Privatization, Institutional Reform, and Performance in the Latin American Electricity Sector

Dec 2013
This paper explores the relationship between private sector participation, institutional reform, and performance of the electricity sector in 18 Latin American countries over the last four decades. As part of this study, an updated description of private participation and regulatory characteristics is provided, showing that private investment reaches US$155 billion translating into a participation of above 40 percent in generation and distribution, and around 25 percent in transmission. Still, it seems un-clear what are the positive outcomes that could be associated to this process; remaining performance challenges related with low coverage in rural areas, significant levels of electricity losses and high end-user prices. The empirical analysis herein addresses this issue by focusing on dimensions of efficiency, quality, and accessibility to the electricity service. The results suggest that privatization is robustly associated with improvements in quality and efficiency, but not with accessibility to the service. In contrast, regulatory quality is strongly associated with better performance in terms of both quality and accessibility. That is, regardless of the level of private participation, well-designed and stable sectoral institutions are essential for improving the performance of the electricity sector.