Portal de Periódicos da CAPES

Generating Participation and Democracy: An Illustration from Electricity Reform in Mexico

2005; Taylor & Francis; Volume: 20; Issue: 1 Linguagem: Inglês

10.1080/02692170500362512

1465-3486

J. Robert Branston, Roger Sugden, P. Valdez, James R. Wilson,

Fiscal Policy and Economic Growth

Abstract Privatisation is a fundamental issue for both ‘developed’ and ‘less developed’ countries. Many see it as a requirement for access to a globalised economy, and furthermore imply that countries have no room for manoeuvre when it comes to ensuring that privatisation takes place. However, we would argue that a mere requirement leaves options for how privatisation is to be undertaken. We consider the possibility of an economy developing according to the aims of its people, and correspondingly of a privatisation model that contributes to the nurturing of democratic economies. How this might be achieved in practice is addressed by using the specific case of electricity in Mexico as an illustration. We explore an ownership and control structure that balances different interests. It is envisaged that pension funds could be important, linking investment back to individuals and groups with interests wider than those usually associated with international investors. While this could move towards the guiding principle of democratic control, it would fall short of being fully inclusive. Therefore a more direct incorporation of citizens, through a formal right to participate in strategic decision‐making, is also contemplated. Various governance mechanisms are identified that, with further refinement and positioning in the context of particular cases, might allow effective participation to be realised. Key Words: Privatisationeconomic developmentelectricitydemocracyMexicoJEL Classifications: D70L33L94O10 Acknowledgement We are grateful to Keith Cowling, Johan Willner, two anonymous referees and the Editor for discussion and comments. We also acknowledge helpful comments on an earlier version by participants at the 5th Annual Conference of the European Network on Industrial Policy (EUNIP), Vienna, November 2001 and at the 2002 L’institute‐Ferrara Graduate School in Industrial Development Policy. The responsibility for errors, however, is entirely our own. Notes 1. For an overview of privatisation processes in the UK and a discussion of their wider impact, see Clarke (Citation1993), Martin and Parker (Citation1997) and Florio (Citation2004). 2. See, for example: Islas and Jerónimo (Citation2000); Castañeda‐Sabido and Lopez‐Calva (Citation2001); Islas‐Samperio (Citation2001); Calderón‐Hinojosa (Citation2003); ‘Propone Senador Revisar Esquema de Subsidios a Tarifas Eléctricas’, El Economista, 15 October 2001; ‘La Apetura del Sector Eléctrico, una Trampa: Ortega’, La Jornada, 20 August 2001; and ‘México Sufrirá un Desastre si Privatiza su Sector Eléctrico’, La Jornada, 22 November 2003. 3. Similar concerns are reflected in ‘México Dependerá más del Capital Privado por la Limitación del Presupuesto’, La Jornada, 14 May 2001. See also Galina‐Hidalgo et al. (Citation2003). 4. In evaluating such figures we would not rule out the possibility that an optimal solution may be to actively manage demand, thus reducing the requirement for investment. As should become clear from our argument as it progresses, the determination of what is optimal in this sense ultimately relies on democratic participation in the process of making such strategic decisions. 5. For example, in Brazil it is estimated that US$6.8 billion a year of new investment is required to avoid electricity shortages, and that the transport infrastructure requires US$5.1 billion of investment to maintain annual economic growth of 3–4% (see Economist, Citation2004, p. 53). Similarly, in the UK it has recently been suggested that the electricity sector requires £50–70 billion of investment over the coming decade (see ‘Power Prices must Rise to Avert Blackouts’, The Independent, 11 May 2004), while the perceived investment gap in transport is reflected in planned spending of more than £22 billion in the period to 2009 by Network Rail, the national railway infrastructure company (Network Rail Ltd, Citation2004). 6. This is true in both ‘less developed’ and ‘developed’ countries. For example, witness the debate about ‘Private Finance Initiatives’ (PFI) as a way of raising investment capital in the UK for health, education, rail networks, etc. See The Observer, 6 October 2002 and The Independent, 7 October 2002. 7. See, for example, Vickers & Yarrow (Citation1988), Armstrong et al. (Citation1994) and the volumes edited by Bishop et al. (Citation1994) and Parker & Saal (Citation2003). 8. This echoes the view in Cowling & Sugden (Citation1993, p. 56) that British experience of privatisation is a ‘catalogue of missed opportunities’. 9. See ‘Buscan Revivir la Reforma Eléctrica’, El Economista, 13 May 2004, commenting on the recent revival of reform plans. 10. This is not to preclude co‐operation with external sources: see Sugden and Wilson (Citation2002) for more detail. 11. See Clarke (Citation1993) on Britain and Rivera (Citation1996) on pricing revisions following privatisations in the water industry. 12. For more detail on these pricing revisions, see Diario de la Federación, 7 February 2002 (http://www.gobernacion.gob.mx/dof/2002/febrero/dof_07‐02‐2002.pdf) (accessed 26 July 2004). 13. Transmission refers to the use of the high voltage national electricity grid, distribution refers to the low voltage local electricity lines, and supply refers to the sale of electricity to the final consumer. 14. CFE covers the entire national territory with the exception of Distrito Federal and parts of the states of Morelos, Hidalgo and Puebla (i.e. the central area), where LFC has responsibility. 15. Co‐generation refers to electricity that is generated simultaneously with steam or other types of thermal energy used in an industrial process, or generation from the waste heat of an industrial process. Self‐generation refers to the generation of energy to meet a producer’s own physical or contractual needs (Ministry of Energy, Citation1999). 16. See ‘Propone diputado usar recursos de Afores en electricidad’, El Economista, 16 October 2001. Recently it has been suggested that private investors could use the resources of the pension funds as a source of finance for electricity projects; see ‘Indispensables, los cambios constitucionales en energia’, El Financiero, 28 May 2002. 17. There are large social and fiscal implications from this reform that are beyond the scope of this analysis. For detailed background on and discussion of the Mexican pension reforms, see Sales‐Sarrapy et al. (Citation1998) and Grandolini and Cerda (Citation1998). For critical discussion around the evolution and implications of Latin American pension reforms more generally, see Barrientos (Citation1998), Müller (Citation2000) and Charlton & McKinnon (Citation2000). 18. The arguments of these authors are based mainly on diversification gains and the lack of safe investment opportunities in developing countries. 19. Many experts (see Toporowski, Citation2002) recognise that when institutional investors own large portions of a firm’s stock, its value will be highly dependent on the future purchases (or sales) of the pension funds, increasing price volatility and risk. This might be the case for mature pension funds, where the demand for shares might be declining, but is likely to be less pronounced for the young Mexican pension system for at least the next 50 years. 20. An alternative strategy is for the government to issue new debt to finance the necessary investments in the sector (the previously mentioned difficulties with such a strategy notwithstanding), but this would leave pension funds locked in low‐profit assets because public debt has a low return. Instead a direct investment in the electricity sector might give pension funds a more desirable risk‐return combination, given that the returns in the electricity sector are likely to be higher than in Mexican government debt instruments. 21. Whilst the exact industry structure of the privatisation is not the focus of this paper, we would caution against the introduction of an overly fragmented sector as this has proved to be problematic elsewhere, and increases the risk of all those involved with the sector. 22. Network Rail has billions of pounds in debt that is ultimately underwritten by the British Government, but which does not appear as part of official government debt. See ‘Network Rail Pays Directors Bonuses Despite £758m Loss’, Financial Times, 3 June 2004.