Privatization and the Globalization of Energy Markets
October 1, 1996
Executive Summary
The privatization of state-owned industry is a development of historic dimensions. For many nations, their formerly-state owned energy companies have been among the largest of companies to be privatized. Energy companies that have been privatized include some of world’s largest petroleum companies based in the industrialized nations. Global giants, such as British Petroleum, British Gas, Elf Aquitaine (France), ENI (Italy), Petro Canada, Repsol (Spain), and TOTAL (France), have all recently undergone transitions from state-owned to some significant degree of private ownership. Other large petroleum companies lie in the countries of the Former Soviet Union and in Latin America, and have also been moving towards private ownership. These privatization efforts have led to billions of dollars in new investments and have presented opportunities to add oil and gas reserves of a magnitude unseen since the discovery of the North Sea and Prudhoe Bay fields.
Since the means by which different countries have privatized state-owned industries have varied considerably, we treat privatization in this report as any movement toward a market-driven economy--or any movement that diminishes public ownership and control and increases private ownership and control.
Privatization presents several concerns to shareholders, energy analysts, energy companies, policy makers, and to the general public at large. The opening of previouslyclosed overseas energy investments raises a number of issues. For example, for U.S. companies investing in newly -privatized energy activities abroad, in many cases, political risk has been a dominant element in privatization-related investment decisions. Often times, individual companies have committed hundreds of millions of dollars to these investments with serious uncertainty over even the short-term prospects of such projects. This development is one also watched carefully by shareholders and investment analysts.
For U.S. policy makers, the impact that privatization might have on maintaining a secure and affordable energy supply to U.S. consumers is also of importance. As more and more U.S. companies enter into foreign energy investments (often for the first time), the effects such investments will have on these companies’ financial health and their domestic operations become another area of concern for policy makers.
Privatization has been widespread in electrical power generation, transmission, and distribution as well as in natural gas transmission and distribution. In Latin America and the United Kingdom, privatization of electric utilities and natural gas utilities has been mainly responsible for the emergence of new classes of investors, new hybrid energy companies, new investment financing vehicles, and massive cross-border investments.
This report discusses recent efforts at privatization in petroleum, electricity, and coal, as well as the impetus that privatization has provided in fostering the evolution of the multinational and multidimensional energy company. Of particular note:
- Privatization in such countries as the Former Soviet Union, and other formerly-socialist nations, has clearly widened the scope of the major petroleum companies to include previously off-limit exploration and development areas.
- Privatization has also fomented the greater integration of traditional petroleum companies into electric power, and the convergence of the electric power and natural gas industries
There are both geographic and energy specific dimensions to privatization, both of which have served to form the outline of this report. The following sections highlight privatization efforts among global regions and forms of energy