POLICY DIALOGUE ON CORPORATE GOVERNANCE IN CHINA

1
POLICY DIALOGUE ON CORPORATE GOVERNANCE IN CHINA
Privatisation, competition and regulation

• Presentation by Patricia Leahy, Director ,UK
  National Audit Office
• February 2004

2
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

3
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

4
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

5
Electricity privatisation in England and Wales

• Comparison of structure pre and post privatisation

Pre privatisation
Post privatisation
PowerGen
National Power
Nuclear Electric
CEGB
Pool run by National Grid
12 Supply Boards
12 Regional Electricity Companies
Customers
Customers
6
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

7
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

8
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

9
Electricity privatisation in England and Wales
UK Electricity arrangements since 2001

Distribution Company
Transmission
Transmission Charges 75
Transmission Charges 25
Distribution Charge
Generation (Contracted)
Contract Price
Customer
Supply Company
Tariff
Imbalance Payments
Generation (Available)
Balancing Market
Un-contracted generation receives no revenue
Flow of Electricity
Flow of Payments
10
Economic regulation

• Only needed if effective competition lacking
• Crucial that independent of Government
• General principles
• - Transparency
• - Consistency
• - Predictability
• - Accountability
• Regulatory risk

11
Privatisation, competition, regulation impact
on stakeholders in the UK

• Management
• Shareholders
• Customers
• Employees