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PSI Utilities Strategy

Energy Sector Chiang Mai, Thailand
2004
David Boys PSI Utilities Officer david.boys@world-psi.org

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Privatisation and Jobs

Privatisation used to attack public sector unions Privatisation used to limit government debt Privatisation used to reduce the workforce Privatisation used to increase tariffs Privatisation used to make politicians rich Privatisation used to make MNCs rich Privatisation used to build stock market Privatisation sometimes used to improve services

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Energy Privatisation?
The governance and finance dilemma :
Need to improve and expand capacity with new technology, management and finance. But governments are too indebted. Privatisation is supposed to be the answer. Problem is that energy is too important to socio/economic needs to be treated as a market commodity. Electricity difficult to store. The market is too unstable. Corporate focus on share value, profit maximisation is not the same as social priorities of government. Profit motive doesnt allow social priorities. Corporations wont invest unless they get government guarantees of profits. Will seek to maximise profits (rising tariffs, less jobs).

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Global Trends
Less overall stability due to multiplicity of corporate actors more difficult for regulators. Oligopolies, investment, tariffs, Power Purchase Agreements (PPAs) MNC withdrawals and volatility World Bank and Deloittes re-assessment EC, liberalisation, energy markets Resistance Alternatives PSI strategies

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Withdrawals, bankruptcies of MNCs

Enron: general bankruptcy
Specific problems in Dabhol (India), Paiton (Indonesia)

AES: withdrawals from Orissa (India), Brazil, Drax (UK), Bujugali (Uganda) Other USA company withdrawals/bankruptcies:
Southern Co/Mirant; Reliant; TXU; AEP, NRG

Other bankruptcies; British Energy, Edison & PG&E (California) Induced bankruptcies of public authorities
Pakistan, Indonesia, Dominican Republic

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USA companies exit Europe

Company AES Enron Entergy NRG Reliant Southern TXU Countries of operation Status Bulgaria, UK, worldwide Exit UK, India, Brazil etc Croatia, Poland, UK + UK, Bulgaria UK, Czech, Estonia UK, Netherlands UK, Germany UK, Germany Liquidation Exit UK, review other Exit UK, reviewing Exit Europe Exit Europe Exit Europe - sold to E.on (Oct 2002)

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Company labour relations policies

European Works Councils for all multinationals EPSU lead is strong USA companies: anti-union, but exit
AES dispute in Hungary over recognition, jobs
PSI helps union, AES manager dismissed

EU companies: good in home countries

EdF good with unions in France, OK elsewhere
New initiative for global works council But note cuts jobs, pay in Rio de Janeiro

RWE, E.on : good in Germany, EWCs

But unions need strength e.g. Hungary disputes on pay Use strength of PSI union in Germany: ver.di

Russian companies in evolution

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Europe : vertical (re)-integration

E.on CEO says vertical integration essential
UK Vertical re-integration of generators and suppliers Non-integrated generators bankrupt Germany RWE, E.on dominate generation, transmission, and retail supply Scandinavia (Norway, Sweden, Finland) Vertical integration Vattenfall, Fortum buy distributors France Vertically integrated state monopoly (EdF) Belgium Tractebel/Electrabel control generation and distributors

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Europe an energy oligopoly

3 leaders
EdF/GdF RWE E.on

Disappeared or leaving
UK companies most taken over Fortum (Finland) retreats to Scandinavia. Others not expanding: Portugal, Austria, Denmark, Netherlands US companies almost all gone or leaving Europe: Enron; NRG; Reliant; Southern; TXU. AES: leaving UK, reviewing rest. Entergy reviewing.

Others
Suez-Tractebel Endesa Enel Vattenfall Gazprom/EES

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Germany liberalisation and concentration

March 1999
Other 6 % Municipal 1% 1 VEW 6 %

December 2001

Dec 6 6 6(e st) 6

VEAG 6 %

other 6 % Eon 6% 6

M unicipal 6% 6
Viag 6% 6 B ew ag 6 %

R WE 6% 6

EdF 6 % EnB W 6 % Preussenelektr a 6% 6 HEW 6 % N WS 6 %

EdF+ 1% 1

Vattenfall+ 6% 6

RW E 1% 1

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Restructuring and privatisation effect on employment

250,000 jobs lost in EU between 1990 and 1998 Companies project 25% job cuts in next four years France is exception efficient, public service, improved conditions Employment falls in CEEC also, on top of sharp fall in employment in coal.

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Employment in 66 European countries 11 - 11 - 1 1 11 1 : 1 . % 1 1

666 666 666 666 666 666 666 666 666 666 666 666 666 666 666 666 666 666

11 11

66 66

66 66

11 11

11 11

11 11

11 11

11 11

11 11

11 11

Electricity/energy employment in selected European 66 countries (B, CZ, D, DK, E, F, FIN, IRL, I, NO, P, SW, UK)

66 66

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Electricity Employment Evolution in European Countries 66 (1111 ) -1111

666 666 666 666 666 666 666 666 666 666 666 666 666 666 666 66 666 66 666 66 666 66 6
-44.7% -42.6% -40% -39.5% -34.8% -29% -26.1% -58.7% -41.9% -25.8% -5.5%

-34.2% -29.4%

-24.6% -16% -8.9%

SLO

SW

IRL

NO

CZ

HU

UK

DK

LV

FI

EPSU Survey & Research, June 2002

Electricity/en employment in Electricity/en employment in

11111111 or (or B & D, 1111 1111 LV, or HU & SLO) 66666666 (or for B, CZ, F, IRL, I, NO, SW)

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Electricity Employment Decline in 6European Countries 6

F SLO LV B I IRL SW FI HU NO DK CZ D P E UK 66 . 6 6. 6 66 6. 6 66 6. 6 66 6. 6 66 6. 6 66 6. 6 66

Employment Decline in %
EPSU Survey & Research, June 2002

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World Bank re-assessment

Jamal Saghir, Director water/energy Feb 2003:
Declining interest of private sector Decreasing faith in markets High global energy costs Delivery of energy services to the poor Renewable energy Energy security

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World Bank assessment

Saghir :
Companies financial condition has been deteriorating Decreasing faith in markets
California power crisis Enron Price volatility in deregulated markets creates problems with investors and consumers Immature governance in emerging markets

WB continues working with private investors, governments, IFIs to improve investment climate and governance

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World Bank: decline in projects

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Deloittes assessment
The Declining Role of Foreign Private Investment by Matthew Buresch, Deloitte Emerging Markets World Bank Energy Forum February 24, 2003

Energy privatisation and reforms are driven by private capital flows Structural decline in private investment Power investment failures in emerging markets where investors are facing major losses, e.g. Hungary, Argentina, India, Pakistan, Indonesia industrialized markets where utilities have suffered losses, e.g., California, Enron, AES Growing political opposition to privatisation in emerging markets due to widespread perception that it does not serve the interests of the population at large

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Deloittes (continued)
Experience with privatisation in many emerging markets worldwide has often led to less than positive reactions due to:
Pressures to increase tariffs and cut-off non-payers Loss of jobs of vocal union members that will be hard to retrain for the new economy Perception: only special interests are served
privatisation seen as serving oligarchic domestic and foreign interests that profit at the expense of the country

Slow pace of investments due to tariff constraints It is getting harder to find political leaders that are willing to truly champion privatization for reasons other than to generate cash proceeds

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Resistance to privatisation/liberalisation
Widespread in north and south
Thailand, Korea, India, Pakistan, Canada, Colombia, Brazil, Uganda, Senegal, Australia, France, Moldova Includes unions, consumer groups, environmentalists Issues are tariffs, jobs, democratic control, lack of investment, system stability and reliability

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Resistance to energy liberalisation/privatisation

Country Thailand Australia Brazil Canada Colombia France India India India Indonesia Mexico Pakistan Senegal S Africa USA Year 2004 1999 Ongoing 2002 1997-date Ongoing 1996-date Ongoing 2000 Ongoing Ongoing Ongoing 2001 Ongoing 2000 Issue Energy and Water Privatisation Corporatise NSW state utility Oppose privatization Oppose privatization of Ontario Hydro Oppose privatization of Emcali Keep EdF unified state comp Oppose Dabhol IPP (Enron) Democratisation of MSEB Opposition to Cogentrix IPP Restructuring IPP deals Oppose privatization Prosecution of IPPs for corruption Collapse of privatization plans Keep Eskom public utility California: remunicipalise votes Actors Unions, PSI (civil society) Unions, political parties, NGOs Unions, parties, NGOs, consumers Union, NGOs Unions, NGOs, international NGOs Unions, political parties Community NGOs, energy NGO Energy NGO, community s, unions, Environmentalists, community NGOs Public authorities, unions Unions, parties, NGOs, international Unions, NGOs, international Political party, unions Community NGOs, unions, Political parties, consumers, union

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Alternatives: practice, policies

Prayas (energy NGO, India): alternative is TAP
complete Transparency direct Accountability to public, and meaningful public Participation Used as strategy for making demands e.g. public debate on prices, as well as policy proposal Used in joint NGO/union alternative plans

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Alternatives
WRI (global environmental research NGO). Research on six countries (2002) concludes four principles: Frame reforms around the goals to be achieved in the sector
A narrow focus on institutional restructuring driven by financial concerns is too restrictive to accommodate a public benefits agenda.

Structure finance around reform goals, rather than reform goals around finance Support reform processes with a system of sound governance Build political strategies to support attention to a public benefits agenda
studies suggest that social concerns carry far more political weight in a national context than do either local or international environmental issues

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Role of trade unions

Active in campaigns worldwide On social and policy issues, as well as jobs Alliances with consumers, environmentalists Formal rights to consultation Under EU law (on redundancies, transfers) Under national laws and processes E.g. Hungarian agreement on social chapter Development of alternatives Great need for investment in networks Finance for development, safety Need public (EU?) financing for networks

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Key PSI Actions in Energy

Analyse the IFI policies ADB, World Bank, IMF Other international actors: EU, WEC, E7, IEA. Analyse MNCs assess motives and capacity Mobilise local actors for advocacy Intervene with regulators to protect jobs Develop union resistance campaigns

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Comments
Common agreement on issues:
Social issues of prices, jobs, + environment Political failure to convince public of benefits Companies in financial crisis, withdrawals

Strategic aspects:
Political alliances with consumers, poor, greens Development of democratic alternatives is essential

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In Unity, Strength!