PRIVATIZATION AND REGULATION OF THE ELECTRIC POWER SECTOR : U.S., U.K., AND SINGAPORE

Abstract

The Singapore Government has since the 1990s embarked upon a process to increase the share of the private sector in the Singapore economy. In the days after independence, Singapore's small market and weak private sector prompted the Government to take charged of many sectors or industries. This was in addition to the usual arguments about market failures which demanded government intervention, one of them being the utilities, organized under the Public Utilities Board. The situation has improved over the years and today the private sector in Singapore is a vibrant one. The global economy has also changed in a drastic way, adaptability and innovative being the key merits for survival in the new economy. As such the Government had started to privatize many industries to reduce the bureaucratic hurdles that can severely binder Singapore's ability to meet the fast changing economic environment. Towards this end the electricity industry in Singapore has been slated for privatization and restructuring. This is also in part due to growing recognition that the electricity industry is not a natural monopoly anymore as technological progress has removed the economies of scale that had for many years excluded small players from this market. The electricity industry in the United States and United Kingdom went through a period of great upheavals in the 1970s and 1990s respectively. ln the United States technological progress had hid the problems of wastage and regulatory deficiencies from the public. Electricity prices had declined in the post-war period leading to a perceived "golden era" in the sector. The l 970s however dispelled the myth of an efficient electricity sector. Soaring oil prices sent many utilities tumbling and exposed the vastages and misguided investments that were so prevalent in the past. The regulatory mechanism was found wanting in such rapidly changing circumstances. Amid this there rose a chorus for reforms. In the U.K., the Conservative government had started a massive privatization programme in the 1980s. The electricity industry was privatized in 1990, with the information of vertically separated utilities each possessing control over only one aspect of the supply of electricity. This was an unprecedented experimentation with free market forces in the electricity industry. The results and lessons learned provides a good source of guidance from which any prospective regulator wishing to introduce market forces to their domain can draw upon. This thesis then tries to provide the lessons learned from the U.S and U.K. experience. The requirements and potential problems facing a fully competitive electricity industry are adapted to the Singapore scenario. Given the importance of this sector, which provides an essential input to the industrial and commercial base of Singapore, the lessons drawn from overseas are all the more vital in helping Singapore to maintain her competitiveness in the 21st century.