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p. 6 of 30 BACK | NEXT Introduction Regional Energy Context Region's Diversity Commercial Energy Past Bank Assistance Capital Requirements for Expansion Energy Policy Issues Conclusions and Recommendations

Bank Policy Initiatives for the Energy Sector : Regional Energy Context

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Capital Requirements for Expansion

8. During the 1960s and 1970s, the strategy in most DMCs in the power subsector was to integrate the small and inefficient power utilities into larger units to achieve reasonable economies of scale and accelerate power development. As a result, the installed power generation capacity in DMCs practically doubled in each successive decade, and many DMCs increased supply of electricity both geographically and in per capita terms. From 1980 to 1990 the DMCs' installed capacity increased from 114,130 megawatt (MW) to 251,277 MW, at a rate of 8.2 percent a year, and is expected to reach about 450,000 MW by the year 2000 at a growth rate of 6 per cent a year. The capital requirements of the DMCs for power generation plants and the associated transmission and distribution facilities during the 1990s are estimated to be about $45 billion a year.¹

9. Developments by 1990 in the DMCs' hydrocarbon subsector resulted in oil and natural gas production equivalent to about 8.8 million barrels of oil per day, construction of about 14,000 kilometers (km) of natural gas transmission and provision of oil refining capacity to cater for about 6.6 million barrels per day. Based on Bank commissioned studies carried out in October 1993, the DMCs' oil demands are projected to increase at 6 percent a year and natural gas demands by 10 percent a year during the 1990s, and the hydrocarbon subsector is estimated to require about $55 billion a year on the average, consisting of $43 billion for exploration and development, $7 billion for transmission and storage, and $5 billion for oil refining and natural gas processing.

10. An energy sector expansion of this magnitude involving an investment of $100 billion a year through the 1990s calls for fresh approaches towards (i) redefining government's role in the sector and providing greater scope for private sector participation, (ii) sharply enhancing efficiency considerations, and (iii) integrating more closely the environmental considerations in energy development (including environmental costs). Redefining the government's role requires the restructuring of the sector with a greater role for private participation in a competitive environment. Efficiency considerations relate not only to the energy supply side but also to the demand side including pricing. Environmental considerations relate to the sustainability of development and have local, regional, and global dimensions. These sets of issues and possible policy approaches are discussed in Chapter III.

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