Regulations hobble British privatisation schemes

Since Margaret Thatcher introduced Britons to privatisation in the 1980s, the process of turning state-owned entities into private companies has moved smoothly in most industries. From communications to coal to steel, privatisation has worked.

But for one of the country's largest nuclear power companies, privatisation was accompanied by tough new regulations that sabotaged the process, and now some politicians are blaming the privatisation process – not the regulations – for the resulting high prices.

For British Energy, which was privatised in 1996 and produces 20 percent of the country's electricity, regulations put nuclear generating companies at a disadvantage to other energy producers.

Nuclear plant owners are required to pay a share of a climate control tax intended to limit carbon dioxide emissions – even though they do not produce the gas.

And they also pay higher rates on property leases than fossil-fuel plants do.

It has been estimated that without these higher costs, British Energy could save $154 million a year – rather than losing nearly $60 million a year on its eight British plants.

Privatisation once held the promise of lower electricity rates as savings were passed along to consumers. Indeed, wholesale electricity prices – those at which British Energy sells its power – have fallen 36 percent since 2000. Yet domestic retail prices have remained flat.

Rather than remove the anti-competitive regulatory impediments and allow privatisation to work, the advice of the Social Market Foundation includes such buzzwords as "renationalisation" and "public-private partnership." That organisation expresses public regrets that "a private market on its own hasn't delivered."

But Eamonn Butler, director of the Adam Smith Institute, advises that the solution is to limit politicians' involvement.

Source: Suzanne Kapner, British Reopening the Debate Over Privatisation, New York Times, August 29, 2002.

For text http://www.nytimes.com/2002/08/29/business/worldbusiness/29PRIV.html
For more on Privatisation http://www.ncpa.org/iss/pri/

FMF Policy Bulletin\3 September 2002