Beyond the Resource Curse

6. Power to the Producers: The Challenges of Electricity Provision in Major Energy-Exporting States

6 Power to the Producers: The Challenges of Electricity Provision in Major Energy-Exporting States Theresa Sabonis-Helf The Problem It may seem intuitive that petrostates, whose economies and federal revenues are based on oil and natural gas, would have energy to spare at home. In fact, many petrostates have persistent trouble keeping the lights on. Their electricity sectors are plagued by low reliability, poor quality power, and high transmission and distribution losses. This phenomenon is limited neither to times when the price of oil is low (meaning times when petrostates’ budgets are tight), nor to times when the price of oil and natural gas is high (causing higher opportunity costs to using energy at home). Petrostate problems in electricity provision are persistent. They are technical, political, and economic in nature—and all three aspects of this problem overlap. Technologically, electricity choices—in terms of creating and supplying power, building and maintaining grids, and distributing and charging for electricity—are choices that have to be sustained over time if an electricity system is to continue to function. Electricity is one of the largest, most capital-intensive sectors of a developed economy, and it requires sustained commitment. The World Bank notes that a population’s access to electricity and a self-sustaining electricity sector are two hallmarks of developed economies . In petrostates, people’s access to electricity tends to be high, but the 162 Theresa Sabonis-Helf electricity sector tends not to be self-sustaining and therefore requires constant intervention from the government. Economically, electricity is best rationed by pricing: amount and time of usage can be influenced by price signals. But if the price to consumers is very low, it becomes difficult to ration the quantity of electricity. Cutting off groups of customers, brownouts (periods of persistent, lower-than-optimal voltage), and blackouts are the only tools available. This tends to cause governments to get locked in a losing race to stay ahead of demand. If an electricity system allows for most or all households to be connected to the grid, underpricing electricity becomes very expensive for a government, because demand continually rises as populations and standards of living grow. If a system is to continue functioning under these conditions and deliver predictable electricity with reliable quality, the supplier has to keep pace with growing demand . Uneven power quality—with surges, spikes, or sags in voltage—will damage commercial, industrial, and residential equipment. If power supply cannot meet the demands on the system, brownouts or blackouts will result. Fundamentally, electricity is a highly politicized good in both democratic and authoritarian states. In their research on electricity and regime type, David Brown and Ahmed Mobarak find a strong correlation between democratization and electricity distribution. In their study, low-income democracies favor provision of residential electricity over industrial electricity (even though industrial energy is less expensive to supply and more productive in terms of national wealth). Voters tend to prefer home electrification over industrialization. This trend, which may be considered a “constituent service” effect, is not confined to democracies. Citizens, regardless of their form of government, desire electricity. Moreover, the pervasive rhetoric in oil-rich nations—“Our oil wealth belongs to our citizens”—makes it difficult for petrostates to be stingy in their provision of energy to residential users. The energy goods citizens tend to desire most are electricity and gasoline , and in petrostates both of these are often highly subsidized. As other chapters in this volume have illustrated, oil-producing states extend generous subsidies, and these subsidies make it difficult to efficiently allocate the goods and services that a nation needs most. Subsidies also tend to encourage overconsumption of the subsidized products and lead to underinvestment in the sector producing the subsidized goods. Part of petrostates ’ problems with electricity is indeed related to this question of subsidies, but that only tells part of the story. Much of the opportunity cost of underpriced electricity is hidden, allowing governments to underesti- Power to the Producers 163 mate and even ignore its long-term impact on the government budget and overall economy. Electricity is, in some sense, a measure of governance, because planning within the sector is a long-term activity and requires responsiveness to changing conditions. The electricity sector requires frequent recapitalization and maintenance, and receipts in the sector are vulnerable to corruption at the local level and demagoguery at the highest governmental levels. Population growth, urbanization, and changes in standards...