POLICY DIALOGUE ON CORPORATE
GOVERNANCE IN CHINA
Privatisation, competition and regulation
Presentation by Patricia Leahy, Director ,
UK National Audit Office
February 2004
Bringing
about beneficial change...
Some potential privatisation benefits
Economy
• Improved budget and debt position
• More competitive economy
• Boost to domestic capital markets
The business
• Improved efficiency
• Increased flexibility to deal with change
• Greater access to capital markets
Other stakeholders
• Lower prices
• Improved quality of service
Bringing about beneficial change...
Achieving maximum benefits
• Corporatisation alone achieves benefits
• Privatisation can double the benefits
• Competition and liberalisation necessary
to achieve maximum benefits
• Regulation needed to allow fair
distribution of benefits
Bringing about beneficial change...
UK experience – competition
• BT – privatised intact, duopoly policy,
now full competition
• British Gas - privatised intact, now
regulated Transco and commercial
businesses
• Electricity – restructured then privatised,
initially limited competition, now fully
competitive market
Bringing about beneficial change...
Electricity privatisation in England and Wales
Comparison of structure pre and post privatisation
Pre privatisation
CEGB
12 Supply
Boards
Customers
Post privatisation
National
Power
PowerGen
Nuclear
Electric
Pool run
by
National
Grid
12 Regional
Electricity Companies
Customers
Bringing about beneficial change...
Electricity privatisation in England and Wales
Pros and Cons of initial privatisation structure
• New competitive markets created in generation
and supply
• Provision at privatisation for supply competition to
be extended gradually to all customers
• Capacity payments meant considerable security of
supply
• Pool prices kept artificially high
Bringing about beneficial change...
Electricity privatisation in England and Wales
Subsequent market changes
• 1996
- privatisation of nuclear generation – British
Energy
• 1998-99 - domestic customers able to choose their
electricity supplier
- National Power/PowerGen forced to sell off
generation and allowed to buy Supply
Companies
• 2001
- new market based arrangements for trading
introduced
• Future - single UK market to be achieved
Bringing about beneficial change...
Electricity privatisation in England and Wales
Current structure of the market
• More generators (some 40 major ones)
• More suppliers (some 20 licensed)
• Vertical and horizontal integration of many
utility companies
• Large transparent wholesale market
Bringing about beneficial change...
Electricity privatisation in England and Wales
UK Electricity arrangements since 2001
Transmission
Distribution Company
Transmission Charges 25% Transmission Charges 75% Distribution Charge
Generation
(Contracted)
Contract Price
Supply Company
Tariff
Customer
Imbalance Payments
Generation
(Available)
Un-contracted
generation receives no
revenue
Balancing Market
Flow of Electricity
Flow of Payments
Bringing about beneficial change...
Economic regulation
• Only needed if effective competition lacking
• Crucial that independent of Government
• General principles
- Transparency
- Consistency
- Predictability
- Accountability
• Regulatory risk
Bringing about beneficial change...
Privatisation, competition, regulation –
impact on stakeholders in the UK
•
•
•
•
Management
Shareholders
Customers
Employees
Bringing about beneficial change...