T C A Srinivasa-Raghavan: The Myth of Sisyphus

OKONOMOS

What is common between those who would reform electricity and Sisyphus?

Sisyphus was a character in Greek mythology who was cursed by the Gods to roll a boulder up the hill, only for it to roll down just before he reached the top. Hence the term Sisyphean task denoting futile labour.

In a recent paper*, Tooraj Jamasb, Raffaella Mota, David Newbery, and Michael Pollitt, all of Cambridge University, UK, have provided a wonderful survey of electricity reform in developing countries.

Reading it, one begins to think Sisyphus might have been better off. At least he got near the top and, thus, had some hope. Not so the reformers of electricity. They appear more like the Leacockian hero who "rushed madly out of the room, madly on to the horse, and madly off in all directions".

The authors say that given how much time, money and effort has gone into reforming infrastructure industries in developing countries, it makes sense to "examine whether the evidence supports the logic of reforms". So they have reviewed evidence on electricity reform in developing countries "" and raised a red flag.

They conclude that "until that we know more, implementation of reforms will be more based on ideology and economic theory rather than solid economic evidence." Electricity reform for them remains "work in progress".

Their main complaint about the evidence is that barring one recent study, all others have used limited samples. So you really can't say much this way or that.

More importantly, perhaps, "much useful information embodied in lesser known reforms (or even non-reforming countries) representing counter-factual alternatives, is not utilised".

This observation made me look at their bibliography. India was missing. So the physician also needs some healing, perhaps. Not just that, either. They also conclude that there are methodological difficulties that need to be sorted out. They list these out as follows:

No known attempts to use simultaneous equations;

Missing performance indicators;

Missing market structure variables;

Missing endowment variables, for instance, threshold effect;

Missing institutional variables, for instance, types of legal systems;

Variables used for reform measure are crude;

No studies use panel data;

Interaction terms among variables generally missing.

The authors also say that not enough number of years have been studied because "the reform experience in the sector does not go back further than the early 1990s. At the same time, in the light of the time lag between data availability and its analysis, the relevance of most of the existing studies is quickly diminishing."

The overall consequence is that there does not exist a "set of indicators that are defined and regularly measured to assess, monitor, and compare reforms... The existing state of data sets clearly limits the quantity and quality of empirical research useful for policy advice."

This is an impressive list of methodological shortcomings. One wonders if all current analysis should not be thrown out of the window. Perhaps it should.

Meanwhile, what does this do to policy advice? It turns it into gobbledegook, as the following list of attempted reform shows:

Corporatisation of state-owned utilities;

Enactment of an electricity reform law;

Unbundling of vertically-integrated utilities into corporatised generation, transmission, distribution and supply activities, and where necessary horizontal separation of these;

Provision of third-party access to networks;

Regulatory reform, including adoption of incentive regulation for the natural monopoly network activities;

Establishment of an independent regulator;

Establishment of a competitive wholesale generation market;

Liberalisation of the retail supply market;

Privatisation of electricity assets;

Definition of rules concerning consumer protection, allocation of energy subsidies, and stranded costs.

*Electricity Sector Reform in Developing Countries: A Survey of Empirical Evidence on Determinants and Performance