ASi" kUCTURE FlOR DEVELOPMENT

maintains the full profits of the incumbent and is electricity is supplied in this form Because pool
also socially optimal if the network is efficiently prices tend to be volatile and unpredictable, both
priced and operated. In New Zealand such a rule suppliers and buyers (mainly regional distributors)
has led to new entry, although the rule has been tend to enter into long-term contracts as well, relychallenged
by the new entrant as anticompetitive. ing on the spot market for a relativelv small share of
Other approaches seek to encourage entry by limit- transactions. Having a choice of suppliers when'
ing interconnection charges to full costs incurred by contracts are renegotiated maintains competitive
the incumbent (exduding profits accruing on the discipline.
link). Such charges (e.g., those in Australia) include If generating capacity is concentrated in one or
an element for fixed costs of the network as well as two firns, they can try to influence the price at
costs incurred due to universal service obligations. which electricity is purchased from them. Anti-
The interconnection issue is acquirng increasing trust laws can be used to prevent monopolistic or
importance in developing countries, and especiallry collusive behavior. Effective competition, howin
Eastemr Eirope where multiple operators have ever, may require splitting large generators into
been licensed. In Poland, for example, a 1990 new companies.
telecommunications law allowed independent oper- Competition in electric power is being extended
ators the right to develop networks in regions not to retail distribution in the United Kingdom, startserved
by the government-owned telecommunica- ing with large consumers. Users wlhose peak detions
provider Telekomunikacja (TIP SA). Three mand is 100 kilowatts of power or more are not relarge
independent operators have been licensed to stricted to their local distributor, but may contract
provide local services, in addition to almost sixty with other distributors or directly with generators.
other small providers. Interconnection between TP About 45,000 businesses are eligible to shop for elec-
SA and the independent operators involves provid- tricity in this way. All customers will be able to do
ing access to each company's network and sharing so by 1998.
revenues from this access. To date there is no one In many developing countries, one legacy of
standard interconnection agreement between TP SA poor public sector performance is the large underand
the independents. The telecommunication law used generation capacity of many large manufacturstates
that each independent company must negoti- ing fims. The market for electricity can be made
ate its own separate agreement with TP SA. This more contestable by allowing large manufacturers
lack of standard agreement has prevented the ma- with their own generating capacity to sell electricity
ority of the independents from further pusuingthe to the public grid, creating competitive discipline
development of their local network Without inter- and fostering cost reduction. A systematic study
connection, outside investors are hesitant to commit shows that, if firms in Nigeria were allowed to sell
any resources until a strong and fair contract is es- power from their underused generating capacity,
tablishedL Alternative models are being examined to the unit .osts of electricity produced by these firnsprovide
interconnection on fair terms. Developing would fall considerably. Informal evidence suggests
countries seeking to expand networks and new ser- that the samne is likely to be the case in many develvices
may wish to consider a pricing system favor- oping countries.
able to entry, effective antimonopoly legislation, and
procedures for implementing both.
Where direct competition is not possible, efficiency
POWER. Electricity generation is another area in can be increased by means of competition managed
which unbundling can introduce competitioiL through contractual arrangements, ranging from
Using similar approaches in electric power genera- simple contracts for 5pecific services -to long-term
tion, Argentina, Chile, Norway, and the United concessions that require operation, maintenance,
Kingdom have created electricity pools that simu- and facility expansiorL Although there is only a sinlate
competitive market conditions. Generators bid gle supplier of the service at any point in time, comfor
the right to supply bulk electricity in time slots petition occurs before the contract is signed and, in
(as short as half an hour in the United Kingdom) by principle, when the contract (or concession) expires
specifying a supply schedule of price and quantity. and is due fur renewaL Thus, there is competition
The power pool manager aggregates these offers for the market even though there is no direct compeand
arrives at a systemwide price based on esti- tition in the market during the term of the concesmates
of demand for the particular slot All offers sion. The commitments entered into through :the
below this "pool price" are then accepted. Not all contract can then, within limits, provide an alterna-
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