A lesson in liberalization
As an electricity crisis deepens, with daily blackouts, private utilities are filing for bankruptcy and high-profile companies are closing up and fleeing. Meanwhile, politicians are resigning as a result of gross mismanagement and public coffers are growing slimmer as authorities pay out millions to keep supplies going.
Such tragic tales feature regularly in reports from broken-down, basket-case economies in Africa or Asia. This tragedy, however, is being played out in the cash-rich state of California.
The problem came about after a half-hearted attempt at deregulating the electricity utilities a few years ago. Competition was encouraged in the wholesale market, but distributors were prevented from passing the costs on to consumers for obvious political reasons. This in turn put off competitors from entering the wholesale market, prices soared and distributors could no longer afford to keep the lights on.
While California's problems certainly differ from those in Poland, the politics of energy sell-offs amount to the same thing. A deregulated industry means one that is out of control, as far as many politicians are concerned. And maybe this was why, last week, the treasury issued some extremely mixed messages to foreign energy investors by pronouncing that foreign companies would only be allowed to buy minority interests in Poland's energy sector. The statement, by new Deputy Treasury Minister Marian Milek, contradicted earlier pledges to sell off majority stakes to foreign concerns.
The rather confused decision has caught many analysts on the hop. Deregulating the energy sector is vital for Poland and Central Europe as it plays catch-up with the West and attempts to join the European Union. But many fear that unrestrained liberalization will result, initially anyway, in huge price hikes for consumers and massive compensation payouts for breaking existing contracts. As an election looms, no politician would agree to slap on retail costs to consumers.
Also, deregulating an often decrepit and overmanned energy sector would inevitably mean upgrading, consolidating and streamlining the industry. As foreign companies grab the lion's share of the sector they insist on cutting costs and jobs. With Poland's unemployment currently touching 16% and probably still on the increase, job losses in a liberalized energy sector would be disastrous for any government, elections or no elections.
So the treasury has decided to take a softly softly approach to privatizing the industry. This is probably a socially and politically sensible move, but the decision will also baffle interested foreign investors. For a ministry that is now pledging full-on privatization, mixed messages don't work.
