The next step in the reform process involves determining the role of the private sector and foreign investors in the electric sector, if any. Typically, private sector involvement enables electricity assets to perform operationally better and frees up government resources to be reallocated to areas of higher social return.
For jurisdictions where electricity sector assets are wholly or majority government-owned, one of the aspects of unbundling that requires attention is deciding whether the government should continue to own and operate those electricity assets, or whether it should reduce its stake or completely withdraw from the sector.
There is a general consensus that state ownership of economic resources can lead to wasteful resource utilization and subordination of the purposes of such resources to a political agenda. Although government ownership may at times be justified if there is genuine market failure (rural electrification, for example), private ownership allows government resources to be reallocated to areas of higher social return, such as primary education. Governments face a conflict of interest when regulating government-owned entities; it is difficult for a government to regulate itself.
While reduced (or eliminated) government involvement is not a prerequisite for unbundling efforts, it is often expected that electricity assets in private hands may perform operationally better, with capital utilized efficiently through investment decisions that reflect economic and business sense, void of political considerations. As such, the share of government-owned assets generally decreases, and consequently, the share of investor-owned assets increases as the unbundling process evolves.
