DOING BUSINESS 2014 Indicators on Getting Electricity . Caroline Frontigny Research Analyst Doing Business Project. 1. The Doing Business report. What does Doing Business measure?. How does Doing Business define SMART business regulations?.
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DOING BUSINESS 2014 Indicators on Getting Electricity Caroline Frontigny Research Analyst Doing Business Project
Following Doing Business best practices would significantly decrease the time to start a business • In the 107 economies covered by both Doing Businessand the World Bank’s Entrepreneurship Database, an estimated 3.1 million limited liability companies were newly registered in 2012 alone. • Because not all economies followed best practice, entrepreneurs spent an extra 45.4 million days satisfying bureaucratic requirements. Days to start a business (millions) Source: World Bank’s Entrepreneurship Database ; Doing Business database. 16
Latin America and Caribbean economies on average rank near the middle in the global ease of doing business 1 Caribbean Community Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, St Kitts and Nevis, St Lucia, St Vincent and the Grenadines, Suriname, Trinidad and Tobago OECD High income 29 Eastern Europe & Central Asia 73 Central America Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama East Asia & Pacific 86 95 Latin America & Caribbean97 104 Middle East & North Africa 98 105 South Asia 121 South America Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guyana, Paraguay, Peru, Uruguay, Venezuela RB Sub-Saharan Africa 140 185 7
Pace of reforms remains strong in 2012/13: share of economies with at least one reform making it easier to do business OECD high Income 73% Europe and Central Asia Middle East and North Africa 40% 75% East Asia and Pacific Latin America & the Caribbean 53% 60% 58% 66% South Asia Sub-Saharan Africa Worldwide, 114 economies implemented 238 reforms in 2012/2013, 18% rise with respect to 2011/2012. 1
Business reforms in the Caribbean • The Bahamas, Jamaica, and Trinidad and Tobago took steps to improve their business regulatory environment over the past year. • Jamaica led the way in the Caribbean by adopting new legislation for private credit bureaus, reducing the corporate income tax rate, and streamlining procedures for starting a new business. • Since 2005, 11 of 12 economies in the region have implemented regulatory reforms making it easier to do business in the areas measured by Doing Business. Jamaica implemented the most reforms in the region with 13 reforms during this period, followed by the Dominican Republic with 12.
Based on Enterprise Surveys in 118 economies around the world Direct responses from representative samples of the private sector Access to finance, electricity and informality are the top obstacles across the developing world Electricity is a major obstacle to business activity Percent of firms identifying the problem as the main obstacle to their business activity
Getting Electricity focuses on interactions between an entrepreneur and distribution utility
Getting Electricity indicators – of what use are they to policy makers? Getting Electricity correlates with other sector challenges…. …and can support regulators in their dialogue with the utility…… • Distribution utilities retain monopolistic positions even in otherwise liberalized markets • Customers are captive • Benchmarking utility performance helps regulators help customers • Great majority of distribution utilities surveyed are only “game in town” • Benchmarking against utilities in other countries needed • Regulatory agencies often have to rely on self-reporting of utilities: • Limits effective monitoring of utility performance (especially in such areas as quality of service regulation) • Independent benchmarking can fill a gap • Time and cost to obtain an electricity connection are negatively correlated with the electrification rate. • The cost to obtain an electricity connection is negatively correlated with the % of transmission and distribution losses • Simpler connection processes are associated with higher firm sales, in particular in industries with high electricity needs
Where is getting electricity easy – and where not? Iceland Korea, Rep Germany United Arab Emirates Hong Kong, China Singapore Taiwan, China Switzerland Sweden San Marino • In economies where getting electricity is most efficient, requiring fewer interactions • with authorities and less time, utilities often carry out the external connection works themselves. • They also obtain the necessary approvals and streamline procedures with other agencies.
Latin Americareformed more than in otheryears and focused on Improvingefficiency of the utility
Good practices in the Caribbean in making it easy to get an electricity connection
Caribbean Countries – Time to get electricity Average : 55 days
Caribbean Countries – Cost to get electricity in USD Average : 25,000 USD
Tackling High Costs for Getting Electricity: Trinidad and Tobago’s New Approach • The most effective regulatory systems govern connection costs in a way that is cost effective for utilities and fair for customers. • Trinidad and Tobago lowered connection costs by introducing a capital contribution scheme to resolve the “free rider” issue (which occurs when first customers fund the entire construction works, to the benefit of future customers). • The new scheme was implemented through extensive collaboration among multiple stakeholders, including the regulator, electricity utility and entrepreneurs.
Recommendationsfrom the capital contribution working group • Introducing a reimbursement scheme. To ensure that connection costs are more widely spread across different users, assets eventually shared by customers connecting later must be reimbursed to initial customers by T&TEC. • Setting connection costs with revenuefrom electricity supply. T&TEC is required to show that a connection is not commercially viable without a capital contribution and that it should be no more than what it would cost to be commercially viable. This approach allows a balanced allocation of costs because a new connection is also a source of future revenue. But large industrial customers still bear the full capital costs of connecting to the network, and connection costs are small relative to the company’s turnover. • Involving the private sector. Customers can use T&TEC employees or contractors for conducting connection works. But T&TEC should prepare a list of prequalified contractors for customers, specify technical criteria and inform customers about the average costs of works in various areas. Many economies have opened their electricity markets to prequalified contractors—offering more options to customers and helping utilities meet the demand for new connections in a timely, cost-effective way.
Caribbean countries – some common features • Multiple inspections conducted by utility as well as other agencies – causing delays in the connection process • 12 out of 15 Caribbean economies charge a security deposit for new connections, and in only 5 economies, the security deposit can be settled with a bond or bank guarantee. • Transparency – in only 4 out of 15 Caribbean economies, the electricity fees are easily accessible (published online or available in brochures) • Distribution systems often lack spare capacity – new connection requires expansion of network, and customers have to shoulder additional capital investments.
Good practices : Transparency of new electricalconnectioncost Getting a new electricity connection costs more than twice as much in economies where information on the connection fees is more difficult to access • Similar results were found for the fees to register property and to obtain a construction permit.
Quality of supply – power outages Quality of Supply - Total hours of power outages per year
Thank You Questions www.doingbusiness.org