first century have a critical bearing on increasing access to energy supplies for development. They also underscore the reality that the globalization process of the 1990s in itself is not a panacea for alleviating poverty, increasing access to energy to fuel the growing economies of energy importing countries and the need to expand energy services to over 2 billion people living with no access to commercial energy.

The rapid and large oil price increases since 2004 have created growing concerns among OIDC regarding the impact on their economies and balance of payments. They have also raised questions on pursuing energy sector reform and liberalization policies to finance the investment required to increase access to efficient, reliable and affordable energy for development.

A number of studies on world energy undertaken in recent years by the International Energy Agency (IEA),United Nations Development Program (UNDP), World Energy Council (WEC) and the World Bank deal with energy issues in developing countries to some extent. The IEA publications of 2004 and 2003 provide a world energy outlook and global energy investment requirements up to 2030 including those of developing countries, respectively. The UNDP/ESMAP reports provide a generic scorecard for energy reform in developing countries in the 1990s and provide knowledge based general policy responses to higher oil prices.

But these studies are mainly prescriptive and of a 'one size fits all' nature. They have not addressed the effects of the changing energy industry of the 1990s, the 1990s reform-globalization- reform experience of developing countries, the impact of events in the post 9/11 world and the challenges for developing countries to increase access to affordable, efficient and reliable energy for development in the twenty-first century. They do not investigate energy pricing, regulation, commercialization, financial and investment reform experience in the energy sector of developing countries. They do not address the expectations and realities of the 1990s reform experience to finance energy for development, and are not informed by the lessons of over fifteen years of energy sector liberalization. They also fail to address reform implementation experience and issues at global and national levels impacting the future of reform as vehicles to finance the required investment in energy for development in today's changing world of energy.

Since reform and liberalization act as vehicles for public and private investment in twenty-first century global energy, understanding the financing of the required investment in energy for development requires several questions on sector reform and liberalization in developing countries to be addressed.

This book is a pioneering effort in this direction. It acknowledges earlier publications and goes further to discuss an important pair of issues — namely, the experience of energy market reform and liberalization in developing countries to finance the required investment in energy for development, and the increase of access to reliable, efficient and affordable energy to their population which lacks access to energy services.

15 years after embarking on energy market reform, OIDC face a number of challenges to increase access to energy for development in order to satisfy the growing demand, reduce dependence on imported oil, ensure security of energy supplies and shape reform policies for the future of energy in the changing world.

Energy demand is growing rapidly in several emerging developing economies including China and India. Between 1970 and the late 1990s, energy use by developing countries has increased three to four times as quickly as that of countries in the Organization for Economic Cooperation and Development (OECD) reflecting the impact of rising income and higher population growth. Consequently, the share of developing countries in global commercial energy use increased from 13 per cent in 1970 to almost 30 per cent in 1998. Between 1990 and 2001, the average annual growth rate of primary energy use in industrialized countries was 1.5 per cent; in developing countries it was more than twice that at 3.2 per cent, with important variations among different regions of developing countries accounted for by population growth and levels of economic activity.

The varying growth rates in energy use have helped to reduce the gap in energy services between industrialized and developing countries. On a per capita basis however, the increase in primary energy use has not resulted in more equitable access to energy services between developed and developing countries.

Table 1.1 shows significant inequalities in annual per capita primary energy use among groups of countries. In 2001, industrialized countries used 4.7 tons of oil equivalent (toe) per capita, in contrast to developing countries which used only 0.8 toe per capita. Overall, per capita energy use in developing countries remains at 50 per cent of the world average per capita and less than 20 per cent of per capita use in the OECD countries. In Africa energy use has barely increased since 1971 and remains at less than 10 per cent of per capita use in the OECD countries. The same is true for Asia despite a near doubling in per capita energy use since 1971. This means that most Africans and Asians have no access to commercial energy. Latin America saw little improvement in energy use per capita.

Energy demand outlook

Various sources, including UNDP, WEC, International Institute for Applied Systems Analysis (IIASA), IEA and oil industry make short and long term forecasts for World Energy Outlook (WEO) including that of developing countries. Chapter 9 of the UNDP World Energy Assessment (WEA) has developed three cases out to the year 2100. Case A assumes high economic growth, Case B represents a middle course reference case and Case C includes ecologically driven scenarios. There are considerable differences in expected total energy consumption among the various cases. However, all point to an increase in the world's commercial energy consumption over this century. Today's consumption levels are roughly 2.5 to 5 times those of 2002 and there will be continued dependence of over 40 per cent of total energy on fossil fuels (coal, oil and natural gas) through 2100. Even with rising energy taxes and demand side interventions, world consumption of commercial energy in the Case B reference scenario is projected to double from 10.3 Gtoe in 2002 to 19.8 Gtoe by 2050. Table 1.2 shows projected demand for energy in the three cases.

Even with the slower rate of population and economic growth, perhaps as many as 4–6 billion more people will require access to modern forms of energy over the next half century. Especially with most of the population increase in developing countries, large increases in world energy demand lie ahead in any scenario of economic growth and continued dependence of over 40 per cent of total energy on fossil fuel (coal, oil and natural gas) through 2100. IEA's WEO (2004) reference scenario projection assumes continuance of policies in force as of mid-2004 in OECD countries. The projected rates of growth in Gross Domestic Product (GDP) and population are much lower between 2002 and 2030 compared with the second half of the 1990s and the historical annual average rate of growth between 1971 and 2002. This reflects slowing annual average rates of growth in population in developing countries, from 2 per cent between 1971 and 2002 to 1.2 per cent between 2002 and 2030. Oil price is assumed to increase less than 1 per cent in year 2000 dollars reflecting the increase in IEA's crude oil import cost to $29 per barrel in 2030 from $27 per barrel in 2003. Table 1.3 below summarizes IEA's assumptions for its reference scenario.

IEA projects the world energy demand to expand by almost 60 per cent between 2002 and 2030, with an average annual rate of growth of 1.7 per cent. Global energy demand is projected to reach 16.5 billion toe in 2030 from 10.3 billion toe in 2002. Fossil fuels accounting for 85 per cent of the increase in primary energy demand will continue to dominate the energy mix (Table 1.4).

Energy demand in developing countries

IEA's WEO (2004) projects that two-thirds of the increase in the world's primary energy demand between 2002 and 2030 will come from developing countries, especially those of Asia. Developing countries' share of world energy demand will increase from 37 per cent in 2002 to 47 per cent in 2030. The share of fossil fuels in developing countries in the total primary energy consumption will increase from 72 per cent in 2002 to almost 80 per cent in 2030. The share of commercial energy will rise from 80 per cent to 88 per cent over the same period. The replacement of traditional biomass by com- mercially traded energy will reduce the share of biomass from 24 per cent in 2002 to 16 per cent in 2030 (Table 1.4).

The main factors contributing to the strong increase in energy demand in developing countries include their economic growth, industrial expansion, population increase, urbanization, increased use of fuel in the transport sector and substitution of commercial fuels for non-commercial fuels. Low-energy prices in many developing countries also contribute, though this factor could become less significant as subsidies are reduced. The link between growing incomes and the demand for transport with high-energy use is evident in China and India. Affordability of motorized transport for population in China, Thailand, Malaysia and India has led to rapid growth in oil consumption.

Energy demand is growing rapidly in several emerging developing economies including China and India. Demand for energy and dependence on oil have increased since 2001. Oil's share of primary energy consumption varied among developing regions. Oil's share in Latin America remained at 46 per cent in 2002. Oil's share of total primary energy consumption in Africa was 21 per cent in 2002. Also, in 2002 the share of oil in total primary energy consumption in Asia was 40 per cent. However, the share of oil consumption in Asia varied widely from 25 per cent for China and India, to 50 per cent for the Philippines and 60 per cent for Thailand. However, Oil's share of total energy consumption in India and China will increase with the rapidly increasing transportation demand and increasing access of commercial energy to the rural population. China, the fastest growing economy which was the net oil exporter in the pre- 1990s, became a major importer of oil since 1994. India's oil imports have increased to over 70 per cent of its growing demand.

While oil's share of the world primary energy consumption (accounting for 36 per cent in 2002) is projected to fall to 35 per cent in 2030, oil's share of primary energy consumption in developing countries is expected to increase from 30 per cent in 2002 to 32 per cent in 2030. Developing countries' oil consumption is projected to more than double from 1,142 Mtoe in 2002 to 2,517 Mtoe in 2030 accounting for more than 65 per cent of the net increase of 2,090 Mtoe in world oil consumption. The share of oil in total primary energy consumption for China and India is projected to increase from 20 per cent and 22 per cent in 2002 to 25 per cent and 26 per cent in 2030. respectively.

Increasing access to energy

For the first time, IEA's WEO (2004) measures the increase in access to energy in developing countries by developing an Energy Development Index (EDI) — a composite measure of energy use in developing countries and of their progress in modern energy use. The EDI is composed of per capita commercial energy consumption, the share of commercial energy in total final energy use and the share of population with access to electricity. A separate index for each of the three elements is created for 75 developing countries for 2002. Performance in each element is expressed as a value between zero and one. The index is then calculated as the arithmetic average of the three values for each country.

According to WEO reference scenario projections for developing countries, the EDI index scores are expected to continue to rise in all developing regions. The index for developing countries as a whole is projected to rise from 0.48 in 2002 to 0.57 in 2030, with regional variations. The medium-income Latin American and high-income Middle Eastern countries are ranked high ranging from 0.60 to 0.99, reflecting the high rates of household electrification and their limited use of traditional biomass. East Asian countries range in the middle with EDI rankings between 0.60 and 0.70. South Asia is below 0.40. The SSA countries with uniformly low household incomes and electrification rates rank below 0.20. Ethiopia and Myanmar are the least developed countries in terms of energy with ranks of 0.037 and 0.091 respectively.

(Continues...)

Excerpted from Energy for Development by Rangaswamy Vedavalli. Copyright © 2007 Rangaswamy Vedavalli. Excerpted by permission of Wimbledon Publishing Company.
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Edition details

• Publisher: Anthem Press
• Publication date: 2007
• Language: English
• ISBN 10: 1843312239
• ISBN 13: 9781843312239
• Binding: Hardcover
• Number of pages: 509