# 6: Conclusion

This literature review relating to reform of the power sector in developing countries found that much of the more recent material from the last decade concentrated on statistical analysis of the impacts of reform, where it had been carried out. However, all of these studies concentrated on a subset of the reform steps that have been identified as necessary to obtain the maximum benefits. These key steps are: unbundling, private sector participation, regulation, and competition. This limited focus was partly because of lack of data, but also because so few developing countries have emulated the more sweeping approach taken by some developed countries.

The strongest evidence that reform can improve performance came from the private sector participation policy. More econometric studies identified this as significant with respect to a greater range of performance indicators, than for regulation or the introduction of competition, but this may be due to the much lower number of countries adopting competition.

The bulk of the statistical studies used regression models to evaluate the impact the key policies on utility and sector performance. In the specification of these models three shortcomings were frequently observed: (i) most studies assumed that a reform step was either “on” or “off” and failed to take into account the extent/quality to which a reform might be implemented; (ii) some studies formulated the model as if any of the key policies might be implemented on its own, failing to recognize, for example, that privatization would be effective only if unbundling had also taken place; and (iii) most studies ignored the possibility that the reform step taken was endogenous (the decision was partly influenced by the performance of the utility). All these shortcomings could lead to mis-estimation of the impacts of reform, and when present reduce the credibility of results obtained.

The overwhelming emphasis in these statistical studies was on the significance (or not) of the various reform steps, and the main finding derived from a comparison of 16 studies was that private sector participation was in many cases associated with an improvement in the performance of the sector, as measured by a number of performance indicators. Unfortunately, the selection of indicators in these studies largely omitted such well-known areas of inefficiency as bill collection and outages. A single study made a systematic distinction between various forms of private sector participation and concluded that leases or management contracts showed no significant performance gains, but that partial or full divestiture produced gains for a number of indicators. The impacts of regulation and competition were not so clear cut. Fewer studies tested for these policies, and those that did so did not show a clear pattern, with the exception that improved access was linked to the presence of an independent regulator.

The studies identified paid little attention to materiality (the actual size of the impact on performance when statistically significant) and many did not present all the information that would facilitate comparisons between studies. There was sufficient information to conclude that transmission and distribution losses had been reduced, bill collection had been increased, and the duration and frequency of interruptions had been reduced by amounts that would have been material.

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