Energy Information Administration
Privatization has in part been driven by the increasing globalization of the world economy. Several decades of rapid growth in international trade and investment have made competitiveness in international trade an essential factor in a nation's ability to create jobs, raise real wages, and generate wealth.
For many nations, privatization has become the only effective method of raising investment capital on favorable terms. High levels of past public sector borrowing have saddled many nations with large levels of debt. As a consequence, these nations have had little recourse but to sell state assets to reduce debt and to generate revenue.
Various businesses besides electricity have been privatized. Indeed, the largest privatization to date has been the sale of Japanese Telecom for $73 billion. In the United Kingdom public housing has been privatized and, in the United States, many municipal services, such as waste disposal, have been privatized.
Although privatization efforts differ substantially from country to country, there is a strong common economic rationale underlying the various decisions to privatize state energy resources. In general, nations have privatized state-owned electricity industries to achieve one or more of several objectives. These objectives include: 1) raising revenue for the state; 2) raising investment capital for the industry or company being privatized; 3) reducing government's role in the economy; 4) promoting wider share ownership; 5) increasing efficiency; 6) introducing greater competition; and 7) exposing firms to market discipline.a Privatization is closely connected with the development of the international energy company a company whose focus is becoming both more global and more multi-purpose. Until recently, outside of the world's few major integrated oil companies, only a handful of energy companies were considered multinational. Currently, in addition to the scores of petroleum companies that can now be classified as multinational, the scope of many coal companies, petroleum pipeline companies, electric utilities, and power generation equipment and construction companies has become increasingly global. Through consolidations, mergers, acquisitions, and strategic alliances, the world's energy companies have become both more integrated and more multinational. Oil and gas companies have become electricity companies; domestic regional electric utilities have become multinational electricity companies; electricity distribution companies have become generation companies; and generation companies have become distribution and transmission companies.
The objectives of privatization listed above appeared in "Privatization: Learning from the UK Experience" (London, UK), Price Waterhouse, 1989. However, objective number two, "to raise investment capital for the privatized industry or company," was added by the authors of this report.