Creative destruction? Energy
poverty and the double-edged
role of the private sector
Ed Brown and Jonathan Cloke
(Department of Geography, Loughborough University, UK)
1. Introduction

The preoccupation with the private sector and
FDI amongst international institutions and
parts of the ‘development community.’
“The private sector is crucial to meeting the Millennium
Development Goals. Businesses are an engine of growth
and development, and can have a potentially huge
impact on improving the lives of people in developing
countries through increasing investment, creating jobs,
and developing products and services, technologies and
innovations... “
Department for International Development (DFID) website
(2009)
“UNDP recognizes that achieving the Millennium Development
Goals (MDGs) depends on vibrant economic growth, driven by
private enterprises that create jobs and provide goods and
services for the poor... The private sector - from large multinational companies to small enterprises and cooperatives
servicing local markets - also has an essential role to play in
achieving broader UNDP goals in areas such as energy and
environmental service delivery, crisis prevention, gender equality
and democratic governance.”
United Nations Development Programme (UNDP) website
(2009)
1. Introduction

Origins: The CSR industry and the UN
 Beyond CSR: Current re-assessments of the
role of the private sector in development
 The contribution of this paper
Two Points to Consider
The imaginary dividing line between the
public and the private spheres.
 The relative size and dynamics of
individual private sector companies (and
questions of
transnationalism/sovereignty).

2. Historical Antecedents

The immediate postwar years
2. Historical Antecedents

The immediate postwar years
 Dependency and
the NIEO
Image from: http://i-p-o.org/nieo2.htm
2. Historical Antecedents

The immediate postwar years
 Dependency and
the NIEO
 The Rise and Fall of
the UNCTC
2. Historical Antecedents

The immediate postwar years
 Dependency and
the NIEO
 The Rise and Fall of
the UNCTC
 The Global Compact
Image from: http://i-p-o.org/nieo2.htm
2. Historical Antecedents





The immediate postwar years
Dependency and
the NIEO
The Rise and Fall of
the UNCTC
The Global Compact
Critical Voices
Images from: http://www.gapsucks.org; http://www.campaignforlaborrights.org;
3. Services and the Private Sector
Main current arena of privatizing and
liberalizing impulses.
 Key area of developmental concern provision of basic services.
 Service sectors cover about two thirds
of all economic activity and are
particularly important in relation to
female employment.

GATS and Service Liberalization

The WTO’s case for Liberalization
“Simply put, the principle of “comparative advantage”
says that countries prosper first by taking advantage
of their assets in order to concentrate on what they
can produce best. In other words, liberal trade
policies – policies that allow the unrestricted flow of
goods and services – sharpen competition, motivate
innovation and breed success. They multiply the
rewards that result from producing the best products,
with the best design.”
WTO (2007)
GATS and Service Liberalization
The WTO’s case for Liberalization
 The importance of understanding the
relational spaces through which
liberalization occurs.
 The flaws in previously existing
privatization processes.
 The crowding out of smaller-scale local
capital

4. A Brief Detour concerning PFIs and PPPs
Reluctant partners? Declining flows of
private finance.
 The regulatory context: poor
governance and regulatory failures.
 Lessons from the World Bank’s
Extractive Industries Review of 2004.

EIR Executive summary




‘Building Blocks of Governance’ deemed essential conditions for
private sector participation in extractive industry projects:
Promotion of transparency in revenue flows; disclosure of
project documents; the development of the capacity to manage
fluctuating revenues; provision of help to governments to
develop modern policy and regulatory frameworks; the
integration of the public in decision-making processes
In addition the EIR suggested private companies engaged in:
constant dialogue with communities to obtain informed consent;
revenue-sharing with local communities; utilization of systematic
poverty indicators and the setting up of independent greivance
mechanisms
The relevance of this to the case of public service
projects? GATS, Services, Accountability and
Assymetries of Power.
5. The Private Sector and Energy Issues

The complexity and developmental
importance of the energy sector.

Our focus here: the financial systems
through which energy projects are
facilitated.
5. Energy Issues and Local Capital

Rural electrification challenges and the
importance of small-scale providers
 “Local SMEs, financial markets and
communities can reducepolitical and foreign
exchange risks, handle specific managerial
challenges, such as revenue collection, and
develop decentralized energy systems. SMEs
are likely to be more flexible in the use of
technology, use locally available resources,
and to integrate better into the local social
fabric.” DFID (2007)
5. Energy Issues and Local Capital


The Non-Technical Barriers facing energy sector
SMEs: legal and regulatory frameworks; antiSME market rules; discriminatory banking
relations; high commercial risks; cultural
perceptions of off-grid technologies.
Questions of Politico-financial power.
6. Energy production in Nicaragua





2008 EnergyCentral workshops.
The relational context of electricity production
and distribution in Nicaragua and why it is
important.
The role of the private sector historically in
the development of renewables in Nicaragua.
Intensifying Hydro-Carbon Dependency and
its impacts on the Poor.
The Potential for Renewable Alternatives
TIPO DE
GENERACI î N
POTENCIAL
Hidroel éctrica
Geotérmica
Eólica
Biomasa
TOTAL
3,280
5,000
800
200 *
9,280
(MW)
CAPACIDAD
EFECTIVA
(MW)
PORCENTAJE DE
APROVECHAMIENTO
98
37
0
60
195
3.0
0.7
0.0
30.0
2.1
(%)
Sources: MARENA and CNE (2006)
6. Energy production in Nicaragua

The inefficiency of productive energy use in
Nicaragua and the politics of contract
negotiation.
 Corruption, privatization and clientelistic
political systems in Nicaragua.
 Corporate Monopolies: Union Fenosa
(distribution), Esso (hydrocarbon market)
LOS MçRGENES ACUMULADOS DE LAS
GAS OLINAS Y EL DIES EL 2002
-2004
C OMP A RA DO A L REST O DE LOS P A ÍSES CENT ROA MERIC A NOS, NICA RA GUA T IENE EL MA YOR
MA RGEN P ROMEDIO P ONDERA DO: US$ 0 .4 8 POR GA LÓN
0.7
0.59
0.56
0.6
DÓLARES POR GALÓN
0.510.53
0.5
0.4
0.3
0.28
0.33
0.30
0.37
0.39
0.39
0.48
0.46
0.460.45
0.45
0.400.39
0.37
0.33
0.41
0.40
H O N DU RA S
N IC A RA GU A
0.33
0.29
0.24
0.2
0.1
0
G U A TEM A LA
PA NA MÁ
PROMEDIO PONDERADO
E L S A LV A D O R
C O STA RIC A
GASOLINA SUPERIOR
GASOLINA REGULAR
DIESEL
7. Conclusions




Nicaragua: Resource-Rich and Energy-Corrupt.
Which private sector model? The perils of
universalized, top-down privatization agendas.
The already skewed patterns of private investment
and the likely impacts of the global financial crisis.
The existence of substantial, under-used and
excluded financial capacity in the South - the need to
liberate ‘dead capital’ (de Soto)
Nearly 92% of businesses, 76% of rural properties and 65% of
the dwellings in 12 Latin American countries studied are in the
informal or “extralegal” sector. Dwellings, rural properties and
businesses in the informal or “extralegal” sector of 12 Latin
American countries are worth more than $1.2 trillion (Sources:
The Multilateral Investment Fund, IADB Press Release June
12, 2006)
“There is enormous economic
potential in the vast mass of belowaverage-income households that
remains untapped by the formal
financial services sector, and
whose financial marginalisation
holds back national economies
across the region.
Whilst this summary and the
accompanying report come with
the usual caveats and the
uncertainty that the current credit
crisis in the international markets
has created, in purely internal
terms each of the seven
metropolitan economies studied….
is utilising only a fraction of the full
potential of its native entrepreneurs
because of substantial barriers to
access in the financial services
sector.”