Promotion of Private Sector Participation

The term 'private' loosely describes all non-governmental parties; it has come into general use although its precise meaning is not always clear. The term is applied conventionally in contrast to governmental or quasi-governmental, in effect to the public sector. Perhaps it would be more correct to employ the term non-governmental which is in any case more appropriate in connection with small-scale power supply where a number of non-governmental bodies other than strictly private individuals or corporations can playa significant role. The key to sectoral definition is perhaps that the promoter - the driving force for initiating and implementing a project - should be independent of government although he may well be subject to some measure of government supervision and, in some cases, benefit from active government participation.

The general approach to participation of the private sector in public electricity supply can be grouped into three categories:

• an open market policy in which the whole electricity sector, or particular sections of it, are available to investment of private capital under minimal governmental direction or control and allow free range to market forces;
• a controlled policy with government or public utility - as an instrument of government determining where and to what extent a private initiative can be brought to bear, the private sector activity being closely supervised and exposed to market forces to only a limited extent. Naturally, there are various degrees of control, mitigated through enabling measures to make the venture sufficiently attractive for private enterprise;
• a promotional policy for encouraging non-governmental organizations to participate in local electrification where it is of special concern to them. Here again, the range of possibilities is wide and may extend from exclusive licensing of non profit-making bodies to cost and benefit sharing with private promoters on a fully commercial basis. Regulatory arrangements will be shaped accordingly.

There are basically five ways by which participation by the private sector can be brought about:

• by government - national or local - through advertisement or direct approach to known interest groups or potential developers;
• by technical assistance or aid agencies who, having identified a problem area, are looking for a developer whom they can propose to government;
• by interest groups or concerned organizations who wish to foster electrification in a given locality;
• by individuals or corporations who are attracted by the commercial prospects of an electrification proposal;
• by companies looking for markets for their equipment and services.

A combination of any of these initiatives is possible; both local and foreign sources can be employed.

The choice of potential non-governmental sources that can be tapped for expertise and finance is wide but becomes narrowed in the context of the local situation. Whoever carries out the pre-investment studies - utility, development agency or consultant - will have to examine what sources are appropriate for the particular case and draw up an activities and funding schedule as a basis for further progression of the project. This schedule sets out the sequence of actions that must be taken and identifies potential investors who could contribute to the funding requirements. Many small hydro schemes have failed to materialize in spite of a favourable and bankable feasibility report because the implementation schedule, or action plan, was not acted upon; the link between the investigator and the developer had not been established. A contributory factor was also in many cases that grants or aid funds were available for the pre-investment work but were not sufficient to bring the project to fruition. New sources had to be looked for and a procedure for doing so had not been set up.

The significance of support from the private sector in the context of small-scale electrification, primarily from hydropower, the preconditions to be met and the issues involved are discussed below.