About the Author... Mary Clark Webster provides consulting and training on utility regulation to regulatory agencies, governments, companies, and donor organizations. She is a former Commissioner of Public Utilities in Massachusetts, USA, where she was responsible for regulation of electricity, natural gas, telecommunications, transportation and water. She has designed and delivered over 43 training courses to more than 550 professionals from 56 countries, primarily for the Institute for Public-Private Partnerships. The photo above is of Mary visiting the Iraqi Ministry of Electricity in Baghdad, May, 2004.

Regulation in Conflict Economies Mary Clark Webster Abstract Access to energy has a well-known positive impact on quality of life. Yet, in countries undergoing war and conflict, the current practice is to suspend infrastructure reform during times of national strife and conflict. This is wrong; continued pressure for regulatory reform in infrastructure industries is a vital part of conflict resolution. BACKGROUND How do you implement regulatory reform when war is raging all around, and the lives of utility personnel may be in danger? How do you stop? How can you NOT keep going? My own recent experience in Nepal and Iraq will be focus of this article. Both countries have recently faced national security issues that directly impact infrastructure development. Both countries are seeking to expand infrastructure development. Iraq has obvious resources in petroleum. Nepal has less obvious resources in massive hydropower potential. Both nations face serious political and economic challenges, security concerns, gender issues and environmental considerations, with similar size populations.

Reform Amidst Conflict in Nepal and Iraq

Nepal has a population of approximately 27 million people, and the population is growing at a rate of 2.34% annually. Literacy, defined as the percentage of the population the age of 15 and over who can read and write. In Nepal this is only 45.2%; for males it is 62.7% and for females it is only 27.6%.

Iraq has a population of approximately 26 million people. Literacy is only 40.4% for the total population; 55.9% for males and only 24.4% for females¹ .

Because of the ongoing conflict, both nations face very high unemployment. In Iraq it is 25-30%. Nepal is among the poorest and least developed countries in the world with nearly half of its population living below the poverty line. Unemployment in Nepal is estimated to be 47%!

Electricity production in Nepal is 95% hydro; capacity is 600+ MW. Capacity is among lowest in world per capita. Electricity consumption per capita in Nepal is 0.1328 kwh/day. The great water resources draining from the Himalayan Mountains could provide an estimated 80,000 mw of potential electricity generation. This represents the largest and perhaps only electricity generation resource that Nepal has. In the middle of their current conflict, affordable projects are very difficult, and will require significant investment in the power sector as soon as the new government is established. How will this happen?

Was reform suspended during the conflict? Yes, the monarchy suspended Parliament, and reform of any part of the economy became very difficult. With no permanent elected government, and with the Constitution preventing the King from issuing any decree that lasted more than 6 months, it was not possible to make the structural changes that Nepal needed. Yet, they continued to move forward with internal reform, capacity building and preparation for new legislation that would create the environment for investment they urgently sought.

In Iraq the situation is similar is some critical ways. Iraq is located in western Asia in the historic Fertile Crescent that lies between the Tigris and Euphrates Rivers. They have large oil reserves. These contribute to the national wealth, which produces a GDP - per capita: purchasing power parity - of $3,400. Oil production varies but recently reached 2.5 million bbl/day².

Electricity production in the country averages approximately 4,625 MW, a total that services an estimated 13.9 million Iraqi homes³ . They have 300 times the electricity available for the people of Nepal. The chart above was developed by the author based on publicly available information. It shows the level of electricity consumption per person in selected countries, including Iraq in red and Nepal in blue.

Was reform suspended in Iraq during the conflict? Not really; it was not so much suspended, as it never was started under the old regime, and has had little chance to be initiated what with difficulties supplying power every day. Individuals I spoke with at the Ministry of Electricity often mentioned that once Iraq had had a power sector that had rivaled any in the Middle East, and they were saddened to see the state that it had fallen into by the time of my visit in 2004.

Since the new government has been elected and a Minister of Electricity has been installed, they have again focused on capacity building, and creating the structural reforms that will enable the power sector to be rebuilt and provide power to more of the population for longer periods every day.

Special Considerations

Unlike countries with stable governments and predictable economies, pursuing an infrastructure reform agenda in conflict economies requires special considerations. Specifically, international investors who have access to capital will require greater risk mitigation than these countries can offer in the near future. These investors will call upon donor banks and other international financial institutions for greater intervention to help mitigate this risk. In these situations, governments, donors, and investors alike must remember that international utility regulation has proven to be one of the critical steps nations can take to reduce their risk profile.

Conclusion

Despite the tendency to forgo infrastructure reform during periods of national conflict, continuing the reform agenda is essential. Transition economies, including failing states and post-conflict economies, such as Iraq and Nepal, require massive investment in infrastructure to create job opportunities and stimulate economic growth. Establishing an environment where projects can compete for business from customers, in a regulated market, is the model that continues to gain traction around the world.

¹ CIA World Factbook. Based on 2003 data for both Iraq and Nepal. .

² www.cia.worldfactbook.com

³ www.centcom.mil

Copyright 2006© Institute for Public-Private Partnerships, Inc. All rights reserved