remaining generation, transmission and distribution assets nationwide. The Electricity Law of 1996 (Decreto 93-96) sought to increase investment and improve efficiency in the sector by introducing competition in electricity generation, and privatizing the distribution networks. A regulatory agency, the Comisión Nacional de Energía Eléctrica (CNEE), was created to oversee the new system.

**<u>Table 2.1: Summary of structural changes in Guatemala telecommunications sector</u>**

||PreReform|Post Reform|
|---|---|---|
|Generation|INDE monopoly|50%INDE (hydroelectric) and 50% Independent Power Producers (thermal)|
|Transmission|INDE monopoly|INDE monopoly|
|Distribution|EEGSA,DEORSA,DEOCSA|PrivatizedEEGSA,DEORSA,DEOCSA|

In 1998, an 80% stake in EEGSA was sold to Iberdrola of Spain. While the distribution assets of INDE were broken down into two regional distribution companies, DEORSA and DEOCSA (serving the east and west of the country respectively), which were also privatized in 1998. One investor purchased both companies: Unión Fenosa of Spain.

Notwithstanding the reforms, the state-owned enterprise INDE retains a dominant position in the system. It controls about half of the country’s (mainly hydroelectric) generating plants, but competes with independent power producers that control the rest of the (primarily thermal) capacity. Furthermore, INDE continues to own and operate the national transmission grid.

An important benefit of the electricity sector reform has been the rapid increase in coverage, from 53% in 1996 to 70% in 1999<sup>7</sup> . However, prices have also risen substantially. Under the new regulatory framework, the privatized distribution companies are allowed to pass on to the customers the variations in the purchase cost of energy. Due to the fact that the current Power Purchase Agreements signed between generators and distributors are indexed to the US dollar and the price of oil, prices have risen substantially since 1998, between 60%-80% depending on the company.

Another issue that remains problematic in the electricity sector is that of illegal connections. As reported in the ENCOVI survey, while 73% of the households report to be connected to the electricity network (95% in the urban and 56% in the rural areas), only 62% have an electricity meter (78% in the urban and 50% in the rural areas). The lack of a meter suggests that these households are illegally connected, or at best, that the amounts they pay for the service are not proportional to their monthly consumption.

# **_Telecommunications_**<sup>**8**</sup>

Until 1996, telecommunications services in Guatemala were the monopoly of GUATEL; a state-owned enterprise created in 1971. By the mid-1990s, there was growing dissatisfaction with the performance of GUATEL. Not only was the company comparatively inefficient (around 60 mainlines per 1,000 employees), but it was failing to satisfy mounting demand for telecommunications services. In 1996, Guatemala had one of the lowest teledensity ratios in Latin America with only 4.2 (fixed plus cellular) lines per 100 inhabitants. With only 350,000 fixed telephone lines in the country, unsatisfied demand was estimated at 1,000,000 lines.

> 7 Official national coverage statistics provided by the regulatory agency, Comisión Nacional de Energía Eléctrica (CNEE). They are consistent with the coverage trends inferred from ENCOVI 2000 (see Section 3 below).

> 8 The factual information reported in this section is either drawn from a number of World Bank Aide Memoires for the Guatemala Private Participation in Infrastructure Technical Assistance Project (Loan 4149-GU) or supplied directly by the Superintendencia de Telecomunicaciones.

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