Message-ID: <s3242ce4.055@crs.loc.gov> Date: Mon, 10 Mar 1997 15:44:21 -0500 From: Jonathan Sanford <mailto:JSANFORD@CRS.LOC.GOV> Subject: UNITED NATIONS: Third World Lacks C -Reply To: mailto:DEVEL-L@AMERICAN.EDU
The IPS article "Third World lacks capital for energy needs" was most interesting. It is quite possible that, if world energy prices increase, developing countries will need an additional $300 billion if they wish to meet their energy needs. As the article suggests, some countries may need to cut back on their use of imported energy sources.However, I think the article is incomplete because it fails to explore possible sources that countries might tap to expand their energy output. The implication is that somebody will have to give the developing countries $300 billion if they are to meet their energy needs. I don't think this is going to happen; and if it did there is little reason to believe that subsidizing the price of petroleum in developing countries is the right thing to do.
The author of the IPS article should have looked at possible private sector sources of funds for new energy production. Many developing countries have been reluctant to allow foreign companies to explore their territory, since they hope that a national firm might eventually undertake the effort. Foreign investment in petroleum, coal, and other energy output has been restricted. Abolishing or relaxong those constraints might be a way for developing countries to acquire some of the capital and skills they need to meet their energy needs. The IPS article should have assessed that issue, rather than giving us the impression that we have to give developing countries an additional $300 billion in the next few years to avoid energy-based disasster. Of course, if governments of developing countries want to keep barring foreign energy firms from their territory, it is their right. But then maybe they should have to bear the consequences themselves rather than asking for subsidies from abroad for their national energy systems.
The IPS article talks about the weak financial status of electricity-producing companies in developing countries, particularly the fact that they have often priced their output so low that they do not recover their capital replacement costs. Doubtlessly, electricity prices will have to be higher if firms are to operate on a stable basis. I guess the state energy firms thought they could continue pricing their electrical output below its long-term cost of production with impunity. As far as I can tell, the foreign aid agencies, international financial institutions, and Western governments all told them this was not a sound practice over the long run but the governments of developing countries went ahead with these pricing policies anyway. Who now should pay the cost of salvaging the situation?
In many cases, state-owned electrical firms are so inefficient that major savings could be effected simply by a conversion of the plants to private management. In Honduras, for example, state-owned electricity plants have been leased to private operating firms. The result has been an increase in output, a reduction in costs, reduced noxious emissions, and a predictable lease-fee (rather than an operating loss) for the government..
I don't know if this is an all-purpose cure for what ails the developing countries. Probably not. But the role of the private sector in future energy production is a legitimate issue. The UN should have raised it when it provided the data and IPS should have explored it when it prepared the article.
Jon Sanford