Examining the need to continue restructuring strategies of Iran's electricity industry

Master's Thesis in Industrial Management - Production Orientation

Abstract

Among the issues that have long been faced by the decision makers and policy makers of the electricity industry in many countries of the world, the restructuring of this industry is in line with the process of increasing efficiency and competition in other industries. Iran's electricity industry is no exception to this rule and has been changing its organizational structure since the early 70s, and now, the main purpose of this applied study is to investigate and determine the necessity of continuing the strategies that have been implemented so far in the field of restructuring Iran's electricity industry. In order to answer this question, a questionnaire containing 25 items was designed and distributed using the Delphi method and through judgmental and targeted sampling among an 11-person expert panel consisting of several university professors specializing in the fields of energy and electricity economics, a number of managers and assistants of electricity production, transmission and distribution departments, as well as experts in the field of privatization and strategic restructuring, and after repeating this process three times, the desired results were finally obtained. These results, which were analyzed using abundance distribution tables, percentages and fashion index, indicate that despite the shortcomings and shortcomings that are currently plaguing Iran's electricity industry, the restructuring process of this industry is evaluated positively and the continuation of the strategies adopted in this field is necessary and necessary. Keywords: electricity industry reforms, restructuring, regulation, deregulation, privatization.

Generalities

1-1. Introduction

Using energy for social and economic development as well as improving the quality of life is essential in all countries (Hepbasley [1], 2005:314) so ??that today electricity (as one of the examples of energy) has become a vital input that supports a wide range of activities related to production, transmission and consumption. It does (Rajan and Ram [2], 2000:93). The control of greenhouse gases in the atmosphere and other types of gases also requires focusing on the efficiency of energy production, transmission, distribution and consumption (Hepbasli, 2005: 314). Today, electricity production and distribution has become one of the largest businesses in the world, whose annual income is estimated at around one trillion dollars (Rajan and Ram, 2000:93).

Among the issues currently facing the decision-makers and policy makers of the electricity industry in many countries of the world, the restructuring thinking [3] of this industry is in line with the trend of increasing efficiency and competition in other industries (Siahkoli, Siamak, 1381: 1). In other words, deregulation[4] and restructuring of the electricity industry is one of the most important categories related to the development of global energy in the last century (McGovern and Hicks[5], 2004: 321). According to its supporters, the need to move in this direction is undeniable for various reasons such as capital-intensiveness, economic inefficiency, traditional structure, and its monopoly. The study of the structure of the electricity industry in different countries shows that the restructuring of this industry is being carried out or under consideration in many countries of the world (Siahkoli, Siamak, 1381: 1). Until 1980, most countries in the world relied on state monopolies, but in the mid-1990s, more than 30 countries or different regions in different countries took policies to reform their electricity industry (McGovern and Hicks, 2004: 321). In other words, it has been more than two decades that the electricity industry has undergone fundamental changes in the world in the form of a transition from a natural and controlled monopoly model to a competitive market structure (Oren and Jiang [6], 2005: 407). The goal of the restructuring strategy is to replace the old monopoly companies controlled by the government with privatized companies that compete with each other and invest efficiently and provide inputs at the lowest and most efficient price (Pitman [7], 2007: 1872). The experiences of different countries regarding restructuring are different and in many cases contradict each other so that some have succeeded and some have failed.Nevertheless, the question is always raised that whether restructuring is necessary for the dynamics of the electricity industry? After going through restructuring processes, have various countries been able to realize the main goals of this industry, which are the privatization of this industry, the creation of competitive markets, the production and supply of electricity at reasonable prices, and finally, the acquisition of economic benefits? At what stage is the restructuring in Iran and is its continuation considered a necessity for Iran's electricity industry?   

In this research, each of the topics mentioned above will be discussed in detail and the ambiguities in this field will be resolved. In the following, the statement of the problem and the definition of the main variables of the current research will be discussed. 1-2. Description and statement of the research problem Restructuring is a common phenomenon that organizations apply based on a certain pattern. This restructuring can be created with various strategic considerations, such as the desire to adopt new methods, responding to dynamic environments with higher flexibility, improving business performance, etc. (Balogan [8], 2007: 81). Therefore, recently in some parts of the world, state-controlled industries such as telecommunications, airlines, gas, etc. have experienced major changes that are the result of reducing regulations and increasing competition (Wu and Varaia [9], 1999: 75). The electricity industry is also one of the state monopoly industries that is changing. In other words, there has been a kind of transition from vertical integration [10] of electricity industries to competitive markets around the world (McGovern and Hicks, 2004: 323). The restructuring of the electricity industry means the defeat of the government's vertical monopoly [11] on the industry through the separation of the vertically integrated and intertwined chain of electricity supply and separation in the form of competitive and non-competitive sectors (Abadi and Dudabinjad, 1390: 137). The issue of vertical integration, which is interpreted as the joint ownership of production and partial businesses (retail [12]) in the supply chain, is an obstacle to competition in the electricity market (Boon et al. [13], 2010: 3710). Meanwhile, one of the indicators (and advantages) of the competitive market is the powerlessness of the market operators in abusing demand fluctuations. In tangible products, market operators find the ability to abuse fluctuations with stock tactics, and in contrast to them, governments use this mechanism to balance the market. But in the electricity industry, it is not possible to store goods. In this industry, the increase and fluctuations of the exchanged price of electricity, which is one of the main concerns of electricity market regulators, is rooted in the abuse of market power by actors. Market power is the ability of a seller (or supplier) or a group of energy sellers to increase the price of electricity to a level higher than its competitive value for a significant period of time and so that it brings more profit to the said actor. A set of intrinsic and non-intrinsic factors such as the insignificant elasticity of electricity demand, the inability to save electricity economically, the density of transmission lines, the late profitability of investment in electricity, etc. can be categorized as the source of market power (Razmi et al., 2019: 42). Therefore, in general, the non-competitiveness of the electricity market and the existence of market power in it - which is the result of government monopolies and vertical integration - not only deprive investors of the ease of entering or exiting the electricity market, but also destroy their motivations for this matter.      

However, with restructuring, producers, transmission lines and distribution networks are separated, and the purpose of this is, on the one hand, to reduce the price of electricity and increase its quality for the consumer, and on the other hand, the competition of production units based on their profits (Niromandfam, 1390: 45). It is not clear to what extent the aforementioned goals can be achieved.

According to the above topics, it seems that the restructuring of the electricity industry is a necessity. Meanwhile, the experiences of various countries in this field have led to different and sometimes contradictory results, some of which have led to success and some to failure. For example, the reorganization of the electricity sector in the Netherlands, which began in 1989, has not brought the expected efficiency, and the possible benefits resulting from it are also uncertain (Kaster [14], 1998: 661). As another example, the Federal Republic of Nigeria has started to create a competitive process in its electricity industry since 2006, while some researchers believe that such a process will not only bring benefits to this country but will lead to more costs (Amobi [15], 2006: 291). Wu et al. [16] (2003) have also concluded in their review of the electricity market reforms that have taken place in the UK, Norway, Alberta (Canada) and California (USA) that the creation of a competitive electricity production market, alone, has failed in providing reliable services at low and stable prices. Of course, researchers have cited several reasons for this failure.