‘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.

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...