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p. 3 of 21 BACK | NEXT Introduction: Looking ahead Past policies and operations Energy policies of 1981 and 1995 Review of energy sector operations in 1995–1999 Energy sector policies of other multilateral development banks Changing context of the policy review Future assistance in the changing context Conclusions

Energy 2000: Review of the Energy Policy of the Asian Development Bank : Past policies and operations

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Energy policies of 1981 and 1995

5. The second energy policy paper (the 1995 Energy Policy), issued in October 1995, focused on enabling private investments in the energy sector, demand-side management (DSM), integrated resource planning, energy efficiency, and the local and national environmental considerations relating to the sector. The recommendations were presented in three parts corresponding to the power subsector (electricity), the hydrocarbon subsector (coal, oil, and gas), and the rural energy systems (including renewable energy sources). However, the focus of ADB’s assistance was similar in all the subsectors, which can be summarized as (i) preferential allocation of ADB’s resources to the DMCs willing to restructure their energy sector to improve efficiency and to attract private investments to meet incremental demand; (ii) support to the build-operate-transfer (BOT) type of projects in the private sector, as well as joint-venture projects between government utilities and private investors as key vehicles for private investment; (iii) emphasis on both supply-side and demand-side energy efficiency improvements before providing assistance for capacity addition; (iv) emphasis on comprehensive environmental protection at all stages of the project cycle; (v) support for the development and utilization of natural gas resources in the DMCs; (vi) promotion of regional trade in energy; and (vii) promotion of rural energy supply and renewable energy development, based on decentralized systems, internalization of all environmental costs and benefits, adoption of life-cycle costs for comparisons, private initiatives, and institutional sustainability. The 1995 Energy Policy explained that ADB’s rationale for not being involved in nuclear power development was based on concerns related to the transfer of nuclear technology, procurement limitations, proliferation risks, and environmental and safety aspects.

6. The 1995 Energy Policy emphasized that energy sector operations needed to be financially robust and highly efficient. By the mid-1990s, the state-owned entities in the energy sector, which functioned as monopolies, had become very large but had little prospect of incremental gain from economies of scale with further growth. It had already become evident that many DMCs favored investments by the private sector in the hydrocarbon subsector, and the 1995 Energy Policy acknowledged that direct state involvement was just a transitory phase to initiate the subsector activities. Similarly, private investments were encouraged in the power subsector.

7. The 1995 Energy Policy also advocated the use of market prices, where possible, and for full costs of supply to be reflected in administered prices where they were necessary, as well as avoidance of subsidies and crosssubsidies. It sought the establishment of independent regulators to adjust electricity tariffs on the basis of transparently promulgated tariff principles. Since coal and oil had international price benchmarks, pricing was a less important issue.

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