Creative destruction Energy poverty and the double-edged role

Creative destruction? Energy poverty and the double-edged role of the private sector Ed Brown and Jonathan Cloke (Department of Geography, Loughborough University, UK)

1. Introduction n The preoccupation with the private sector and FDI amongst international institutions and parts of the ‘development community. ’

“The private sector is crucial to meeting the Millennium Development Goals. Businesses are an engine of growth and development, and can have a potentially huge impact on improving the lives of people in developing countries through increasing investment, creating jobs, and developing products and services, technologies and innovations. . . “ Department for International Development (DFID) website (2009)

“UNDP recognizes that achieving the Millennium Development Goals (MDGs) depends on vibrant economic growth, driven by private enterprises that create jobs and provide goods and services for the poor. . . The private sector - from large multinational companies to small enterprises and cooperatives servicing local markets - also has an essential role to play in achieving broader UNDP goals in areas such as energy and environmental service delivery, crisis prevention, gender equality and democratic governance. ” United Nations Development Programme (UNDP) website (2009)

1. Introduction Origins: The CSR industry and the UN n Beyond CSR: Current re-assessments of the role of the private sector in development n The contribution of this paper n

Two Points to Consider n The imaginary dividing line between the public and the private spheres. n The relative size and dynamics of individual private sector companies (and questions of transnationalism/sovereignty).

2. Historical Antecedents n The immediate postwar years

2. Historical Antecedents The immediate postwar years n Dependency and the NIEO n Image from: http: //i-p-o. org/nieo 2. htm

2. Historical Antecedents The immediate postwar years n Dependency and the NIEO n The Rise and Fall of the UNCTC n

2. Historical Antecedents The immediate postwar years n Dependency and the NIEO n The Rise and Fall of the UNCTC n The Global Compact n Image from: http: //i-p-o. org/nieo 2. htm

2. Historical Antecedents n n n The immediate postwar years Dependency and the NIEO The Rise and Fall of the UNCTC The Global Compact Critical Voices Images from: http: //wwwgapsucks. org/; http: //www. campaignforlaborrights. org;

3. Services and the Private Sector n Main current arena of privatizing and liberalizing impulses. n Key area of developmental concern - provision of basic services. n Service sectors cover about two thirds of all economic activity and are particularly important in relation to female employment.

GATS and Service Liberalization n The WTO’s case for Liberalization “Simply put, the principle of “comparative advantage” says that countries prosper first by taking advantage of their assets in order to concentrate on what they can produce best. In other words, liberal trade policies – policies that allow the unrestricted flow of goods and services – sharpen competition, motivate innovation and breed success. They multiply the rewards that result from producing the best products, with the best design. ” WTO (2007)

GATS and Service Liberalization n The WTO’s case for Liberalization n The importance of understanding the relational spaces through which liberalization occurs. n The flaws in previously existing privatization processes. n The crowding out of smaller-scale local capital

4. A Brief Detour concerning PFIs and PPPs n Reluctant partners? Declining flows of private finance. n The regulatory context: poor governance and regulatory failures. n Lessons from the World Bank’s Extractive Industries Review of 2004.

EIR Executive summary ‘Building Blocks of Governance’ deemed essential conditions for private sector participation in extractive industry projects: n Promotion of transparency in revenue flows; disclosure of project documents; the development of the capacity to manage fluctuating revenues; provision of help to governments to develop modern policy and regulatory frameworks; the integration of the public in decision-making processes n In addition the EIR suggested private companies engaged in: constant dialogue with communities to obtain informed consent; revenue-sharing with local communities; utilization of systematic poverty indicators and the setting up of independent greivance mechanisms n n The relevance of this to the case of public service projects? GATS, Services, Accountability and Assymetries of Power.

5. The Private Sector and Energy Issues n The complexity and developmental importance of the energy sector. n Our focus here: the financial systems through which energy projects are facilitated.

5. Energy Issues and Local Capital Rural electrification challenges and the importance of small-scale providers n “Local SMEs, financial markets and communities can reducepolitical and foreign exchange risks, handle specific managerial challenges, such as revenue collection, and develop decentralized energy systems. SMEs are likely to be more flexible in the use of technology, use locally available resources, and to integrate better into the local social fabric. ” DFID (2007) n

5. Energy Issues and Local Capital The Non-Technical Barriers facing energy sector SMEs: legal and regulatory frameworks; anti. SME market rules; discriminatory banking relations; high commercial risks; cultural perceptions of off-grid technologies. n Questions of Politico-financial power. n

6. Energy production in Nicaragua n n n 2008 Energy. Central workshops. The relational context of electricity production and distribution in Nicaragua and why it is important. The role of the private sector historically in the development of renewables in Nicaragua. Intensifying Hydro-Carbon Dependency and its impacts on the Poor. The Potential for Renewable Alternatives

Sources: MARENA and CNE (2006)

6. Energy production in Nicaragua The inefficiency of productive energy use in Nicaragua and the politics of contract negotiation. n Corruption, privatization and clientelistic political systems in Nicaragua. n Corporate Monopolies: Union Fenosa (distribution), Esso (hydrocarbon market) n

7. Conclusions Nicaragua: Resource-Rich and Energy-Corrupt. n Which private sector model? The perils of universalized, top-down privatization agendas. n The already skewed patterns of private investment and the likely impacts of the global financial crisis. n The existence of substantial, under-used and excluded financial capacity in the South - the need to liberate ‘dead capital’ (de Soto) n Nearly 92% of businesses, 76% of rural properties and 65% of the dwellings in 12 Latin American countries studied are in the informal or “extralegal” sector. Dwellings, rural properties and businesses in the informal or “extralegal” sector of 12 Latin American countries are worth more than $1. 2 trillion (Sources: The Multilateral Investment Fund, IADB Press Release June 12, 2006)

“There is enormous economic potential in the vast mass of belowaverage-income households that remains untapped by the formal financial services sector, and whose financial marginalisation holds back national economies across the region. Whilst this summary and the accompanying report come with the usual caveats and the uncertainty that the current credit crisis in the international markets has created, in purely internal terms each of the seven metropolitan economies studied…. is utilising only a fraction of the full potential of its native entrepreneurs because of substantial barriers to access in the financial services sector. ”