TCS Daily

Power of Privatization

By Anca Bnescu - March 9, 2004 12:00 AM

In Romania, energy policies are a tough issue both for consumers and the government. Consumers` incomes are deeply affected by the high prices of the public utilities they use. The government finds itself with a delicate job to do in the energy sector: privatization.

Romania's energy sector is owned by the state. The production and distribution of utilities is based on a centralized system. The infrastructure is old, ineffective and is very costly due to the losses that occur on the way from the producer to the final consumer. And it is the population that pays the price of this ineffectiveness. For example in the winter a family of four with a three-room apartment has to pay a bill that is equal to the average wages (2.8 million lei, or about €70).

In 14 years of transition, the only solutions to this delicate situation have been state subsidies and exemptions from taxation. Only the poor can qualify for financial aid and they cannot get it unless they fill in an application form, accept a means-testing procedure and receive an official approval. During January 2004, the government reported 1.3 million applications and the total amount for the granted aid was 7 billion lei (€175,000). Many promises were made that the problems would be remedied, but there were no concrete measures. Improving the infrastructure is too expensive for the business owner - the state, which did not want to sell or to rent until recently.

Privatization of the energy system is now one of the most important priorities of the government's economic policy. The International Monetary Fund first pushed for privatization in this sector. The process started with Romania's national oil company, SNP Petrom and is expected to continue with gas and electricity distribution. There are a lot of problems in these sectors, not to mention other vulnerable economic areas in the energy system (e.g. the precarious state of the Romanian mines and miners). Last month in Brussels, meeting with EU officials, Romanian Prime Minister Adrian Nastase took responsibility for an action plan to be immediately implemented -- including a promise to launch the privatization process in the energy sector.

All this time consumers have been suffering. Some of them, pushed by their poor income situation, chose to give up the public services and to use instead primitive combustibles such as wood, gas or oil for their domestic needs. Some others who also decided not to wait anymore for providential state measures found alternatives on the free market: they could afford to buy apartment heating systems.

The next official steps are not clear. But privatization is the only solution to improve many Romanians' lives. In spite of so many social frustrations, fears, and betrayed expectations, Romanians remain optimistic and hopeful. And at least half of them want privatization, according to recent poll numbers.

Amazingly, the government took action in May 2003 against owners of private apartment heating systems. According to the proposed governmental provisions, it made no difference if people did not use the public infrastructure, they were still required to pay for the heat that came to them through the walls from the neighbors who remained in the centralized system (the targets were the people dwelling in block apartments but this is the situation with most of the Romanians). It makes us laugh but it also makes us wonder about the government's respect for individual liberties and human rights. Fortunately there were some in the government who recognized the nonsense of this provision and gave it up. Let's hope they see the wisdom of privatization.

The author is a policy researcher with the Center for Political Studies and Comparative Analysis, a think-tank in Bucharest


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