Message-ID: <16391334.1075850998968.JavaMail.evans@thyme> Date: Fri, 8 Dec 2000 06:43:00 -0800 (PST) From: mark.schroeder@enron.com To: steven.kean@enron.com Subject: Re: Cc: richard.shapiro@enron.com, elizabeth.linnell@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: 7bit Bcc: richard.shapiro@enron.com, elizabeth.linnell@enron.com X-From: Mark Schroeder X-To: Steven J Kean X-cc: Richard Shapiro, Elizabeth Linnell X-bcc: X-Folder: \Steven_Kean_Oct2001_2\Notes Folders\Attachments X-Origin: KEAN-S X-FileName: skean.nsf The EU summary is okay for someone wishing to get a quick overview. A few errors, though. Spanish pool is not mandatory. If you own generation in the country, you may bypass the pool. Denmark has more than two generators, as municipalities own a fair amount of generation. Finally, the anti-competitive arrangements in place as "transitional" in The Netherlands are not touched upon at all. Interesting omission of Poland from discussion of Central and Eastern Europe, as it is the most progressive of the countries from the former Communist sphere. thanks for sending this along. mcs From: Steven J Kean@ENRON on 08/12/2000 08:18 CST To: Mark Schroeder/LON/ECT@ECT, Richard Shapiro/NA/Enron@Enron, Elizabeth Linnell/NA/Enron@Enron cc: Subject: ----- Forwarded by Steven J Kean/NA/Enron on 12/08/2000 08:18 AM ----- 12/07/2000 02:09 PM To: cc: Subject: I thought that you (or some of your colleagues) might find the attached update on country by country restructuring to be helpful. ----- Forwarded by Suzanne Nimocks/HOU/NorthAmerica/MCKINSEY on 12/07/2000 01:30 PM ----- Memorandum TO: Adam Lewis Alberto Marchi Andrew Hertneky Andy Steinhubl Angela Kuster Anjan Asthana Antonio Puron Antonio Volpin Arne Germeyer Arturo Vernon Ashutosh Shastri B. Venki Venkateshwara Barbara Fletcher Barbara House Ben Joyce Bernard Minkow Bob Edwards Bob Felton Boris Galonske Brian Schofield Brian Tulloh Buford Alexander Carlo Yu Carlos Torres Carol B White Carolyn Loos Cecilia Bergman Charlie Taylor Christoph Brombacher Christoph Grobbel Claude Genereux Corinne Aigroz Csilla Ilkei Dalila Villar Daniel Poller Eileen Burnett-Kant Enrique de Leyva Eric Bartels Eric Hanlon Eric Lamarre Francis Hodsoll Franco Magnani Francois Lepicard Frank-Detlef Drake Frank Weigand Gerald Klenner German Dominguez Gerrit van Geyn GIANCARLO GHISLANZONI Gjermund _ydvin Glenn Payne Helen Warwick Hugo Baquerizo Humayun Tai Ignacio Quesada Intam Rinawati Dewi Ivo Bozon Jaap Kalkman Jan Christer Tryggestad Jason Hicks Jason Rabbino Javier San Felix Jeff Walker Jessica Ciccone Jessica O'Connor-Petts Jim Ayala Jim Bowen Jim Humrichouse Jim O'Reilly Jim Robb Joan Westmoreland Joelle Gatineau Jon Zagrodzky Jonathan Woetzel Jorge Fergie Jose Federico Castillo Jose Maria del Aguila Jourik Migom Jud Morrison Judith Lezaun Judy Wade Karel Tutein Nolthenius Keith . Leslie Kelly Kienzle Ken Ostrowski Kristina Kalinova Jyoti Suri Lar Bradshaw Leonardo Senni Leonhard Birnbaum Les Silverman Linda Mansfield Lisa Schwallie Luca D'Agnese Luis Troyano Marcelino Susas Marina Ospina Mark Ellis Marko Schulz Marla Aizenshtat Matt Rogers Menno van Dijk Michael Linders Michael Morcos Mike Juden Mike Terry Miriam Alvarez Nicolas Borges Olga Perkovic Pablo Toja Pankaj Jain Pascale Michaud Patricia Miller Paul Jansen Paul Kolter Paul LeBrun Paul Parfomak Pawel Konieczniak Per Lekander Peter Bisson Peter Sidebottom Pierre-Yves Ouillet Pierre-Yves Roussel Pru Sheppard Rob Latoff Robert Palter Robert Samek Rodrigo Rubio Rogene McCoy Roger Abravanel Ron Bloemers Ruggero Jenna Rui De Sousa Sally Lindsay Scott Andre Scott Graham Sesha Narayan Simon Lowth Suzanne Nimocks Tera Allas Thomas-Olivier Leautier Thomas Read Thomas R"thel Thomas Seitz Thomas Vahlenkamp Tim Bleakley Tommy Inglesby Tony Perkins Trudy Scott Tsun-yan Hsieh Valentina Grifo Vitaly Negulayev Walter Wintersteller Yann Duchesne Zander Arkin CC: BCC: FROM: Carol B White Pru Sheppard EU - EPNG R&I DATE: December 6, 2000 Power sector restructuring: international activity, June - November 2000 This mailing is a periodic update of the status of international electric power sector privatization and restructuring. Privatizations and restructuring activity continue apace. Governments faced with burgeoning power demands, but lacking the funds to meet them, are nearly universally opening their generation markets to foreign investors, even where privatization is not on the agenda. More and more, state-owned utilities are unbundling. Competition is being introduced into national markets at both the wholesale and retail levels. A few international players have scaled back their international investments and shifted substantial portions of their portfolio to less risky markets, such as the U.S. or Europe. Competition in Europe has been spurred by the EU Directive. As Asian economies recover, most governments are starting to move forward again with unbundling / restructuring plans. After a year in which currency devaluations caused a number of early investors to exit Latin America, a healthier economy has allowed privatizations to restart, but at a slower pace. This mailing summarizes recent developments in Europe, Asia-Pacific, Latin America, and the Middle East / Africa. Maps that summarize the status of restructuring in Europe, Asia, Latin America, and Africa and the Middle East are attached as Exhibits 1-4. A slippery slope is Exhibit 5. Timelines showing the opening of markets in various countries, by region, are in Exhibits 6-8. (See attached file: Intlmail 3 exhibits.ppt) February '99 marked the opening of the market to choice for most large EU customers who use over 40 GWh a year. This accounts for about a fourth of demand. As of "E-Day", neither France nor Italy had passed their proposed enabling legislation. While the EU intended for the transmission operator to be independent, EDF intends to retain control over the grid, as will ENEL. A phased deregulation of the gas industry began to unfold in similar fashion beginning in August 2000. Mergers, alliances, and consolidation are a dominant theme as companies jockey for position in the new European power market. There is a tremendous opportunity for international players to cross borders: as suppliers of new generation, as purchasers of assets being spun off by liberalization decrees (Italy) or because of market concentration rulings in mergers (Germany, Spain). Several international companies have opened trading offices in Europe, or ( Enron, Reliant, Southern, TXU). HoustonStreet.com launched a European online wholesale energy-trading platform. ? Austria: Austria's liberalizing market is facing problems from within and without. The EU is dissatisfied with its lack of G-T-D unbundling, although accounts were formally separated in 1999. There is no ISO. Internally, there is intense discussion about an accelerated market opening (customers over 20 GWh now have choice). Regional utilities are angry over the Verbund's proposal to open 100% of the market in late 2001. The Verbund, a 51% SOU, is the largest generator and owns the transmission grid. However, it has no retail customers and hence is strongly exposed to already deregulated wholesale customers. (C.B. White, Judith Lezaun) ? Denmark: The 1999 liberalization law exceeds the EU directive's goals and establishes full retail access by 2003. Choice was phased in for large industrials using more than 100 GWh in 1997; the threshold dropped in April '00 more than 10 GWh; the next threshold drops to 1GWh at the end of 2000. The new law includes unbundling of distribution activity and regulated TPA. Denmark has recently experienced a consolidation wave in generation that leaves the sector with 2 large incumbents. The trend is moving downstream into distribution and supply. Western Denmark is already part of the Nordic power exchange NordPool and East Denmark is due to join by the end of 2000. Energy policy aims at twenty percent of electricity sales would come from renewables by the end of 2003, up from a current 10%. (Cecilia Bergman) ? Finland: Finland has been fully open to choice since September 1998, when a metering requirement was dropped. Prices immediately dropped, but only about 2-3% of households have switched supplier. Finland forms part of the Nordic power exchange NordPool. The regulator monitors distribution tariffs and a rTPA regime is in place. In November '98, the Finnish government launched an IPO for 20% of Fortum, the holding company for the merger of utility Imatran Voima Oy and oil and gas company Neste Oy. The Finnish government expects to lower its ownership further. The largest new entrant in the market is Swedish Vattenfall, with its acquisitions of distributors and some generation capacity. Further M&A in the distribution and supply sector is expected. (Cecilia Bergman) ? France: There was irony in France's push for liberalization as it assumed its six-month EU presidency. France passed its electricity law last February, a year after required by EU directive, but had 30-odd implementation decrees stalled in the National Assembly. However, EDF, which still controls more than 95% of French generation, realized Brussels would hinder its foreign ambitions if its domestic market remained closed. It recently convinced French authorities to open up 34% of the market by the end of 2000 instead of 2003, lowering the eligibility threshold to 9 GWh/year (from 16 GWh). EDF is also aware that its monopoly prevents it from easily entering the energy services market -- leading EDF to promote a "relatively rapid" total opening of the French market. (Corinne Aigroz, White) ? Germany: While the Electricity Law was officially effective in April '98, real competition is still impeded by complicated TPA grid access conditions, especially on the retail market. A group of new entrants has organized to call for a governmental regulator. Some recent studies have shown the cost of electricity so low on some bills as to indicate a "massive cross-subsidization between network operations and marketing." Recent charges have been made of obstacles to competition by a mulitiplicity of fees, including customer switching charges and supplier entrants registration levies. In the last 12 months, M&A among big national and international utilities has redrawn the German utility landscape: EDF bought a share in EnBW, Veba / Viag merged to form EON and RWE/VEW merged into RWE. Furthermore, RWE and EON must sell their stakes in VEAG due to antitrust authority. Currently, several utilities are and battling for control of East German VEAG, whose transmission connections make it a portal to Eastern Europe. (Judith Lezaun, White) ? Greece: According to the FT, Greece has "hired a consultant" (us) to produce a 5-year plan for state utility PPC. PPC is preparing an IPO for 15-20% of the company, theoretically set for 2001, but likely later. Greece has been given until 2001 by the EU to conform to the Directive. An IEA report suggested two major swift changes to the energy sector structure. First, the government should create a clearer separation between itself and the state-owned PPC, including a separate regulatory agency. Second, the government should consider splitting the PPC into competing generators to maximize competition, as well as improving market access conditions for IPPs and cogenerators. As the country's largest employer, PPC is not likely to effect these changes quickly. (White, Thomas Read) ? Ireland: Supply competition was introduced in February '00 for customers over 4 GWh (28% of the market). Opening is scheduled to increase to 32% in 2003, with further liberalisation in 2006. No date for mid-market and full retail opening has been set. Incumbent ESB plans to split off its transmission business, which will remain state-owned. Competition in generation will be introduced in 2002 with the auctioning of ESB capacity, which is intended to create at least two new players. Independent power production has been allowed for two years now. (Ben Joyce) ? Italy: Italy approved its market deregulation decree in March '99; in some measures, it goes beyond the EU Directive. ENEL had dominated 80% of generation; by 2003, no entity can control more than 50%, or 30% by 2005. This requires that ENEL sell between 15GW and 22GW of its 57GW by 2003. It has separated G-T-D into separate legal entities and been 34.5% privatized. A second tranche should take place in 2001. A pool mechanism should be operating by 2001. Consortia of industrials using more 30GWh/year can contract directly with IPPs; by 2002, the threshold will be 9GWh/ year. The potential free market currently amounts to 80 TWh a year, or 30% of total demand. This will increase to 40% in 2002. ENEL, who has a de facto monopoly on T&D, will retain ownership of the national grid assets; a separate state-run ISO, GRTN, will run transmission and dispatching. A pool mechanism, operated by a GRTN subsidiary, should be operating by 2001; in the meantime, the market uses bilateral contracts. (Valentina Grifo, White) ? Netherlands: By June '00 three of the four large generation companies had been sold to foreign energy groups. Competition for large industrial users began in August '98. Large industrials (33% of the market) can currently choose their supplier. By 2002, 58% of the market will be competitive, and in 2004, there will be full customer choice. The Amsterdam Power Exchange, modeled along Scandinavian lines, was launched in May '99. The APX allows players to trade power over the Internet on an hourly basis for the next day. In April '00, it added day-ahead prices at border points for Germany, although it is not yet much used; if successful, Belgium would follow. In October '00, the government agreed to buy the entire high voltage network, TenneT, from the four generation companies for $99.1 million. Their goal was to improve the supply market and to increase real competition. (White, Karel Tutein Nolthenius) ? Norway: Norway opened up to retail access in one fell swoop in 1991. "Real" retail access got started in 1995 when the meter requirement was abolished; switching got started in 1997 when a switching fee was canceled. The current accumulated switching rate lies at 14%. Distribution tariffs are regulated and transparent according to rTPA. Norway forms part of NordPool. (Cecilia Bergman) ? Portugal: Portugal brought new regulations into force in January '99. They include a price-cap system for determining tariffs and the creation of two coexisting supply systems: public and independent. Each is locked into supplying the national grid (REN), a regulated and EdP-owned monopoly. Producers within the independent system can currently supply eligible customers who consume more than 9GWh/year at a single site. The country's four discos may purchase up to 8% of consumption outside the public system. Portugal's regulator, ERSE, needs either to extend the eligible customers or raise the allowed percent for discos in order to reach the percents required by the Directive. The government sold another stake of 20% of state-owned Electricidade de Portugal in October '00, following two successful offerings in '97 and '98. This offering raised $1.34 billion. The state retains 32.6% and "golden share" voting rights. (Rui de Sousa) ? Spain: After several major Latin American purchases, Endesa moved to restructure and consolidate at home, announcing in October '00 the merger with Iberdrola. The resulting company would have 80% of the market, so it would be forced to shed generation and distribution assets. It would also create the world's 4th largest utility, by market cap. There is also movement with the smaller two players. The Spanish regulator is applying an eligibility schedule faster than the minimum requirements of the EU Directive providing for full market opening by January 2003. Several foreign players are already authorized to supply eligible consumers and there are new generation capacity additions announced by some of the large international. Nearly 60% of the market can now choose its supplier. A mandatory pool with a bidding system started in Jan '98. (White, Dominguez) ? Sweden: Deregulation was introduced in January '96 with full retail access to all customer groups, rTPA and unbundling of distribution activities. However, switching was impeded by a meter requirement that was abolished in November '99. Switching is currently at 10% but with renegotiated contracts the figure is more like 25%. Sweden forms part of NordPool, a "common electricity market", a forum for physical and financial exchanges. Alongside NordPool is a bilateral market and an OTC market for financial trading. Consolidation has occurred in the distribution sector mainly and the generation market is concentrated in the hands of 3 large actors. (Cecilia Bergman) ? Switzerland: In October '00, Parliament passed an electricity market law. The first phase of the liberalization should start in 2001 granting choice to large industrials (> 20 GWh); the mid-size market will open in 2004 (> 10 GWh). In 2007, the law envisions a fully open market. Some aspects of the new law, such as the transmission tariff model, are still being discussed. (Chris Brombacher, White) ? UK: With market deregulation complete (full choice since May 1999), the UK market is now settling into a phase of supply consolidation. Seven of the 12 RECs in England & Wales are now in joint ownership. In the generation market, the incumbent's share continues to decline: National Power and PowerGen have divested further capacity, and now stand at 8.5% and 6.7%. The New Electricity Trading Arrangements for wholesaling have been postponed to early 2001. They will allow for a futures and forwards market to trade alongside the established spot market. Markets will be run by independent members, although the balancing and settlement mechanism will be run by a system operator as before. A bilateral power exchange will also be put in, and is expected to handle a much larger demand than the spot market. (Ben Joyce) In Central and Eastern Europe, privatization initiatives are continuing to attract badly needed capital, while the IMF urges reforms as a condition for funding. Countries that are looking to EU membership have moved forward with power sector restructuring and gradual opening of their markets to choice. ? Bulgaria: In January, the Energy Agency announced its intent to unbundle the state monopoly, NEK, into separate G-T-D companies. NEK will remain a single buyer; 28 distribution entities have been merged into seven new companies. The unions are opposing rapid reform, claiming the necessary regulations have not yet been written. The government is working with the IMF to set up financial controls and eliminate cross-subsidies. Between 2001 and 2005, all generation will be upgraded or privatized. Transmission will remain state-owned. (Csilla Ilkei, White) ? The Czech Republic: In October '00, the Czech government announced it would sell a strategic stake in generator CEZ and in six of the eight regional distributors to a single buyer. Privatization is expected to begin in 2001. Many Western companies, such as Vattenfall and E.On have already been quietly buying up stakes in small municipal distributors who need the cash to balance their budgets. A new energy law should be also approved by the end of 2000, which would open power markets to competition between 2002 and 2006; prices should reflect costs by 2002. Gas liberalization will follow in 2005. CEZ is testing its controversial nuclear plant, Temelin, which should begin operating by spring 2001. CEZ plans to cut wholesale electricity prices by 20% after the commercial launch of Temelin. (Kristina Kalinova, White) ? Hungary: Since December '95, majority shares have been sold in the six regional discos and five gencos to Western investors. Eastern Europe's earliest and most ambitious privatization program has fallen victim to a host of problems, especially central government price control. AES and IVO-Tomen tendered new capacity tendered in 1999, but AES is now bringing MVM to arbitration over its failure to sign its agreed-on PPA. Hungary will partially deregulate its market after 2002 but before it joins the EU. Further privatization opportunities include a coal-fired power plant as well as the monopoly transco, MVM. (Cs. Ilkei, White) ? Moldova: The European Bank for Reconstruction and Development has expressed an interest in stakes in privatized assets of Modova, giving privatization scheduled for this year a boost. Majority shares will be sold in first in five distribution companies, then in three generators. The first attempt to privatize distribution failed to receive timely bids. All companies will require substantial investment for upgrades. (White) ? Romania: In September '00, the national electric company, Conel, was split into four independent units. These encompass fossil generation, hydro generation, transmission, and distribution and metering. Restructuring precedes eventual privatization, which will begin with distribution, followed by generation. Current law requires foreign owners to have a local partner. As Romania is one of the countries invited to join accession talks with the EU, it is opening its market in stages. Currently, 10% (>100GWh) has choice; this will rise to 45% (>40GWh) next year. Evenually, elegibility thresholds will be lowered to 20GWh, then 9GWh. (Cs. Ilkei,White) ? Russia: In the mid-1990s, the Unified Energy Systems of Russia Joint Stock Company (UES; also known as RAO), was organized into 72 regional joint stock companies; UES still holds 49% shares in most of these regional utilities. In May '00, President Putin fired the non-reformist energy minister who had blocked earlier attempts at privatization and liberalization. The new minister is an unknown quantity. The head of UES has wanted to privatize significant portions of UES and to lift foreign ownership controls, currently at 25%. (White) ? Slovak Republic: In October 2000 the government approved a plan to restructure and partially privatize its energy sector; implementation legislation needs to be passed. The plan would see state-owned Slovenske Elektrarne (the G-T-D monopoly) transformed into a 100% state-owned joint stock company. Regional distributors will be separated from SE and merged in the first half of 2001 into three joint-stock companies, with a 49% block of shares to be sold. Generation will also be separated and transformed into joint stock companies. Municipalities will acquire majority stakes in the heating plants. The government will select a privatization adviser for SE and for the distribution companies in early 2001. (Kristina Kalinova) ? Turkey: The controversy over BOO (build-own-operate) vs. BOT (build-operate-transfer) arrangements for IPPs was resolved in January 2000. Turkey passed a retroactive constitutional amendment allowing international arbitration for energy contracts. Twenty-three BOT projects are affected. Turkish economic growth is fueling a need to triple its capacity to 64 GW by 2010. In September, Turkey proposed an energy law that would separate state-owned TEAS into separate G-T-D entities. Generation plants would eventually be available for privatization, while new plants would no longer be transferred to the government, but remain with the IPP builder. The impetus for this proposed law is Turkey's interest in EU membership; only 1/8th of its 120 energy regulations meets EU standards. (White) ? Ukraine: Authorities have announced the sale of seven of the country's 27 regional discos, in a transparent tender. Such a sale has been unsuccessfully tried before. Each sale will be for 25% plus one share. The distribution sector is beset with a host of problems including high non-payment, unpaid employees, and corruption. The EBRD is pushing for progress on privatization before it provides funds to build an alternative to Chernobyl, which the authorities have agreed to close. Asian economies are recovering from the economic crisis and in some countries electricity demand is returning to pre-crisis levels. Most governments are starting to move forward again with unbundling / restructuring plans in the power sector; although IPPs are facing ongoing problems relating to PPAs and lack of government guarantees. ? Australia: All customers in Australia should have choice by 2003. Victoria will to phase in full competition during 2001. New South Wales (NSW) has delayed full competition for residential users and small businesses to January '02. The five other states plan to phase in full choice by 2003. Victoria's five distributors are facing revenue reductions of between 12% and 22% starting in 2001, whey they say will hurt their service capability. Recent M&A activity has seen already- privatized Victorian distribution, retail, and transmission change hands, with new owners coming from Asia. ElectraNet, South Australia's (SA) transco, was sold as a 200-year lease in September. The National Electricity Market, comprising Victoria and NSW, started operating in December '99. Queensland, SA and ACT will join in the next few years. ? China: China is aiming for nationwide interconnection, including Hong Kong, by 2010. Power pooling and increased interconnection is being tested in Zhejiang and Shanghai provinces. As there is no process or body in place to oversee reforms, some believe that sector reform is a mere slogan. Investors are backing off of a number of planned IPPs following a government decision to cap the ROR for new projects at 10%. Another issue is lack of government guarantees. China plans to build hundreds of small rural hydro projects and to spend Yn55bn to upgrade rural power grids in 2000 as part of a project to bring electricity to 75 million people who currently have no access. ? India: Five of India's 19 states have undertaken significant reforms: Orissa, Haryana, Andhra Pradesh, Karnataka, and Uttar Pradesh. And, only four of the State Electricity Boards (SEBs), the principal buyers for independent power, are profitable. IPP builders have been frustrated by a host of regulations, lack of guarantees, and SEB insolvencies. The growing Indian power deficit was dramatically highlighted this year by the withdrawal of two major investors, EdF and Cogentrix. A draft "Electricity Bill 2000" will be introduced in Parliament this winter. It would create and empower autonomous State Electricity Regulation Commissions. SEBs would be unbundled into G-T-D and corporatized within four months of passage. Initially, states would initially retain G&D assets; they would later be privatized. Transmission assets would be put under an independent authority, and TPA would be allowed. Significantly, IPP licensing requirements would be clarified and reduced, and largely eliminated for the growing segment of captive producers. A key problem of theft ? as high as 30% of T&D losses in some areas ? would be addressed by strict metering and high penalties. The likelihood, however, of the Bill being passed as proposed is not strong, as it faces significant opposition both by unions and regional parties in Parliament. ? Indonesia: Indonesia's IPP program has faced problems over power purchase costs and project rates of return, with bankrupt state-owned PLN claiming it is unable to pay IPP operators for power. Of 27 planned IPP projects, only three now supply power; six others are ready to generate. PLN reached an interim agreement with Paiton Energy under which Paiton will supply energy for 10 months, at a rate said to be much lower than the original agreed-upon price. Other PPA renegotiations will likely force IPPs to operate at a loss until the Indonesian economy revives and PLN's financial situation improves. Unbundling is underway on Java/Bali, where PLN has created two generation subsidiaries. Outside Java/Bali, unbundling of PLN will be along geographic lines. The Indonesian government recently selected KEMA Consulting to develop rules for a competitive market. ? Japan: On March 21, 8000 large customers (30% of the market) were allowed to choose a supplier. This broke the monopolies of the ten regional IOUs for the first time, but high transmission access fees set by the incumbents are inhibiting true competition. Newer liberalization measures in the electricity and gas sectors have since been written -- an agreement was signed at the July G8 Summit which provides for fair and transparent non-discriminatory access to distribution networks in both sectors. A number of new companies are entering (or planning to enter) the market, largely set up as JVs with local non-incumbents, often offering new products and services. In August the government awarded a tender to a non-utility, Diamond Power, a Mitsubishi unit, to supply electricity to the Ministry of Trade and Industry at a rate 4% lower than incumbent TEPCO's. TEPCO plans to build a new nuclear plant to cut generation costs and plans to streamline operations in the face of increased competition. ? Malaysia: Jamaludin Jarjis was appointed as the new chairman of Tenaga Nasional Berhad (TNB) in July. He assured investors that restructuring begun three years ago by his predecessor would remain intact. TNB will be transformed into two separate T&D companies by 2003, with an equity interest in generation. Generation assets have already been separated into TNB Generation; thermal generation will be sold. The government has approved the construction of more IPPs to meet the demand for electricity, which has grown 12% compared to the period before the economic crisis. Work on the Bakun Hydro Project in East Malaysia has resumed, but it remains to be seen whether the project will go ahead as originally planned or on a smaller scale. ? New Zealand: 1999 saw ECNZ split into three gencos to create further competition -- Genesis Power, Meridian Energy, and Mighty River Power. They have been corporatized but will remain under government ownership. Legislation passed in 1999 forbade ownership of wires (non-competitive) and generation and retailing (competitive) by the same company. Companies have until 2004 either to sell one business type or to set up a separate trust to own and run the businesses they do not wish to keep. By February '00, most had implemented full separation. The newly merged (75.8%) NGC/TransAlta will be the largest energy retailer in New Zealand, with a market cap of NZ$2.1billion and more than 650,000 customers. ? Pakistan: Pakistan is trying to attract IPPs with negotiated PPAs which allow fixed ROR of 12%, but IPPs face continued lack of guarantees and other political uncertainties. Problems continue over Hub Power Company (Hubco), the largest IPP project in Pakistan. Hubco is receiving significantly lower payments from WAPDA than originally contracted. The government has alleged that corruption occurred when the PPA was amended in the 1990's, making the wholesale power tariff untenable for WAPDA and excessively lucrative for Hubco. More than 20% of plants have already been sold in a phased sell-off of WAPDA's generation. Eight parties have been short-listed for the pending privatization of 51% of Karachi Electric Supply Commission, but the sale has been often delayed. ? Philippines: An Omnibus Electricity Bill, which will set the framework for the breakup and privatization of Napocor, is stalled in a House-Senate reconciliation committee. The Asian Development Bank has threatened to withhold all financial assistance, including $100million in loans for power related projects, until the legislation is passed. Napocor is on the verge of bankruptcy and energy department officials are looking at several alternate options for selling the utility in the absence of a restructuring bill. Government-appointed advisers have also recommended that Napocor renegotiate some of its take-or-pay contracts with IPPs, asking some IPPs to reduce power off-take on an interim basis. Napocor has offered the IPPs that accede to these conditions a longer life span for their projects, but developers are reluctant to accept because of their own financial commitments. ? Singapore: Since initial restructuring and corporatization in 1995 and the establishment of a pool in 1998, Singapore has lagged in power sector deregulation. Investors complain that the market lacks clarity and that retail competition has yet to develop even though the rules allow competition for large consumers. A thorough review in 1999 by the Ministry of Trade and Industry recommended that: generation be privatized, but with restrictions on generation cross-ownership; transmission and market operation functions be separated and an ISO established; and that most retail services be privatized. The government has granted two public retail licenses, meaning that the two IPPs can sell electricity directly to large users. Retail licenses are expected to be issued to the three power generators. This will allow full competition for large industrial and commercial customers, but retail competition for smaller customers is unlikely to be in place before 2002. ? South Korea: South Korea is proceeding with a major restructuring program, following government approval in July 1999 for state-owned KEPCO to be broken up into six gencos. KEPCO will retain the nuclear assets as one genco. Each of the five other gencos will be listed in stages on the Korea Stock Exchange; up to 30% foreign ownership will be permitted. The privatized gencos will sell to KEPCO, which will initially retain its T&D services. Later, a UK-type pool will be established where all generators will sell into the pool. Competition in distribution and retailing is a long-term target. IPP projects totaling 2,515MW are already in operation. Impending restructuring has not deterred foreign interest in several ongoing IPPs. ? Taiwan: Two phases of IPP development have been approved, but only one IPP scheme has started up. Developers have faced land acquisition problems, causing IPP schedules to slip. In 1999, the government announced plans to launch Phase Three, limited to gas-fired plants. An Electricity Act is before Parliament. Its main provisions include: privatizing Taipower without unbundling G-T-D; allowing other companies to enter the market as either vertically integrated, generation, transmission or distribution companies and to pay Taipower a fee for using its facilities; and the creation of an independent regulator, especially for tariffs. IPPs will be able to supply customers at 161kV and above, and IPP prices will not be regulated. ? Thailand: The 1999 State Enterprise Corporatization Act laid out a three-stage process for all state-owned enterprises, including power, to create fully competitive, restructured and privatized sectors. A draft Energy Act is under discussion, while preparation and implementation of various technical frameworks are underway. Under the Act, a competitive wholesale pool would be introduced in 2003, although some sources doubt that it could be ready by then. It is also unclear how soon Thailand will have a transparent and independent regulatory body. EGAT transferred two thermal units to Ratchaburi following its IPO in October; EGAT also plans to corporatize and partially privatize its non-hydro plants by 2003. Before the economic crisis, the government had an ambitious IPP program; EGAT now has excess capacity, so has delayed many projects. Its long-term plans include the construction of a series of Small Producer Plants (SPPs) using renewable energy. PPAs have been signed with 50 SSPs. ? Vietnam: Vietnam is in the nascent stages of reforming its power system. Electricity of Vietnam (EVN) is an unbundled state monopoly, which does not even service rural customers. Local villages provide services to small farmers and small commercial businesses using thin wires and low standards. The World Bank has approved a $150million credit to Vietnam to extend grid electricity to about 450,000 households scattered throughout the country. A few IPPs are trying to win generation projects. An Electricity Law due to be enacted in 2001 would establish a National Electricity Office for regulation. This would replace the existing haphazard village-level regulatory system. Profoundly affected by inflation and currency fluctuations, many Latin American countries have postponed further privatizations. At the same time, ownership limits imposed by several governments limit further investments by companies who have already entered the market. According to the Inter-American Development Bank, privatization of electricity distribution and generation has been accomplished in all of the major Latin American economies with the exceptions of Venezuela and Mexico. It estimates that 75 million Latin Americans are still not connected to the grid in rural areas of poorer countries such as Peru, Bolivia, and some Central American countries. Many of the countries that have not already implemented reforms are beginning to propose regulatory structures that would open markets to investments. And for those who were already open, a new development is the increasing number of transmission systems being offered either as concessions to build or as full privatizations. A big factor impacting generation this year has been the region's heavy reliance on hydro-power. Serious region-wide droughts during the last few years have caused power shortages and scared away some investors. ? Argentina: The big news is in Argentina transmission sector. This fall, Argentina auctioned off 25% of Transener in an IPO, while also offering six lines to the private sector on a B-O-M (build-operate-maintain) basis. Endesa (Spain) must divest one of its two Buenos Aires distributors due to antitrust concerns (Endesa's two companies are now serving 40% of the countries 36 million people). The regulator believes that the two holding inhibit its ability to evaluate efficiency and to set prices. ? Brazil: Brazil's wholesale energy market (WEM) began operating in October; initially, only 5-10% of power bought or sold will go through WEM. As other contracts expire it will eventually supervise $15 billion worth of power. The WEM intends also to create an internet-based trading system. The Brazilian system, 95% hydro-run, is dependent on plentiful rains to avoid shortages. Demand growth has far outstripped GDP, while new generation is not keeping pace. Analysts predict a 15% shortage in 2001, with intermittent brownouts, while neighbors are building generation with an eye to exporting power to Brazil. Sao Paulo state will sell 38.6% of CESP Parana, one of the last large generation privatizations, in December. The state is incenting buyers by offering financing for any premium paid over the minimum price of R1.74 billion (US$ 901mil). Brazil also conducted a successful action of three transmission lines in August on a build-operate basis. ? Bolivia: Ende, Bolivia's utility, was unbundled in '94 and has been successively sold off through capitalization (a 50% stake and management control). To meet demand rising at 7.5% annually, the government has ordered these buyers to invest $296 million in the next three years or face losing their concessions; they have not fulfilled previous obligations in upgrades. Generators recently defeated an attempt to allow distributors to generate up to 30% of demand instead of 15%. ? Chile: Privatization in Chile is largely complete. Endesa's (Spain) controversial takeover of Enersis (Chile) will be the basis for its diversification into telecom, via its subsidiaries Enersis and Chilectra. Partially in response to Endesa's vertical dominance, partially in response to supply conditions engendered by prolonged drought, and partially to increase competition, Chile has proposed new regulation plans which will open the distribution market and reduce node (unregulated) prices from 2MW to 0.2 MW. Until now, transmission charges have been based on existing operating costs. Under the proposed reform, they would be calculated on the operational costs of an optimum network. The reforms also intended to remove control of the grid operation from the generators. The proposed changes likely account for Hydro Quebec's being the sole bidder among those pre-qualified for the 100% sale of Transelec in September. 1999 marked a serious recession and drought, seriously affecting hydro generators, which represent nearly 80% of Chile's generation. Under the existing system, generators had no incentive to plan for long-term supply. Chile hopes the new regulations will break down the entry barriers to generation and to introduce competition into distribution, heretofore a monopoly. ? Colombia: Continuing labor strikes plus terrorist attacks against transmission installations have forced the government to postpone the sale of any further power assets, including Isagen, the state generator, ISA, the transco, as well as 14 regional distributors. (A March attack, for instance, caused a blackout in 9 provinces and most of Bogota for six hours or more.) The government claims to be reassessing the rules, but the reality is that the assets would not receive any decent offer now. For now, 100- 300 million new shares (13.5% of capital) in ISA will be sold to the public at a 15% discount, to "democratize" the power sector. Since January '00, 90% of the market has had choice. ? Cuba: The first IPP began delivering power to Cuba's grid in October '98. In order to curb programmed blackouts, it has invited foreign investors to help discover and develop new crude reserves. Cuba hopes that 70% of its power will be generated from local fuels by year-end. ? Dominican Republic: Blackouts still plague this nation a year after the government split state-owned CDE into separate G-T-D units. Investors paid $750 for a 50% stake and management control of non-hydro generation and of distribution. The new government is requiring IPPs (who provide 40% of the republic's power) to renegotiate the terms of the privatization contracts signed with the prior government. In the hopes of increasing competition and lowering prices, the gencos are planning a power clearinghouse through which they will sell electricity to T&D companies. It will, however, "only function when there is adequate electricity to meet demand." ? Ecuador: The government has hired Salomon to oversee the sale of its power sector. There is a current investment limit of 39%, which may need to be raised to 51%. The government realizes that reforms will need to come before privatization in order to attract capital. Its largest utility, EMELEC, will be sold in international bidding to pay off extensive debts. ? El Salvador: In October, AES bought Reliant's interest in three discos (privatized in 1998), which together serve 60% of the population. CEL, the SOU, does not plan to privatize its hydro assets or the transmission grid for the moment. ? Guatemala: Guatemala sold two major discos in 1998; investors have made significant system upgrades. State utility INDE still owns 45% of the country's generation, all in hydro. It extensively encouraged IPPs in the early 90s with take-or-pay PPAs; IPPs are allowed unrestricted grid access. The power sector, while needing new investment for the next five years, may soon be in trouble due to currency devaluation, high fuel costs, and the effect of the PPAs. Guatemala also needs to finish writing the implementing regulations to their 1997 law to encourage more investment. ? Jamaica: For the second time in four years, the Jamaican government has proposed a partial privatization of PSC, which handles all of T&D and 75% of the island's generation. And, for the second time, it is Southern who is in the forefront of privatization negotiations. It is still not clear what percent will be sold, but it seems likely to be a marginal minority of 45%, without G-T-D first being spun-off. ? Mexico: The new Fox administration plans to revive electricity reform, tabled last year, without which energy cannot keep pace with economic growth. Fox says there will be no privatizations, but an opening of the market. Private participation in the distribution sector would require a constitutional change. Many believe that constitutional change will be necessary to achieve adequate reforms. Mexico estimates it needs investments of $25 billion in the power sector in the next five years to meet growing demand; reserve margins are at 6%, while consumption is growing at 6% - 8% annually. Without a clear regulatory bill opening the market to competition, investment is inhibited. IPPs have heretofore been built on a B-O-O basis. Recent tenders have included the option to build either in the U.S. or Mexico, with power dedicated to Mexico. ? Nicaragua: The privatization of state-owned power company (ENEL) is underway, following its restructuring. Assets were first split into G-T-D companies. In September '00, Spain's Union Fenosa acquired 95% of two discos for $115 million in an auction in which it was the sole bidder. High oil prices forced the government to postpone the October sale of the three gencos; two of the three pre-qualified companies failed to submit final bids. Also, the political opposition has challenged the legality of the privatization in the Supreme Court. ? Panama: Privatization of government-held IRHE is now complete; 51% of distribution and generation was sold in 1998. The government plans to retain control of transmission. Foreign investors are involved in building some generation. The big news is the Central American integrated grid, which should join Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, and Panama into a single market by 2006. The IADB is running project. ? Peru: The new Energy Minister, Chamot, favors re-starting the privatization program, stalled since September '99. SOUs mentioned for privatization were six regional energy companies, as well as a 850MW Andean hydro complex, Mantaro. It was not clear what form privatization would take; nor is it clear what will happen now that Fujimori has resigned and fled. Peru also announced bids for construction and operation of two transmission lines. Currently, only large industrials, representing 10% of the market, have choice. There are no plans to expand this. ? Trinidad and Tobago: While there has been a partial unbundling of the generation arm of T&TEC, the government utility retains control of T&D as well as of all of natural gas purchases. There been neither much IPP nor privatization activity since the sale of 49% of T&TEC to Southern and BP Amoco in 1996 and the financing of one IPP in 1998. ? Venezuela: The Chavez government imposed an electricity restructuring law in August 1999. Industrials can choose their supplier, but there are no plans to open the market completely. A wholesale market is proposed for 2002. Venezuela has the lowest tariffs in the Western hemisphere, due to high subsidization. While the government dithered on privatization plans, AES jumped in with a surprise bid for the ADRs of Electricidad de Caracas. The government recently announced a tentative sale date of early 2001 for 51% of two regional electric companies, Enelven and Semda. Privatization has oft been postponed, most recently because of unknown effects of Venezuela's new electricity law on its rate policy. ? Virgin Islands: In September '00, this U.S. territory's Senate quashed a deal in which Southern had privately negotiated for an 80% purchase of the Water and Power Authority. The Islands could use the money, but the Senate objected to the lack of bidding or transparency. It was in principle opposed neither to privatization nor to Southern. African and Middle Eastern governments are increasingly opening their power sectors to foreign investment, although most have not moved beyond allowing IPPs. Many Gulf-States' IPPs are for water and power. Increasingly, power sector forecasts include reliance on the private sector for generation capacity additions. Five Sub-Saharan countries have privatized their power systems: C"te d'Ivoire, Gabon, Guinea, Mali, and Senegal. A few countries are beginning to discuss partial privatization of the entire government-owned entity, rather than spinning off G-T-D and undergoing separate privatization. Heavy reliance on hydro power in some areas of Africa have put pressure on prices, due to sustained droughts, especially in East Africa. Droughts are usually not conducive to advancing restructuring agendas in different countries. A notable regional trend in both Africa and the Middle East are the schemes for regional transmission links. The Mozambique Transmission Company links South Africa, Mozambique, and Swaziland; the West African Power Pool will link 16 countries; there is a Six-Country link underway between Egypt, Jordan, Iraq, Syria, and Turkey, and later Lebanon. ? Algeria: Interior minister Khelil, who as a World Bank official oversaw the restructuring of state oil companies in several countries, is committed to "a profound restructuring of Sonatrach (the NOC) and the power sector (Sonelgaz)." Legislation was introduced this summer that would unbundle G-T-D, end Sonelgaz' generation monopoly, and allow for IPPs on a B-O-T basis. Some of the IPPs are intended for domestic consumption, and some for export. Algeria is keenly interested in sending power to deregulating European markets via a new undersea link to Spain. ? Ghana: With a vast hydroelectric station on the Volta River, 98% of Ghana's current power needs are supplied by hydroelectricity. Ghana's planned privatization of its distribution company into 4-5 regional companies is possible in 2001. It is implementing a series of power sector reforms designed to provide Ghanaians with universal access to electricity and to transform Ghana into a middle-income country within one generation. It is moving to reduce its reliance on hydro-power by allowing IPPs to build deisel, gas, and light crude plants. Regionally, Ghana is committed to building a West African Power Pool (WAPP) by expanding electricity generation and interconnections. ? Morocco: Two distribution concessions are due to be awarded for Tangiers and Tetouan. The concession covers the provision of water, sewerage, and electrical services to these two northern areas. Two earlier power/water concessions (Casablanca, Rabat) were awarded. Morocco has an active IPP program; one of the plants was even transferred to the builders after its completion. No sale of transmission assets is planned. ? Nigeria: The IMF has provided Nigeria a $1billion facility to encourage reform and to support civilian President Obasnjo. In November, the government announced plans to privatize ailing NEPA, the SOU. While a draft electricity policy has been prepared, no details have emerged. They intend to send regulatory legislation to the parliament by the end of December, which should include a framework for foreign IPP investors. It is also likely that NEPA will be broken up, prior to privatization. Enron is supplying 270MW via 9 barge-mounted power facilties off Lagos to ease the power shortages in this oil-rich country. ? Senegal: Showing how risky foreign investment remains, the new Senegalese government has asked Hydro Qu,bec and Elyo to leave, less than two years after they won a 34% interest in state EU S,n,lec. The current government, while acknowledging the advances made in rehabilitating old plants, cited cronyism on the part of its predecssors. ? South Africa: Eskom, South Africa's parastatal, generates 95% of the country's power, and transmits it over national lines to municipal distributors. South Africa is moving slowly towards restructuring and unbundling of G-T-D. The fragmented distribution system will be merged into six discos, while plants may be grouped into gencos. Last year, G-T-D activities were "ring-fenced" to evaluate costs for each business. A new structure for the electricity supply industry is being discussed, and the possibility of privatizing 30% of Eskom's power stations has been raised for the first time. Electricity regulators announced in November that they were considering three bids for the first IPP license, to be offered next year. While South Africa needs new generation capacity by 2004, it now exports power to its neighbors, and is very active in the creation of a regional transmission network. Eskom has ambitions to be a global player, while continuing to focus on its development agenda of rural electrification. Eskom Enterprises, the unregulated business subsidiary, is considering an IPO. ? Egypt: In July, the Egyptian Electricity Authority was converted into a holding company, although still state-owned. It intends to offer 49% stakes in seven or eight regional G&D companies. The sale of Greater Cairo Electricity, valued at $2.1 billion, will be first, although it has been twice postponed. All capacity additions will be solicited competitively as IPPs under the BOOT (build- own- operate- transfer) model. This allows developers to recover construction costs by running a plant, while the state eventually owns the project without affecting its debt profile. Egypt is part of a planned Six-Country transmission link. ? Israel: Israel has been discussing restructuring and privatization for a few years now, but no real progress has been made. An electricity law passed in March '96 extended the Israel Electric Company (IEC) license for 10 years in exchange for its accepting 10% of it power needs (900MW) from IPPs, and another 10% from foreign developers. So far, only one IPP has been built. Recent offshore gas discoveries have been largely in Palestinian waters; further exploration will be necessary before Israel, which has no indigenous fuel sources, knows whether it will have an assured fuel supply. ? Jordan: With virtually no indigenous oil or gas, Jordan has been highly dependent on Iraqi oil. In early '98, NEPCO, the state utility, was corporatized, and G-T-D was unbundled. Jordan's first solicited IPP (450MW) was awarded to Tractebel in May. There is talk of relying on IPPs for further generation and of privatizing existing assets. Consultants were sought in August to advise Jordan on distribution privatization. Jordan's transmission grid was linked to Egypt in '98; the link to Syria should be completed soon. ? Kuwait: Lifting a freeze on large projects, the cabinet has allowed two new IPPs (1000MW, 2500MW) with possible private financing options. Forcasts for power show 5500 new MW needed in the next 15 years. ? Lebanon: After years of war, Lebanon is now engaged in massively rebuilding its infrastructure. In April, consultants were invited to bid on advising Lebanon on restructuring and eventual privatization of its power sector. Lebanon was admitted in May to the planned Six-Country regional transmission linkup. ? Palestine: The outlook for Palestine's energy independence changed in a moment this Autumn, with offshore gas fields in acknowledged Palestinian waters proving substantial. It has been nearly totally dependent on Israel's IEC for power. ? Qatar: Officials announced in February that they had invited five companies to submit proposals for an IPP. Foreign developers would hold a 60% stake in a plant envisioned to begin at 200MW, rising later to 1100MW. A decision would turn on a bid of less than 5.5 cents/kWh to generate power. Qatari nationals pay no power or water tariffs. ? Saudi Arabia: Saudi Arabia's 5% demand growth has created a need for an additional 50GW of capacity by 2020, much of which will need to come from the private sector. Privatization of the sector is being considered, as is an unbundling of G-T-D. As a first step, in February, the ten power companies were merged. In April, the Saudi Electricity Company was created as a joint-stock company, 50% government-owned. The consensus among potential investors is that much needs to be done on the regulatory system, the financial framework, and on tariffs before IPPs become feasible. For instance, nationals pay only nominal amounts for power. Early considerations of BOT projects to meet soaring demand were shelved. ? Tunisia: The Parliament passed enabling legislation for independent power in April '96. While the government will continue to control D-T and international trade, all new generation will be open to the private sector. The first IPP, for 471MW, is scheduled to come online in 2001. It will produce 20-25% of Tunisia's electricity. ? United Arab Emirates: The UAE is a confederation of 7 Emirates. Political power is concentrated in Abu Dhabi; it and Dubai provide over 80% of UAE income. In '98, the UAE called for comprehensive restructuring of the power/water authority, and for privatization through IPOs aimed at UAE nationals. While privatization in Abu Dhabi is still anticipated, Dubai has decided not to privatize these sectors. Several IPPs are underway in Abu Dhai and Dubai, as both BOO and BOOT. The UAE's need for additional power may be met by a grid linking several Gulf States' systems, which is under discussion between the UAE, Oman, Saudi Arabia, Qatar, Kuwait, and Bahrain. * * * * * As it is fairly difficult to track developments in countries around the world, the authors would appreciate any local amendments. Please feel free to send us comments, criticisms (not many), suggestions for exhibits, and updates. If you would like to be removed from the mailing list, please let Carol Brotman White know. Likewise, if you know of someone who should be added. For additional country or regional information, please contact individual European EPNG R&Is for Europe; Pru Sheppard for Asia; and Carol Brotman White for Latin America, the Middle East, or Africa. More detailed spreadsheets are available for each country and region from the authors. The Financial Times, African Energy, East European Energy Report, Global Private Power, Power in Asia, Power in Europe, Power in Latin America IFR Newsletters, Privatisation International McGraw-Hill, Electric Power Daily, Global Power Report, International Private Power Quarterly McKinsey Private Power Database Morgan Stanley Dean Witter, International Investment Research (various) Target Research, Latin American Power Watch U.S. Energy Information Administration, Country Analysis Briefs Company and Country website +-------------------------------------------------------------+ | This message may contain confidential and/or privileged | | information. If you are not the addressee or authorized to | | receive this for the addressee, you must not use, copy, | | disclose or take any action based on this message or any | | information herein. If you have received this message in | | error, please advise the sender immediately by reply e-mail | | and delete this message. Thank you for your cooperation. | +-------------------------------------------------------------+ (See attached file: Intlmail 3 exhibits.ppt) - Intlmail 3 exhibits.ppt