NEW APPROACHES TO ELECTRICITY GOVERNANCE Smita Nakhooda World Resources Institute Workshop on Energy Governance November 2007 Centre on Asia and Globalisation Lee Kuan Yew School of Public Policy National University of Singapore This paper draws on the work of the Electricity Governance Initiative (EGI), a joint effort of Prayas Energy Group (India) and the World Resources Institute (USA) that works with civil society, and in collaboration with policymakers, regulators, and other sector actors to promote open, transparent, and accountable decision-making processes necessary to reach a socially and environmentally sustainable energy future. http://electricitygovernance.wri.org

Introduction The challenge of meeting Asia’s demand for electricity is generally cast as a technological and financial struggle to power soaring economic growth. Afternoon power cuts turn off air conditioners and refrigerators in middle-class households from New Delhi to Jakarta, even as efforts are made to extend access to millions of people who currently live without any regular access to electricity. Policy makers in Asia are increasingly focused on securing access to more electricity. The sector has undergone sweeping reforms over the past decade with the goal of attracting private investment. But these efforts are slowing and stalling as popular and political resistance, and ineffective regulatory regimes contribute to an unfavorable investment climate. Conventional generation technologies are proving highly problematic, particularly as concern grows over the health impacts of local air pollution and longer term effects of global climate change. But there is enormous scope to make better choices: to improve the energy efficiency of the systems that are already in place; to integrate more efficient and less greenhouse gas intensive technologies into the energy mix; to alleviate social and environmental impacts of generation choices; to enhance management of electricity systems and create better outcomes for consumers. This paper considers the particular challenges of governing the power sector in Asia, with an emphasis on the role of civil society in arranging processes, institutions, actors and incentives to align investment with sustainable development. It draws on the research and ongoing advocacy efforts of the Electricity Governance Initiative (EGI), a collaboration of civil society working with policymakers, regulators, and other electricity sector actors to assess policy and regulation using a common indicator-based framework to define “good governance.” Using recent cases and narratives from the EGI experience in Thailand, India, Indonesia, and the Philippines as illustrative examples, we provide an empirical basis to consider three themes: power sector planning; electricity regulation; and the implications of regional integration. Our analysis highlights issues of institutional capacity, public participation, transparency, and accountability that will need to be addressed in order to meet the many challenges of sustainable development in Asia’s power sector. The Electricity Governance Initiative The Electricity Governance Initiative (EGI), a unique collaboration of civil society, policymakers, regulators, and other electricity sector actors to assess policy and regulation using a common framework to define “good governance.” EGI provides an indicator toolkit that offers detailed benchmarks of best practice in transparency, participation and accountability for government actors and regulators, and helps civil society understand and influence decision-making in this technically complex sector. Since 2005, coalitions of civil society organizations with complementary expertise in Thailand, India, Indonesia and the Philippines have worked together to use the indicator toolkit to assess governance with the guidance of an advisory panel of sector actors and government representatives. New efforts are about to begin in South Africa, Brazil and Central Eurasia. While there are limits to using an indicator based framework to understand electricity governance, the EGI indicator toolkit allows an appraisal of the adequacy of laws and practices at a given moment, and suggests ways to improve performance. Use of the toolkit and the related convening efforts has enabled a detailed diagnosis of key strengths and weaknesses in governance from a public interest perspective that usefully complements ongoing efforts to address technical, operational, and investor aspects of electricity. The assessments have sought to build the capacity of the civil society actors involved to enforce accountability and participate in policy and regulatory processes that affect the public interest. The Initiative has also created a basis and a space for constructive dialogue between civil society and sector actors where relations are often strained.

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I. Electricity Policy and Planning Major efforts are underway to add generation facilities to meet projected demand for electricity. In India and Indonesia, programs are underway to develop coal fired power capacity at a massive scale, but limited attention has been paid to the overarching impacts of these programs on sustainable development. Competitive bidding mechanisms adopted for India’s coal program, present some useful insights into how the economic and financial risks of these large scale infrastructure initiatives can be better managed. In Thailand the centralized planning process for the power sector determines sector choices, and includes a mix of technologies and options. The process by which the plan has been developed has been opaque and exclusive, and the outcomes are proving highly controversial. By contrast in the Philippines community opposition to coal fired power facilities has prompted some local governments to implement participatory planning processes. This section of the paper considers the institutional and procedural mechanisms in place for major initiatives to increase the supply of power that are currently underway in these four case study countries. •

A “Crash Program” in Indonesia

In late 2005 the Office of the President of Indonesia announced a “Crash Program” to fast-track efforts to add 20,000 MW of new coal fired power. Indonesia’s state-owned utility PLN is in the midst of contracting some 35 coal fired power plants (10,000 MW) by 2009.1 An additional 30 or so Independent Power Projects (IPPs) are also planned. The stated objective of the program is to meet the energy needs of a projected economic growth rate of 9%, and to address existing system shortages and unreliability while helping to extend access to power. Indonesia has large domestic coal reserves – many of which are concentrated beneath the tropical rainforests of Kalimantan and Sumatra— that would seem to provide cheap and plentiful fuel. Limited consideration has been given to the fiscal and economic viability of new projects being commissioned under the crash program schemes, however. The government has been proactive about engaging the international investor community, and has also committed to offer financial guarantees for “exemplary projects”. Yet there are no clear criteria in place for what an exemplary project really looks like, and bidding processes have been opaque. Investor interest has yet to pick up: a few Chinese companies have expressed their interest in projects on the main island of Java, but 14 power projects have had to be re-tendered due to a lack of bidders.2 The government will need to guard against contracting companies with limited track records of performance under conditions rife for cutting corners and kickbacks. Indonesia’s Ministry of Finance is getting nervous about the potential financial risks, since PLN is state owned, and there are political and regulatory restrictions on the extent to which costs can be passed on to Indonesian consumers. PLN’s current weak financial state can be directly attributed to the governance of the terms on which it has historically contracted new power supply. The exorbitant costs of contracts IPP companies in the late 1990s helped drain the utility’s balance sheets; these problems are acknowledged to have stemmed from the absence of open competitive bidding procedures, a PLN will build 10 coal-fired power plants with a total capacity of 6,900 megawatts in Java and 25 power plants outside Java with a total capacity of 3,100 megawatts. Investor interest in projects outside of Java has been particularly difficult to attract. 2 “Local firms win power transmission contracts” The Jakarta Post, September 28, 2007

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pervasive lack of transparency about what was being contracted and paid for, and widespread corruption in contracts signed. These problems were exacerbated by the onset of the Asian financial crisis that rendered commitments made in foreign currency much more expensive3 (Seymour 2002). This recent experience presents a compelling case for greater scrutiny and accountability as the “Crash Program” is implemented. As Indonesia prepares to host the 2007 Conference of the Parties to the UN Framework Convention on Climate Change and the Kyoto Protocol, questions about the greenhouse gas and sustainable development implications of this program are increasingly being raised, though these have been given little attention in the design and implementation of the program. •

New Legal and Institutional Structures in Indonesia: New Opportunities, New Challenges

Part of the problem with Indonesia’s “Crash Program” is that it has been implemented in the governance vacuum created when in 2004 constitutional courts repealed the Electricity Reform Law 20/2002. The courts ruled in favour of the PLN Unions that claimed that privatisation of the sector would be unconstitutional. The lack of a clear legal framework for the sector, created a space in which the executive has been subject to few checks or balances. While a specific law for the electricity sector is still under development, in August 2007, the President approved a new overarching law for the energy sector developed by the parliament. The energy law includes some promising provisions to bring environmental considerations and energy choices into closer alignment, by requiring that environmentally friendly technologies be prioritized in meeting new demand for energy, and also calling for robust environmental impact assessments.4 More systematic attention to the environmental impacts of energy generation choices is clearly needed, particularly in the context of the ongoing “Crash Program”. In addition, the law calls for the development of a national energy policy, and a national energy plan by the government in collaboration with local government units with public input. These are welcome efforts given the need for a more integrated plan for how best to meet the needs of the power sector in an economically, socially and environmentally viable way. The law has also established a National Energy Commission that will develop the national energy policy, approve the national energy plan, and determine steps to overcome energy crises. The Commission will be chaired by the President of the Republic, with support from the Vice President and Minister of Energy, and will include sector ministers and government officials, as well as an eight person stakeholder group5. Commission members will be suggested by parliament but ultimately appointed or removed by the President. It is possible that the formation of this commission may be a mechanism to create the political will to allow tough decisions that get the sector on track to be taken.6 In the absence of clear operating procedures and standards by which the commission conducts itself, however, or transparency about what choices it makes, the commission may merely serve to concentrate power without any accountability, and in turn undermine the broader public interest. The question of how the provisions of the energy law will be 3 Frances Seymour and Agus Sari, “Indonesia: Electricity Reform Under Economic Crisis” in Power Politics, Equity and Environment in Electricity Reform (Washington DC; World Resources Institute, 2002) 4 Indonesian Institute for Energy Economics. Draft Notes on the New Indonesian Energy Law. August 2007. 5 The group is to includes representatives of consumer groups, academics, environmental groups, industry groups 6 In Brazil, for example, President Cardoso created a similar body on an interim basis to deal with the crisis of an electricity shortage and implement a quota based rationing system. The initiative has been widely regarded as a success, but Brazil’s politics were rather different than the situation found in Indonesia. 4

implemented is of crucial importance, and not captured in the short, conceptual laws that typically result from Indonesian parliamentary procedure. There are numerous civil society organisations engaged on issues of energy and the public interest in Indonesia, who have been advocating for the need for greater accountability and transparency in oversight of the sector. Yet many are reluctant to address the issue of the Commission head on, for fear of being accused of jockeying for one of the positions on the commission. •

“Ultra-Mega” Power in India

The Ministry of Power in India has also been pursuing a major program to develop coal power, through its Ultra Mega Power Plant (UMPP) programme to build nine 4,000 MW coal plants using high efficiency super-critical steam technology. Supercritical plants require 10% less coal than conventional plants, and the facilities planned under the UMPP initiative would reach efficiencies of 40% - 50% (as opposed to an average 30% efficiency rate for subcritical plants). Two of the UMPP plants will have captive coal mines; the others will be in coastal locations to have easy access to imported coal. The program is being implemented in the context of India’s 10th and 11th Power plans which call for the addition of 100,000 MW of additional power. The program involves a significant governance innovation in that competitive bidding has been used to select developers for all plants, consistent with the requirements of India’s recent National Tariff Policy. This has served to bring negotiations around large-scale power infrastructure out into the open, and significantly enhanced the integrity of the program. To attract investor interest, the government established “Special Purpose Vehicles” owned by the national Power Finance Corporation to acquire land for the projects, ensure allocation of water, obtain various approvals and clearances, carry out an environmental impact assessment, and manage the international competitive bidding process. Bids for the first two plants under this program have resulted in unprecedentedly low rates for electricity: the Mundra project in Gujarat was awarded to Tata Power in December 2006 at a tariff of Rs 2.26 (US 2.8c) per kilowatt hour. The Sasan project with a captive pit mine in Madhya Pradesh was initially offered to the Lanco Infratech consortium at a rate of Rs. 1.2 (US 5.3 c) per kilowatt hour. After the second lowest bidder the Reliance power corporation questioned Lanco’s financial backing, the government initiated a further investigation into the bids. A revised bidding process resulted in Reliance winning the bid with a rate of Rs. 1.19.7 The momentum behind the program, however, has slowed over the past months. Rising prices of imported coal over the past year have changed the economics of UMPP, and reduced investor interest in other projects under the program. As bidding opens on the Krishnaputnam project in Andhra Pradesh, Ministry of Power observers have stated that they do not expect to receive more than three bids, and that the costs of power for additional projects under the program may not be nearly as low as in the first two projects.8 While there have been clear cost benefits from competitive Prayas Energy Group, “Some Good News in the Power Sector: Initial Success in Solicitations for Ultra Mega Power Projects” Economic and Political Weekly Jan 2007. http://prayaspune.org/peg/publications/ultra_mega_commentary_epw_081A01.pdf Reliance Power awarded Sasan mega power project http://www.indiaenews.com/business/20070807/64419.htm 8Http://economictimes.indiatimes.com/Soaring_coal_prices_effect_Krishnapatnam_UMPP_bidding/articleshow/2493 001.cms 7

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bidding in the Sasan and Mudra cases, the government has subsequently announced that if companies add further generation capacity (beyond the initial 4,000 MW), it will negotiate the terms of payment for the additional power on a case by case basis. Creative ways to build transparency and accountability into these negotiations will be necessary to ensure that consumer interests are adequately upheld in subsequent phases of the project. The lower costs of power for consumers achieved through the more open and transparent approaches used in the UMPP program have been welcomed. But civil society groups have also drawn attention to the fact that the social and environmental impacts of these plants, particularly on project affected communities, will need to be adequately addressed. They have noted that the special benefits offered to investors under the UMPP program should be extended to all generation facilities – including for environmentally friendly technologies in particular. Comprehensive planning efforts for the power sector are undertaken every year in India, but the implementation of these plans is notoriously weak.9 While almost every state in India faces serious power shortages, few have prepared a robust demand forecast or a plan for how to meet this demand. States have also been slow to incorporate the principles of transparent competitive bidding into their own efforts to add new capacity. And although there is significant political posturing about the importance of efficiency and renewables for meeting India’s energy needs, the UMPP program is one of the few decisive efforts underway with strong government commitment to address power sector demand. •

Whose Power? The Thai 2007 Power Development Plan

By contrast, in Thailand core decisions around how to source the power to sustain economic growth are taken through a comprehensive process to develop a national Power Development Plan (PDP). The plan is a living document prepared every five years by the Ministry of Energy and the stateowned Energy Generation Authority of Thailand (EGAT), and revisited on an ongoing basis. However, the process through which the plan is developed is a source of increasing controversy. EGAT is in the business of building and operating new generation facilities10, it therefore has an interest in using higher demand projections as a reference, and less interest in prioritizing energy efficiency measures that would in fact reduce demand.11 While the full details of the 2007 – 2012 PDP have not been publicly disclosed, it is based on 5-6% growth and projected needs of 40,000 MW by 2021.12 It includes 4,000MW of nuclear generation by 2020 (with construction starting in 2011), new coal plants, and hydropower to be bought from neighbouring Mekong countries including from the internationally controversial Nam Theun II dam in Laos. As the powerhouse of the Mekong region in a time of regional integration, Thai decisions about how to meet its demand for power have implications beyond its borders. 9 Smita Nakhooda, Shantanu Dixit, Navroz K. Dubash, Empowering People – A Governance Analysis of Electricity (Washington DC: WRI, 2007). 10 EGAT controls 47% of energy generation facilities in Thailand and is the single buyer of all power produced in the country 11 The optimization software used by the Electricity Generating Authority of Thailand (EGAT) to develop the PDP is configured to select among large coal, gas, fuel oil, and nuclear projects. It only considers capital and operating costs – but not social and environmental costs, fuel price volatility, or the impacts of different options on the costs of delivering electricity to consumers. Greacen, 2007. 12 Mutita Chuachang, Thab Sakae: opposition to power plants still alive in Prachuab, 17 June 200. Online: http://www.prachatai.com/english/news.php?id=41

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Civil society organizations have been seeking a more open and transparent discussion around the goals, assumptions and parameters of the PDP for many years. Independent experts from civil society have prepared alternate PDPs that place a greater emphasis on small renewable energy, distributed generation, and energy efficiency to meet needs. In February 2007, the Ministry of Energy cancelled a public meeting at a Bangkok hotel to discuss the draft PDP after several hundred villagers from provinces that would house new proposed coal plants arrived to voice their concerns.13 The villagers proceeded to set up a rally outside of the Ministry, until the Minister of Energy came out to discuss the new facilities.14 The next meeting on the PDP in April was an invitation only event hosted on a military compound surrounded by armed soldiers for “security reasons”.15 Shortly before the meeting took place, key documents about the plan were removed from the Ministry’s website.16 The controversies around the plan and the inadequacies of the process by which it had been developed were widely covered in the local media, however, and even in the absence of a formal space to reflect their concerns civil society groups drew attention to their issues. Indeed, an exchange on the limits of the process took place on the Opinion pages of the Bangkok Post between the deputy Minister of Energy and independent analysts. When the National Energy Policy Council of Thailand finally approved the plan in early October 2007, the Ministry had increased the share of renewable energy in the plan from 11% to 14%, and also announced a new effort to subsidize the use of compact fluorescent light bulbs.17 Civil society efforts to influence actual projects developed under the PDP continue: in September 2007, more than 40,000 people from across the country gathered in Rayong province to protest a proposed coal-fired power plant in the province.18 The Thai parliament is now reviewing a new Energy Industry Act that will establish an independent regulatory body for the energy sector. As discussed further in the next section of this paper, the creation of an independent regulatory institution has generally been closely tied to efforts to privatize the electricity sector. In fact, the first effort to introduce an electricity regulatory commission in Thailand was initiated in the context of efforts to make a public offering of EGAT shares on the stock market; Thai courts halted corporatization of EGAT in early 2006. With corporatization of the sector no longer under serious consideration, the new Thai Energy Industry Act frames the role of an independent regulator as a mechanism to enhance accountability to a range In response to increasingly vocal public opposition the Thai government has introduced “community development funds” for people affected by new power facilities, particularly coal plants. The funds will be financed by a surcharge to coal plant operators; which will in turn be passed on to consumers through a tariff surcharge. Consumer representatives have suggested these costs should be borne by the producers to internalise negative externalities. Community leaders have expressed concern that this may disrupt united mobilisation on electricity issues. 14 Tira Foran, “Power Planners Fail to See the Light” The Nation, (Bangkok, 10 April 2007). http://www.nationmultimedia.com/2007/04/10/opinion/opinion_30031540.php 15 Supara Janchitfah. “Power Adjustments” Bangkok Post. (Bangkok, 16 September 2007) 16 Christopher Greacen, “Can we have an open discussion about electricity? Please leave your guns at the door.” Bangkok Post, 3 April 2007. http://www.palangthai.org/en/policy 17 “Goal Revised to Use More Clean Energy” Bangkok Post. 16 October 2007. Interestingly, the Ministry stated that it had concluded that the share of renewable energy was low relative to other countries in the region as a reason for the increase. Online: http://www.aseanenergy.info/News/34001340.htm 18 Government newspapers reported that only 10,000 people came out, but community leader records suggest 4,000 participants. Supara Janchitfah. “Power Adjustments” Bangkok Post. (Bangkok, 16 September 2007) 13

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of stakeholders -- from private sector actors who seek to participate in supply and service delivery, to consumers, project affected communities and citizens. Civil society organizations in particular are looking to the regulator to create space for a more careful, open consideration of the various choices available to meet energy needs, in the hopes that this will result in a greater emphasis on integrated resource planning approaches, energy efficiency, and small power. •

New Participatory Planning Models in the Philippines

Whereas public opposition to the prospect of new coal facilities prompted the government of Thailand to close the PDP process to public input, in the Philippines some local government units have responded to public opposition by initiating participatory energy planning processes. When the Central Negros Electric Cooperative announced its intention to build a 50MW coal-fired power plant in Negros Province of the Philippines in 1997, the project met with widespread public opposition. Community residents organized themselves into an NGO that educated local people about the project, and documented project developers’ failures to comply with the conditions of the Environmental Compliance Certificate it had been issued. The Department of the Environment and Natural Resources eventually revoked the project’s environmental license. Instead of simply mobilizing to oppose the construction of a new coal plant, however, civil society and local government authorities were able to work together to consider the downsides of coal power, and the advantages of developing new renewable energy projects such as wind, solar, small hydro, and modern biomass under a new local policy framework. Local, national and international NGOs worked with DOE and local government officials to develop a detailed alternative energy plan for Negros, with an emphasis on off-grid clean energy options for isolated communities. They also set up a new programme to execute this integrated plan: the Green Independent Power Producers Program, which partners with private sector actors to develop new clean energy projects. In 2002, the Governor of Negros Occidental province and the Secretary of the Department of Energy (DOE) in the Philippines committed to a 100% renewable energy target for Negros province. The experience was hailed as a model for energy planning for the whole country. NGOs in other provinces of the Philippines have worked with local governments on other islands (such as Cebu) to replicate the participatory planning processes pioneered in Negros to promote the development of renewable energy.19 At a keynote address at an ADB sponsored Forum on Clean Energy for Asia this year, the outgoing secretary of the Philippines DOE, Raphael Lotilla, remarked that “convincing [communities] to accept cleaner coal technologies remains a challenge for us. But the burden of showing or convincing our communities that indeed they can rely both on government and on private sector to be responsible in the implementation of environmental laws and standards is a burden that lies not on the community but upon us… we need to harness the academic and scientific community that will allow us to give enough information to the communities that would give them a higher level of comfort as to the ability of the government.”20 The Responsible Ilonggos for Renewble Energy (RISE) have spearheaded this initiative; but just this month local government officials of Iloilo returned from a trip Taiwan sponsored by proponents of a local coal-fired power plant project, and are now urging residents to be open to such a "clean and safe" source of energy. RISE has in fact filed a criminal case against the government officials for violating the code of conduct act by going on this all expense paid trip. 20 Raphael Lotilla, “Sustainable Development and Energy: Energy for All; All for Energy” Speech at the ADB Ecoasia Clean Energy Forum. 26 June 2007. In his speech, Lotilla also challenged the ADB to consider forgiving the Philippines 19

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Surging interest in nuclear power raises new challenges

In the rush to increase the supply of energy to growing economies, nuclear power has gained significant high level support throughout South and South East Asia in recent years. The new Secretary of Energy of the Philippines, for example, recently announced his intent to explore the options around nuclear power. Ironically this renewed interest came shortly after the government finally finished paying off its debts on the never used Bataan nuclear power plant contracted from Westinghouse in the Marcos era.21 The plant was never actually put into operation because of safety concerns: it was sited near an earthquake fault line, and international inspectors found several defects in its construction. Bataan was the single largest debt of the Philippines government. India’s nuclear power aspirations have garnered significant international attention and a heated national debate; Indonesia’s government has also expressed its intent to develop nuclear power. With elections planned in Thailand for December 2007, it remains to be seen whether a new administration will stand by the commitment to nuclear power that has been made by the current Ministry in the present PDP given the likely political liabilities. The government of Thailand, for its part, does appear to be charting out a systematic approach to developing nuclear facilities, starting by investing in the regulatory systems necessary to ensure safety, and allowing seven years to get these frameworks in place.22 If citizens are prepared to mobilise “en masse” to resist coal-fired power, the significantly higher environmental and social risks associated with nuclear facilities suggest that some tough battles are yet to come. At a minimum, citizens can be expected to demand the disclosure of information about the operational performance of the plants and the management of wastes in order to ensure their own personal safety.

Can more open planning processes lead to better ways to meet energy demand? The India UMPP program illustrates the potential benefits that can be had from more transparent and open approaches to contracting new power infrastructure, which can result in significantly lower prices and ensure that public actors and consumers are getting the best possible deal. Under UMPP, government entities are responsible for some of the more contentious aspects of project development in order to make projects more attractive to investors, such as securing land rights and access to water, and negotiating environmental clearances. This in turn raises questions about the adequacy of government mechanisms to address land use, environmental impact assessments, the rights of project affected people, and the extent to which there is systematic space for information disclosure and citizen inclusion in these processes on the project level. The implementation approach of the UMPP program differs significantly from Indonesia’s “Crash Program” which seeks to attract investment in coal power at a similar scale, but with much less transparency about the

$3billion debt to allow investment in renewable energy. http://www.adb.org/Documents/Events/2007/Asia-CleanEnergy-Forum/R-Lotilla.pdf 21 The Bataan project has been the Philippines largest single debt and reportedly cost the country 1.2bn or $170,000 a day (The Guardian, 7 Sept 1999). Marcos was accused of making $80m in kickbacks on the plant. 22 Presentation by Dr. Kurujit Nakornthap, Deputy Permanent Secretary to Ministry of Energy of Thailand at the ASEAN Energy Ministerial Business Forum 22nd August 2007. 9

terms on which this new power will be sourced. This opacity presents significant risks for consumers and the public sector, which will ultimately have to pay the costs of this new capacity. Both the Indonesian and Indian coal programs add particular generation technologies at a massive scale in the absence of a robust comprehensive framework to set overarching priorities, and allow the relative merits of various options and approaches to meeting needs to be weighed objectively. While India’s central electricity authority does regularly produce fairly technically strong power plans, these plans rarely have strong government commitment when it comes to implementation. Indonesia’s new Energy Law seems to attempt to draw attention to the need to emphasize more environmentally friendly approaches, and establishes a new institutional mechanism in the form of a National Energy Commission that brings the head of the Republic together with a range of government and non-governmental stakeholders. It remains to be seen whether this mechanism will in fact create a new space for open discussion about how best to meet energy needs, or whether it will merely serve to reinforce politicized executive control of the sector. If transparency provisions and systematic opportunities for broader public participation can be built into the commission’s operational structure, then perhaps some of the risks of further sector “capture” can be mitigated. As the Thai experience with the development of its Power Development Plan illustrates, a plan is only as robust as the process by which it is developed. Consumers and citizens are increasingly mobilizing to force policymakers to consider the environmental and social impacts of new infrastructure projects. Thai policymakers responded by shutting down opportunities for public participation in the planning process; the political costs of this decision have been high and have forced some reconsideration of the priorities within the PDP. In the Philippines, local government authorities have responded to similar public opposition by developing new participatory planning processes for how to meet national needs (although it should be noted that even in Negros province, the first instinct of local authorities was to try to cut citizens out of the process, before adopting the more open approach). There is a live question as to whether and how such participatory planning approaches can be adapted to find better ways to meet such larger scale needs for energy at the national level in South and South East Asian countries.

II. Bringing Decisions into the Open: The Role of an Independent Regulator? Regulatory institutions that are “independent” of government ministries and of the electricity utilities they oversee have been established in many countries. Independent regulators are relatively new institutions in most developing countries that have generally been set up in the context of electricity privatisation, in an effort to separate political processes from decisions about technical and economic issues, and with the objective of attracting private sector investment. Social and environmental considerations have seldom been woven into the mandate of these institutions.23 The credibility of regulation under such a framework is thought to hinge on technical expertise, while policy decisions should be taken by elected government officials. Nevertheless issues such as competence of regulatory staff, independence, autonomy, authority and adequacy of resources are central to the effectiveness and success of regulation. In practice, of course, few technical or economic decisions can be taken without political implications – and vice versa. Regulatory decisions can reward or deny various stakeholders, and Smita Nakhooda, Shantanu Dixit and Navroz K. Dubash, Empowering People – A Governance Analysis of Electricity (Washington DC: WRI, 2007) 23

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determine profits. Regulatory bodies are responsible for licensing power plants and other infrastructure, and for setting service and efficiency standards. They play an important role in addressing considerations such as security of supply, ensuring adequate reserve margins for electricity, extending universal and high quality access to electricity, and managing the impacts of power generation on the environment. If regulatory bodies are to act in the “public interest”, they must make judgements to balance stakeholders including government, consumers, and industry.24 Efforts to create “retail competition” for electricity by establishing power pools, has presented new technical challenges for these nascent institutions. •

Regulatory Oversight of Competitive Power Markets: The Philippines Wholesale Electricity Spot Market

The Philippines is one of the few Asian developing countries that has followed the “textbook” prescription for electricity reform all the way through to establishing retail level competition through the Wholesale Electricity Sport Market (WESM). The Electric Power Industry Reform Act in the Philippines established the Power Sector Liabilities and Asset Management (PSALM) Corporation to oversee the competitive sale of the assets of the National Power Corporation (Napocor). While structured as an independent organization, PSALM reports to the Department of Energy (DoE) and is overseen by a board of directors that includes the Secretaries of the DoE, the Department of Budget and Management, the Department of Justice, the Department of Trade and Industry and the Director-General of the National Economic and Development Authority. Given the small number of large consumers of power in the Philippines, the feasibility of establishing a spot market for electricity has been questioned by many independent analysts and observers. In late 2006, allegations surfaced that PSALM (which still controlled about 60% of generation capacity) had manipulated the prices of electricity sold on the WESM. An investigation by the WESM oversight body, the Philippines Electricity Market Corporation, revealed that uniform bids had been submitted by various teams within the PSALM. Bids from different plants with different fuels, had the same peak hour on the same days. In response, the Electricity Regulatory Commission (ERC) of the Philippines launched a 6 month investigation. Further allegations of collusion between Napocor and PSALM surfaced in the process, based on written correspondence between staff at the two agencies suggesting cooperation to set revenue requirements for their respective plants that could form the basis of bids placed on the spot market. 25 Yet in June 2007, the ERC abandoned its due diligence rather than completing its investigation into the market manipulation, reaching the conclusion that there was no evidence that PSALM had engaged in abuse of the market to raise prices. It did, however, caution Napocor for engaging in anti-competitive behaviour; this in turn prompted the President of the Napocor to later remark that perhaps the takeaway message was to make sure not to put correspondence regarding market action in writing for all to scrutinize.26

24 Navroz Dubash. “The New Regulatory Politics of Electricity in India: Independent, Embedded or Transcendent?” Paper presented at Workshop on the Politics of Necessity, Oxford September 9 – 10, 2005. 25 Maria Teresa Diokno-Pascual. Governance in Electricity Regulation: The ERC Decision on alleged Market Abuse by PSALM (Background Paper). October 2007. 26 Presentation by Cyrill de Callar at the ASEAN Energy Ministerial Business Forum Session on Power, Singapore, August 22nd 2007.

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Citizen Engagement in Electricity Regulation

A stakeholder approach to electricity regulation hinges on the active engagement of a range of citizen stakeholders on a systematic ongoing basis, who take advantage of formal institutional space, to scrutinize regulatory decisions and express their views. The effectiveness of their participation in advancing the public interest depends on significant, sophisticated understanding of regulatory issues. While a number of organizations in Thailand, India, Indonesia and the Philippines have significant capacity to influence these processes, but have expressed their need for more sophisticated technical knowledge in order to have an impact. For example, in the Philippines the Freedom from Debt Coalition, and the National Association of Electricity Consumers for Reforms have successfully challenged two decisions of the ERC in the Supreme Court, on the grounds that the regulatory commission did not comply with prescribed procedures for tariff revision, which required “better” public participation and input, as well as higher levels of transparency.27 In India, civil society groups have been able to work through regulatory institutions to enable disclosure of key information, such as the power purchase agreement for the controversial Enron Dhabol Power plant in Maharashtra. These groups then used this disclosure to facilitate a more productive public policy debate about the implications of the project. Institutional mechanisms to specifically represent the interests of weaker and poorer segments of the public in the regulatory process, however, have generally been weak.28 In the Philippines, the ERC staff report that when they do hold consultations and hearings in more remote rural areas, there is limited citizen interest. In India, the 2003 Electricity Act allows regulatory commissions to appoint “consumer representatives” to represent the perspectives of weaker groups, but few states have done so in practice. In a more detailed survey of the attitudes of regulators towards consumer engagement in selected Indian states, regulators and their staff for the most part claimed that they did not benefit significantly from consumer participation. However, their opinion of the value of consumer participation has improved as a result of the input of a handful of “constructive” participants who actively engage in the process. The same review also found that “consumers and regulators share perceptions of each other: they lack capacity; are mostly focussed on rate issues; but are critical for reforming the sector in the long run.”29 Consumer and civil society intervention in regulatory processes does tend to be ad hoc, and very concentrated on tariff decisions. There is much more scope to engage the regulator on key issues such as the need for integrated resource planning, power plant licensing, and the uptake of renewable energy technologies.

Enhancing Regulatory Governance In both India and the Philippines where independent electricity regulators have been established, these institutions have been given significant authority for a range of critical power sector functions. But in practice, the willingness of regulators to actually exercise this authority to the full extent of Smita Nakhooda, Shantanu Dixit, and Navroz Dubash, Empowering People – A Governance Analysis of Electricity (Washington DC: World Resources Institute, 2007) 28 Smita Nakhooda, Shantanu Dixit and Navroz K. Dubash, Empowering People - A Governance Analysis of Electricity (Washington DC: WRI, 2007). 29 Navroz K. Dubash and Narasimha Rao, The Practice and Politics of Regulation – Regulatory Governance in Indian Electricity ( Macmillan, 2005), 197. 27

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their powers has been limited. As the Philippines case study suggests, while in theory regulators should be expert technocrats, in practice the individuals who are appointed as regulators often lack the necessary background and expertise in the sector to be able to effectively oversee technically complex matters. Although officially separate from the state, the first loyalty of regulators is often to government interests. But it is possible that greater disclosure around regulatory practice and the rationale for choices made, together with more systematic efforts to engage a wide range of stakeholders, could play valuable role in enhancing operational independence and effectiveness. For their part, consumers and civil society organisations are increasingly tuned into the opportunity space that exists within the rules and operating procedures of these regulatory bodies, and are stepping into this space to advance their interests, and to seek accountability. Yet this engagement tends to be quite ad hoc, and while consumers and civil society groups have been actively engaged on tariff questions, they too have been slow to systematically use regulatory space to address larger questions of implementation of electricity policy. While there is significant scope for regulatory institutions to serve as a launching point for more integrated, efficient and sustainable approaches to power sector delivery regulators have been slow to pick up these issues.

III. The Implications of Regional Integration Ongoing efforts to integrate regional electricity markets present new challenges for governance from a public interest perspective, although it certainly promises many potential benefits as well. The controversies around hydropower projects implemented in Laos for sale to EGAT, for example, have drawn these issues into the spotlight. These challenges filter their way down the electricity supply chain to fuel sources: for example, Thailand sources natural gas from Myanmar, and as the Thai PDP places a greater emphasis on LNG plants, questions are raised about the extent to which Thailand is complicit in the human rights abuses associated with natural gas production in Myanmar. Systems of voice and accountability at the national level are not adequate to address the challenges presented by regional integration.30 The Association of South East Asian Nations (ASEAN) has emerged as an important forum for regional cooperation on energy issues. At the 2007 ASEAN energy ministerial earlier this year, governments of the region committed to a collaborative process to address nuclear safety. In addition, after many years of discussion, Ministers formally signed a memorandum of understanding to develop a transnational electricity grid. This ambitious initiative includes transmission infrastructure that links both the Philippines and Indonesia to the Mekong delta. Transmission infrastructure is enormously costly, however. There has been little scope for discussion of the relative merits of investing in connecting up the various islands of the ASEAN nations, against alternatives such as emphasizing distributed generation choices and mini grids – which may often present cheaper and cleaner ways to meet local needs.

State-owned utilities are also increasingly involved in sectors beyond their national boundaries. The Energy Generation Authority of Thailand is expanding its presence throughout the Asia. India’s National Thermal Power Corporation is expanding its operations into Sri Lanka. These companies may make investments in new regions where there are high social, economic or environmental risks. Their national assets and the reliable captive economic base for their operations at home, allows them access to cheap capital even if they do not directly expose their own balance sheets. 30

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If ASEAN is going to increasingly be a forum for trans-national cooperation around energy issues, then it is necessary to consider the extent to which it includes space to consider a range of stakeholder considerations. The business community has tuned into the opportunity space that ASEAN presents, for example by organising “Business Forums” alongside ASEAN Energy Ministerial that presents an opportunity for high level exchanges with government. But there is limited formal space for broader public input, although ASEAN work plans and high level statements do acknowledge the important role of civil society on a rhetorical level. The Ministerial meetings themselves are closed door meetings with little formal disclosure of the deliberations, other than a joint statement that is issued after each meeting. Civil society leaders were invited for the first time to make a statement to leaders of the ASEAN nations at the 2005 high level Summit hosted by Malaysia. The 2006 ASEAN summit hosted by the Philippines also included a civil society forum that convened more than 300 NGO leaders from across the region. Given the wide political spectrum of ASEAN nations, from Myanmar, to Laos, to the Philippines, the question of whether and how to open up these deliberations is not an easy one with which to grapple. At the 2005 summit, civil society leaders noted that: “There are far too many major transboundary challenges relating to the environment [that] the region is facing. We urge the ASEAN Summit to reconsider the ‘ASEAN way’ of dealing with these [challenges] so that swift and effective action can be taken in the interest of the people. The principle of consensus should not hinder ASEAN from acting decisively on behalf of justice when the situation so demands.”31

Conclusion While broad public input may not be useful in all situations, the energy policy challenges discussed in this paper suggest a strong case for more open and inclusive approaches to increase the likelihood of more effective, viable, and equitable solutions to the many challenges of sustainable electricity delivery. Such openness can be particularly challenging in the technically complex energy sector where decision-making has typically been designed to be the domain of technocrats and industry insiders, and policy makers as well as many consumers perceive themselves to be facing a crisis of supply. Civil society has a crucial role to play in electricity governance, and groups in countries across Asia have demonstrated significant interest in engaging. Consumers tend not to think too much about the terms on which the lights turn on --as long as they do turn on-- and are generally much more likely to organize around problems that affect their personal interests than engaging in the broader public interest. Although initial interest may have been sparked by opposition to new projects, however, this interest is prompting civil society involvement in upstream planning and policy processes, with the intention of influencing alternative approaches and solutions. But to effectively intervene in the broader public interest, civil society organizations need to be equipped with the knowledge, training and tools to make constructive interventions. The cases presented in this paper suggest a number of questions for further consideration, including: •

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There is evidence to suggest that there can be significant economic benefits --particularly for consumers-- from more transparent and open approaches to adding new generation capacity. How can regulatory and policy efforts to meet demand incorporate these approaches more systematically? http://www.focusweb.org/civil-society-meets-asean-finally.html?Itemid=27 14

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Integrated planning processes can be a valuable means to mainstream environmental and social interests in decision-making, particularly given the proliferation of actors involved in the power sector. Participatory planning approaches have had promising results at the local government level, but the demand for energy has generally been much smaller. Can the principles of, inclusion, transparency, and accountability of participatory planning be adapted to processes to meet immediate energy needs at a large scale, and at a centralized level?

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Significant functions of oversight and implementation of electricity policy have been delegated to independent regulatory institutions, resulting in some improvements in transparency and accountability. How can the institutional capacity and decision-making frameworks of electricity regulatory institutions allow more effective oversight of a sector in which the terms of electricity service delivery are in flux?

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The environmental and social risks associated with power sector infrastructure projects are significant. How can we ensure adherence with robust standards, particularly in the context of new interest in nuclear power?

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Ongoing efforts to integrate regional electricity markets have significant implications for national concerns. Does integration lead actors to “side-step” improvements in governance that may be made at the national and sub-national level? How can the institutions tasked with oversight of these regional processes become more responsive to citizen concerns?

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Can the need for political will to make tough decisions with expediency be balanced against the need for these decisions to be responsive and have broad public acceptance?

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