December 27, 2011 • Electricity, Perspectives

Energy and the ease of doing business

by Jackie Cobb

Whether you’re a retailer needing to keep the lights on at hundreds of stores nationwide or an industrial company running intense machinery, energy is a mandatory resource for business. The fact that energy management companies like Summit Energy exist is, in and of itself, a testament to the basic, but important, role of energy. For nearly every business, keeping operations running requires electricity and/or natural gas.

The World Bank itself recently came to the same conclusion in its annual report, “Doing Business.” In many countries around the world, it’s a phenomenal accomplishment to simply gain a reliable connection to electricity. Succeeding in business is tough in and of itself, much less in a place where getting the basics (like energy supply) presents such a large obstacle. And so, in the 2012 “Doing Business” Report, the World Bank for the first time formally ties the feasibility of doing business worldwide to the reliability, cost and accessibility of electricity.

Since 2002, the World Bank’s “Doing Business Project” has studied the regulatory environment related to starting and running businesses in 183 countries. This effort results in an annual report that analyzes business-environment indicators across these worldwide economies and ranks countries accordingly on the “Ease of Doing Business Index.”

Starting this year, the “Ease of Doing Business Index” added “Getting Electricity” as its 10th indicator. Across 183 countries, the World Bank recorded all the procedures required for a business to obtain a permanent electricity connection and supply, including the time and cost involved in executing applications, contracts, inspections and clearances. To achieve some parity among countries analyzed, the World Bank generalized its study by examining the process needed to obtain power at a warehouse that is located in the economy’s largest business city, has road access, and is a fully-owned, new construction. (While parity is useful, all of these stipulations make me think of how tough it must be to get energy in a place like the rural Russia, given that even the biggest city in the country ranks DEAD LAST on this indicator.)

The World Bank intends for its findings to act as an energy consulting resource of sorts to these countries, as all rankings are accompanied by specific recommendations for improvement. For example, last year, nine countries gained recognition for instituting energy-related reforms even before the indicator officially made its way into the analysis — impressive! Examples of these energy efficiency projects include:

  • Afghanistan –Improved the efficiency of the electricity department in Kabul and introduced a new fee schedule for connections
  • Gambia – Allowed customers to hire energy professionals from the private sector to carry out external connection projects
  • Hong Kong – Increased the efficiency of public agencies and streamlined the utility’s procedures with other government agencies
  • Russia – Reduced costs by revising the tariffs for connection
  • Tonga – Sped up process by implementing a time limit for the safety inspection

The World Bank tracks reforms across all indicator sets, and of the reforms implemented across all of the 10 indicators last year, those associated with “Getting Electricity” received the least attention. Perhaps that trend will change with the report’s new emphasis on electricity and the success of other countries that are focusing on utilities management.

Take this scenario for example: According to the World Bank, one of most important determinants of power connection delay is the number of interactions customers have with the utility and other agencies. A 2010 World Bank report states, “In the 10 economies with the fewest procedures, the process of obtaining an electricity connection takes only 56 days on average. In the 10 economies with the most procedures, it takes 215 days.” What a huge discrepancy!

Clearly, there’s a lot of progress to be made.

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