# **I. Introduction**

Over the last few decades, most countries in Latin America, as part of a structural reform program, brought private participation- privatization, concession, or management change- to previously state-owned enterprises (SOEs). Consequently, private participation in the infrastructure sector increased significantly.<sup>2</sup> In the electricity distribution sector, only 3 percent of subscribers were served by private companies in the early 1990s, but by 2003 this figure had grown to over 60 percent. Similar patterns can be seen in fixed telecommunications and in water distribution.

Surprisingly, there is little systemic empirical analysis of the impact of these changes on the electricity sector. This can be attributed at least in part to the difficulty of securing appropriate data. Most of the literature on infrastructure privatization focuses on financial indicators,<sup>3</sup> analyzes case-studies, or evaluates the fixed telecommunications sector.<sup>4</sup> Existing literature also tends to confine analyses to a narrow time period immediately before and after the change in ownership.

This analysis makes a number of contributions to the literature on changes in infrastructure ownership. First, this is the first analysis of the impact on the distribution of electricity sector. Second it constructs an unbalanced panel data set of key indicators for each country. Third, a broader-than in most past studied- range of indicators is evaluated, including indicators of output, efficiency, labor productivity, quality, coverage, and prices. These indicators offer a fuller picture of the effects of privatization on consumers, as previous studies tend to focus solely on changes in companies’ financial performance. Fourth, the analysis covers a longer period of time, and therefore identifies the short- and long-run effects of privatization, as opposed to previous analyses’ short time series data that do not identify long-run outcomes. The sample consists of 116 electricity distribution firms that changed ownership during the 1990s.<sup>5</sup> Finally, the counterfactual-through the use of trend analysis is accounted for and measured against the factual. The analysis consists of two methodologies and is separated into three main periods: “pure public”, referring to the three years prior to the announcement of the reform; “transition”, starting at the time when the reform was announced and ending one year after the concession or privatization was awarded; and “pure

> 2  For the purposes of this paper, the term “privatization” refers to private sector participation through sale or divestiture or  through concessions.

> 3 Some examples are Megginson et al (1994) and D’Sousa and Megginson (1999).

> 4 For example, Ros and Baneerjee (1999) analyzed 23 countries in the region in order to evaluate the relationship between privatization, network expansion, and efficiency in telecommunications. Additionally, Ramamurti (1996) examined the privatization of telecommunication and transport in Mexico, Argentina, Jamaica, and Venezuela. Finally, La Porta and Lopez-de-Silanes (1999) evaluated privatized non financial firms in Mexico.

> 5 These data are part of a bigger data set used in Andres et al (2006), which contains an analysis of the impact of privatization on fixed telecommunications, electricity and water distribution.

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