# Industry Restructuring and Regulation - Building a base for sustainable growth

|**Table 4: Chan**<br>|**ges in perfo**<br>|**rmane betw**<br>|**een****_1993_and**<br>|**1995(%)**<br>||
|---|---|---|---|---|---|
|**_Secror_**|**_Electricity_**|**_Electrcity_**|**_Gas_**|**_Water_**|**_Telecoms_**|
|Industry|Generation|Distribution|Distribution|Distribution||
|First year of private operation|1992|1992|1992|1993|1990|
|Efficiency gains<br>(measured as reductions in<br>intermediate input purchases as a<br>share of total sales value)|19.51|6.26|8.84|4.86|11.28|
|Labor productivity gains<br>(measured as GWh/staff for<br>electricity, 000m<sup>3</sup>/staff for gas,<br>population served/staff for water and<br>lines in service/staff for telecoms)|23.1|17.59|4.79|-27.58|21.25|
|Increases in Investment<br>(concession contracts for gas and<br>actual investments for the other<br>sectors)|8.65|n.a.|4.56|75.97|28.10|
|**Improvements in quality**<br>(measured as reductions in losses:<br>net of consumption by<br>transmission/production for<br>electricity and gas, water<br>unaccounted for/production for<br>water, lines in repair/lines in service<br>for telecoms)|n.a.|10.00|27.80|6.12|4.56|
|Changes in real average tariffs<br>(defined as total sales value by a<br>physical indicator of production)|n.a.|-9.5|-0.5|5.5|-4.9|

_Source:_ Table 4.1 Changes in performance between 1993'and 1995, Chisari, Estache and Romero 1997.

The table summarizes some of the key findings of the review of the impact of the privatization process in Argentina. These are:

- operational gains strongly benefit all income groups: on average, these gains represent the equivalent of 41% of what households tend to spend on utilities services, even when the new owner of the sector is allowed to keep as much as possible of these gains as quasi-rent. These gains represent about 0.9% of Argentina's GDP;

- the gains from effective regulation average a 16% savings, when the regulator is effective. This additional gain is about 0.35% of Argentina's GDP;

- the direct gains are relatively significantly higher for the higher income classes and this is explained by the fact that when regulation is not effective, the gains from privatization are turned into a quasi-rent captured by the richest who are the largest domestic owners of capital of the infrastructure services; and

- the indirect gains through effective regulation, in contrast, tend to relatively favor the poorest income classes, even if all income classes tend to gain from effective regulation, showing that effective regulation can be redistributive as well as value enhancing.

<!-- Start of picture text --> Table 5: Annual gains from private operation of public utilities_<br>Income class Savingsfrom operational Savingsfrom effective (A)/income class (B)Ancome ctass<br>gains (A) (in millions of regulation (B) (in millions of expenditure on expenditure on<br>1993 US$) 1993 US$) utilities utilities<br>I (poorest) 197 138 29% 20%<br>2 259 142 31% 17%<br>3 373 121 37% 12%<br>4 403 214 32% 17%<br>5 (richest) 1047 302 590/o 17%<br>Total 2279 915 41% 16%<br><!-- End of picture text --> _Notes:_ (A) is the 'fixed-price' model, in which the gains accrue to the private operators while (B) reflects the difference between the fixed and flexible price models, i.e. the maximum impact that an effective regulator could have.

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