Privatization of state-owned electric utility in Thailand: Expected effects on economic efficiency

This dissertation analyzes the prospects of improving the economic efficiency of electricity generation in Thailand by privatization. It examines the monopoly state-owned electric utility, its cost minimizing behavior, and the induced distortion in input prices. This study employs the generalized cost function to investigate the economic efficiency. The basic model follows the relative price efficiency analysis developed by Atkinson and Halvorsen (1984). The econometric models estimate and test the effects of the cost distortion on input utilization and on productivity growth. The existence of scale economies is tested. The empirical results reveal the efficient performance of EGAT under the current environment. One could not reject the efficiency of input choice. Productivity growth rose around 1.15 per cent per year during the study period. The total factor productivity (TFP) growth indicates no remarkably divergent predictions between the electricity generating sector and the industrial sector. This implies that EGAT\u27s productivity grew at the same annual rate as that of the average for total privately manufacturing owned firm. It appears that the smaller power plants attained higher positive percentages of scale economies while the larger power plants did not. The minimum positive value of scale economies and the minimum average cost reported at 260 MW (computed at 65% load factor) of power plant size. The diseconomies of scale of the larger power plants and the U-shaped average cost curve support that the market could absorb several suppliers, particularly at the 260 MW size. The promotion of competition in the electricity generating sector could not be faulted in terms of sacrificing economies of scale. The recommendation drawn from this study is that there is no need to privatize EGAT. The price efficiency test could not reject the hypothesis that EGAT fulfil the objective of cost minimization. To cope with the huge growing demand, private firms could be invited to bid for a new power plant. Competition in the form of bidding could lead to the lowest wholesale prices of electricity. Government should create a fair base for competition and encourage competition in factor market. The energy sources should be equally available to all potential entrants. Government\u27s regulatory environment, tax and subsidy, should be in the area of reliability and the pollution problem