Thursday, February 03, 2005

A Few More Words on Deregulation

EN ESPAÑOL ABAJO

It is truly a pleasure and a great honour for me to welcome the distinguished professor Ferdinand Banks to Power Encounter, and to share this blog with this invited post of him. Dr. Banks has published eleven books and more than two hundred articles in his long professional life, and he is a man of vast world-wide experience in energy sector, especially in electricity and gas deregulation, oil and electricity markets, and climate change and economics as his bio shows. I do hope this first guest contribution is the beginning of future ones from other experts who like to share their views to develop and enrich this open platform.
J. Martín-Giraldo

A FEW MORE WORDS ON DEREGULATION
By Ferdinand E. Banks

The author F. Scott Fitzgerald once said that there are no second acts in American life, but that interesting piece of wisdom does not apply to electricity deregulation in that country or in Sweden.

I thought that I had covered just about everything in my paper 'Economic theory and an Update on Electricity Deregulation Failure in Sweden' (see below), but I was very wrong.

When I began teaching in Sweden, the Swedish electric network was the most efficient in the world, and for decades the cost of production (and to a certain extent the price) was perhaps the lowest in the world. Then came deregulation.

Five weeks ago a storm blew over the south of Sweden, and several hundred thousand persons found themselves without power. Twenty thousand still have no electricity. The reason for this is simple: with deregulation the power company serving most of that part of Sweden has been investing its now large profits outside the country - mostly in coal based electricity, although the Swedish government has one of the loudest voice in what I call the environmental booster club. In addition they have been passing out very large bonuses to their executives, the size of which I can only guess at.

Ordinarily I do not complain about this phenomenon, because Swedish power company executives were at one time shockingly underpaid. But now one Swedish-Finnish firm has given some of its executives the kind of bonuses that have even deregulation advocates shaking their heads.

There is a Social Democratic government in Sweden, and so you might ask why they don't end this curse. The answer is simple: with Sweden's entrance into the EU, billions of Swedish crowns must be sent to Brussels, and given the structure of electricity taxes in this country, deregulation is a cash cow.

And thus goodbye to the kind of morality that once made this country an international role model.

(The views expressed in this comment are strictly of the author)

"Economic Theory and an Update on Electricity Deregulation Failure in Sweden" (in 'Energy and Environment', January, 2004)
The deregulation of electricity has failed in Sweden. Since the beginning of the deregulation experiment, the trend price of electricity has increased much faster than the consumer price index, especially during recent years. More important, because of (1) the lack of investment in domestic generating (and perhaps transmission) facilities by Swedish power companies, (2) the questionable strategy employed by these firms to manage hydroelectric reserves, (3) increased and to some extent irrational energy taxes, and (4) the beginning of nuclear disengagement, households and businesses are vulnerable to a prolonged spike in electricity prices. Everything considered, the recent history of the Swedish electricity sector – and particularly that of the overpraised Nordic Electric Exchange (i.e., Nord Pool) – should be considered a wake-up call instead of an example.

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Ferdinand E. Banks (e-mail: ferdinand.banks@telia.com)

1960-61: Assistant lecturer, Institute of Economics, University of Stockholm (Sweden).
1961-64: Lecturer in economics, the International Graduate School, University of Stockholm;Lecturer, Institute of Economics, University of Stockholm, SwedenConsultant, United Nations Development Program (Egypt, Ethiopia, Senegal).
1964-66: Senior lecturer in mathematics, statistics, and economics – The United NationsInstitute for Economic and Development Planning (IDEP), Dakar, Senegal.
1966-68: Senior Lecturer (economics), Stockholm University, Sweden; Consultant, United Nations Industrial Development Organization (UNIDO), Vienna, Austria.
1968-71: Econometrician and Commodity Economist, UNCTAD, Geneva ,Switzerland.
1971-78: Research Fellow, The Institute of Economics (Nationalekonomiska Institutionen), Uppsala University; Lecturer in econometrics and natural resources, Stockholm University; OECD lecturer in input-output analysis and macroeconomics, Technical University of Lisbon (Portugal); consultant on natural resources, the Hudson Institute, Paris, France.
1978-79: Professorial Fellow, The Reserve Bank of Australia; Visiting Professor, the department of econometrics, University of New South Wales, Sydney, Australia.
1978-79: Research Fellow, Nationalekonomiska Institution, Uppsala University, Sweden.
1980: Visiting Professor,The Centre of Policy Studies,Monash University, Melbourne, Australia.
1982: Social Sciences Faculty Research Fellow, Uppsala University., Uppsala, Sweden.
1983: Visiting Research Fellow, Melbourne University; Visiting Lecturer, The Australian School of the Environment, Griffith University, Brisbane, Australia.
1984: Visiting Professor, The International Graduate School, Stockholm University.
1985: Visiting Research Fellow, Centre for Resources and the Environment (CRES), The Australian National University, Canberra, Australia.
1987: Fellow of the NATO Advanced Study Institute, Povoa do Vardim, Portugal.
1989: Visiting Professor, University of New England, Armidale, Australia.
1990: Visiting Professor of Energy Economics, Université de Grenoble, Grenoble France;Visiting Professor of International Economics, Ecole Superieure de Commerce de de Grenoble (Graduate School of Business), Grenoble, France.
1991-92: Visiting Professor of Finance and Economics, Nanyang Technical University, Singapore.
1993: Visiting Professor of International Finance, The Center for Economic Research and Graduate Education, Charles University, Prague, Czechoslovakia.
1994: Visiting Professor, University of New England, Armidale, Australia.
1995- Technical consultant, AP Energy Business Group, Singapore.
2000: Lecturer in Industrial Organization, Nationalekonomiska Inst., Uppsala University
2001: Visiting Professor and University Fellow, Hong Kong Energy Studies Centre. Hong Kong Baptist University. Hong Kong Visiting Professor (on natural gas), ENI Corporate University, Milan Italy.

Es un auténtico placer y un gran honor para mi dar la bienvenida al distinguido profesor Ferdinand Banks a Power Encounter, y compartir este blog con su post invitado. El doctor Banks ha publicado once libros y más de doscientos artículos a lo largo de su dilatada vida profesional, y es un hombre con una vasta experiencia a escala internacional en el sector de la energía, especialmente en los campos de la desregulación del gas y la electricidad, de los mercados del petróleo y la electricidad, y del cambio climático y la economía, como ilustra su biografía. Espero que esta primera contribución invitada sea el comienzo de otras futuras de expertos que gusten compartir sus perspectivas para desarrollar y enriquecer esta plataforma.
J. Martín-Giraldo

UNAS PALABRAS MÁS SOBRE DESREGULACIÓN
Por Ferdinand E. Banks


F. Scott Fitzgerald dijo una vez que no hay segundos actos en la vida Americana, pero ese interesante retazo de sabiduría no reza para la desregulación de la electricidad ni en ese país ni en Suecia.

Pensé que había cubierto casi todo en mi artícluo 'Economic theory and an Update on Electricity Deregulation Failure in Sweden' (veáse abajo), pero estaba muy equivocado.

Cuándo yo empecé a dar clases en Suecia, la red eléctrica sueca era la más eficiente del mundo, y durante décadas el coste de producción (y hasta cierto punto el precio) eran quizás los más bajos del mundo. Después vino la desregulación.

Hace cinco semanas un temporal azotó el sur de Suecia, y varios cientos de miles de personas se encontraron sin electricidad. Veinte mil siguen aún sin ella. La razón de esto es sencilla: con la desregulación la compañía eléctrica que atiende la mayor parte de esa región de Suecia ha estado invirtiendo sus ahora grandes beneficios fuera del país - en su mayor parte en la producción de electricidad con carbón, aunque el gobierno sueco tiene una de las voces más fuertes en lo que yo llamo el club de promoción ambiental. Además ellos les han estado otorgando gratificaciones muy grandes a sus directivos, de una cuanía que solo puedo adivinar.

Normalmente yo no me quejo de este fenómeno, porque los directivos de las compañías eléctricas suecas estuvieron en su tiempo espantosamente subremunerados. Pero ahora una firma sueco-finlandesa ha concedido a algunos de sus directivos la clase de gratificaciones que tienen incluso los defensores de la desregulación que las desaprueban meneando sus cabezas.

Hay un gobierno social-demócrata en Suecia, y así ustedes quizás se pregunten por qué no acaba con esta maldición. La respuesta es sencilla: con la entrada de Suecia en la UE, miles de millones de coronas suecas deben ir a Bruselas, y dada la estructura de impuestos de electricidad de este país, la desregulación es un producto muy rentable.

Y así decimos adiós a la clase de moral que hizo una vez de este país un modelo internacional.

(La opinión expresada en este comentario es de la sola responsabilidad de su autor)


"Economic Theory and an Update on Electricity Deregulation Failure in Sweden" (en 'Energy and Environment', Enero, 2004)
La desregulación de la electricidad ha fracasado en Suecia. Desde el principio del experimento desregulador, el precio tendencia de la electricidad ha aumentado mucho más rápidamente que el índice de precios al consumo, especialmente durante los últimos años. Más importante, a causa de (1) la falta de inversión en instalaciones de generación doméstica (y quizás transporte) de las compañías eléctricas suecas, (2) la cuestionable estrategia empleada por estas empresas para administrar las reservas hidroeléctricas, (3) el aumento de los impuestos de energía hasta cierto punto irracionales, y (4) el principio de la desimplicación nuclear, las viviendas y los negocios son vulnerables a una escalada prolongada de los precios de la electricidad. Considerada toda ella, la historia reciente del sector sueco de electricidad – y especialmente el encarecido Nordic Electric Exchange – debe considerarse un aviso en vez de un ejemplo.


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