OECD Trade Policy Studies O OECD Trade Policy Studies E C Liberalisation and Universal Access D T r to Basic Services a d e Liberalisation P TELECOMMUNICATIONS, WATER AND SANITATION, o FINANCIAL SERVICES, AND ELECTRICITY lic y and Universal Access S t u Access to basic services plays an important role in both individual well-being and a country’s economic d to Basic Services development. For this reason, general availability of these services to citizens – regardless of income ie s level and geographical location – has generally been viewed as an important public policy goal. A major challenge for developing countries today is to ensure that achieving greater efficiency through liberalisation goes hand in hand with the pursuit of social goals. TELECOMMUNICATIONS, WATER AND Building on a recent groundbreaking OECD/World Bank seminar, this volume explores whether and how SANITATION, FINANCIAL SERVICES, liberalisation can contribute to achieving universal service goals and the types of complementary policies that may be required. It focuses on experiences in four sectors – telecommunications, water and sanitation, AND ELECTRICITY financial services, and electricity. The unique multi-sector perspective taken in this book, together with the national case studies, yields insights which can help countries promote their universal access goals. A horizontal assessment also helps determine how far the current services negotiations in the WTO, under the General Agreement on Trade in Services, can aid the attainment of universal service goals. The full text of this book is available on line via these links: L http://www.sourceoecd.org/industrytrade/9264028676 ib http://www.sourceoecd.org/industry/9264028676 e http://www.sourceoecd.org/emergingeconomies/9264028676 ra http://www.sourceoecd.org/development/9264028676 lis Those with access to all OECD books on line should use this link: a t http://www.sourceoecd.org/9264028676 io n SourceOECD is the OECD’s online library of books, periodicals and statistical databases. For more information about this award-winning service and free trials ask your librarian, or write to us at [email protected]. a n d U n iv e r s a l A c c e s s t o B a s ic S e r v ic e s ISBN 92-64-02867-6 www.oecd.org -:HSTCQE=UW][\]: 22 2006 08 1 P OECD Trade Policy Studies Liberalisation and Universal Access to Basic Services TELECOMMUNICATIONS, WATER AND SANITATION, FINANCIAL SERVICES, AND ELECTRICITY ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT THE WORLD BANK ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT The OECD is a unique forum where the governments of 30 democracies work together to address the economic, social and environmental challenges of globalisation. The OECD is also at the forefront of efforts to understand and to help governments respond to new developments and concerns, such as corporate governance, the information economy and the challenges of an ageing population. The Organisation provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and work to co-ordinate domestic and international policies. The OECD member countries are: Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The Commission of the European Communities takes part in the work of the OECD. OECD Publishing disseminates widely the results of the Organisation’s statistics gathering and research on economic, social and environmental issues, as well as the conventions, guidelines and standards agreed by its members. This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the Organisation, the Executive Directors of the International Bank for Reconstruction and Development/The World Bank, or of the governments they represent. © OECD and The International Bank for Reconstruction and Development/The World Bank, 2006 No reproduction, copy, transmission or translation of this publication may be made without written permission. Applications should be sent to OECD Publishing: [email protected] or by fax (33-1) 45 24 99 30. Permission to photocopy a portion of this work should be addressed to the Centre français d'exploitation du droit de copie (CFC), 20, rue des Grands-Augustins, 75006 Paris, France, fax (33-1) 46 34 67 19, [email protected] or (for US only) to Copyright Clearance Center (CCC), 222 Rosewood Drive Danvers, MA 01923, USA, fax (978) 646 8600, [email protected]. 3 FOREWORD – Foreword The OECD in co-operation with the World Bank held a Services Experts Meeting in Paris on 3-4 February 2005. This meeting was the fifth of its kind in the ongoing OECD work on trade in services and provided an important opportunity for an informal exchange of views on issues of key importance to the current GATS negotiations. Services liberalisation can contribute to achieving universal service goals. However, complementary policies or regulatory underpinnings may be required. The meeting explored the choices available to governments in terms both of using liberalisation to expand service provision and of regulation and market incentives to ensure greater availability of quality services in liberalised markets. It focused on experience in four sectors: telecommunications, water and sanitation, financial services and electricity. The key questions considered at the meeting include: (cid:1) What have countries’ experiences been in liberalising services in terms of the impact on ensuring increased and equitable (in terms of income and geography) provision of services? Does the experience of developed and developing countries differ for different services? (cid:1) Where liberalisation has been undertaken, what sorts of regulatory mechanisms and market incentives have been used to ensure universal service? Were mechanisms focused on the consumer or the providers? What do we know about targeting assistance to the truly needy and avoiding leakages to other groups? (cid:1) To what extent are countries finding that the traditional regulatory measures designed to achieve universal service goals at a particular time are becoming dated or in need of improvement to better reflect today’s realities? To what extent are countries looking for new solutions? (cid:1) What do we know about the creation of regulatory authorities, with regard to resources required and solutions for countries with limited resources (e.g. regional authorities) and necessary assistance and capacity building? The meeting did not advocate any particular approach; the choice of whether to permit private foreign suppliers is for each country to determine in the context of its own circumstances. Rather, discussions aimed to assist countries’ decision-making processes by providing some insights into the experience of countries which have chosen to liberalise to achieve universal service provision and the types of complementary policies and regulatory mechanisms they have used. This publication therefore focuses on the role of market reform, including trade liberalisation, in obtaining universal access to the services covered at the meeting. It finds that efficiency is a powerful instrument for equity and that the introduction of competition leads to big gains. However, the market alone will not deliver socially desirable levels of LIBERALISATION AND UNIVERSAL ACCESS TO BASIC SERVICES © OECD AND IBRD/THE WORLD BANK 2006 4 – FOREWORD access; complementary policies are needed. Command instruments have delivered poor results, while universal access funds have often produced striking improvements. This publication first contains a summary of the presentations at the meeting and the highlights of the discussions prepared by Hildegunn Kyvik Nordås and Julia Nielson of the Trade Policy Linkages Division of the OECD Trade Directorate and Aaditya Mattoo of the Development Research Group of the World Bank. Next, for each of the four sectors, an overview of the major trade liberalisation issues and the universal access debate is followed by two national case studies (one in the case of electricity) describing national experience in Africa, Asia and Latin America. The volume was prepared with wide participation by the Trade Policy Linkages Division, under the supervision of Dale Andrew. Peer review and editing were co-ordinated by Molly Lesher, Enrico Pinali and Massimo Geloso Grosso. Sébastien Miroudot and Martina Abderrahmane also contributed to the organisation of the Experts Meeting. LIBERALISATION AND UNIVERSAL ACCESS TO BASIC SERVICES © OECD AND IBRD/THE WORLD BANK 2006 5 TABLE OF CONTENTS – Table of Contents Executive Summary by Aaditya Mattoo, Julia Nielson and Hildegunn Kyvik Nordås ………………...7 Part I: Telecommunications Chapter 1. Universal Access to Telecommunications in a Competitive Environment by Patrick Xavier………………………………………………………………...25 Chapter 2. Uganda’s Approach to Universal Access to Telecommunications by F.F. Tusubira ………………………………………………………………...57 Chapter 3. India’s Experience with Universal Service Obligations in Telecommunications by Harsha Vardhana Singh ……………………………………………………..73 Part II: Water and Sanitation Chapter 4. Universal Access in the Water and Sanitation Sector by Robin Simpson ……………………………………………………………….97 Chapter 5. Reflections on the Goal of Universal Access in the Water and Sanitation Sector: Lessons from Ghana, Senegal and Nepal by Dale Whittington …………………………………………………………...135 Chapter 6. Efficiency, Equity and Liberalisation of Water Services in Buenos Aires, Argentina by Miguel Solanes ……………………………………………………………..149 Part III: Financial Services Chapter 7. Universal Access to Financial Services: A Review of the Issues and Public Policy Objectives by Stijn Claessens ……………………………………………………………...175 Chapter 8. Provision of Financial Services in South Africa by Mark Napier ………………………………………………………………..197 Chapter 9. Regulatory Aspects of Universal Access to Financial Services in India by Bindu Ananth and Nachiket Mor …………………………………………...215 LIBERALISATION AND UNIVERSAL ACCESS TO BASIC SERVICES © OECD AND IBRD/THE WORLD BANK 2006 6 – FOREWORD Part IV: Electricity Chapter 10. Power Sector Liberalisation, the Poor and Multilateral Trade Commitments by Peter C. Evans ………………………………………………………..…….229 Chapter 11. Power Sector Liberalisation and Access to Energy in the Philippines by Romeo Pacudan …………………………………………………………….255 LIBERALISATION AND UNIVERSAL ACCESS TO BASIC SERVICES © OECD AND IBRD/THE WORLD BANK 2006 7 EXECUTIVE SUMMARY – Executive Summary Universal Access in Liberalised Services Markets Aaditya Mattoo Development Research Group, World Bank Julia Nielson and Hildegunn Kyvik Nordås OECD Trade Directorate Introduction Access to basic services plays an important role in both individual well-being and a country’s economic development. For this reason, general availability of these services to citizens, regardless of income level and geographical location, has generally been viewed as an important public policy goal. However, the precise definition of this goal and the means of attaining it have provoked controversy. This volume explores whether liberalisation can contribute to achieving universal service goals and, if so, how, and looks at the types of complementary policies that may be required. It focuses on experience in four sectors: telecommunications, financial, water and sanitation, and energy services. For each sector, an overview paper and one or two case studies from developing countries examine the experience of governments in harnessing liberalisation to meet social goals. It is hoped that this cross-sector view will yield general insights which a focus on a single sector may not, and help each sector to generate ideas by drawing upon experience in other sectors. A horizontal assessment can also help us determine how far the services negotiations at the WTO, under the General Agreement on Trade in Services can aid or impede the attainment of universal service goals. The questions Defining universal access There are many definitions of universal service and countries can have different goals. Decisions must be made, first of all, regarding the types of services to which access will be provided. For example, in telecommunications, some countries have focused on basic telephony whereas other (usually richer) countries have also included access to the Internet among their universal service goals. In banking, some have been concerned with basic transactions and savings services, while others have also sought to provide credit services. The second key element of the definition concerns the relative emphasis on availability, price and quality of the service. For example, a focus on setting maximum LIBERALISATION AND UNIVERSAL ACCESS TO BASIC SERVICES © OECD AND IBRD/THE WORLD BANK 2006 8 – EXECUTIVE SUMMARY prices (e.g. of energy or water services) has often led to diminished availability and poor quality. Finally, there is the question of the level of access. A distinction is sometimes made between universal service and universal access. For example, in the case of water, universal service aims for a connection in every dwelling; universal access only requires that persons have access to a source of potable water, such as a communal tap. For many developing countries, universal service may be economically less feasible and universal access a more practical objective. So, in each case, the first question is: How are universal access goals defined in different services sectors? Efficiency vs. equity There has been much debate in recent years about how universal service or access is best achieved: through government monopoly provision, fully private provision or some combination of public and private funding and provision. Some argue that liberalisation – i.e. allowing entry of foreign private suppliers – can contribute to achieving universal service in infrastructural services. Others have argued that liberalisation undermines universal provision, for example, because foreign private providers “cherry pick” richer consumers or the most profitable regions. Issues to consider include: (cid:1) What has been the experience of using liberalisation to increase access? How does experience differ between countries and across services sectors? (cid:1) Is there a potential conflict between efficiency and equity in specific services sectors? In other words, if a government implements reforms of essential services that are motivated solely by the desire to enhance efficiency – through greater private or foreign ownership or competition or any combination of these – will it worsen access for the poor? Poor performance by public monopolies in a number of countries has frequently led to the conclusion that pursuit of greater efficiency would not undermine existing levels of equity, and that the market can be relied upon to deliver both greater efficiency and greater access. Where this is true, the pursuit of efficiency-enhancing policies need not be conditional on the implementation of access-improving policies. But the following questions remain: (cid:1) Is efficiency a sufficient instrument of equity? That is, even if moving to the market improves the status quo, can it deliver socially desirable levels of access? (cid:1) If not, is it possible to devise mechanisms that improve the market outcome, i.e. deliver socially desirable levels of access without sacrificing efficiency, not just in principle, but in practice? Choice of mechanism Governments have employed a range of mechanisms to implement universal service policies. These have targeted the service provider (e.g. mandatory service obligations, cross-subsidies, direct subsidies from a universal access fund) or disadvantaged consumers (e.g. direct subsidies to consumers, vouchers). Several issues arise: (cid:1) What sorts of regulatory mechanisms and market incentives have been used to ensure universal service? (cid:1) How effective are mechanisms focused on providers in encouraging universal access? LIBERALISATION AND UNIVERSAL ACCESS TO BASIC SERVICES © OECD AND IBRD/THE WORLD BANK 2006