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Unbundling of utilities 'will help efficiency'

Dubai, August 18, 2009

Unbundling is expected to be a key facilitator for competition through discriminatory-free network access for third parties, and thus lead to efficiency gains, says a leading management consulting firm.

A T Kearney recently reviewed electricity regulation in the Middle East and North Africa (Mena) and the discussions concerning unbundling, separating electricity supply from networks.

The A T Kearney review however, showed that in most cases the expectations towards unbundling are unrealistic and requirements of the regulators are not defined.

Electricity across the Mena region is highly subsidised by the various governments at 30 to 50 per cent. In recent years however, these governments have looked for ways to lower those subsidies. Utilities companies have added surcharges to customer bills to manage the extra costs, as there were no other means of compensation or ways for improving efficiency.

“The defining element of an ownership unbundling model is that the network of electricity transmission is operated and owned by one independent company, which clarifies the incentives, responsibilities and liabilities for the network, but unbundling does not necessarily mean lower tariffs,” stated Dr Dirk Buchta, managing director of A T Kearney Middle East.
 
National strategies on development of electricity markets in Mena vary considerably from country to country due to different national constraints. However, unbundling is seen as one way of improving efficiencies without tariffs becoming so unrealistic that they might threaten the sustainability of the power grid.

“Unbundling the right way can provide significant opportunities for Mena countries,” said Dr Goetz Wehberg, leader of A T Kearney`s Utilities Practice in the Middle East.

Many regulators think of the United Kingdom as a role model for unbundling. Due to the ownership unbundling and demand regulation the electricity market in the UK is highly sophisticated in terms of pricing and customer fluctuation, with churn rates up to 15 per cent per year. However having the strongest competition does not necessarily mean a positive economic impact.

“The UK has suffered from its tough regulation. Shortages in generation capacity have led to an increasing number of outages in the past years. The fierce competition has reduced the capitalisation of the utility companies. As a consequence, international companies were invited to take over. Last year for example, Electricité De France (EDF) acquired British Energy to help invest in generation capacity such as new nuclear power plants,” commented Dr Wehberg.

Examples from Europe and the US show that an appropriate regulation is of utmost importance when it comes to developing the utilities sector and creating regional champions.

Electricité De France (EDF) for example, has become a leader in nuclear energy in Europe over the past years. The company is sufficiently capitalised to finance more than $60 billion for new nuclear plants over the next years and maintain safety standards at the highest level. EDF has gone through a moderate unbundling process, consolidating its transmission network through its subsidiary Réseau de Transport d’Electricité (RTE).

“For Mena countries, we recommend a step by step unbundling process, because of the strong growth of electricity demand of 3 to 6 per cent annually.'

'Regulators in Mena have to make sure that clear responsibilities for balancing supply and demand are maintained within the incumbent companies, despite unbundling,” concluded Dr Wehberg.-TradeArabia News Service




Tags: Energy | Electricity | power | utilities | A T Kearney |

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