281 privatesector P U B L I C P O L I C Y F O R T H E NUMBER NOTE 2004 Private Power Projects Ada Karina Izaguirre DECEMBER The Private Participation Annual Investment Flows Grew by 44 Percent in 2003 in Infrastructure (PPI) Project Database tracks Drawing on the World Bank's Private Participation in Infrastructure infrastructure projects Project Database, this Note reviews developments in the electricity owned or managed by private companies in sector in 2003. Data for the year show that total investment in energy (electricity and electricity projects with private participation amounted to US$14 natural gas transmission and distribution), billion. Private activity grew strongly in East Asia and Pacific, but telecommunications, PRESIDENCY remained stable or fell in other regions. transport, and water and VICE sewerage. For more In 2003, 19 developing countries imple- Regional trends information on the mented 37 new electricity projects with private Private activity grew or remained stable in all database, see the Web site participation, under schemes ranging from regions except Europe and Central Asia. East Asia at http://ppi.worldbank.org. management contracts to concessions, divesti- had nine new projects and investment flows of tures, and greenfield build-operate-transfer US$5.5billion,thehighestsince1998(table1).The DEVELOPMENT Ada Karina Izaguirre (BOT) or build-operate-own (BOO) projects.1 recoverywasdrivenmainlybyafewlargegreenfield (aizaguirre@worldbank.org) Although the number of projects reaching powerplantsinMalaysia,thePhilippines,Thailand, is an infrastructure SECTOR financial closure was the lowest since 1993, and Vietnam and the partial divestiture of China's specialist with the World Bank's Infrastructure investment flows recovered strongly, return- Investment in electricity projects with Economics and Finance ing to a level similar to that of 2001. Even so, private participation in developing PRIVATE countries, by income group, 1990­2003 Department. investment flows were still just 28 percent of Figure 1 the 1997 peak.2 2003 US$ billions Most of the recovery occurred in lower- 25 middle-income countries, where investment GROUP 20 flows rose from US$1.7 billion in 2002 to US$4.8 billion in 2003, reaching the highest level since Lower middle income 15 Upper middle income BANK 2000 (figure 1). Private activity in upper-middle- income countries also recovered, rising by 17 10 percent to US$8.4 billion, similar to the level in 5 1999. Investment flows to low-income countries WORLD also grew by 17 percent, to more than US$730 0 Low income 1990 1992 1994 1996 1998 2000 2003 million, yet remained at the fourth lowest level THE Source: World Bank, PPI Project Database. in 1990­2003. P R I V A T E P O W E R P R O J E C T S A N N U A L I N V E S T M E N T F L O W S G R E W B Y 4 4 P E R C E N T I N 2 0 0 3 Yangtze Electric Power, the company created to A focus on new generation raise private funding for the Three Gorges Private activity in electricity focused primarily on hydropower project. generation. Stand-alone power plants, or inde- Latin America had 17 new projects--11 fewer pendent power producers (IPPs), accounted for than in 2002--but investment flows remained sta- 85 percent of the investment flows in 2003, with ble. Most investment went to greenfield power the rest going mainly to distribution companies. plants in Brazil and Mexico. Among the largest This trend mirrored those in earlier years (figure power plants were Norte Fluminense and Peixe 2). Of the total investment in electricity projects Angelical in Brazil and Altamira V and Tuzpan III with private participation in 1990­2003, 70 per- 2 and IV in Mexico. Smaller economies such as cent went to stand-alone power plants, and 15 Bolivia,Ecuador,andHondurasalsohadnewproj- percent to distribution companies. ects. As in 2000­02, greenfield projects dominated Private activity in generation was concentrated private activity in the region. Earlier, divestitures in greenfield projects, ranging from BOT and had dominated. BOO schemes in nonliberalized markets to mer- In Europe and Central Asia new activity was lim- chant schemes in liberalized ones. Greenfield itedtosixprojects.ThebiggestwasBulgaria'sMaritza power plants accounted for 78 percent of the EastIIIpowerplant,thecountry'sfirstelectricityproj- investment in IPPs with private participation in ect with private participation and its largest foreign 1990­2003. Existing power plants, transferred to directinvestmentby2003.Theotherprojectswerein the private sector mainly through divestitures, Armenia (two power plants transferred to the absorbed the rest. RussianFederation'sUnifiedEnergySystemthrough a management contract and a divestiture), Georgia Private participation spreading (a management contract for the transmission net- Private activity in electricity expanded geo- work),Lithuania(apowerplantsoldtoRussia'sRAO graphically, with 10 countries opening their elec- Gazprom), and the Slovak Republic (a distribution tricity sector to private participation in 2001­03. network divested to Germany's RWE). Those in Europe and Central Asia--Armenia, In the other regions private activity dwindled Azerbaijan, Bulgaria, the Slovak Republic, and to a few projects. The Middle East and North Ukraine--primarily transferred existing assets Africa had just one project: the Tahaddart green- to the private sector through divestitures and field power plant in Morocco. Sub-Saharan Africa concessions. The countries in Sub-Saharan had four small projects: a management contract Africa completed a range of transactions: for the electricity and water utility in Rwanda, a greenfield power plants in Angola and Nigeria, small hydropower plant in Angola, and two rural a concession for the national utility in electrification projects in Uganda. In South Asia Cameroon, a management contract for a util- private activity was limited to the expansion of an ity in Rwanda, and rural electrification projects existing power plant. in Uganda. Investment in electricity projects with private participation in developing countries, by region, 1990­2003 Table (2003 US$ billions) 1 Region 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 East Asia and Pacific 0.1 0.5 5.2 6.4 8.1 8.2 12.4 14.5 5.9 1.7 3.2 3.2 0.9 5.5 Europe and Central Asia 0.1 --a 1.2 --a 1.5 3.8 3.6 2.4 0.7 0.8 4.8 1.2 1.8 1.5 Latin America and the Caribbean 0.9 --a 2.8 3.8 3.2 6.6 10.2 24.9 15.8 9.5 14.1 6.5 6.8 6.2 Middle East and North Africa --a --a --a --a 0.3 --a 0.2 5.3 --a 1.0 0.2 2.3 --a 0.4 South Asia --a 0.8 0.0 1.3 2.6 3.4 4.8 1.7 1.5 2.6 3.2 0.9 0.1 0.2 Sub-Saharan Africa 0.1 --a 0.0 --a 0.1 0.0 0.8 1.3 0.8 0.6 0.8 0.9 0.0 0.1 Total 1.1 1.3 9.2 11.5 15.8 22.0 32.1 50.1 24.6 16.1 26.2 15.0 9.7 13.9 a. No private participation in electricity occurred. Source: World Bank, PPI Project Database. Investment in electricity projects with Average annual investment in electricity private participation in developing projects with private participation in Figure countries, by segment, 1990­2003 Figure developing countries, by region, 1990­2003 2 3 2003 US$ billions 1990­95 1996­2000 2001­03 30 2003 US$ billions 25 0 5 10 15 Generation 20 East Asia and Pacific 15 Europe and Central Asia 3 10 Latin America and Distribution Integrated the Caribbean utilities 5 Middle East and North Africa 0 1990 1992 1994 1996 1998 2000 2003 South Asia Source: World Bank, PPI Project Database. Sub-Saharan Africa Source: World Bank, PPI Project Database. After the boom of 1996­2000 Investment flows to electricity fell significantly higher than those of the early 1990s, while East after peaking in 1997, but are still comparable and South Asia saw annual flows fall below those to preboom levels. Annual investment flows in levels (figure 3). 2001­03 averaged US$12.9 billion, slightly But trends were similar across the main types higher than the US$12.2 billion in 1990­95. of private participation. In the boom period of During the boom of 1996­2000 annual flows 1996­2000 annual investment flows reached averaged US$29.8 billion. peak levels for greenfield projects (US$13.4 bil- The decline in private activity played out dif- lion) and divestitures (US$14.8 billion), then ferently across the developing regions. Latin receded to levels close to those of the early 1990s America, the most active region in the late (US$8.4 billion and US$3.8 billion). Conces- 1990s, sustained investment flows at levels sions followed a similar trend. Table Top 10 sponsors of electricity projects with private participation in developing countries, by region, 2001­03 2 Projects by region Investment Latin America Middle (2003 East Asia Europe and and the East and Sub-Saharan Sponsor US$ billions)a Projects and Pacific Central Asia Caribbean North Africa South Asia Africa Electricité de France 2.6 9 0 4 1 1 1 2 Malakoff 2.3 2 2 0 0 0 0 0 CPFL Energia 1.4 4 0 0 4 0 0 0 China Light and Power 1.4 2 2 0 0 0 0 0 PSEG Global 1.4 7 3 2 1 1 0 0 AES Corporation 1.3 8 0 3 1 1 1 2 Iberdrola 1.3 3 0 0 3 0 0 0 Banpu of Thailand 1.3 1 1 0 0 0 0 0 Commonwealth Development Corporation 0.9 5 0 0 0 0 3 2 Enelpower 0.8 2 0 0 1 1 0 0 Totalb 13.0 41 7 9 10 4 5 6 a. Investment from all sources in projects in which sponsor has a stake of 15 percent or more. b. Data may not sum to totals because of projects involving more than one sponsor. Source: World Bank, PPI Project Database. P R I V A T E P O W E R P R O J E C T S A N N U A L I N V E S T M E N T F L O W S G R E W B Y 4 4 P E R C E N T I N 2 0 0 3 Difficult times share of projects from 24 percent to 19 percent. There are several reasons for the subdued inter- Nevertheless, the main sponsors in the 1990s est in private projects, the main ones being the remained the largest investors in 1990­2003.5 deteriorating financial situation of many spon- sors; growing concerns over renationalization, viewpoint renegotiation, or disappointing returns from some projects; and pessimism about emerging Notes markets following the East Asian, Russian, and 1. The Private Participation in Infrastructure (PPI) is an open forum to Argentine crises (Harris 2003). Project Database includes only low- and middle-income encourage dissemination of Of the 932 electricity projects with private countries, as classified by the World Bank. For the coun- public policy innovations for participation implemented in 1990­2003, try income classification used in the 2003 update, see private sector­led and around 50--involving investment commitments http://ppi.worldbank.org/wbclassification.asp. Project market-based solutions for of more than US$26 billion--had been can- information and country classifications in the database development. The views celed or were under distress by the end of 2003.3 are updated annually. The 2003 update includes signifi- published are those of the These commitments represent 10.5 percent of cant upward revisions for 2001 and 2002. For more infor- authors and should not be total investment flows to the sector.4 mation, go to http://ppi.worldbank.org/faq.asp. attributed to the World 2. All dollar amounts are in 2003 U.S. dollars. Nominal Bank or any other affiliated Who is investing? figures have been deflated using the U.S. consumer price organizations. Nor do any of Regional and local sponsors have become more index. The PPI Project Database records total investment the conclusions represent active in developing countries. Four of the top in infrastructure projects with private participation, not pri- official policy of the World 10 electricity sponsors in 2001­03 were compa- vate investment alone. Investment commitments include Bank or of its Executive nies from developing economies: Malaysia's expenditures on facility expansion, divestiture revenues, Directors or the countries Malakoff, Brazil's CPFL Energia, Hong and license or canon fees. they represent. Kong­based China Light and Power, and 3. Canceled projects are those in which private spon- Thailand's Banpu (table 2). sors sell or transfer their economic interest back to the gov- To order additional copies The emergence of regional and local spon- ernment; remove all management and personnel; or cease contact Suzanne Smith, sors reflects in part the withdrawal of global operation, service provision, or construction. Distressed managing editor, sponsors from developing countries. Actively Room F 4K-206, projects are those under international arbitration or for looking for new investments until 2001, many The World Bank, which cancellation has been formally requested. 1818 H Street, NW, global sponsors have since become less inter- 4. These figures may underestimate international Washington, DC 20433. ested in, or less able to pursue, infrastructure arbitration cases because most arbitration bodies do not projects in developing countries. And some disclose information about cases (see Peterson 2004). It Telephone: have sought to improve their financial situation can also be difficult to find out which projects are under 001 202 458 7281 by selling nonstrategic or underperforming arbitration because private sponsors rather than project Fax: assets. Among the more visible examples are companies are usually the claimants. 001 202 522 3480 bankrupted Enron and Mirant, which have 5. The 10 largest investors were AES Corporation, Email: been actively selling their assets. Similarly, AES Electricité de France, SUEZ, Endesa (Spain), Endesa ssmith7@worldbank.org Corporation disposed of assets in Bangladesh, (Chile), Iberdrola, Enersis, CPFL Energia, Siemens, and Georgia, and Tanzania and discontinued oper- PSEG Global. Produced by Grammarians, ations in Colombia, the Dominican Republic, Inc. and Honduras. In their few acquisitions in the References past two years global sponsors have been selec- Harris, Clive. 2003. Private Participation in Infrastructure Printed on recycled paper tive, focusing on large developing economies in Developing Countries: Trends, Impacts, and Policy Lessons. with strong growth in electricity demand, such Washington, D.C.: World Bank. as Brazil, China, Mexico, and Thailand. Peterson, Luke Eric. 2004. "Investors Looking beyond Thechangesinsponsors'strategiesandprofiles ICSID in Investment Treaty Telecoms Cases." [http://www.iisd have reduced the concentration of private activity .org/pdf/2004/investment_investsd_april13_2004.pdf]. in electricity. The top 10 sponsors' share of invest- ment flows dropped from more than 40 percent in 1990­2001 to 34 percent in 1990­2003--and their T h i s N o t e i s a v a i l a b l e o n l i n e : h t t p : / / r r u . w o r l d b a n k . o r g / P u b l i c P o l i c y J o u r n a l