RPR-2011-17 - ERIA

accessing fuel and finance for private sector, and rampant expansion of state-ownedsector. In New Zealand, market development and restructuring in the electricitysector seem to be very successful initially but produce problems later. Therefore, theElectricity Industry Act enacted in 2010 effectively allows the bundling ofdistribution and retailing and also raises the threshold for ownership separationamong distribution, retail and generation. This new policy may also create verticallyintegrated electricity utilities, encompassing generation, distribution, and retailing.This practice is against the theoretical preference of competition and unbundling. Itsimpacts are yet to be assessed.The last three reports deal with subsidies in the energy sector in Indonesia,Malaysia and Vietnam, respectively. In the Indonesian case it is found that theremoval of fuel subsidies affects production output, employment and income in thecountry. In particular, the impact on labour income is higher than that on capitalreturns and the lowest income group will be affected the most. The latter is alsoobserved in Vietnam where the average electricity tariff rate is far below theinternational rate. Our report shows that a one short increase in electricity tariffs (tomatch the international price) would lead to a substantial increase in the CPI(Customer Price Index) and hence would be socially unacceptable. Our findingssupport a gradual approach towards subsidy removal and separate implementation ineach sector. Our last report investigates the effects of subsidy removal on theMalaysian economy. It is found that phasing out oil subsidy would initially increasethe general prices but eventually bring about an increase in output due to theimprovement in efficiency and a decrease in the cost of production. There arehowever significant variations across industries. In general, the less energy intensiveindustries and domestic resources-based industries are least affected by the removalof subsidies.3. Implications and Policy SuggestionsThe findings from these reports have important policy implications. Specifically,this project’s findings imply i) Less developed countries should be prepared forvi