- Email: [email protected]
Middle East oil crises since 1973
Book reviews strategies should achieve not only an ownership change, but also a change in the structure of their markets, ie there is a dual objective: ( i ) c h a n g e the form of ownership; and also (ii) change the form of market; for which, each objective should be addressed with equal weight and jointly. The
intervention had originally been due to a break in the market mechanisms themselves, A growing number of governments of developing countries are pursuing privatization policies:
Finally, there is often a continuing faith in state control over the economy coupled with a lack of sufficient humber of private entrepreneurs to be viable; these effects can prove a serious difficulty in many developing
•
Paper points out that this is the only viewpoint from which to consider both the premise of privatization and the various modes of privatization: (a) denationalization, ie the direct divesture of state-owned, state-run monopolies; (b) contracting-out, ie by leasing the state can finance a utility whilst allowing a private firm to operate it; (c) Self-Management Cooperatives, ie enterprises owned and managed by
tion; Argentina, planned divestiture of petrochemicals and steel; Brazil, non-voting shares in the highly profitable state-owned oil company Petrobras sold; Mexico, 15 parastatals to be sold to private enterprise; Bangladesh, almost 100 publiclyowned enterprises sold, many to the highest bidder,
countries. The Briefing Paper draws some important conclusions:
their own workforce; and (d) deregulation, ie the abolition of statutory barriers preventing private utilities from competing with state enterprises. The Briefing Paper gives a good summary o f ' p r o s and cons' for each mode of privatization, as these apply to developing countries, measuring each form against the important twin objectives, mentioned earlier, of efficiently transferring ownership and improving competition in their markets. Ultimately, the degree to which developing countries governments are prepared to redefine the public-private boundary remains as much dependent on their wider social and economic priorities as on the exertion of aid donor pressure. It would have been nice if the Paper had dealt just a little more on the details of privatization in practice. It appears that many developing coun-
tries' governments, atleast, havedeep reservations about the merits of privatizations. A f t e r i n d e p e n d e n c e , in many countries, the state's main role became nation-binding, just as much as nation-building. The nationalization of foreign-owned utilities was an assertion of independence, especially in the 1960s and early 1970s. In some cases, eg in West Africa, State control predated independence. Then again, recipient countries for aid have always been reluctant to be seen to be acting under pressures from outside the country. In this respect such recipients 'are sensitive to any attempts of iraposing free market solutions upon them'. Also, in many cases, state
ENERGY POLICY August 1987
• •
• •
Turkey, selective denationaliza-
However, a recent World Bank report points out that the general progress of privatization has been halting at best. The Paper points out that there are many dangers of applying privatization, per se, to developing countries. Many governments are worried about the disposal of national assets at undervalued prices, especially to foreign interests. Also, monopolization in private hands is a real danger; perhaps it would be better to develop a 'publicprofitability' index rather than straight financial targets for public utilities. Again, privatization, or the threat of it, may artificially increase the resistance to change of vested interests which stand to lose from privatization.
•
•
•
•
Privatization has achieved relatively limited progress in most developing countries, because of lack of feasibility, not of desirability. Both aid donors and recipient governments now tend to see privatization as a later stage where public sector restructuring is the first priority. However, the halting progress of privatization does not indicate that it will cease to be an effective option; indeed aid donors will continue to press for it. But is is also probable that privatization will only be a part, not necessarily the dominant part, of public sector reform. It seems clear that considerable prior restructuring of the utilities whose ownership is to be transferred is first desirable.
T.W. Berrie
Energy Consultant Brighton, UK
Fierce struggle for oil MIDDLE EAST O i l CRISES SINCE 1973 Benjamin SchwaOran
Westview Press, Boulder, CO, and London, 1986, 200 pp, £38.40, US$45.50 Benjamin Schwadran is professor of modern Middle East history at Tel Aviv University, Israel. The book's contents break down roughly into: introduction plus the era 1901 to 1973; end of the era of individual oil cornpanies; first oil crisis, 1973; producing
countries' ascendancy; consumers ~ resistance; involvement of OPEC; surpluses and recycling; 1978-82 second oil crisis; third oil crisis in reverse, 1981; and solutions possible. The author produces evidence to try and show that economic forces, myopic vision and the absence of overall energy planning were the main reasons behind the various oil crises of the last 10-12 years, that is, not the conflict between Israel and the Arab nations. Schwadran's classic work Middle East Oil and the Great Powers', published earlier, left room for the presently reviewed book, rather as a
393
Book reviews sequel, although there are some conflicting theories between books, probably due to the passage of time and hindsight. Each book seems to imply that the struggle for access to oil and gas resources is becoming more and more fierce, possibly to the point of directly affecting the long-term strategic planning of even the superpowers. At least there seems no doubt
at all that oil production and consumption is now a major factor in general in international economies, affecting world trade by amounts which vary with the geographical region of the world concerned,
N u c l e a r
it
power:
is
NUCLEAR ECONOMICS AND THE PRICE OF COAL by Nigel Evans and William Bullen
Cambridge Energy Research Ltd, Cambridge, England, 1987, iv 4- 54 pp, £95.00 Some years ago Len Brookes, well known to readers of Energy Policy as a thoughtful advocate of nuclear power, invented the concept of the quasi-antinuclear group. This was intended as a description of the activities of some academics who were persistently critical of nuclear power. Such a label could never apply to the work of Nigel Evans and his co-workers at the Cambridge Energy Research Group and its consultancy offshoot, Cambridge Energy Research (CER). The work of Evans has always tried to tread the difficult and narrow path of neutrality among the warring factions in the nuclear debates. This makes the conclusion of Nuclear Economics and the Price of Coal - that the 'once prevalent view that nuclear is cheaper than coal cannot now be used as a basis for rational decision making' (p 52) - all the more striking, This short report, consisting of 30 pages of figures and tables and just over 20 pages of text, is a re-working of the figures on nuclear and coal-fired economics produced in 1986 by the O E C D ' s Nuclear Energy Agency. This is a body also unlikely to be accused of any anti-nuclear bias, and as Evans and his co-author William Bullen drily point out, the 54 experts who worked on the N E A report contained no representatives of coal
394
TomBerrie Energy Consultant Brighton, UK
cheaper?
interests but rather substantial representation of nuclear interests. Nevertheless, the re-working of N E A figures is deliberately minimal: for the 'base case', C E R accept all the basic input data provided to the N E A except to ensure that all coal-fired plant is costed for fluegas desulphurization, Their purpose is to present the N E A results more intelligibly and to test its view that in most O E C D countries nuclear power appears to offer significant economic advantage over coalfiring, C E R start from the conviction that the most useful way to present the economics of nuclear and coal-fired generation is in terms of the 'breakeven levelized coal price'. This is the average coal price expected over the lifetime of a power plant (weighted by a chosen discount rate) that would make for an exact balance between the economics of the two competitors. This is a useful summary form of presentation, first because of its comprehensibility compared to other presentations (eg the C E G B ' s net effective cost). Second, coal prices are the single most uncertain input parameter in the calculations and so the presentation in terms of levelized coal prices avoids the need, on the part of the analyst, to make an explicit and inevitably contentious coal price forecast, Focus on coal prices is also topical, in that falling coat prices have recently done much to cloud the economics of nuclear power. The main purpose of C E R is, however, to test the robustness of the N E A conclusion that nuclear is generally the superior economic bet. This is achieved by a fairly straightforward
sensitivity analysis which centres on a few of the most important input variables. These include discount rates, exchange rates, capital costs, plant lifetimes, load factors and nuclear fuel costs. As 12 countries are covered (five in detail) it is impossible to summarize the results. However it is worth pointing to the particular importance of two of the variables which are outside the control of the utility industry but which have powerful effects, even when changed marginally, on the relative economics of nuclear and coal. These two factors are the discount rate and the value of the US dollar. The N E A used the 1984 exchange rate between national currencies and the dollar, and a 5% discount rate. Evans and Bullen argue convincingly that the lower 1986 value of the dollar is a more realistic indicator for the future, and that a 10% discount rate accords more closely with the private sector financial rules which are becoming increasingly influential in electricity supply investment appraisal. An example of the impact of these two amendments on the N E A base case can be given for Sizewell B in the UK, where the breakeven levelized price of coal almost doubles from $44.3 to $84.7. It is little wonder that Evans and Bullen sharply disagree with the Sizewell Public Inquiry Report which concluded that coal-firing had only a 1 in 40 chance of being cheaper than Sizewell B. This is a clear, technically sound and useful treatment of a limited but important topic. It is important to remember that nuclear power is a novel and rather complicated way of doing s o m e t h i n g - boiling w a t e r - that there are many alternative ways of achieving. If, as Evans and Bullen argue, we can no longer be certain that it is cheaper than these alternatives then the widespread public disquiet that it evokes may be quite enough to persuade politicians that it is no longer worth the effort.
Gordon MacKerron
Science Policy Research Unit, Brighton, UK
ENERGY POLICY August 1987
intervention had originally been due to a break in the market mechanisms themselves, A growing number of governments of developing countries are pursuing privatization policies:
Finally, there is often a continuing faith in state control over the economy coupled with a lack of sufficient humber of private entrepreneurs to be viable; these effects can prove a serious difficulty in many developing
•
Paper points out that this is the only viewpoint from which to consider both the premise of privatization and the various modes of privatization: (a) denationalization, ie the direct divesture of state-owned, state-run monopolies; (b) contracting-out, ie by leasing the state can finance a utility whilst allowing a private firm to operate it; (c) Self-Management Cooperatives, ie enterprises owned and managed by
tion; Argentina, planned divestiture of petrochemicals and steel; Brazil, non-voting shares in the highly profitable state-owned oil company Petrobras sold; Mexico, 15 parastatals to be sold to private enterprise; Bangladesh, almost 100 publiclyowned enterprises sold, many to the highest bidder,
countries. The Briefing Paper draws some important conclusions:
their own workforce; and (d) deregulation, ie the abolition of statutory barriers preventing private utilities from competing with state enterprises. The Briefing Paper gives a good summary o f ' p r o s and cons' for each mode of privatization, as these apply to developing countries, measuring each form against the important twin objectives, mentioned earlier, of efficiently transferring ownership and improving competition in their markets. Ultimately, the degree to which developing countries governments are prepared to redefine the public-private boundary remains as much dependent on their wider social and economic priorities as on the exertion of aid donor pressure. It would have been nice if the Paper had dealt just a little more on the details of privatization in practice. It appears that many developing coun-
tries' governments, atleast, havedeep reservations about the merits of privatizations. A f t e r i n d e p e n d e n c e , in many countries, the state's main role became nation-binding, just as much as nation-building. The nationalization of foreign-owned utilities was an assertion of independence, especially in the 1960s and early 1970s. In some cases, eg in West Africa, State control predated independence. Then again, recipient countries for aid have always been reluctant to be seen to be acting under pressures from outside the country. In this respect such recipients 'are sensitive to any attempts of iraposing free market solutions upon them'. Also, in many cases, state
ENERGY POLICY August 1987
• •
• •
Turkey, selective denationaliza-
However, a recent World Bank report points out that the general progress of privatization has been halting at best. The Paper points out that there are many dangers of applying privatization, per se, to developing countries. Many governments are worried about the disposal of national assets at undervalued prices, especially to foreign interests. Also, monopolization in private hands is a real danger; perhaps it would be better to develop a 'publicprofitability' index rather than straight financial targets for public utilities. Again, privatization, or the threat of it, may artificially increase the resistance to change of vested interests which stand to lose from privatization.
•
•
•
•
Privatization has achieved relatively limited progress in most developing countries, because of lack of feasibility, not of desirability. Both aid donors and recipient governments now tend to see privatization as a later stage where public sector restructuring is the first priority. However, the halting progress of privatization does not indicate that it will cease to be an effective option; indeed aid donors will continue to press for it. But is is also probable that privatization will only be a part, not necessarily the dominant part, of public sector reform. It seems clear that considerable prior restructuring of the utilities whose ownership is to be transferred is first desirable.
T.W. Berrie
Energy Consultant Brighton, UK
Fierce struggle for oil MIDDLE EAST O i l CRISES SINCE 1973 Benjamin SchwaOran
Westview Press, Boulder, CO, and London, 1986, 200 pp, £38.40, US$45.50 Benjamin Schwadran is professor of modern Middle East history at Tel Aviv University, Israel. The book's contents break down roughly into: introduction plus the era 1901 to 1973; end of the era of individual oil cornpanies; first oil crisis, 1973; producing
countries' ascendancy; consumers ~ resistance; involvement of OPEC; surpluses and recycling; 1978-82 second oil crisis; third oil crisis in reverse, 1981; and solutions possible. The author produces evidence to try and show that economic forces, myopic vision and the absence of overall energy planning were the main reasons behind the various oil crises of the last 10-12 years, that is, not the conflict between Israel and the Arab nations. Schwadran's classic work Middle East Oil and the Great Powers', published earlier, left room for the presently reviewed book, rather as a
393
Book reviews sequel, although there are some conflicting theories between books, probably due to the passage of time and hindsight. Each book seems to imply that the struggle for access to oil and gas resources is becoming more and more fierce, possibly to the point of directly affecting the long-term strategic planning of even the superpowers. At least there seems no doubt
at all that oil production and consumption is now a major factor in general in international economies, affecting world trade by amounts which vary with the geographical region of the world concerned,
N u c l e a r
it
power:
is
NUCLEAR ECONOMICS AND THE PRICE OF COAL by Nigel Evans and William Bullen
Cambridge Energy Research Ltd, Cambridge, England, 1987, iv 4- 54 pp, £95.00 Some years ago Len Brookes, well known to readers of Energy Policy as a thoughtful advocate of nuclear power, invented the concept of the quasi-antinuclear group. This was intended as a description of the activities of some academics who were persistently critical of nuclear power. Such a label could never apply to the work of Nigel Evans and his co-workers at the Cambridge Energy Research Group and its consultancy offshoot, Cambridge Energy Research (CER). The work of Evans has always tried to tread the difficult and narrow path of neutrality among the warring factions in the nuclear debates. This makes the conclusion of Nuclear Economics and the Price of Coal - that the 'once prevalent view that nuclear is cheaper than coal cannot now be used as a basis for rational decision making' (p 52) - all the more striking, This short report, consisting of 30 pages of figures and tables and just over 20 pages of text, is a re-working of the figures on nuclear and coal-fired economics produced in 1986 by the O E C D ' s Nuclear Energy Agency. This is a body also unlikely to be accused of any anti-nuclear bias, and as Evans and his co-author William Bullen drily point out, the 54 experts who worked on the N E A report contained no representatives of coal
394
TomBerrie Energy Consultant Brighton, UK
cheaper?
interests but rather substantial representation of nuclear interests. Nevertheless, the re-working of N E A figures is deliberately minimal: for the 'base case', C E R accept all the basic input data provided to the N E A except to ensure that all coal-fired plant is costed for fluegas desulphurization, Their purpose is to present the N E A results more intelligibly and to test its view that in most O E C D countries nuclear power appears to offer significant economic advantage over coalfiring, C E R start from the conviction that the most useful way to present the economics of nuclear and coal-fired generation is in terms of the 'breakeven levelized coal price'. This is the average coal price expected over the lifetime of a power plant (weighted by a chosen discount rate) that would make for an exact balance between the economics of the two competitors. This is a useful summary form of presentation, first because of its comprehensibility compared to other presentations (eg the C E G B ' s net effective cost). Second, coal prices are the single most uncertain input parameter in the calculations and so the presentation in terms of levelized coal prices avoids the need, on the part of the analyst, to make an explicit and inevitably contentious coal price forecast, Focus on coal prices is also topical, in that falling coat prices have recently done much to cloud the economics of nuclear power. The main purpose of C E R is, however, to test the robustness of the N E A conclusion that nuclear is generally the superior economic bet. This is achieved by a fairly straightforward
sensitivity analysis which centres on a few of the most important input variables. These include discount rates, exchange rates, capital costs, plant lifetimes, load factors and nuclear fuel costs. As 12 countries are covered (five in detail) it is impossible to summarize the results. However it is worth pointing to the particular importance of two of the variables which are outside the control of the utility industry but which have powerful effects, even when changed marginally, on the relative economics of nuclear and coal. These two factors are the discount rate and the value of the US dollar. The N E A used the 1984 exchange rate between national currencies and the dollar, and a 5% discount rate. Evans and Bullen argue convincingly that the lower 1986 value of the dollar is a more realistic indicator for the future, and that a 10% discount rate accords more closely with the private sector financial rules which are becoming increasingly influential in electricity supply investment appraisal. An example of the impact of these two amendments on the N E A base case can be given for Sizewell B in the UK, where the breakeven levelized price of coal almost doubles from $44.3 to $84.7. It is little wonder that Evans and Bullen sharply disagree with the Sizewell Public Inquiry Report which concluded that coal-firing had only a 1 in 40 chance of being cheaper than Sizewell B. This is a clear, technically sound and useful treatment of a limited but important topic. It is important to remember that nuclear power is a novel and rather complicated way of doing s o m e t h i n g - boiling w a t e r - that there are many alternative ways of achieving. If, as Evans and Bullen argue, we can no longer be certain that it is cheaper than these alternatives then the widespread public disquiet that it evokes may be quite enough to persuade politicians that it is no longer worth the effort.
Gordon MacKerron
Science Policy Research Unit, Brighton, UK
ENERGY POLICY August 1987